EZCORP, Inc. (EZPW) Q4 2018 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the EZCORP Fourth Quarter and Fiscal 2018 Earnings Conference Call. [Operator Instructions]. As a reminder, this call may be recorded. I would now like to turn the conference call over to Jeff Christensen, Vice President of Investor Relations for EZCORP. Please go ahead, Jeff.

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 or implied by these forward-looking statements due to a number of risks and other factors that are discussed in our annual, quarterly and other reports filed with the Securities and Exchange Commission. Now I would like to turn the call over to Mr. Stuart Grimshaw. Stuart?

Thanks, Jeff, and good morning to everyone. We have put strongly with some great Q4 results as we go through today. But the numbers that we're outlining below reflect the continuing drive we have delivered on our vision of serving and satisfying our customers' needs for cash. And as we've always said, that's the driver of everything that happens, and it leads to the great growth we have seen in PLO, which is up 18% to $199 million, and that's driven the adjusted EPS of being up 38% with the diluted EPS of $0.20. We've also excelled in the merchandise margin. We're up 120 basis points to 37%. EBITDA increased 35% to $28 million in the fourth quarter resulting in adjusted profit before tax increasing 38% to $16.2 million. These strong results were driven by exceptional growth in Latin America, and you'll see below that the PLO of 110% to $44 million, this 18 consecutive quarter of same-store PLO growth with this quarter at being 7%. The PLO per store, we set a record of 96,000 per store, the highest since 2008, and we've increased our store count by 84% in LatAm, which is profit before tax increase of 86% to $9.9 million in Q4. Also pleasing was the growth we saw in the U.S. and you'll recall in Q3, we said there was a normally that we did have negative same-store PLO growth, which should concern us that we indicated to you at that time that we put all hands on deck to actually get us refocused on our mission of meeting our customers' needs for cash and this we have done. The reason we have a concern was that typically if we're losing PLO growth, it goes negative, we're concerned that we're losing customers and we reacted appropriately to get it back because it's very difficult for the customer to go somewhere else to get them back over time, and we're pleased to see that the U.S. has returned to the same-store PLO growth of 5% and the highest PLO per store, $305,000 since 2011. Merchandise margin continues to improve to 39% but on adjusted EBITDA up 15% in Q4. The balance sheet remained strong with cash up 74% to $286 million and provides strategic flexibility with us and also credit, the payments from the sale of the Grupo Finmart continues to be received on time in terms of all the schedules that have occurred. Turning out to Slide 4. What we always have this slide, and it reflects the operating leverage in the business. What you'll see across all the U.S. pawn level and Latin America pawn level will continue to see growth in the operating leverage within the company, which is pleasing, and you'll see that, particularly in Latin America, the numbers there on the efficiency are stellar, and this reflects the management team and also the opportunities that we do continue to see in that market where growth is actually coming on the fact of the strong management actions we've taken. On Slide 5, this is a new slide for you, but I think it reflects why we have undertaken the vision of focusing on our customers need for cash. And you'll see this reflected in the adjusted EBITDA numbers, which in '15 were $47.5 million, we're going to this year $100.6 million. This has been driven by 3 levers that customer engagement reflected in the PLO and PSC increases. The sort of the work we've done in the customer product analytics, which have driven us 22% higher annual merchandise growth profit, and at the same time, making sure that we are as lean as we can at the corporate center which produced 17% of annual corporate expense savings. But those three levers have delivered a 28% CAGR over those three year period, which we believe is a great result. Turning now to Slides 6. The recent Q4 I think is quite a great result, you see the momentum coming out of this quarter. The PLO growth up 18%, store count up 27%, EBITDA in Q4 growing at 35% versus the 17% annual and the EBITDA margin showing quite a strong increase. So we believe, and we continue to believe that successful focus on the customer experience leadership, which we've seen reflected in all these measures will continue to drive the revenue growth in FY '19. I'll turn now to Slide 7. We had 94% increase in store count in Latin America over the past 12 months, 80% of that is really from acquisitions with 4% from de novos, and we'll continue to accelerate de novo strategy in the year ahead. This growth has made 28% of total leasing property in Q4 comes from the segment, which is up 17% same time last year. And as you'll see that we invested heavily in our GPMXs we acquired in early October and the first year acquisition of ROIC was around 12%, and we expect that to grow to 15%. But as we do these acquisitions, we always talk about the operating model that we bring to these acquisitions in the first 12 months of ownership, the EBITDA, this has increased by around 40%. So it's been a great, great result, and we think Latin America continues to offer opportunities. However, as you would have seen in the last month, it's not what political and security risk that sits around the business. The comments recently made by a member of the party coming into power, she spooked the markets and to with the ATM fees and transfer fees, none of which actually have any direct correlation to ourselves and then the Latin America and the Mexican economy, we're not seeing as a bank and the regulations are really based around more of the retailing and not on the landing. So we continue to believe that we offer a great service, which is supported by the government, state governments particularly and we'll continue to operate quite successfully in the region. But as we've seen, there is volatility that comes from being in the Latin American countries but with the growth rates coming out of these countries that would also suggest that we should continue to reinvest and invest in it. If I turn now to Slide 8, a new slides, what I want to do here is to show the growth that we've had in the operating cash flow from the company. From '17 to '18, we've increased net cash from operating activities by 53% and obviously, this funding PLO growth, and that's a good cost to have because funding this PLO growth actually ensures that the business continues to grow and delivers cash to us. And if you look at the operating cash flow after that, it's up 65% year-on-year. What we've shown in the slide below is - sorry, in the chart below we showed receipts from AlphaCredit, we've invested about $16 million as we've told you in a number of calls into the refurbishment of the store. So we took the opportunity with the AlphaCredit receipts to actually over invest in the rehabilitation of that store, a lot of which haven't been invested for over 10 years. So this is a one-off catch up, and we do not expect that to be ongoing. And as you've seen through this, we've grown from 25 to 40 this year. As we look at the progress ahead of us, we always want to try to keep it in the $25 million to $30 million. But importantly, if you look at the chart on the bottom, you see the maintenance CapEx running around $11 million, which is about 45% of total profit. Now if we can invest right on 50% of CapEx and growth, that's a pretty good opportunity, and we'll continue to look for those growth opportunities and to return positive for us. I'll say that these - the investment activities are outside of the acquisitions we have made, which are about $93 million and the investments we made in Cash Converters and as you've seen, we took a write-down of the investment. The main cause for that is an industry-wide shares in the subprime market in Australia, which were affected negatively by the result of the announcement of the sale of inquiry following on from the bank commission that has been undertaken in Australia. So the whole market was affected by this. The analyst have an average consensus net profit after tax around $25 million for Cash Converters and a 12-month price target is between $0.40 and $0.50. So as it says, it's 27, there is at the analyst we're looking at is upside there, but there's an overhang from the inquiry that is going to be held in the next month or 2. So I just want to sort of clarify some of those issues while I pass over to Danny.

Thanks, Stuart. Good morning, everyone. I'm excited to share with you the financial results for a very good fourth quarter and fiscal year. First, I do want to mention in our investor day in New York on December 13, for those of you that can attend. You can get details from Jeff Christensen. Before we get to the slide on U.S. Pawn, there are a few items worth noting at the consolidated level as well as expectations for the coming fiscal year. We delivered adjusted diluted EPS of $0.20 in the quarter and $0.79 for the full year. We saw a 9% increase in average consolidated pawn loans outstanding or PLO, deliver a 33% increase in adjusted profit before tax of $64 million for the year. We ended the year with PLO 17% above the prior year, setting us up well for a good start to 2019. For the quarter, adjusted profit before tax was up 38% to $16.2 million. Profit before tax was adjusted for discrete items including the $11.7 million noncash impairment of a 35% ownership stake in Cash Converters as Stuart just mentioned. These revalued our prior year investments to the value of CCB stock at year-end equalling the price at which they raised additional equity in June this year. This also incorporates recent movements in foreign currency exchange rates. Consolidated operations expenses returned to 69% of net revenues in the quarter and for the full year, consistent with our expectations and longer-term trend. This reflects the net revenue benefit of some of the investments we made in the third quarter. As we look towards fiscal 2019, the underlying performance in cash generation of the business as well as comparability to the fiscal 2018 results can be obscured by the noncash interest we will record on a GAAP basis. This relates primarily to 2 items. First, amortization to interest expense of the estimated equity component of our convertible debt; and second, amortization to interest income of the deferred compensation fee and other straight-line interest income on our notes receivable. Adjusting for the noncash portion into each of these items according to the amortization schedules, I expected that adjusted net interest expense, I'll use to analyze the business will be about $15 million and are lower than our fiscal 2019 GAAP interest expense, representing about $0.18 per share. The adjusted results included in this quarter's slide deck do not reflect such an adjustment for noncash interest. For comparable purposes, when evaluating next year's results, the fiscal 2018 full year results included about $8 million of noncash interest expense or $0.11 per share with $1 million or $0.02 per share of that in the first quarter. As Stuart mentioned, payments from our notes receivable remain current. In fiscal 2018, we received $38 million in cash from AlphaCredit. In fiscal 2019, we anticipate receiving another $30 million, reflecting the decline in principal balance and related cash interest. We expect to collect another $6 million in fiscal 2019 as the first instalment of the related deferred compensation fee with the remaining $8 million due in fiscal 2020. And a quick comment on taxes. As expected, we recognize the $2 million charge in the fourth quarter to further revalue our short-term deferred tax assets due to the new tax law. If you remember, we were subject to a blended tax rate in fiscal 2018 due to our fiscal year straddling the data in which the new law went into effect. Though short term DTAs were previously revalued at a 24.5% federal tax rate applicable to fiscal 2018 that are expected to reverse in future periods that are now applicable 21% federal rate. Due to the last such revaluation, I expect from the tax law change. Depending on the mixture of our domestic and foreign earnings and an assumed inflation rate that impacts taxes in Mexico, I expect our overall fiscal 2019 effective tax rate to be in the range of 31% to 32% for the full year. Turning to Slide 9. Let's take a look at the U.S. pawn results for the quarter. The average PLO in the quarter slightly below prior year, the 3% increase in pawn service charges was driven by an improved yield. This combined with an 8% higher sales growth profit or 9% on a same-store basis and a 210 basis point improvement in merchandise margins to an industry-leading 39% drove strong results. Overall, we leveraged the 5% bump in net revenues to a 7% increase in adjusted profit before tax. We showed strong year-over-year PLO growth by the end of the period, up 5% in total and up 2% excluding committed impact of last year's hurricanes. Inventory was well managed with an increase of only 2% in relation to the 5% increase in PLO. Moving now to Slide 10. The last slide shows that our disciplined approach and focus on meeting our customers' needs for cash delivered an industry-leading PLO - PLO yield and net revenue per store in the U.S. Combining all these factors, we delivered a 15% increase in EBITDA, 3x the growth rate of our public pawn competitor and a very nice sequential improvement from our Q3. The right side of the slide shows same-store PLO growth by quarter, stacked in the same quarter for the prior year and the same information for our competitor at the bottom of the chart. You can see our U.S. pawn operations continue to take market share, adding to its long-term trend of market-leading same-store PLO growth. The ending PLO per store now stands at a 7-year high and 17% higher than the competitor at $305,000 per store. Let's take a look at our Latin America pawn operations on Slide 11. PLO here more than doubled with pawn service charges up 99% on a constant currency basis. Same-store PLO grew 7% with an improved yield, driving an 11% improvement in same-store pawn service charges. In addition, we delivered a 63% increase in sales gross profit, 100 basis point improvement in merchandise margins to 31% and a higher return on earning assets. The combined effect of these factors was an exceptional 82% jump in net revenues and an 86% improvement in adjusted profit before tax. This includes the results from the 207 net stores added in fiscal 2018 through both acquisitions and opening of new stores. The left side of Slide 12 shows our industry-leading PLO per store, with monthly yields to net revenues per store roughly equal to our largest competitor. It's worth noting that the GPMX stores we acquired in the first quarter were more agility-focused. Those stores net revenue was more concentrated in PSC, which lower in-store merchandise sales than our other Latin American stores. I expect our net revenues per store will continue to improve as we continue to increase these stores general merchandise lending and in-store sales. That, notwithstanding the acquired stores delivered a robust first year ROIC of 12%, which we expect to exceed 15% by their third full year ownership. Putting all the pieces together, you see our 86% increase in EBITDA for the quarter compares favorably with the 2% growth for the public pawn competitor. On the right side of the slide, Latin America pawn delivered its 18th consecutive quarter of same-store PLO growth. This is compounding on top of an ever-increasing base. The industry-leading 7% same-store PLO increased this quarter was on top of a strong 11% growth we delivered this quarter last year. During this period, we produced much higher compound results than the largest pawn competitor shown on the bottom of the chart. Year-end PLO per store was the highest in Latin America in a decade and the highest in the U.S. since 2011. Both figures demonstrate solid same-store growth year-over-year combined with a contribution from acquired stores, this sets us up well for a solid start to 2019. Although it's still early in the fiscal year, that's exactly what we've seen year-to-date. Now that you've got a little bit understanding of our financial performance, I'll turn the call back over to Stuart.

Thanks, Danny and just turning to Slide 12. I just want to reiterate, sort of the sum of the fundamentals we operate in the business and the chart is quite appropriate because it was centered around the customer. And we put a lot of levers that we're using, which are driving the results that we're seeing. We've got the customer experience and meeting our customers' needs has been the driver of this result. We are close to the customer. We are in the stores all the time, and we have a track record of executing on this vision as well as seeing the market share gains for the company. We're seeing it through scale, strong margins and as you've seen the operating levers that exist within the company. The industry dynamics remain attractive while we have seen some recent volatility through Mexico, we believe in the long-term nature of the Latin American growth countries that we are in. We have a very diversified geographic footprint and with that footprint, comes opportunities both de novo and potential acquisitions. And we have the systems consensus, and we have a great team that are driving the close relationship with the customer. We're working hard on all these levers to get the share price back to the levels that we've seen in the past, and we continue to focus strongly and meeting the customers' needs at the storefront to drive future profitability of the company. So with those closing comments, I'd like to open it up for questions.

[Operator Instructions]. Your first question comes from the line of John Hecht from Jefferies.

First, gross margins improved about 1% blended over the year. What are you guys seeing the intermediate-term with that? Is this a good range to think about? Are you playing with different loan-to-value and so forth to expand that for the next year? How do we think about that in the coming quarters?

Thanks, John, and good morning. The range has been around 35% to 38%. What we've seen with the way we are managing our customer, their understanding the good and the riskier customers we've been able to actually improve that lending to these customers. The result of that, the margin has been held up pretty well there's been the product actually reflects both the customers risks as well as the product risk. So we're seeing some good margin activity as a result of the analytics we bought in. Obviously, we try to keep a healthy margin, and it does get seasonal at times, but if we can keep it towards the top end, we'd be pretty happy.

Okay. And we have a lot of a good balance of cash in the balance sheet. You've been acquisitive. Can you maybe give us some color of what the pipeline looks like right now?

Yes. I mean, we continue to have acquisition opportunities before us. But one thing we have stated is that while we have cash, we're not just going to deploy just for the sake of deploying cash. We've been disciplined, we've let opportunities past. And for us, it's important to make sure that where we invest the cash, it's invested where the returns are actually very beneficial to shareholders. We still have the 2019 convert, which matures in June, so we're keeping the flexibility of that and making sure that should opportunities arise, we can meet them as when they occur. But again, John, I'm happy to hold a healthy balance sheet and I think that's been the strength of the company over the last few years.

Okay. And then another question, you mentioned some noise out of the new administration in Mexico. You said it might impact specifically toward retailers. Maybe can you give us color on what specifically the comments were? And also, maybe remind us of what kind of fee structure you have in Mexico is.

We've not really - it hasn't affected retailers at all. It had an effect on the banks. The banks in Mexico typically own about 35%, 30% to 39% of their revenue from basic ATM and transfer fees, and that's pretty high on the Latin American basis. And one of the members of the incoming party who is trying to present a build, which suggest that ATM transfer fees should be free, which calls the bank share prices in Mexico to drop by about 10% in the pay schedules will blow out. Within 3 hours, that have been revoked and we're seeing the peso trade back to it and it was a positive statement that the banking - basically the banking industry wouldn't be changed for the next 3 years. So there was a short-term volatility. I think there was some contagion risk particularly here in the U.S. when people already assumed that we are a bank, not actually a pawn company. And it just shows that there is some nervousness still in the markets, but the Mexico here in the U.S. but we don't see any flaw on into the industry at all, just principally we have looked at as a retailer and there aren't any interest caps in Mexico, so we feel relatively comfortable with that position.

[Operator Instructions]. Your next question comes from the line of Vincent Caintic from Stephens.

So good performance in Latin America. Actually, my question - first question is going to be in separate geographies. So I just wanted to talk about the - your investment in Cash Converters and also the regulatory change you had in Canada so converting to payday loans to instalment loans. It seems like there's a - you have a lot of success from Latin America and there's a lot more opportunity there. So kind of a two part question. If you could talk about your vision for Cash Converters and the tentative business. If you consider these businesses to be core. And then related to that second part, why wouldn't you maybe exit these businesses, harvest the capital and reinvest that more into the Latin America store growth?

Yes. Thanks, Vincent and good to hear. In Cash Converters, I think we have just under 35% of the company. It's not as easy to exit a 35% holding because the market isn't that deep, and so what we're working on is to get the operation performance to a level where share price increase curves. As I mentioned before, the analyst consensus for the Cash Converters share price is between $0.40 and $0.50. The net profit after tax is around AUD 25 million, so trading about a 6xP [ph] which is very, very low compared to the market, but that industry was probably hit quite hard. We think there's still value that they're working obviously to try and ensure that the profitability of that company continues to increase. So firstly, the exit is very difficult. Secondly, we think there's still upside in the company and thirdly, we're actually working closely with Cash Converters to see where there's any value we could help them in our understanding of the market because they do operate in a very similar market to us. On the Canada, we're moving into because that's actually basically where the regulators are moving everyone. We still offer short term loans, but we're actually moving more into the instalment loans. And from memory, I think we have actually, writing more instrument loans than our short term loans. So we're seeing that change in the interest rate cap came down at around January from 18% to came down in January. So we're watching that business. We think there's still - it's a good industry for us. It's not big at all, but we think this, given the credit culture that sits in Canada, the loss in lending is much less than what we have seen in the payday industry in the U.S.

Okay. Got it. That's helpful. Switching gears here, I know that the Mexican fee concern has been driving the stock unfortunately. So I just have maybe a couple of questions there. I don't know if you can discuss maybe what the, I don't know if it's like differences or comparisons from the rate structures or the fees that different pawn players charge like for example, if you think about the nonprofits versus what you charge. And is this really any difference between what you make in different geographies, for example, if you compare Mexico to the U.S. like what are the differences there?

Well, Mexico for us is a much larger general merchandise business in jewellery. Part of that is security concerns we have in Mexico, we used to exhibit in jewellery comes with a lot of risks. So we pushed pretty hard into general merchandise, which typically does attract a higher interest rate than jewellery. So there's that anomaly that we do. They're not for profits such as actually pretty much low on a very low loan to value ratio. And as a result of that, their merchandising really isn't that heavy, so they are really, and it's a different customer that goes there. We make sure that when the cost are raised in the store, we understand what their needs are, we drive them or their cash needs, and that's why we are getting flow where some of the not for profits don't satisfy the customer's needs for cash operate in a very low loan-to-value ratio. So there are anomalies in the market. It's not as if there's 1 type of pawn customer. There are various segments of pawn customers. For Mexico, typically it has a stronger growth profile as we keep pushing into the general merchandise sector of the market.

Yes, to add on our focus on customer service and the customer relationship as well is our key differentiator between a lot of the not for profits that really don't mind their customers queuing up in the long line.

Your next question comes from the line of Greg Pendy from Sidoti.

Can you just tell us kind of where we're at right now in the IT roll out? And how is that playing a role, if any, and sort of the merchandise margins that you're seeing? And is it something that could potentially help you on the pawn yield side as well?

Yes, we've got about 50 stores operational and fully operational on the pawn system in the U.S. and we've got a small number of Mexico. But we don't accelerate that roll out such that we anticipate virtually U.S. to be pretty much on stream by the second quarter of the calendar year, next year. What we're seeing in Mexico we're pretty close behind that. And obviously, we don't - we won't be rolling out through Christmas and the tax refund season, which is where the stores are the busiest. So it's all become windows of opportunities and when we can insert it. What we're seeing is the actual mobility to serve the customer much quicker, the click through's applications is substantially quicker. We put in some basic analytics of customer grading into the pawn system, which will enable us to make better decisioning at the front and hopefully, that will exhibit itself in both inventory yield and pawn yield improvements. I don't think it will be dramatic but over time, we hopefully some improvements in that area.

Okay. Great. And then can you just, I know there's been a lot of acquisitions but now inventory, it's come down sequentially I think for two quarters straight. How comfortable are you at that - at the current inventory level? It seems like the demand for the merchandise is solid that we're heading into the holidays. So is that something that will continue, do you think to come down? Or do you think this is a steady level?

Look, I think it can still come down, but we're coming into the sales season at the moment so we'll typically hold a higher inventory balance coming into the Christmas and the tax refund region. So I would - my preference is to see it come down and I think we will see it come down. We're actually getting better moving product through the systems we do have. But inventory is the capital cost and we need to keep moving it so we can get the returns back. Yes, we like to see the inventory continue to come down. I think we're getting there with the PLO growing quicker than inventory, so we're getting the positioning right, but I think there's still more we can do to move it.

[Operator Instructions]. Your next question comes from the line of [indiscernible].

You continue to grow faster than First Cash and outperform them on multiple metrics. Yet you traded more than a 60% discount. Historically, this discount has been far lower. So given this, can you please articulate your strategy for closing the valuation discount because it clearly creates tremendous shareholder value. So thanks in advance for your response.

Thanks, Chris. So I think we're frustrated as well. Our operating performance and focusing on the customer, we still believe is the right thing to do by growing geographically and keeping the relevance and operating much more efficiently. I think there's probably some disadvantages working to us on share buyback dividends, which I think is just an inherent structural issue that is closest to trade at a discount. I believe the mix again overlay that it just happens to close about a 4% drop in the share price, which didn't come back and notwithstanding the clarification of the event. So I think there's some structural issues that work against us, but we still believe that by executing on the relevance of the key drivers that we've outlined on Slide 12, we'll continue to grow, that we have the best systems, we have the best teams, we have the capital to deploy into accretive acquisitions, and we have getting the scale and the margin driver. The interesting thing about this business in this industry is that it all happens of the store level to get operating performance, and we spend a lot of time ensuring that we are assisting our team members to get the best out of his service strategy investing in the systems, investing to coaching, expanding the geographies that we could use our proven systems to continue to drive growth. We believe it's the right one. But Chris, as we have discussed, this structural headwinds that we're hitting. We like nothing more to see that share price get back to the levels that we've seen that's the objective of management is to execute better than anyone else, but rounds on the board and get the market to support us as we go through support with where the share price is. We think it should be higher, but we'll continue to speak to shareholders to drive that performance and work towards getting it back.

Your next question comes from the line of Jordan Hymowitz from Philadelphia Financial.

What's the average rate you charge in Mexico versus the U.S. on a blended basis? Because I know you import taxes rates down there generally.

On the U.S., we're averaging 15%. In Mexico, we're averaging around 18% - yes, it's about 16%. So in the U.S. it varies by state so it all messes around. And in Mexico, it depends on jewellery and GM as to where you sit, but typically in Mexico, we will get a high yield on the loan portfolio.

Okay. And you said it [indiscernible] was higher by 200 basis points you said?

In Latin America, we have 16% for this quarter. In the U.S. I think we're 15% - 14% yield. That's an average rate, so about 200 different - between Latin America and the U.S.

I'd point out, Jordan, that's not the statutory rate. That is taking into account forfeitures as well, right? So that's calculated on the average--

Yes. On average, we're looking at 200.

Perfect. And second, regarding the proposals in Mexico, right now, they're only discussed in the banking industry but several of the retailers and retail analyst down there have come out saying it could affect [indiscernible] or other consumer lenders. Why would the retailers be concerned that it could affect them if they're not banks, and you're not concerned because if it's a fee cap or rate cap or would it be across the board?

Yes. I mean, Elektra is an unsecured lender, so they have a different retailer also unsecured lender. So they would be that way and typically that's going to move in the industry move that a particular company move. There was a state that unless party came out saying that they wouldn't basically change the banking structure for three years seeing the direction that we've taken, and that's why we have a degree of comfort, but I will also say that as one of my friend said it is Mexico and things can change quite rapidly. So while we are more comfortable today, we believe that things can change.

And I think that's correct. The analyst statement, it said that on Moreno, Senior Senator Montréal said that he will ignore what said and proceed with legislation. So it's kind of like in the U.S. May not be pushing it, but his party is pushing it and if they pass something, he may end up signing it.

The Ministry of Finance have said that they would actually have to look at any proposal and would have to approve it before it gets anywhere as well. So it's still a lot of moving parts, Jordan, and we're obviously the recipient of the news being in it. But there is uncertainty. I don't disagree with you there, but there seems to be some checks there. But like you will have to see how it plays out but at this stage, we see it as a banking issue and with my previous comments that the banks makes around 35 - on average 35% of the revenues comes from these fees, which is extraordinarily high in Latin America and I think that comments about the party about why these fees should be regulated.

[Operator Instructions]. Your next question comes from the line of Brad Hathaway from far view.

Two questions for you. One, I guess, I just want to clarify on the Mexico issue, you had the difference between how you're viewed as a kind of secured phone lender versus these kinds of unsecured lenders in the country. And then the second question was I was pleased to see the move to a per share-based compensation this year about 10K and I was curious if you could give a little more background as to how that came about.

Okay. I'll deal with the first one. Typically the seeing more details than lenders while we do lend, it is first it's the way to view pretty much I think with the perfect hostess over the top of it actually more of the retail side than the lending side, so having a blended operation means that we're actually look more as a retailer and lender and sit under that versus unsecured lending which is pure outright unsecured lending. But that's just the way it looks in Mexico. Underneath, EPS where we have a compensation committee, which has consultants they look at the structure of the long term incentive. They were obviously we're being discussing the shareholders with their view was that the EBITDA for about short term and long term, it doesn't seem to make a lot of sense, and we actually took that onboard in the compensation committee took the guidance from the consultants and the EPS number which management is very supportive of is in the long term incentive program.

And the other side, I'll tackle on the secured versus unsecured, much like we saw in the U.S. with pawn landing versus payday landing, there was a lot of concern around cycle of debt with payday loans kind of the historical regulatory overhang where the pawn industry has been much more favorably largely because of customer can fully satisfy their debt just by forfeiting the collateral. And I think politically, that's likely to be viewed very similarly in Mexico as well.

Your next question comes from the line of Matt Sweeney from laughing water capital.

Can you just kind of step back and revisit the question a couple questions ago, asking about potential for share buybacks and what those structural issues might be? And basically what I'm thinking is in the past, you said you can make acquisitions in the 4 to 5x EBITDA range and maybe 6x for really good assets. And looking at the stock now, it's trading below our estimation of liquidation value that you're just tell off all the stores piece now and assuming you believe in the value of Cash Converters and the likelihood of collecting the receivables, the stocks trading in that range where you would make an acquisition. So my question is, why did you not execute a tender offer here essentially making a large acquisition in your own stock, which would remove all the operational risk?

Well, I think we've asked that question in the third quarter as we've done that before and lost a bit of money. We have the cash there for a number of reasons. One is that we do have a convertible coming up, which is a commitment that we do have. Two, is we have a number of opportunities acquisition that we believe are value to the company in the long term. And if you look to return the ROIC there's not a 6 months or 9 months, but we look at a 3 to 5 year period. Typically, the share buybacks occur when we have surplus cash committed as a bond, our commitments as well as our acquisition opportunities. When we did that convertible earlier this year, we actually raised cash around 9.5x EBITDA, so on the marginal basis, there are plenty of opportunities which I think given the basis of the marginal cost of funding that we raised at that time. We continue to see the operations. I hear when we have discussions with shareholders all the time, but on a marginal basis, there are a lot of accretion that can occur when the investment into the opportunities we're seeing.

Okay. And then another question, and just for some context, we have owned shares for about 3 years and the initial investment was very much a special situation where we believe the stock was trading below asset value and it obviously worked out very well. But investment is kind of involved - evolve into the belief that EZCORP has a potential to be about the decade growth story, which we know from reading some of the legal documents at out there that way that Mr. Cohen agrees with it. The question is, is there realization that over time, the amount of value that ultimately created through code is going to be directly tied to the cost of capital? In other words, if your stock is trading at 10x EBITDA, and you make an acquisition at 5x EBITDA, that's great. But if the stock is trading at 6x EBITDA, and you make an acquisitions at 5x EBITDA, you're really just pushing paper around and not really creating any value. So what's your view on the importance of the cost of capital? And what are the levers that could be pulled?

We look at the return on capital of the investments that we are looking out over the 3- to 5-year period, so we're not immune to wasting capital. We're trying to understand, and we have not backed acquisitions where it hasn't work out. But as you saw with the acquisition, that's been a very lucrative acquisition where we've out use our skills to grow it. It has reduced the EBITDA multiple that we paid very quickly in a short period of time. We think that the acquisitions to grow, and we look at what is the long-term value we also believe that we're undervalued, but we think that the growth opportunities we have will retrieve that value very quickly.

So I guess, and I guess, the question is looking back over the last 30 years, there has been zero value created essentially. I mean the stock has compounded a 4% a year since the IPO in 1991. And First Cash came public within 2.5 months of that and it has compounded at about 16% over the time. So it seems like the board, which has been historically making the decisions around this kind of stuff have a strong track record of actually understanding how value is created. Is it your position that, that has changed and the board has sound under your leadership or under U.S. CEO, and we can expect improvements going forward?

Yes. I think the board has actually to the use of capital over time. Over that. Sorry Matt, over the period of time, you mentioned the share prices to very high value that period of time. We haven't consistently taken point-to-point very hard. 2011 to 2014, we made a number of acquisitions, which actually affected I think the trust in the company, the trust in the board and that was reflected in the share price accretion. So we're on a rebuild strategy. We have our restatement as a result of some of the account and actions that we've undertaken at that time. We're on a company profitability after that, and we are on a path to continue to grow. So I think there have been some issues both management level and potentially at board level. I think given some of the acquisitions we've seen would come out that hasn't been assessed on a capital efficiency basis. So I think some of your comments are correct, I think some of them aren't. The board is have a strong handle on how to utilize cash as a strong look at how it's being done. And as you've seen with some of the incentive programs that are focusing on getting back to the EPS basis with, it's aligned with the shareholder. And as I said before we want to get the share price up and see it. We also believe that this is a great growth opportunity and is an international growth opportunity.

And then the add on, looking at that there's opportunities are investment opportunities remain very disciplined that making sure that the expected ROIC on that not exceed our average cost of capital because to your point, Matt, that's the only way you're going to great long-term value, so we're pretty disciplined around that. And actually some of the reasons we will walk away periodically from deals that don't meet our thresholds.

So you referred to some of the acquisitions in the 2011 to 2014 time period. And I guess, how has investors should we have confidence that things have changed consultant that oversaw those acquisitions is Non-Executive Chairman of the board getting paid 10x more than the Chairman of the Board at First Cash because in my experience, maybe exceptions in Australia but in my experience, have never seen the situation where a consultant construed massive amounts of value investment Executive Chairman. So how has investors the we have confidence that something has changed given that set up?

Well, I wasn't here at the time. I think he was involved in those acquisitions, but I'm not here to provide guidance. All I can say is that there's a strong - the board has taken a strong look at everything, and we believe we're on the right path there. There are the disciplines in place that go there. No one individual actually has an ability to make a decision without the consensus and agreement of the board, so the ability to have any individual make a decision in the management team on the board is actually quite well insulated with the processes we have in place.

I would just like to add that the optics of that are just terrible, and it would be a very easy way to improve optics which would likely improve your cost of capital to address the discrepancy between some of the record of being participating in the strain value now being the Executive Chairman.

Thanks, Matt. I would say we've been involved in the acquisitions that we've done which become very accretive and very positive, so I certainly don't have that experience at all and is a valued member of what we own. But thanks for your call, Matt. And thanks for your support.

Your next question comes from the line of Samuel Chase from Stephens Investment.

I have a quick question that follows up on some of these questions this morning regarding capital allocation. Stuart, when you have investments in Latin America that you guys are deeming to be ROI positive to the shareholders, why double of our guests not to block or why put capital into Australia again into a company we don't control and shareholders? No matter what the price you deem to be fair value with a company I mean, EZCORP isn't and investing holding company, it is a pawn stores, and you guys I would think would want to put your capital into investments where you control 100% of the assets and set up an asset, you control 30% of the assets and have no management you don't want to company on a daily basis. So can you just walk through that? In you said indicated since September 30 from the share price was decline again maybe revaluing that asset again. I mean it looks like if you go back, and you're talking about First Cash, which I know very well as well I haven't been a conference call will be First Cash we're talking about investments minority positions in foreign countries a long way away and if you want to collapse the multiple, I think the first way to do it is assets that we're putting our capital into. So could we talk about that a little bit?

Sure, Sam. And thanks for your call. The investment in Cash Converters is actually in the similar business that we do have actually run a very similar type structure. We have foreign operations in Australia and franchise globally. There is an overlap in the way they do develop their business and their opportunities, and we do like what they do. Your point about should we put more money on I think is irrelevant one. At the time they needed capital to pay off unsecured debt line, and we saw the support with them, we see the growth, and we believe that it is a good investment. Only 100% of everything isn't necessarily the right way to go, and you can part and get good returns. Unfortunately, as you've correctly pointed out, the Cash Converters share price hasn't reflected some of the growth in the profit and that is to, for instance,, the center inquiry, which I mentioned previously, which is an industry overhang and not a specific Cash Converters overhang. It's disappointing and I hear what you say, and we will be deploying capital into Latin America and will continue to do so at this point of time, there are no plans to put any more capital into Cash Converters as your point is a very valid one.

Okay. It's fair to say that going forward, no capital in their Cash Converters at this point they got the sink and swim on their own? And from my standpoint, it's just more trying to raise capital of the firm and mostly at this point, that's been the convertible debt market because that's what's available to you guys. I just would hate to see that capital go to a NAV [ph] that we don't control our shareholders just seems to make a lot more sense to me to put up to asset that you guys control.

At this point in time, I don't have any plans, we don't have any plans to put more capital into Cash Converters.

Your next question comes from the line of [indiscernible].

Two follow-ups. Against the former question I ensuring some of the callers frustration. I think the reality is some of those structural things we may not be able to fix near term. However, as I mentioned in my prior question, you guys historically traded a much smaller discount in fact, I think we calculated 15% for the first decade for the prior decade, Joe was there. So in today, 60%-plus so I think even with those structural issues, you can start to close the gap and I know we were pleased to see as another caller mentioned, that EPS was added to your long term incentive plan. I would also echo another caller's comment that we would love to see a buyback here I can appreciate the reasons you've already addressed it, but I just would want to echo that to get to my two questions, I guess great to see the U.S. PLO store growth now back about 300,000, I think it's the first time since 2011. Can you talk about how you're able to drive that? And then my second question would be, do you feel like you're still well positioned to do well during tighter credit environments? I mean, obviously, everyone is starting to get concern or worry about hit kind of economic slowdown. So if you can touch on how you expect your business to perform in that type of environment because I imagine it would do pretty well.

Yes. Thanks, Chris. As I mentioned previously regarding the PLO store, everything happens at the store. It doesn't happen by remote management. We've spent a lot of time investing and getting the right compensation platforms for our team so that they're aligned to the outcomes that you've seen today. We're getting great people, which we're doing return to increase because we know that we really have store managers tenure between 5 and 7 years store business and we're starting to see the value compensation to increase the tenure. What we've focused on the activity on a per day basis as well and are focusing on the daily outcomes and it's a focus that I go through myself, to Joe, all the way down the organization to the team members, it works on the basis that we know exactly what activities being taken in each store in each day. And the businesses are micromanagement business we do have to be over top of it it's not remote management. And by having those by having the positive PLO experiences that we've had over the past 2 or 3 years, it means that we're getting more customers, and we know that by getting more customers and satisfying their needs, they talk to their friends about it when we get it enhanced returns. So I wish there was a magic word I can say that if you're over the top of the and by adding water, you can make a lot of money, but it's actually the hard work is going on over a long period of time to achieve it, to get it to this level. I think it's going to be supported more with the systems to put in place that will help us as well. But unfortunately, you asked the questions, this is just the hard work at the store level, and we've got great people.

Yes, Chris. You would ask also about in an environment and economic slowdown, company how we expected to respond. I'd say a couple of things there with the extremely low unemployment that we've seen in the U.S., that does - is a bit of a headwind for pawn lending. Obviously, that provides our customer with a bit more cash. We're going to slowdown, I think that would probably increase demand a bit for product. And then the gold prices as well. So that's obviously been a little depressed lately with an economic pull down I think you would probably see gold prices go up a bit, which is a net positive for the company.

There are no further questions at this time. Mr. Grimshaw, I'll turn the call back over to you.

Thanks very much, and thanks, everyone, for their interest. That's been a good robust session. We appreciate your support and the questions that are asked. We'd like to thank you for dialing in and those in the webcast. And both Danny and Jeff will be available for questions later this morning. That concludes the call. Thanks very much, and have a great day.

This concludes today's conference call. You may now disconnect.