Good day, ladies and gentlemen, and welcome to the EZCORP First Quarter Fiscal 2019 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 the conference call over to Jeff Christensen, Vice President of Investor Relations of 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 risk 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 welcome to everyone to our first quarter 2019 financial results presentation. It's been another very strong quarter in terms of our operating performance and Danny will run you through this shortly. However, I'd like to briefly recap some strategic issues we highlighted at the Investor Day in December of last year. So if you can turn to slide 3, there are four initiatives that we outlined. Firstly, focusing on the customer to deliver market share gains. We've always said that everything starts with satisfying the customer's need for cash. And in this regard, we look to the growth of our loan portfolio. On a consolidated basis, we grew same-store loans by 8% or a gross 10% with the U.S. growing at 7% and LatAm at 11%, where the LatAm region grew a gross of 27% representing the acquisitions we've undertaken. These are extremely strong numbers that are driven by a great team of people who are focused on the customer experience. The second initiative was diversification across geographies. We continue to build in our presence in Latin America with the acquisition of five stores in Mexico and four de novo stores in the Latin America region. In addition to these investments, we also undertook four store expansions and five locations in the GPMX business. To reiterate, the expected five-year ROICs on these investments, we expect 25% from acquisitions, 30% on relocations and 35% on de novos. We also remain committed to an annual growth of between 100 to 200 stores, but I would caveat that these have to be the right price with the right management team and in the right locations such as the ROICs I mentioned previously are achieved. The third initiative we outlined was a strong cash flow and balance sheet. Our cash balances…

Thanks, Stuart, and good morning, everyone. I'm excited to share with you our strong pawn operating performance for the first quarter. Let's start with the highlights of the adjusted results on slide 4. Consolidated pawn loans outstanding or PLO was 10% higher at the end of the quarter setting us up well for Q2 and the remainder of fiscal 2019. For the quarter, we leveraged the 7% increase in net revenues into an 11% higher EBITDA and a 15% rise in adjusted diluted EPS to $0.31. As I mentioned last quarter, our adjusted earnings exclude non-cash interest income and expense from both the current and prior year figures to reflect results more ken to cash earnings. Net cash from operating activities showed a similar improvement up 18%. Our year-over-year same-store PLO growth at the end of the period was the strongest delivered in several quarters. As Stuart mentioned, U.S. Pawn delivered 7% same-store PLO growth and leveraged the 5% bump in net revenues into an 8% increase in adjusted PBT. Latin America, our fastest growing segment delivered a double-digit same-store PLO growth, up 11% and was up 27% including the effect of new and acquired stores. The Latin America Pawn segments EBITDA increased 10% to just over US$10 million. Moving on to slide 5. You see the outstanding progress we've made in regularly improving consolidated EBITDA and EBIT margin. The consolidated margin was at 15% just three years ago and we've now reached 23% in the first quarter. That advance reflects the benefit of our efforts to simplify and focus the business, leverage our expense structure, and other management actions. For U.S. Pawn, our largest segment EBITDA margin expanded to 33% from 31% reflecting the benefit of a higher PLO combined with well-managed expenses. Latin America Pawn posted a 35%…

Thanks Danny. And as I mentioned previously I just want to spend a bit of time just running through where we are at the digital platform evolutions for the purposes of this presentation, we're calling it Evergreen. If you turn to slide 14 what we've done was quite an exciting investment for us. We've partnered with Boston Consulting Group Digital Ventures arm to invest in creation of a digital platform that's customer-centric and innovates and addresses our customers' financial needs. To this end we've taken a competitive advantage of EZCORP which were large retail footprint, terrific customer engagement, great brand and reputation, and deep customer dives around valuation IP and couple these with the skills of the Boston Consulting Group Digital Ventures arm which has tighter [ph] mindset and speed start-up experience proprietary proven methodology, multidisciplinary teams and a lean approach. And coupling these, we're using this to research and develop additional platform that places us at the center of the customers' financial needs. Just as background, Boston Consulting Group Digital Ventures is part of many companies such as Starbucks, UBS, and Bosch to invent, launch, and scale game-changing businesses. This is the core DNA and provides us with the comfort that manage risk appropriately following this part. And turning to slide 15, in an FDIC study published in October 2018, you'll see that there are 63 million unbanked and under-banked individuals in the United States. You may recall that CEO of Empeño Fácil outlined at the Investor Day that Mexico had a similar number of 16 million or 63% of their adult population. According to the CFSI fundamentally underserved market size report of 2017 unbanked and under-banked consumers spent around $180 billion on fees and interest. You'll note that our annual revenues are around $900 million, which makes us…

[Operator Instructions] Your first question comes from the line of Vincent Caintic. Your line is open.

Thanks. Good morning guys.

Good morning.

Just wanted to turn back to the slide about the cash available for investments and I just want to confirm here what your thoughts are. Just want to confirm that on the June 2019 maturities that you won't be raising any debt or convert to take care of that that will just be all in the cash already on your balance sheet.

Hi, this is Stuart. As I said in the presentation, the Board are currently discussing that in light of market conditions, the cash availability, and strategic acquisition opportunities that are available. So, they are going through their process at this point of time.

Okay. And I guess also may be given what you're seeing out there for opportunities, how much cash do you think you need to keep in reserve? So, is $30 million to $50 million kind of right after acquisitions? Or how are you thinking about your cash reserves going forward?

We think $30 million to $50 million is actually the base level of cash we require that wouldn't be -- that would not be available for acquisitions that is for the operating requirements of the company.

Okay. Got it. Thank you. And switching to this evergreen project. So I think this is really interesting. Are there -- so I'm not as familiar with the offerings that might be available out there. So I know there's a lot of fintech offerings there, but in terms of pawn or anything that’s really adjacent to your product I guess is there anything out there? Is there kind of competitive differences that you see between what you're intending to offer versus or what might also be out there?

Yes. The offer we're putting there is actually very unique. There's a couple of small fintech type companies operating in the space, but none of them have a customer base and none of them have a store present and none of them have the parts where collect data instantaneously on customers and have feedback. So we have searched the market and we believe that this is a very unique offering. And more importantly, we think it opens the market to new customers as we take some of the nervousness and anxiety of financial stress at the hands of the customer by creating a close to a global asset bank where they believe they have wealth that can meet the strained needs they invariably come under. So, we think this is an extremely unique offering and we think there is a substantial competitive advantage not only in partnering with Boston Consulting Group, but actually bringing our fiscal assets to bear into the digital world.

That's interesting. Is there -- I don't if there's been any study on this, but is there a way to size how much you think your customer has in terms of pawnable assets and how many hard assets they have available to them versus what they typically actually are using for pawnable assets? Like how much more is there the addressable market that you could tap?

All right. It's a good question. We actually don't know because typically the experience in the store is one where the customer has a number of minds and where we're trying to give them the cash based upon asking the questions around other assets that might have or not. So we -- at this stage, it's a bit of an unknown, but what we had to do is educate the customer that they do have a store wealth and that's not what -- not we sitting around this table what view as our traditional store of wealth.

Okay. Very interesting. Thanks very much.

Thanks, Vincent.

Your next question comes from the line of Greg Pendy. Your line is open.

Hi, guys. Thanks for taking my question. Just real quick on scrap, I know it was down 24%, is that entirely related to Republic metals? And should there be a catch up in subsequent quarters? And then also while on that topic, I know we can't predict commodity prices, but right now gold would be positioned more favorably I guess starting in your 3Q, assuming that the price is whole? How does that impact scrap? Thanks.

Yes. So on the Republic Metals I'll take that first. I would say, the Scrap volumes you see come through this quarter. The actual write-up we took doesn't show up in that line item. It shows up in the other revenue or other expense. Although there was within the quarter particularly in Latin America it took a while to establish a relationship with a refinery in Mexico, so that did pressure the volume of Scrap this quarter. In the U.S., I would say there was some anecdotal pressure on the volume of Scrap, but not significant in the U.S., as we already have different refinery relationships setup. So I would expect a little bit of catch-up this next quarter in Scrap in Latin America. That was the biggest impact on the revenue piece. Regarding the gold prices, you're absolutely right. It's something obviously we watch on a fairly regular basis as well. To back up to I guess the last time we saw these prices were kind of the May-June time frame last year, so that should provide a bit of a tailwind assuming it. It remains at that height. But as a commodity price, if I could tell you that it was going to remain that way for the next three months, I could make a heck of a lot more money trading commodities.

Thanks a lot.

[Operator Instructions] The next question comes from the line of Brad Hathaway. Your line is open

Hi. One quick clarification from the first question, the $30 million $50 million I believe you talked about is the money you have kind of earmarked for acquisitions and capital investments and things like that it's not actually to fund the operations, correct?

The 50 to 70 is what we call the baseload that we actually want to have in the bank to fund existing operations. So acquisitions et cetera will be above that and the capital investments would run through the P&L. So that's just what we view as our appropriate safety buffer.

Got it. No I understood that's the 50 to 70, not the 30 to 50. Got it.

Yes, correct. I should have clarified that.

The real question is, this is in our couple of presentations in a row, you talked about this 102 to 200 new stores and you did open nine in the quarter between acquisitions and construction. What makes you confident you can get to this 100 to 200 number?

Just the acquisition pipeline we have in place at the moment, Brad. We are looking at some good sized acquisitions and I've always had the caveat this is not the growth of any price type objective. This is growth at the right price. We have walked from a couple of acquisitions where the price has not been right or the management team hasn't been to the level that we think that would bring -- and that would bring additional risks. So we think that the acquisition we have in place will deliver that. But as I said it's the right price. Seller and buyer have to agree. It's the right management team, the right locations, we think it's there, but until you get into the nitty-gritty of the two details, you find that a lot more. We still think that is achievable through this year with what we have.

I would add on not only in acquisitions that would be the largest piece of that but we do anticipate opening more de novo stores this year than we did last year as well. We've not put a specific number on that but I would expect some increase year-over-year now.

Got it, right. I figured it had to be acquisitions because opening 100 to 200 de novos would be a bit challenging, I would think.

That would be very ambitious.

And then finally, with regard to -- so do you believe that 100 to 200 stores is financeable out of that $30 million and $50 million?

Out of the 50 -- $50 million to $70 million is where we are. We would have to make some determinations as to the strategic relevance and returns on the acquisitions which the board are going to have to digest as they consider the utilization of the cash and balance it against the convertible notes in June '19.

And I would reiterate if we go that path, the same discipline that we've exercised where we would only take that on if we thought that any acquisition activity beyond what the available cash would be able to fund, would be accretive to earnings including any drag on EPS from a new financing consistently maintain that discipline.

It seems like obviously -- since you’re investing, you're talking a lot more about returns on capital and whatnot, so that kind of focus and discipline is much appreciated by the shareholder base.

Thanks, Brad.

Thank you.

[Operator Instructions] Your next question comes from the line of Matt Sweeney. Your line is open.

Hi, guys. Congrats on another great operational quarter. I just had a quick question regarding Evergreen, which sounds like it could be very exciting and just want to kind of qualify or quantify the way you use the word partner. Does that mean that this is more like a vendor partnership or it's just more of an equity partnership?

We're the full owners with it but what we've been able to do is they have the reputation on the line with it. They are very interested in the outcome of this project so this is -- we haven't actually discussed equity at all. We haven't gone that -- down that path we have as you would appropriately think we have managed the fee basis pretty well. So they are not -- I don't think they're a vendor and not our true equity partner, but they're completely aligned with the vision and the outcome that's required to make this successful.

Great. And then keeping in mind that this is the sort of thing that as we know of other fintech offerings out there that can attract a whole new investor base and can be potentially very exciting, and I know it's very early days but are there any thoughts on what kind of metrics you might split out and how you might report this as potentially as maybe a different segment? Or is this something you think will just be rolled into existing line items?

Matt, that's good question. My sense is that and subject to the board's approval, my sense is we should show this as a separate line of business that you can still get the visibility of the operating performance of the foreign business. And also by that visibility you will see the cost of revenues of what the new initiative is doing. Now there will be a degree of overlap between the two because we think the global asset register that we'll create will actually increase the transactions through the store that will work that out as we get to launch, so until launch at each quarter will give you an indication of the costs that have occurred and at launch I’ll be recommending to the board unless they think otherwise that we do have a separate line of business.

Yeah, I think that would make the lot of sense just in terms of tracking. A whole new class of investors that might not be attracted to the traditional pawn business but with this kind of mobility tech focus, I don't want to say that it will be recurring revenues but it will be good access to customers' wallet if you could attract a whole new investor base, so I think that's potentially very exciting.

Yeah. And the -- I mean, typically the business is valued on revenue, so the transparency there is pretty important.

That’s all I have. Thanks guys.

Thanks, Matt.

Your next question comes from the line of Andrew Oskoui. Your line is open.

Hi. I was wondering if you had any updates towards your long-term intentions with debt position in Cash Converters. I know this is dependent on the future CCV share price, your access to financing and other investment opportunities. But in the future, are you more likely to hold the current position, acquire more of the company or liquidate your shares once they appreciate?

Hi, Andrew. We think the Cash Converters model is an interesting one, which is how the initial investment came in, they operate in 17 countries globally. I think, the business model still needs refinement. We know that the franchises actually did very well out of the model, and the franchise will – while it’s doing well, probably could do better than where it is. The management team is being redone. So I think that on the right path to recovery, the issue around anything is class action activity and that’s being reflected in the share price. And as Danny mentioned it's the write-down on that, but it has a scalable global model which is of interest. We've always said that, we are where we are at 35%. My intention has been as I’ve reiterated on the last investor call, I don't want to commit any more capital to that and that would have to be something fundamentally different for us to do so. But at this stage there are no plans to invest any more capital. The 35% is a difficult position to move. But at this stage, we have no intentions of moving at the current level of price that it is.

Thank you and congrats on the great quarter.

Thanks, Andrew.

Your next question comes from the line of Vincent Caintic. Your line is open.

Hey, thanks. Just a quick follow-up on the investments you're making into the Evergreen project and any other projects out there. Is there any sort of run rate level of expenses and investments we should think of going forward, absent any acquisitions and to buying stores but just general level of investments we should be modeling in? Thank you.

As I mentioned on the call Vincent that we think on the Evergreen, it's probably about a 1 million per month run rate till launch. We think based upon BCG's experience with other companies 50% to 60% of that is probably capitalizable. The rest is pretty much investments in parts to cloud-based infrastructure. It's pretty much run-of-the-mill sort of stuff. Danny do you have anything there?

No I think that's about right. The capitalization on the work on Evergreen obviously is dependent on the actual tasks output to different phases of that, such were kind of the range of the 50 to 60, but -- so you...

Thanks.

Your next question comes from the line of Matt Sweeney. Your line is open.

Hi, guys. Thanks for taking another one. Kind of follow up on Andrew's question -- but shipping up to Canada instead of Australia, can you update us on CASHMAX? I know there is a shift towards more eminent installment strategies, some loan strategy. And then also think about that strategically on 27 stores, it seems like it's under-scaled. There are public competitors and that can kind of give us an idea of what that should actually be valued at. Is that something to think about strategically to maybe sell that and use the money to reinvest in Latin America where returns are better?

Matt if you felt that, we could get that much money for Canada and make Latin America bigger, I'd be right behind you. I don't think 27 stores is going to move the dial at all. We are shifting to installment through the government initiatives. We did try to move these stores probably about three years ago. We had no takers at all. We're trying to make the most of it, while we can. And then, if something strategic – someone comes to us or we come to them, we'll certainly deal with that. The 27 stores something like an easy home is not really that relevant to them nor is it for city financial. So what we're trying to do is manage as best we can, but really it's a bit of rounding year in the financials and it doesn't take any management time at all, so we're just putting it on their care and maintenance until something happens.

So, I mean – bit of rounding I think the segment lost last year like $10 million which relative to your total EBITDA is significant I would think so. Is there a case to be made that it should even just be shut down to remove that loss?

Look, we look at that as well, we didn't lose $10 million. There's a few things rolled up into that total package, but that was – we are looking – we look at it all the time, Matt. We haven't had any offers I think there is probably a few stores that we need to consider but we’ve got leases in place on them. So we're looking at it, but it's not something that bothers me too much.

I apologize. I was looking at the other international number which didn't covers other things, course. So that was my error, not a loss of $10 million. My apologies.

No problems.

That's all I had.

Thanks, Matt.

There are no further questions at this time. I'll turn the call back over to the presenters.

Thanks very much everyone. We'd like to thank everyone who’s dialed in and logged into the webcast. Danny and Jeff are available for questions later this morning and this concludes the call. Thank you very much and have a great day.

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