Good morning, ladies and gentlemen, and welcome to the EZCORP Second Quarter Fiscal Year 2019 Earnings Conference Call. [Operator Instructions]. As a reminder, this call may be recorded. I would now like to turn the conference call over to Michael Keim, Investor Relations. Please go ahead, Michael.

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 would 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. 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. Stuart Grimshaw. Stuart?

Thanks, Michael. Good morning, everyone, and welcome to the second quarter results. If I turn to Page 4 of the presentation, I'd like to highlight the key themes from the quarter. You'll see the pawn metrics for the quarter have been extremely positive with strong underlying fundamentals. We recorded title PLO growth of 10% and same-store loan growth of 6%. Same-store loan growth in the U.S. was a strong 5%, and Latin America 9%. This resulted in PSC growth of 10%. Merchandise sales were up 6%, with merchandise margin slipping a little to 36% from 37%. While net revenue growth remains strong at 6%, EBITDA slipped 3% year-on-year as a result of a number of factors. You'll see an increase in operations expense of $3.2 million in Latin America, of which around $1.9 million was due to new acquisitions, de novos, store expansions and enlargements. And in the U.S., operations expense increased by around -- by $2.3 million, primarily as a result of the annual wage increase, coupled with the cost of a new compensation plan enacted this year. Increased corporate expenses of $1.2 million was the result of increased benefit experienced, hiring fees for the new talent, particularly in the IT department, and continued improvements in IT infrastructure. We continue to look for opportunities to reduce this level of expense. Coupled with this was a lower equity accounted for profit contribution from Cash Converters International as well as an increased loss in our Canadian business as we switched our product portfolio in Canada from single pay to multiple pay with a digital capability being developed. This variance was a circa of $1.3 million negative impact on EBITDA. We're strategically reviewing the Canadian business having already closed 3 stores this quarter. While the revenue growth was very sound, the variant…

Thanks, Stuart, and good morning, everyone. As noted in our earnings press release, prior period results have been corrected primarily for the overstatement of historical balances of pawn service charges receivable discovered in our account reviews. None of the corrections were material to any prior period. Compared to amounts previously reported, the corrections reduced net income from continuing operations in the prior year quarter by $200,000 with no change in diluted EPS. In the first quarter of fiscal 2019, included in the current year-to-date results, the correction increased previously reported net income by $900,000 or $0.01 per share. Greater detail in these adjustments are included in Note 1 of the financial statement and the 10-Q we filed yesterday. Separately, you may have noticed we reported in this 10-Q a material weakness in our IT general controls. Compensating controls previously prevented deficiencies in our IT general controls from rising to the level of material weakness. We discontinued those compensating controls during Q2 to optimize store-level system performance, which caused us to reevaluate the underlying IT general control deficiencies and characterize them as a material weakness. We're focused on remediating this quickly to regain an effective control environment. Turning to our financial results. On an adjusted basis, diluted earnings per share were flat to the prior year quarter at $0.22, as Stuart mentioned. Excluding the decrease in earnings from non-core operations in Canada and Cash Converters, adjusted diluted EPS would be $0.25. Included in GAAP results for the quarter was a $6.5 million noncash impairment to the carrying value of Cash Converters consistent with the stock's closing price on March 31. Results also included a $3.9 million increase in net interest expense, $1.5 million of corporate expense related to investment in Evergreen, and $800,000 recovery in Latin America of a previously reserved…

Thanks, Danny. On Page 12, we brought a high level of the investment highlights of the company. Firstly is the strong growth history that we've established in an industry that has proven resilient over a long period of time. Secondly, we continue to invest and enhance our ability to meet our customers' needs for cash through investment in digital solutions. Thirdly, there continue to be opportunities for inorganic growth, but only at the right price. We are not acquirers of stores to solely increase store numbers. It has to make sense on many criteria. Fourthly, we've seen the benefits of geographic expansion with a marginal net revenue increase from Latin America of $6 million being some 3x more than the marginal net revenue increase from the U.S. And finally, we are building a financial and operational performance history that reflects our focus on meeting our customers' needs for cash better than others in the market. And so with that, Michael, we'll pass it over for questions.

Operator, we're ready to take questions.

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

First question is how long do you guys expect Canada to be a drag? How long will the product transition take there?

John, we're going through the strategic review at the moment. We're trying to figure out right size. We'll look at -- we're looking at the market because there has been a substantial change. It's not as simple as just shutting down or growing up, we've got to actually figure out what is the right thing to do. The change in regulation has obviously brought a few challenges into lower-margin products. It's certainly, as you point out, not a core business for us at this point of time. As such, we have to deal with that in the right way and make sure that we come to the right solution that makes sense for everyone.

Okay. And then can you give us an update on how Cash Converters is doing and the level of commitment there and what you expect?

Yes. Sure. Our level of commitment is 34.75%, which is on a value sense, it's a lot less than where it should be. At the moment, they're going through the final stages of the class action. That is obviously putting a bit of a depressed influence on the share price. At this stage, the court case has been held, it's awaiting judgment, but with the uncertainty around that, that has caused some, I'd say, depressed value. The other thing is there's a general election in Australia in the next 2 weeks. There's a fair sense that labor might get in. With that, it is uncertainty about what that means for the regulation or the regulatory environment. So the industry has a bit of a questing around most stocks that is sitting there as well. So I think clarity hopefully on both of those will be through very quickly.

Okay. And then final question is, how -- in terms of geographic demand in the U.S., is there any region that you see positive kind of variance relative to expectation, negative, or is it fairly consistent domestically?

We're pretty well-covered in Florida and Texas, which we believe are still the 2 best markets. We've seen some very good growth out of both of those. There's a little bit of variability through the Midwest, but Texas and Florida continue to drive a lot of those results.

And your next question comes from the line of Greg Pendy with Sidoti.

First, just wanted to go into scrap, I thought there might be a little bit of a catch-up. Is that something -- given what took place in the first quarter, is that something that we should expect some time within year-end?

Yes, I'd say, I'd expect a little bit of catch-up there in Q3, John -- Greg, although some of that also is strategically trying to get more margin out of selling jewelry and stores, rather than scrap, which obviously takes a little bit longer to do that versus just being able to send it to the refinery immediately. But long term, we think that, that probably provides better overall return.

Okay. And then, I guess, just continuing with that a little bit, inventory is up around 4% just on the U.S. side alone, and you also kind of improved the aged inventory. Is that -- is there a higher mix of jewelry within that inventory?

There's not that big a difference in the mix. What I would say is it's the growth in the inventory, while it's up 4%, the loan balance was up 6% same-store. So I'd say those are actually relatively well in track and healthy relationship. The growth there is more in the younger categories. We're trying to keep turning it at a pressure pace.

That makes sense. And then just one final question, I guess. I know, you're coming off of a very strong 1Q on the PLO balance on the U.S. side, but can you just kind of give us some color on, I guess, what the monthly cadence of the PLO balance looked like throughout the quarter?

We don't typically don't dive into monthly figures on that. I would say, the one bit of anomaly that we saw within the quarter was with the tax refund delay, it shifted the repayment of loans a little bit later in the quarter, which also then said the beginning of rebuilding the loan portfolio as we move back into the loan season over the next several months, that started a little bit slower. Although the tax refund season from start to finish really was fairly well-encapsulated within the quarter. So I think it largely resolved itself within the quarter, but just a little bit of shifting of when that cash was actually received.

[Operator Instructions]. Your next question comes from the line of Scott Buck with B. Riley, FBR.

I want to drill down a little bit on the Latin America build out, it sounds like there's some pricing headwinds. Is that universal across Mexico, Central America and into South America? Or is that primarily in Mexico?

Scott, it's primarily in what we're seeing in Mexico. There are opportunities, but as I said, the vendor expectations at this stage are reasonably healthy for them, not so much for us. We haven't really looked at much in the way in Central or South America at all. Our focus has primarily been really into the Mexican region as we have some gaps in our geography. So we're sort of trying to target geographies where we believe the fill-in works well. There's very few -- there's some large change around, and there are some interested vendors, but we continue to try and see whether their price expectations would meet ours. At this stage, there is a gap, and which will -- which has stopped us from acquiring.

Okay. That's helpful. And given the headwinds there, I mean, what's the pipeline for new store or organic store growth in Mexico?

Danny, could you open that one?

Yes, so we've not only opened a number of stores this year, but also looking at relocations and remodels on some of those where we've seen a pretty healthy payback when we do those. More of those have been centered around acquired stores with GuatePrenda, and again, they have pretty nice return. We have opened, I believe, nine new stores year-to-date and continue to -- we're kind of opening additional new stores in the remainder of the year.

Great. And last one for me. Some of the recent store openings and acquired stores over the past 12 months, have you seen a slower path to accretion there, given the prices you paid? Or have the pricing -- the acquisition pricing issues become more recent of a problem?

The acquisition prices we're seeing at the moment, they've been around for a while. The most -- we've done a few small change, which have worked out reasonably well. The larger GuatePrenda chain, which we've bought, their performance has been very, very strong and the returns on capital coming out of that are probably above where we thought we would be at this point of time into the integration.

And now, I would like to turn the call back over to Mr. Stuart Grimshaw.

Thanks very much, everyone, for listening in this morning. We appreciate your support and we'll be around most of the day for calls with the investment community. So have a great day. Thank you.

Ladies and gentlemen, thank you for your participation. This does conclude today's conference call. You may now disconnect.