Good morning, ladies and gentlemen. And welcome to the EZCORP Third 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 over to Michael Kim, 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’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. 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 and good morning, and welcome to the third quarter results. If we turn to Page 4 of the presentation, I would like to highlight the key themes from the quarter. The poor metrics for the quarter ran positive with continued strong underlying fundamentals. Firstly, we recorded total PLO growth of 4% and same-store loan growth of 3%. The same-store loan growth in the US was a positive 2% and Latin America 3%. This resulted in PSC growth of 9%, driven by the above PLO growth and also by a slightly improved yield of 14%, indicating an improving quality of loan portfolio. Thirdly, merchandise sales were up 4%, with merchandise margins slipping a little to 35% as we continue to focus on reducing our aged inventory position. And fourthly, while net revenue growth remained strong at 5% despite lower scrap sales, EBITDA increased 19% year on year as a result of a continued focus on cost reduction initiatives. The strong EBITDA performance resulted in EPS growth of 13% year-on-year to $0.18 per share. The slight decrement to the 19% EBITDA growth was primarily due to an increased depreciation charge and a higher relative tax rate to that of last year. As previously outlined to the market, we retired $195 million of the June 2019 convertible notes from cash on hand. We also acquired seven stores in Nevada using cash, which saw our cash balances reduced to $139 million overall. The cash generation for the quarter from operations was a pleasing $14.3 million. We continue to remain disciplined on the acquisitioning front. And while we see attractive opportunities, the vendor asking process do not reflect the desired returns and ROIC targets that we’ve set for ourselves. Turning now to Page 5, the results of the last quarter highlight in my…

Thanks, Stuart and good morning, everyone. Turning to our financial results, on an adjusted basis, diluted earnings per share increased 13% from the prior year quarter to $0.18. Included in the GAAP results of $0.06 for the quarter was a $6.1 million adjustment in Latin America to correct the calculation of certain transaction tax liabilities in prior periods. $4.6 million off this reduced merchandise sales and $1.5 million increased interest expense. On a go forward basis, I would expect application of this tax to reduce merchandise sales in Latin America by 1.5% to 2% from what would otherwise have been expected, with no offsetting reduction in cost of goods sold. That’s the same amount by which net revenues will be impacted. Also included in GAAP results for the quarter was a $1.8 million income tax benefit in the US related to the expiration of statutes of limitations on prior uncertain tax positions for which we had made a full accrual, compared to a similar $3.3 million benefit in the same quarter last year. The current quarter’s GAAP results include $1.4 million of corporate expense related to the investment in Evergreen, and a $3.7 million increase in net interest expense. We use adjusted net interest expense to analyze the business. This removes the effect of noncash interest expense related to our convertible debt, as well as noncash interest income on our notes receivable. Adjusted net interest expense was $1.1 million in the current quarter, compared to $500,000 in the prior year quarter. In the current quarter, adjusted net interest excludes $5.4 million of noncash interest expense and $1.3 million of noncash interest income, the latter of which will decline as note principal is repaid monthly. The $195 million of cash convertible senior notes that we repaid in mid-June represents $3.2 million…

Thanks, Danny. If you turn to Page 12, we provide a high level of the investment highlights. And I’ll briefly cover the five items. Firstly, there’s a strong growth history that we’ve established as an industry that has proven resilient over a long period of time and through many economic cycles. Secondly, we continue to invest and enhance our ability to meet our customers’ needs to investment in the digital solutions, such as that we’re building in Evergreen. We remain uniquely positioned to disrupt with a circa four million customer base, unique technology being developed with assistance from Boston Consulting Group Digital Ventures, full transactional data on all of these customers that provide a rich credit profile, coupled with a significant retail footprint. We also believe Evergreen will enhance the retention and acquisition of pawn customers, as well as attract completely new customers to a more fulsome financial services offering for this cash-constrained customer segment. Thirdly, there continue to be operations for inorganic growth, but only at the right price. We’re not acquirers of stores to solely increase store numbers. It has to make sense on many criteria. The recent acquisition in Nevada was one such instance of all things aligning. We’ve seen the benefits of geographic expansion with the marginal net revenue increase from Latin America of $3.8 million, being some 60% more than the marginal net revenue increase from the US. And finally, we continue to build on our financial and operational performance history that reflects our focus on meeting our customers’ needs for cash better than others in the market. With that, I’ll open up for questions.

[Operator instructions] Your first question comes from John Hecht with Jefferies. Your line is open.

Thanks. Excuse me. Thanks, guys, for taking my questions, and good morning. First one is related to your Evergreen and the digital venture and the investments in there. What milestones should we be looking for over the course of the year? How do we see the implementation? And then will there be more onetime expenses tied to this?

Thanks John. At the moment, we’re still going through the build of Evergreen, which we anticipate will probably finish in around that September-October time frame. At that stage, it will be operational. So it will go out of the build into the launch. We’re obviously going to do a soft launch first, just to make sure it meets all the requirements that we’re setting. It will have functional capability for the pawn stores as well by the time of the release at the end of the calendar year. So internally, we have a stage getting mechanism around the funding of it. You’ll probably be able to see later in the year, we’ll be able to show you what the screens are like and how they’re going to operate and what the product capability is, but from there, it will turn into an operational expense, which we’ll clearly outline hopefully, at the next call to give you the transparency that you require.

Okay. And then you talked about declining margins in Mexico, some expenses. Are these sort of transitional issues? Or are these sort of the new run rate? Or how do we think about the development of Mexico metrics?

Yes. John, I’d say there are a few things there. One of them was some new licensing requirements that went in, in Mexico within the last year specifically. And that increased roughly $1 million in the quarter. De novo store costs as well are in there. I would expect some of that to be new run rate. Although the expenses obviously come on with that immediately where the revenues take a bit of time to ramp up with the portfolio. And then there were also some severance costs in the quarter. As you saw, there were some control issues. And we’ve made a few changes in staffing in that operation to address some of those issues. If I pull out all those, the expense increase in Latin America was probably closer to 8% on a kind of a normal run rate with the licensing being on top of that, with inflation at about 5%, the 8% in relation to revenue growth I thought was pretty good. The other that I would say is included in that 8% also, as we talked about last quarter, was a bit of increase in robbery expense and the spend on security costs related to that. Hopefully, that will come back in line over time, but that remains a bit elevated currently.

Okay. And my last question is, you guys have done quite a few acquisitions in the past several quarters. I’m wondering if you could talk about the performance of the acquired stores. And then on top of that kind of opportunities for spend, you did just refer to, Danny, just referred to improving the performance, and what the ramp rate is on that opportunity?

On the acquisitions, I think we’ve done three in Mexico in the last 12 months, not too big, but they’re operating well. I think we can still get improvements out of that. We’re trying to get the new POS system into there to actually increase the ability to lend more -- I suppose more aggressively on the general merchandise than what we’ve seen, a number of the acquisitions have been capital constrained. So it takes a while to train the employees up on the general merchandise and the way we lend. So we’re starting to see some of that benefit coming through now. Probably has been a little bit slower because we did three reasonably quickly, but they’re starting to hit their run rates now. There was a lot.

Yes. I would just add on the acquisitions, the other on the last two that we did in June, or the two that we did last June, took a little bit longer than we had anticipated to get those on to our point-of-sale system. I’d say that delayed some of the improvements that we expected to drive in it, but those migrated over in the December-January time frame. So those are starting to respond as we’d expect.

And sorry, John, what was the last one? Last part of the question?

I think you guys -- well, sort of as you buy a store, typically, what is the ramp rate for improvement of the metrics?

It’s one of those ones that depends. It depends on the quality of the acquisition when we have ones without experience in general merchandise, we’ll see some early moves. So typically, by the end of the first year, you’ll start to see the improvements come through. Those stores that we purchased, which are actually operationally very well, you’ll see a slower improvement over time. So really is quite varied, depending on the quality of the teams that we bought under the acquisition.

And you should see the income statement improvement more quickly than you will cash just because there will be some additional investment as we grow the portfolio and some -- the inventory, as well as a lot of those when we acquire them needs some capital investment. But that cash generally washes with the cash generation of those stores in the first year.

[Operator instructions] Your next question comes from Scott Buck with B. Riley FBR. Your line is open.

Good morning, guys. I’m curious given the pricing headwinds on the acquisition front in Latin America, whether we’re going to see more transactions here in the state, similar to what you did in June with the seven stores in Nevada?

It’d be good to see a number of those in the US come through because they are larger PLO store businesses, and we like to increase the cash flow out of the US. There’s still opportunity in Latin America, and particularly in Mexico. And so we’re hopeful we’ll still see the acquisitions. They’re not coming through as quickly as we can, as we indicated. Some of the vendor issues on price have been somewhat challenging, but with the recent sort of economic activity or lack of activity in Mexico, we’re starting to see a few more of the vendors come down their price expectations, so if we can manage those well, we’re hopeful we can we’ll be able to transact. But there’s nothing at this point of time, and I can say would give me 100% confidence that that will happen, but we still look pretty hard.

That’s helpful. Within the US, is the preference to acquire within the current footprint or expand into some new geographies?

Depends on the quality of the operation. I mean, as I said before, we’re not just chasing stores for store sake. We think that there’s good opportunity in probably our two key markets, which is Florida and Texas. We like that at those areas, but we’d also -- there are areas that we would like to expand into that we look at. But there aren’t a lot of assets of size up for sale. Most of the stores, the chains that we’ve got around that five to seven stores so there’s not -- there’s -- any acquisitions out of the US are not likely to be big ones.

Yes. It’s probably in only about 20, 25 states or so in the US, maybe a little bit more that have attractive pawn laws. So there are certain geographies we just wouldn’t have an interest in going into as well.

Got it. That’s helpful. Last one, I mean, can you speak to kind of the pipeline for de novo store openings in Latin America? I mean, I think you did what, four this quarter? Is that an appropriate quarterly run rate to think about going forward?

I would like to increase that. The offset to that is making sure we get the right location, which we know is the driver of the successful de novo strategy. We’re going through those exact numbers at the moment, Scott. So probably later on, we’ll be able to give you an idea of how we’re thinking about de novos for the next financial year.

There are no more further questions queued up at this time. I will turn the call back over to Stuart Grimshaw for closing remarks.

Thanks very much, everyone, for your interest in the results. It’s been a great quarter. We look forward to talking to you with any questions you may have. Have a great day.