Good morning, ladies and gentlemen, and welcome to the EZCORP Third Quarter of the Fiscal 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct the 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 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 or other factors that are discussed in our annual, quarterly and other reports filed with the Securities and Exchange Commission. And as noted in the presentation materials, and unless otherwise identified, results are presented on an adjusted basis to remove the effect of foreign currency fluctuations and other discrete items. Now, I'd like to turn the call over to Mr. Jason Kulas. Jason?

Thanks, Michael, and good morning, everyone. I wanted to start off this morning by thanking Stuart Grimshaw for his many contributions and accomplishments over the years and his ongoing counsel and support as we move through the leadership transition. I'm honored and incredibly excited about the opportunity to work with the talented team here at EZCORP as CEO. We've spent the last few weeks continuing to develop our overall business strategy. We have a large store-base, spread across diverse markets that are underpinned by attractive demographics, stable regulation and a runway for growth. We have a team of pawnbrokers who provide a service that is unique and essential for our customers, and I'm more confident than ever that we will emerge from the current crisis in a stronger position as it relates to our business operations, financial performance and growth profile. So starting on Slide 4 of the investor presentation, at a high level, we strive to be our customers' first and best choice for their short-term cash needs by increasingly leveraging our durable competitive advantages. A key priority for us is creating the most tenured, diverse and highest performing team in the industry. We recently appointed a new Head of Diversity and Inclusion. And we are excited about the opportunities we have going forward, as we more closely track and measure the progress of our diversity efforts. Furthermore, we remain very focused on the safety and wellbeing of our team members in these uncertain times, with strict adherence to CDC guidelines here in the U.S. and local government procedures across Latin America. Our team members are working hard every day to serve our customers, and we are committed to continuing to ensure that they are safe while they do it. Encouragingly, employee attrition continues to drop, with store turnover…

Thank you. [Operator Instructions] Okay, your first response is from Greg Pendy. Please go ahead.

Yeah, it's fine. It's Greg Pendy at Sidoti. I just had I guess a couple of questions here. First of all, are you comfortable that the aged inventory levels right now you think are at a level where you can get back to? I think you typically target 35% to 38% margins.

Yeah, we are - we're very pleased with the progress we've seen in the U.S., and that's obviously a huge driver of our performance. We announced earlier this fiscal year that we had pretty high levels of aged inventory in the U.S. And the sales cycle that we've gone through, through this COVID-19 period, has really helped us reduce those levels down to a very manageable, sustainable level. At the same time, we are making sure that our operations are performing in a way that doesn't lead to going back to those old levels of high aged inventory as we move forward. So we're pretty confident in that. We're also pretty pleased - back to margins, if you look at - with the U.S. margins, we think the trends there are really positive as we work off of a more normal base of aged inventory. So the go-forward look on that is pretty stable for us.

Okay. That's helpful. And then, I think earlier in the call, you mentioned stimulus might have a more muted impact this time around. Can you elaborate on that a little bit why you think that might be the case?

Sure. And it's difficult to note exactly what the impact will be, because we don't know yet the form that the stimulus will take. But we have an idea. And clearly, there will be more cash coming to consumers. The reason that we think that the impact will be more muted this time is because we - through this stimulus the people who still have - who needed pawn loans and who still have pawn loans outstanding, will see either a continuation of the same amount of cash or something slightly less likely. And so, we don't expect a significant change there. The other factor here is, what we don't know is, how long rent abatements and those other kinds of accommodations will continue. And our expectation is that some of those might start to lapse. So given all those factors, we would expect more stimulus to have an impact. But that's the reason we don't think it would be anywhere near what the impact of the first round was.

Great, that's helpful. And then just one more, I guess. Just on gold, I guess, you've put a lot through scrap this time around. But from a consumer behavior, just given where prices are at, any indication right now that people might be taking the opportunity to pawn gold, given the higher prices?

We're not really seeing a big pickup in that, but I think that's largely driven by the overall kind of macro trends that just cash needs aren't very high right now. We would expect that at these prices, as cash needs increase, that we would see some additional pawning of gold. Although, as you've seen over time in our business, there's been a shift toward general merchandise, and so we would expect both categories to be strong once demand comes back.

Right, that's helpful. Thanks a lot.

Sure, thank you.

Your next response is from Lance Jessurun of Jefferies. Please go ahead.

Hey, thanks for taking my question. First one is a little more on the stimulus that the previous caller asked about. Do you expect as the UI ends, are you going to see more of a, quote unquote, normal recession, where PLO balances are going to go up, mercantile sales are going to go down? And if you are thinking about that, could you kind of elaborate on how you're thinking about them in the model going forward?

Sure, Lance. That's absolutely what we expect. The big question is just what the timing is. Another round of stimulus will delay this and push it out a little bit. But we were already seeing - we reached our bottom in PLO, and we were starting to work our way back. We were working against some - this is our lending season, right, so year-over-year comps are still pretty tough, but we were seeing that balance start to turn around the other way, which was very encouraging. And what we expect is that, that will stop and go slightly the other way through another round of stimulus. And then, we'll see demand pick up pretty considerably. For now, our comments, our forward-looking comments were mainly focused on Q4. But if you look beyond that, yes, we expect demand to come back strong. And that's the reason why we're so focused on maintaining such a strong balance sheet and a good cash position and very low, almost no debt, no net debt position, because we want to make sure that we're in a position to meet that demand when it comes.

Awesome, thanks. And then second question is around the investments in customer-facing technology. I was wondering if you could kind of clarify how you think that might impact results. And how are you going to gauge the success of those investments?

We've seen a real benefit from the investments we've made in those areas, because if you think about an environment like the one we've been in, where really people prefer not to get out; in some cases, they couldn't get out, but generally preferred not to; we were in a really good position to continue to allow our customers to be able to service loans if they wanted to do it from the convenience of their home. So in this fiscal year, we've launched both the Lana extensions, which have been - you've seen great growth in Lana extensions, doing that from the comfort of your home. But we've also launched pay by phone, which has allowed people to extend pawn loans and service their loans from their phone and anywhere. And the combination of those two has, we've seen a big pickup in the percentage of our overall transactions of people, as people have wanted to engage with us in that remote way. So that's been probably the biggest impact. We knew that, that would be a positive impact on our business over time. We didn't know as we were making those investments that it would be so relevant through a global pandemic. But we - that's the reason we've seen such big pickup rates in those projects. Going forward, we expect adoption to continue because of the convenience, being able to digitally service your pawn loan, we think is a real differentiator for us. And when our customers need us, they know they can come see us in the store, and we want that. But when they want to do things from the convenience of their home or they have a logistics issue in getting to us by the right - at the right time, we've got a way that they can service their loans remotely as well. So we think that will only get better over time. But we've already seen a big pickup there.

Awesome. Thanks. And then just one more kind of around the cost-saving initiatives. How much has COVID accelerated the need or - has it provided you opportunities as you've been looking at these cost-saving initiatives? I know it's definitely driven a higher use of the online services platform. But on the cost savings side, how has COVID kind of accelerated those things?

It's kind of gone both ways. Because to a certain extent, COVID has brought some incremental expenses from making sure that we're investing in items that we need to keep our team members safe, to invest in when we have an exposure at the store level and what's needed to clean that store and properly get it back stack open again. So we've seen some increased expenses on the margin from COVID in that way. At the same time, though, yes, through this period, and especially right now, as we go through a lot of our planning for fiscal 2021, we are seeing some opportunities to relook at how we staff our stores, to relook at how we staff our corporate office and some of the infrastructure we had in place that we may be able to trim a little bit. And as you add up all those initiatives, we think there's a real opportunity. And I would like to say that even if we weren't going through a COVID-19 situation, we would be looking at those same factors to make sure that we're leveraging - we're getting as much operating leverage as we can. But clearly, going through a period like this has driven even more of those efforts. And I think that's the reason we make the statement as we come out of this and demand picks up, we're going to see a little bit of a multiplier effect because we'll be doing it as a more efficient company as some of these initiatives play out in fiscal 2021.

Awesome. Thanks so much.

Thank you.

Thank you. Your next response is from Scott Buck of B. Riley FBR.

Hey, good morning, guys. I'm curious with 2 consecutive strong quarters of merchandise sales. Whether the remaining inventories supports merchandise sales strength going forward would be - whether or not you still have enough of the kind of in favor shelter-at-home products left to get people excited.

Thanks, Scott. That's a great question. We started in a position where we had a lot of excess inventory. So clearly, that was a big driver for us over the last couple of quarters. On a relative basis, because we started with so much, we still have inventory, and we feel like we're still in a position to be able to drive sales. We did indicate in some of our comments, we expect the sales to pull back as we go into the next quarter. But we still think that we'll be able to drive sales. One thing that's been interesting is that the mix of our inventory has shifted a little bit towards jewelry as the general merchandise has really - the sales have really picked up there. But what we've seen is that as that's happened, we've also seen a little bit of an uptick in jewelry sales, where customers come in and they look at what we have, and they do still make some purchases. But again, we do expect sales to drop from the current levels, as you would naturally expect going into this next couple of quarters.

Okay. That's helpful. Second one for me. Given the cash balance, you seemingly would have enough to meet any kind of future loan demand. Any thought to reinstituting the buyback program?

Our view on that is still what it has been, which is we want to get to the other side of the crisis before we address those kinds of issues and questions internally. Clearly, at the board level, we'll take up those matters, and we'll always endeavor to make the best corporate finance decision and decision overall for the company with our excess cash. Right now, it gives us a lot of comfort that we're sitting on the cash position that we are, because as you can imagine, any scenario we run as we go through a recovery, which for us is a big use of cash as loan demand increases. Under any scenario that we can model right now, as you said, we've got plenty of cash. But we don't want to look at that as excess cash until we get to the other side of this.

All right. Fair enough. Thanks, guys.

Thank you.

Thank you. There are no further questions at this time. I will turn the call back over to Jason Kulas.

Okay. Thanks, everyone, for your time this morning. We look forward to continuing to discuss our progress on future calls. We hope everyone has a great day.

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