Good morning, ladies and gentlemen, and welcome to EZCORP's First Quarter Fiscal 2021 Earnings Conference Call [Operator Instructions]. As a reminder, this call may be recorded. I would now like to turn this conference over to Mr. Michael Keim, Investor Relations. Please go ahead, Michael. You may begin.

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 Web site 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 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 want to start by thanking our team members for their ongoing efforts and dedication. We remain focused on the health, safety, development and retention of our team members through and beyond the pandemic, with the goal of building the most effective and seasoned workforce in the industry. And it is because of this outstanding team that we were able to make the progress we are making toward our goals. I also want to thank our customers for their trust and loyalty through the pandemic. We remain committed to strengthening and growing our core pawn business to address our customers' needs for cash and affordable preowned merchandise. Virtually all of our stores remain open with ongoing initiatives to expand payment options, enhance our digital pawn servicing platform to broaden customer engagement and increasingly leverage technology and data analytics across geographies to optimize lending and retail pricing. So starting on Slide 4 of the investor presentation. The first key financial theme for the quarter was strong and consistent growth in demand for pawn loans, even as store expenses remained flat quarter-over-quarter. Pawn loans outstanding, or PLO, ended the quarter at $148 million, up 11% on a sequential quarter basis, primarily driven by ongoing efforts to enhance our value proposition to customers and a fading impact from prior government stimulus programs. Having said that, the recently implemented second stimulus package reduced demand for pawn loans in early January before stabilizing in the second half of January. The upcoming tax refund season will further and temporarily curb loan demand and therefore, PSC in the near term. Once we get through tax season and incremental stimulus programs run their course, we expect PLO and ultimately pawn service charges to pick up as they did in the first quarter…

Thanks, Jason. For the first quarter of fiscal 2021, we reported diluted earnings per share of $0.08 for the quarter on a GAAP basis compared to $0.02 for the prior fiscal year's first quarter, which included a $7.1 million CCV settlement charge. On an adjusted basis, diluted earnings per share was $0.13 for the fiscal first quarter compared to $0.17 in the prior year quarter. Importantly, adjustments for the quarter were mostly related to our standard practice of adding back noncash interest expense related to our convertible debt. Focusing on our consolidated financial results for the first quarter on Slide 9. PLO ended the period at $149 million, an increase of $15 million since the end of September 2020, and up $33 million since the end of June 2020. On a year-over-year basis, PLO is down 24%, driving lower PSC revenue for the quarter. This was an improvement sequentially from being down by 33% at the end of September and down 39% at the end of June. Merchandise sales is down 14% year-over-year, largely reflecting lower inventory levels, mostly a function of higher turnover. That said, merchandise sales gross profit is up 2% on more favorable profitability. Merchandise sales gross margins expanded by 640 basis points from the prior year quarter, primarily driven by reduced aged inventory levels and higher velocity, particularly in the zero to 90 day age bucket. Putting it all together, consolidated EBITDA was down 24% compared to the first quarter of the prior fiscal year, with softer PSC revenue partially offset by lower store and G&A expenses. Turning to our US pawn operations on Slide 10. Segment PLO continued to improve on a sequential basis, and it was up 15% versus last quarter. However, on a year-over-year basis, PLO is down 21%. This led to a…

[Operator Instructions] Our first question comes from the line of Greg Pendy with Sidoti.

Can you just help us understand, I guess, the challenges to maybe getting inventory to a normalized level? And just where that level or how we should think about it might be. Because it seems like you've swung maybe to a little bit high on the inventory levels to now lean. And when you think about us going into tax refund season and another round of stimulus, it would seem that you might be missing sales.

So the biggest driver of inventory is going to be our PLO, our loans. And with the loan balance being down, we have less dropping out of loans into inventory. We do purchase items as well, but the biggest driver by far is our loan book. One thing that's interesting is if you look at the ratio of inventory to PLO, we really feel like where we are today is much more in line, a little bit low. Obviously, we'd still be a little bit higher, but much more in line with, I think, where we'd like to be going forward. I think right now, the inventory to PLO, for example, in the US is around that 0.64 range. And the right level is a little bit higher than that, but still lower than what we've been historically. A year ago, we were closer to 1:1 in inventory to PLO. I think the really interesting point that you made about coming into the season where sales would typically pick up and having lower inventory going into that is that we do still have inventory. We also have seen, I guess, some encouraging signs in this current environment is that we've had strong sales with less inventory. So we've managed that inventory that we do have better. We've got higher inventory turns. We've got greater velocity in that 0 to 90 day kind of those early buckets. You've got less aged inventory. So the overall picture in terms of how we're managing inventory is really, really positive. We'd like to have more. And as we make more loans, that will generate more inventory. And the good news is, as we get that inventory, we feel like, operationally, we're in a position to manage it much better than we have in the past.

And then maybe just to follow up on that. Just given your inventory has improved and where you're kind of thinking on aged inventory. Historically, you guys usually targeted, and I might be wrong, but gross margin merchant -- I should say, merchandise margin range, I believe it was in the 35% to 38% range. Any thoughts on whether that will be kind of tracking as we saw in this quarter towards the high end over the next couple of quarters?

It's definitely above that range right now. We still think of it as a long-term 35% to 38%, although much more likely to be at the high end of that range given some of the factors that I just mentioned in terms of how we're managing it better. So I think we'll settle into a level that's likely a little bit lower than we are, but higher than we've been historically because of those operational improvements.

And then just one final one. I mean you mentioned, I guess, on the call, just a more muted impact, and there's been discussions of another, I guess, a $1,400 stimulus ramp coming about. Can you just give us a little bit of color on the puts and takes on why we might -- you're starting to see a more muted impact in the existing PLO balance from the stimulus checks?

So that is very encouraging. If you look at the impact to the loan balances of what started to come through in very early January, we did see a little bit of a pullback. But since mid January, we've seen that stabilize and not continue to drop. We will see a drop if there's another round of stimulus and it's as large as what's being discussed. I think what's really encouraging for us is what we saw in the second round is that it is lower. The impact is lower to the book than it was the first time around. A lot of people that might have taken those stimulus dollars and used them to pay down pawn loans maybe already did that and have not yet come back. But probably the most encouraging sign that we see is that -- and we saw this in this last quarter, our fiscal first quarter, is that PLO grows when stimulus fades. We've seen it. And we've been saying that's what happens, but it was great to see it. And so that we know as we look forward and we get past tax season in whatever form that takes, and we get past this next round of stimulus, the demand comes back and it comes back quickly.

Our next question comes from the line of John Hecht with Jefferies.

A real quick follow-up on the margins. I guess the only question I have on that other than that was asked is, was there anything tied to I mean, the mix? Was there any particular product category that had much better margin flow than the other categories? And what's the mix of those products right now as we sit here?

This better approach to inventory management is -- all boats are rising with that. So that's been really positive. Obviously, with some of the moves you've seen in commodity prices, the margins in gold have been good for us. Also, the increase in gold prices has allowed us to lend more on each individual piece, which has benefited the business. In terms of where we are on margins versus where we were in different categories, again, we've kind of seen improvement across the board. When you look at what happened early on, there were certain items where demand was really strong really quick in terms of things that people needed to be at home and be sheltered in place and those kinds of things, TVs, game consoles, those kinds of items. But again, we're seeing improvement across the board. And if you look at where we were a year ago in terms of those margins, we've seen a substantial amount of improvement across the whole business, but also in each piece of the business. Big improvement in the US, even greater improvement in Latin America. And as the business scales and we continue to manage it effectively in that way, we think we'll see a big step-up. But hopefully, that's helpful guidance. Again, we've seen improvement across the board.

And then, obviously, you guys have done a great job controlling expenses. And you talked about investing in expenses as the business regrows. So should we just think about the kind of base level of expenses this quarter as a starting point and grow slowly with the recovery of the business? Or any other factors to think about with respect to internal investments and so forth and the cadence of those?

John, I think that what you said is exactly how we view it. If you compare this coming quarter, for example, with the quarter we just closed, it's probably a good base to think about it, with maybe a slight increase related to an increase in activity. As we see, one of the impacts of more dollars coming in that people would potentially use to pay down loans since there's more activity in the stores. And you do need staffing and labor and those kinds of things to handle that increase in activity. So we would expect a slight increase quarter-over-quarter, but I think the way you said it is the right approach.

And then, I guess, maybe update on Lana and the investment in the infrastructure there. I guess where are we in this process? What kind of positive effects are you seeing? And what are the kind of near-term goals with respect to developments in that strategy?

So we're pretty excited with what we're seeing with Lana right now. In terms of volumes, we made a few comments in our prepared remarks. But if you look at just where we were over the summer versus where we are now in terms of the number of extensions being done on Lana, I think we're in that kind of 10,000 extensions range from a much lower level, maybe a 5 times increase from where we were in the summer. PSC, this is growing off of a small base, but our PSC collections since the summer are up about 12 times. If you look at overall, the percentage of our total extensions that are being made through the Lana platform now, I think it's in that kind of 7% to 8% range of our total extensions are being done through Lana. So we've seen a really big pickup in activity. And we think that is just our customers saying, we do need that convenience from time to time to be able to do an extension from work or from home on days when we can't get into the store. And so that's been really good. In terms of investment, the spend on Lana to maintain the platform is much lower than what it was to grow the platform. At the same time though, we are making continued investments because we do want to continue to roll out additional functionality. So we mentioned layaways. That's been tested and now over the next few months, it will be rolled out to all stores in the US And it's just another one of those functionalities that's nice if you're making those regular layaway payments to be able to do it from anywhere instead of having to come into the store every time you do it. So we'll continue to report on those volumes. And what's likely as it continues to grow is that the rate of growth will slow. But it's already established itself as our digital pawn servicing platform is something that our customers do appreciate having.

Ladies and gentlemen, we have reached the end of today's question-and-answer session. I would like to turn this call back over to Mr. Jason Kulas for closing remarks.

In closing, thank you, everyone, for your time this morning. We look forward to continuing to discuss our progress on future calls, and we hope everyone has a great day.

Thank you for joining us today. This concludes today's conference. You may disconnect your lines at this time.