Good morning, ladies and gentlemen. Welcome to the EZCORP Third Quarter Fiscal 2021 Earnings 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 maybe recorded. I'd now like to turn the conference over to Mr. 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'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 our 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 EZCORP's Chief Executive Officer, Mr. Jason Kulas. Jason?

Thanks, Michael, and good morning, everyone. We thought it would be appropriate to start this morning's call by stating our EZCORP purpose. We exist to serve our customers' short-term cash needs, helping them to live and enjoy their lives. We are driven by a diverse team with a passion for pawn who are motivated to be their best because our customers' families, stakeholders in the communities environment in which we live, deserve it. We talk a lot internally about the importance of having one message. One message that ties to our strategy and communicates our purpose, both internally and externally. And one message that resonates with team members, customers, investors and all of our constituents. The third quarter marked another period of meaningful progress against the key strategic initiatives that we have laid out to position our core pawn business for durable growth coming out of the pandemic. PLO, the key driver to our revenue and earnings power is up 25% on a sequential basis and 35% compared to a year ago. At north of $150 million, PLO at the end of June reached the highest quarter ending balance since the beginning of the pandemic. The growth began in mid-April and continued through the quarter, and we saw further growth in July. Looking ahead, the higher starting point for PLO bodes well for growth in pawn service charges revenue in the coming quarters, given the natural lag that exists in the business between pawn originations and related fees. Merchandise sales volumes are below peak pandemic levels from last year due to the positive impact of stimulus payments on sales last year. However, our merchandise sales gross profit was essentially flat versus the year ago quarter, reflecting sharply improved inventory management metrics, including continued strength in inventory turnover rates, declining aged…

Thanks, Jason. For the third quarter of fiscal 2021, we reported a diluted loss per share of $0.05 on a GAAP basis compared to a diluted loss of $0.10 for the fiscal year's third quarter -- for the prior fiscal year third quarter. On an adjusted basis, we reported a diluted loss per share of $0.03 for the quarter compared to a diluted loss of $0.02 per share for prior year quarter. Consistent with the two quarters of fiscal 2021, adjustments for the third quarter were mostly limited to our standard practice of adding back noncash interest expense related to our convertible debt and constant currency impacts. Starting with our consolidated financial results on Slide 9. PLO ended the period at $153 million, up 35% on a year-over-year basis and only down 17% compared to the pre-pandemic level in 2019. Following suit, PSC revenue was up 12% versus the year ago quarter, with much of the growth driven by higher average PLO. Merchandise sales were down 23% from their peak pandemic levels a year ago. That said, merchandise sales gross profit was essentially flat, with lower sales volumes, about offset by higher margins. Merchandise sales gross profit expanded by 967 basis points from the prior year quarter, primarily driven by reduced aged inventory levels and higher sales velocity. Inventory turnover improved to 3x, and the aged general merchandise inventory ratio continued to decline from 11% of total GM inventory a year ago to just 1% at the end of the third quarter of fiscal 2021. Steady sales gross profit and lower inventory levels contributed to a stronger return on earning asset ratio for the quarter at 193% versus 150% for the third quarter of the prior fiscal year. Finally, consolidated EBITDA of $12 million more than doubled from $5.3 million…

Thank you, Tim. In summary, we are pleased with the progress we've made down the path of generating long-term sustainable growth, with third quarter results across core operating metrics, reinforcing that progress. Our accomplishments thus far can be directly attributable to the ongoing dedication and execution of all of our team members. Their enthusiasm and passion for customer service serves as the backbone for our success. So I'd like to take this opportunity to thank all of them again for their hard work and contributions. We expect that the steps we have taken over the past year plus will continue to translate into stronger financial performance. As we have said in recent quarters, our ongoing inventory management and expense optimization efforts should continue to drive better results as pawn transaction activity and the related growth in PLO and PSC continues to increase. We look forward to continuing to discuss our progress in future quarters. And with that, we'll open up the call for questions. Operator?

[Operator Instructions] We'll take our first question from John Hecht with Jefferies.

You guys did comment on the transitory nature [indiscernible] but I'm wondering generally speaking, is there kind of a linear recovery in the PLO at this point? Or is it going to be very [indiscernible] just trying to get a sense of the near-term model?

Yes, absolutely. Thanks, John. So we do believe it's transitory. And the example we'll give is one of the things we talked about last quarter is the balance that we've been seeing is faster. So when a new round of stimulus comes through, the recovery in pawn demand comes back quicker in each incremental time. And we saw that with the first kind of round of checks that came through on the pull forward and expansion of the Child Tax Credits, where we saw a little bit of a pullback and then a pretty quick bounce. With more of that coming, we expect to see some headwinds there. Obviously, with -- we're watching the delta variant closely and the impact that will have on our stores going forward. But we expect all of that to be temporary or transitory, however you want to say it. And we do expect that, that growth is going to continue to be fairly linear. If you look at the growth that we saw throughout the quarter, we talked about hitting the low point in mid-April and then really starting to build from there. That growth continued through the latter part of April, through May, through June. And now, as Tim said, it's continued in July as well. So we're pretty happy to see what's going on there. The lag in PSC, we know how that story ends. We know that the pawn service charges follow the growth in PLO. But we do expect that to be short of a little bit of a stop here and there, fairly linear going forward.

Okay. And then margins, yes, you talked about them sustaining at higher than -- toward the high end of long-term ranges, and they've been very high. Do you -- has there been a change in kind of your customer behavior where you think that high level will be sustained? Or as your balances normalize back to pre-COVID levels, do you think that -- or excuse me, margins will go back toward pre-COVID levels as well?

We think they will, but it's important that you acknowledge that we -- that we're clear that we feel like we're going to end up at the high end of that historical range. Because the way that we operate the business at the store level, the way that we are focused on zero to 90 day sales velocity, turning inventory, maintaining our inventory without letting it roll into age, those kinds of things, that's going to help us sustain higher margins going forward. The margins that we see right now aren't reflective of where we think we'll end up, but we'll still end up in a place that relative to where we've been historically and kind of the industry has been historically is a really, really positive place because of the operating metrics that we have in place now.

Okay. And then you guys have been pretty active acquiring. Maybe can you just give us some comments on the acquisition pipeline as it stands today and the geographical disposition of that?

Yes. It's -- obviously, one of the core pieces of our strategy is innovation and growth and to be able to see that we've had some success after all the hard work for a long period of time by our M&A team and closing some acquisitions, we're really pleased to see that progress. I would say the pipeline is strong as it's ever been. The thing with these M&A transactions is that they have their own timing, and they take on a life of their own, and you never know exactly when they're going to hit. So they're difficult to project, but we would hope to continue to be able to have some success there. Right now, we just announced the acquisition of 128 stores in Mexico and 11 in the U.S., and we want to make sure we integrate those successfully, and we're focused on that as well. But over time, we'll continue to make sure that, that M&A pipeline stays strong and our team is very focused on continuing to make sure we're on top of it.

[Operator Instructions] We'll go next to Greg Pendy with Sidoti.

Just real quick, just trying to understand the 4Q guidance and a lot of the moving parts with the Child Tax Care -- Credit. So just trying to understand that. Are -- what are you trying to say? And I know we're looking out a little bit, but a little bit of near-term pain, but maybe in that March quarter tax refund season, you might see a little bit less seasonality in the PLO decline that I think happens during tax refund, but maybe offset by lower merchandise sales. Is that fair?

That's definitely a fair statement. We would definitely see as the Child Tax Credits come early, they -- obviously, they're not going to come during that tax season. So we think that's why there's a little bit of a transitionary nature there. And that would be a fair statement to say.

Okay. Great. And then just trying to -- one of the biggest question seems to be on this, the high cash position. And I know that as pawn loans pick up, you want to maintain liquidity. But just trying to understand, I mean, this company, I believe, in fiscal 2019, supported a PLO book of around $200 million with maybe about $150 million in cash. Your cash levels double that. And I know you've done some acquisitions, but how are you thinking about stock buybacks at this level? I mean, even maybe a moderate amount, just given the cash position?

We're very committed to making sure that every incremental dollar we put to work is put to work in a way to maximize shareholder value. And also, part of that is making sure that we maintain a strong balance sheet. At the Board level, we had discussions regarding when we would again sort of address those kinds of questions. And we continue to talk about the fact that we'll really engage in those discussions once we feel like we've cleared the impacts of the pandemic. We're very bullish about what 2022 looks like for the business. We've set a really strong foundation. Now we're seeing the PLO growth come through, and we really feel like the business is set up for a strong year ahead of us. But we need to get there before we take up those discussions. We've seen that we have some acquisition opportunities. We've seen that we need some of that liquidity to rebuild the pawn book. At the same time, our business produces a lot of free cash flow, particularly when it gets to the levels of performance that we expect going forward. So those will be interesting discussions to have at that time. We're just not quite there yet.

Okay. And then just one final one. If I'm not mistaken, I think you were testing out some counters at the store. Is that in the stores right now? Any insights into that, if I'm correct, that you're putting some counters in the stores to monitor traffic?

Yes. Yes. We've completely rolled out the traffic counters in the U.S. and in the process of doing that across Latin America. And we're already seeing that we're able to monitor data and start to collect data. That's going to be very helpful for us. And the most helpful comparisons will be the year-over-year comparisons. But incrementally, sequentially, we'll be able to see that some of these efforts that we talk about on the digital side of the business where we're doing certain social media marketing campaigns and those kinds of things to be able to measure what traffic was before and after those and not have to guess, will be a real advantage for us, we think, and we're excited about what that's bringing to the business. It's still early days for us, but we're excited about it.

All right. It looks like we have no further questions at this time. So let me turn it back over to our speakers for any additional or closing remarks.

Thank you, and thanks, everyone, for your interest and time this morning. We look forward to continuing to talk about our progress in future quarters. Hope everyone has a great day.

That does conclude today's call. We thank everyone for their participation. You may now disconnect.