Good day, ladies and gentlemen, and welcome to the EZCORP's Second Quarter 2017 Earnings Conference 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 may be recorded. I would now like to turn the conference call over to Jeff Christensen, Vice President of Investor Relations for EZCORP. Please go ahead, Jeff.

Thank you, and good morning, everyone. Welcome to EZCORP's Second Quarter Fiscal 2017 Earnings Conference Call. 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 contains 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. Now I would like to turn the call over to Mr. Stuart Grimshaw. Stuart?

Thanks, Jeff, and good morning, everyone. Joining me here today, I have Mark Ashby and Danny Chism. As you would've seen last night when we filed our 8-K, today's Mark's last call, and he has been replaced by Danny, who we're fortunate enough to have secured and has joined us. And I think it's worthwhile spending a bit of time just looking back to in May 2015. We actually made two very significant hires for the Company one was Mark Ashby and the other was Joe Rotunda. And if you had a look at Page 18 of your slide deck, you'll see exactly how far we've come from a company with multiple businesses that was focused on multiple geographies to a much more streamlined business-focused, customer-focused institution. And through the period of time that Mark's been here, we've achieved a lot. Though we haven't gotten in there, they also went through a restatement. And for those of you who've been through a restatement, it's not an easy process. But like most things with EZCORP, we try to make it more difficult than possible, so we thought we'd deal with two orders rather than just one. And so getting through that was much more complex than any of us anticipated, and to get through in that period of time was a fantastic outcome. And it was driven by Mark and the finance team. So we certainly have a lot to thank Mark for. He effectively has done himself out of a job, and obviously, some executives way, they see that as a great outcome. But for us, we all are saddened by, but there are some great things ahead for Mark as he returns back to Australia and - for his next step of his work in Korea. Danny joins us.…

Thanks, Stuart, and good morning, everybody. I'm going to start on Slide 4. As Stuart has mentioned, it was a very strong quarter. EPS up 200% to $0.15 per share. The key drivers as you can see from the financial summary on the page, there was a 2% increase in PLO. That led to a 4% increase in pawn service charge revenue, which was somewhat offset by softer sales due to the tax refund delays versus last year that Stuart mentioned. Operations expense was up 3% as our quarter one additional investment in store team members begins to be absorbed. Over the second half, we expect the operations expense to be broadly in line with half two of FY 2016. Corporate expense reduction continues 15% down in this quarter, and we're certainly on track for the $50 million corporate expense level that we called out for FY 2018. Then combined with the reductions and depreciation and interest and tax our continuing operations net income increased by 219% to $8.4 million. If we turn to Page 5, looking at the chart, which shows our results that are adjusted for constant currency and some discrete items. We saw strong profit growth of 19% for the quarter. Pawn loans outstanding, up 3% on the similar level as our net revenue, they also grew by 3%. Operations expense is up 5%, offset by a 15% decrease in corporate expenses, which, just to reiterate, is on track for the $50 million in FY 2018. After the CCV profit share and other expenses, EBITDA rose 5% for the quarter, supporting an increase in profit before tax of 19%. If we turn to Page 6, which focuses specifically on the U.S. Pawn business, same-store PLO grew again up 2%. It's now a six consecutive quarters of positive…

Thanks, Mark, and turning to Page 14. While the results have been very strong, we're certainly not resting on our laurels. We're investing into the long-term growth of the business. As you'll see there, there are eight distinct areas that we're focused on. We've touched on the point-of-sale system, but the value of the system is just very easy to use. It's highly visual, and it's much more efficient for our people in the store to actually transact, so it's going to be great for us for the productivity we'll be able to get out of the stores. By the early June, we hope to have 10 stores operating across two of our key states being Texas and Florida, operating on the system. We are running a fairly risk-focused approach to rolling the system out. We do have a parallel system, so the old system is still available should there be a requirement to use it. But in the initial trial on the current store, we haven't had a need to actually refer back to that system for any issues that's sitting in the point-of-sale platform. So we're very pleased with the way it is rolling out, and very pleased with the risk mitigants we have around to the rollout of that. We've talked about the part in customer data analytics in the past because we're starting to see pull some variance in information out, which is helping us understand the customer behavior much better, which is allowing us to look at how we actually lends to the customers. And as Joe Rotunda has talked to many of you about, this is a loan business first. And if we can get the pricing right and understand the customer behavior, particularly in terms of redemptions, we can actually enhance the experience…

[Operator Instructions] Your first question comes from the line of Bill Armstrong with CL King & Associates. Your line is open.

Good morning, everyone. Nice quarter. I had a question on retail margins. They were down in the U.S., almost 200 basis points, and they were up in Mexico about 100 basis points. I was wondering if you could just run through the factors that impacted margins in both those markets.

Yes. Thanks, Bill. In the U.S., the delay in the tax receipts did impact the margin a fair bit. What we find with the customers, and we've experienced in the past is when they're flushed with cash, the negotiation on product pricing is not as robust as it is when they're short of cash. So what we saw is with the delay in the tax refunds coming through, the retail margin wasn't actually under pressure, but it wasn't as - we didn't receive the same returns we did in the last year. So that was pretty much a timing issue due to the tax refunds. However, I would say it still fits well within our target range. So we've got to be careful that we don't pursue gross margin for the sake of gross margin because we can get into a lending situation, which we've been in the past where we start under lending to our customers, and we start losing it. We also have the - last year, you'll recall we have the tax refunds coming in around Valentine's Day as well. Most of the tax refunds were actually received after Valentine's Day, so that put a bit of pressure into the gross margin that we would have received the benefit from last year. With Mexico, we've actually been looking closely at how we process across the aging buckets, and we've taken some positive measures through there. So that makes me want a strong management position about how we're managing the product through the aged cycle.

Okay, great. And with the tax refund season now pretty much over, are you seeing maybe more normalized margin comparisons now year-over-year in the U.S.?

Yes, we always find the third quarters are a little bit more difficult because we're getting into the lending season. What we do get is a small kick we get through much of the stay, but it's not much. So the next two quarters are always a bit of a lower margin because the customer has a need for cash. And as I mentioned before, the price negotiation of the store gets a little bit more intense at that stage, so we still think we'll hit within that target range, but it's principally loan season from now on.

Got it, okay. Thank you.

Thanks Bill.

Your next question comes from the line of Charles Nabhan with Wells Fargo. Your line is open.

Hi, good morning guys. Given your liquidity position, I was wondering if you could give us some color on how you think about your various avenues for capital deployment and if you would ever give consideration to returning capital to shareholders?

Thanks, Charles. It's a good question. One of the things I've learned at EZCORP is having liquidity is actually a real strength for us. We have deployed capital somewhat inefficiently in the past. We believe we want to keep as much flexibility for potential opportunities which come up. We have looked at our capital management strategies, but the business historically has been reluctant to deploy capital back to the shareholders if we see avenues to invest being much more positive to the Company than pushing back to shareholders. But just - for your own benefit, we do talk about it quite a lot, so it's not something that we disregard. But we believe that having put the Company in current position of strength and customer leadership, we believe there'll be opportunities in the industry to continue to expand and we would much rather keep that flexibility in our back pocket.

Got it. Just as a quick follow-up, I was wondering if you could provide some color around inventory - your outlook for inventory turns, whether you see them at stable levels currently in the U.S. and Mexico, and the impact, the conversion might have on turns over the long term.

Yes. I mean, I'm starting in a little bit. I don't mind turning the inventory a little bit quicker because it gives us better capital utilization. We've seen a slight tick up in our inventory in terms of I guess proportion to our PLO balance. We're carrying a bit more also carried a bit more inventory through the second quarter than we have in the past due to the delay in the tax refund. So one of the core tenants we put in place was to always have inventory on hand when our customer has cash with the delay in the tax refunds. We've probably carried a bit of a higher inventory balance into the end of the second quarter than we typically would like. So I think you'll see that we'll try and enhance the turnovers. But the absolute pursuit of turnover for the sake of it isn't necessarily the right outcome, but from a capital position, we're always aware of trying to ensure that we're turning our products in the first 60 days as much as we can to enhance the margin.

Got it. Thanks guys. Appreciate the color.

Thanks Charles.

Your next question comes from the line of Kyle Joseph with Jefferies. Your line is open.

Hey, good morning guys and thanks for taking my questions. First one is just on cash converters. Apologies if I missed it, but just sort of an update on that business, and any potential outlook on the valuation or potential monetization of that asset.

Cash converts, as you know we own 32% of the publicly listed in Australia. It operates, to a degree, in the same area as our sales and more so in the unsecured finance area. It's going through a bit of a tough time with the regulatory framework that has come into play from Australia, and also this a class action - two class actions against the company. The outlook is reasonably - I think reasonably positive. It is serving the needs for the cash constrained customer. It is able to do that pretty well. It is a difficult - it's an inherited position. It's at 32%, there is not sufficient liquidity in the stock to be able to deliver quickly. So our strategy is to actually try and maximize the value that we can contribute to the business to see it back. At one stage, it was back at $1 - it was $1.40 a share. It's currently trading at just under $0.30 a share. So out of sort strong belief is trying to get that share price back towards the $1 and get the value back into the business, which we believe is there.

Got it, thanks. And then just turning to Mexican pawn, I think we saw a lot of the jewelry only store shut down there when gold prices sort of fell off the cliff a couple years ago. Can you just describe the competitive environment there? Have you seen any new capital enter that market?

No. Not, really. I mean, obviously, First Cash is a very strong operator in that market. Jewelry for us is really only about 9% of our portfolio. So the gold price doesn't really have much impact. I think the real shift we're seeing is the shift from small-format stores, the large-format stores where general merchandise is becoming a core on pawn product for the consumer. So not so much of the capital, but more of the shift in pawn strategy where some of the smaller format stores are struggling to meet their overheads while the large format stores are getting more popular in their concept, in their way to taking customers away from small format.

Great, thanks for answering my questions.

Thanks.

There are no further questions in the queue at this time. I'll turn the call back over to the presenters.

Okay. Thanks very much. Thanks very much for all who are on the call this morning. We appreciate the time that you've given to listen to the store, which we believe is a compelling story. I'd also like to - I thank Mark Ashby for everything he's done and to assist the company through this. So sit on behalf of the room from EZCORP, Mark, we wish you well, and thank you for your - all the hard work that you have done. Mark and Jeff will be around to take calls later on. And obviously, we'll introduce Danny to you over that period of time as well. But we are very grateful for everything that - the time that you've given us, and we wish you to have a very great day today. Thanks very much.

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