Good morning, ladies and gentlemen, and welcome to the EZCORP Fourth Quarter Fiscal 2020 Earnings Conference Call. [Operator Instructions] 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'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. We look forward to giving everyone an update today on our strategy and the focus we are putting on store-level operations, overall efficiency and long-term growth. As a leading provider of pawn loans in the U.S. and Latin America, we play a vital and essential role in ensuring that our customers have access to the short-term cash they need. Our retail operations also play an important and ongoing role in recycling secondhand goods. We believe strongly that over the next few years, we will build shareholder value as we continue to improve our ability to meet these needs. As Tim and I will discuss in detail, our results for the fourth quarter of fiscal 2020 were negatively impacted by the declines in pawn loans outstanding and inventory primarily related to the COVID-19 pandemic, the follow-on effects of the stimulus as well as write-offs and charges related to cost-saving and streamlining initiatives. And while we have seen a strong and continued rebound in new pawn loans made since the trough in June, it will take an extended period of time for recent trends to be fully reflected in our financial performance as we look into fiscal 2021. In addition, any additional stimulus could impact business performance. That said, recent strategic and financial initiatives position us well for sustainable long-term growth as we increasingly leverage our durable competitive advantages, including scale with a large store base spread across diverse markets; and exceptional talent positioned to continue to provide essential services to a growing base of customers. Starting on Slide 4 of the investor presentation. Our top priority is team member retention and well-being. We remain focused on the health and safety of our team members during the pandemic and have enhanced diversity and inclusion training with…

Thanks, Jason. I wanted to start by spending a few minutes walking through the natural lag that exists in the pawn business between new loans made and the ultimate revenue from their activity, pawn service charges and sales. On Slide 10, we graphed our trends across new loans made, PLO and PSC as well as PLO versus inventory and ultimately, merchandise sales. Before March, there was a reasonable timing consistency between growth in the pawn loan book, inventory and related PSC and merchandise sales. Those earlier quarters were characterized by stable loan and inventory balances in the U.S. The graphs on the top half of the page show there were substantial shock between the new loan demand beginning in April when stimulus payments were made. While the loan balance declined in the June-ending quarter, PSC did not reflect that fully until the following quarter. It is also notable that the degree to which PSC revenue decreased is far less than the decline in the PLO balance. We have witnessed a significant sequential improvement in PLO since June. But as I just described, average PLO is indicative of the next quarter's PSC revenue, and PSC is expected to fully recover in the quarter following a return to normal new loan origination volume. The delay in loan forfeitures that drive our inventory is at least 90 days after the time of origination. And if we turn our inventory at a rate of 3 to 4x a year, the average item would sell after 100-or-so days in inventory. Based on that, we expect to see inventory balances begin to recover in our fiscal Q3, Q4 after tax season, with sales volume fully recovering on a run rate basis at the end of fiscal year 2021. Now turning to our results for the fourth…

Thanks, Tim. Stepping back, we remain focused on optimizing our core pawn business to address customer short-term cash needs, and we've made significant progress in driving continuous operational improvements that we believe will result in more consistent financial performance as well as building earnings power and shareholder value over time. More specifically, we are rightsizing our expense base and maintaining an ongoing focus on extracting further efficiencies while preserving operating leverage as transaction activity and asset levels rebuild. Related to that, we have rationalized noncore activities and maintain a strong and liquid balance sheet to invest in growth. Second, we continue to strengthen our core pawn business by increasingly leveraging data analytics to optimize pricing, productivity and returns. Finally, we remain focused on innovation to broaden customer engagement across channels, improve the customer experience and gain market share. So with that, we'll open up the call for questions. Operator?

[Operator Instructions] Our first question comes from the line of John Hecht with Jefferies.

First, I just want to make sure I understand the cost saves that you -- just so I'm clear on it. It sounds like you've got $12 million of admin expenses that will be permanent cost saves and that you've temporarily reduced $14 million out of store cost saves, which will come back as business expands. Is that the right interpretation of the cost saves?

That's right, yes. Because of the timing of it, some of that $14 million will stick because there'll be a ramp back up to those levels. But that's exactly right.

Okay. That's helpful. And then in terms of forward-looking factors, the commentary was on more operating losses. Is that consolidated or more tied toward Latin America in terms of how I interpret that guidance? And also is that just -- are you kind of just cautioning us for a couple of quarters or is this something we should expect over the full year? And I guess generally on this topic is, how do you see the demand recovery in both the U.S. and Mexico? Assuming a modest stimulus package different than the first one, how do we see the business recover?

Sure. The comments were more consolidated. And what we're seeing right now that we're actually very encouraged by is we are seeing a rebounding portfolio. We're seeing an increasing level of demand, and you're seeing that reflected in our pawn loans outstanding. So we talked about in September the overall pawn loans outstanding being down in the low 30s versus last year. As we moved into October, it was closer to 30% down from last year. As we moved into November, it's in the kind of mid-20s down from last year. So those numbers are getting incrementally better. Our caution is really more along the lines of just some of the uncertainty, the things that we don't know around any shutdowns related to COVID-19, any impact of future stimulus depending on the form that takes and then going into tax season and those kinds of things that typically would seasonally impact loan demand. But all in all, we're seeing a consumer who's coming back, who has an increasing level of demand for the services we provide, and we see that, by the time we get to the end of fiscal '21 and through some of the interim things we're less certain about, really paying some dividends for the company.

Okay. And do you see -- is the recovery in demand that you cited, is it consistent in the U.S. or in Mexico or LatAm generally? Or are you seeing different cadences in those 2 different geographies?

That's a good question. It's better in the U.S. The U.S. has come back faster, for sure. In Latin America, in Mexico, it's also begun to come back but at a much slower pace. And then in our Central America locations, it's -- we've continued to be impacted by just the delays that happened there related to more severe shutdowns. That's a smaller part of the business. But the biggest driver of the growth right now is the U.S.

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

First, just on the $14 million temporary labor cost cuts, how much flexibility do you think you'll have in terms of re-ramping that up? I think with a lot of retailers, when they made the cutbacks, they were kind of caught short when demand snapped back. Just, I mean, are you comfortable that, that can scale pretty flexibly with how you're going to see demand come back?

We are. We've done that very carefully. Most of the store-level cuts that we made were just letting attrition happen and those kinds of things. We did it very gradually. And as we see demand return, we'll do the same. We'll stay on top of it and add those resources and expenses as we see the need to do it. So I feel like our ability to do that is still pretty good. And we'd rather be on the prudent side and manage those expenses conservatively while we're going through this interim period.

Okay. Great. And then the next question, I think on Slide 10, you had that chart, which was very helpful, PLO versus inventory. And I'm just kind of curious. I mean given inventory levels are obviously pretty lean right now, what is the risk that it curbs a little bit of traffic to the stores and maybe even people who might have looked for a loan? Just because -- I have to assume that you're kind of light on inventory, not many people are just going to go into the store.

We are -- it's a good point. So we are light on inventory relative to where we've been historically. But I'd say one of the comments we made also is that our store-level teams are doing a great job of selling what we have. At the same time, though, you're right. As you think about traffic in the stores and those kinds of things, what we're doing is -- we have a lot of initiatives right now to drive more traffic into our stores, a lot of efforts on the digital front, on the social media and marketing front, updating websites, those kinds of things because we want to feed the funnel as well as we can as we go through this period where inventory is down. At the same time, if you look at our business historically, we've managed with a whole lot more inventory than some others have in the industry, and for us to get to a more efficient level of inventory and maintain that over time is actually a good thing. So we'll want to settle into a level of inventory that's a little bit better than what we have now, but still short of where we were historically. And that will be a good thing for us in terms of inventory turns and margins and overall inventory management.

Great. And then just one final one. You said the loan-to-value ratios have declined. I mean how much opportunity is there to still remain competitive with other pawn stores on that?

We have a lot of opportunity there. So one of the things we've invested in, as you know, is our point-of-sale system, which is allowing us to price more and more of our transactions in the system. It allows someone to come in who may not be an experienced pawn broker and operate within our system to become one a little more quickly. And as you see that discipline in the process where you're setting more and more prices in the system, putting guardrails against the range of loan-to-values that can be put on certain items, that helps you competitively because you're more consistent. But then it also helps you on the back end as you're selling items that drop into inventory, where you find yourself sort of in them for the right level. But the other point on LTVs that we were making is that the items that are dropping have lower LTVs, but the items that aren't dropping have higher LTVs. So that's the other part of the discipline that's really helping us a lot. It is not necessarily that we've seen a lot of movement in LTV. In fact, if you look at year-over-year LTVs, they're slightly higher on general merchandise but not significantly higher. And on jewelry, they're slightly lower just because gold prices are so much higher. But within a range, they really haven't changed that much. What's been changing is the LTV of the items that dropped, which is a really good thing for us in terms of how we need to sell those items and make sure we get a good sales gross profit when we do it. So we're pretty pleased with how that's going so far. Obviously, you're right, you need to be competitive from a loan-to-value standpoint. And we feel like we are. But adding discipline to the process is going to give us more consistency and predictability, we think.

Great. And then one final one. Since you did mention gold, I have to ask. Any kind of interest or uptick you're seeing in pawn loans targeting gold out there given the prices?

We are -- in the U.S., we're seeing a little bit of a pickup there, not as much in Latin America. But in the U.S., we are seeing a little bit of a pickup. And clearly, when you mark your gold tables to reflect where the prices are, you're lending more per item as well. But we feel like those LTVs are still within a really acceptable range, and it's something that we watch very closely. But obviously, having gold prices go up for what's already on the books has been a good thing as well, and we've seen that over the past couple of years.

Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Kulas for any final comments.

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