Ezcorp Inc Q3 FY2025 Earnings Call

Good morning, ladies and gentlemen. Welcome to the EZCORP Third Quarter Fiscal 2025 Earnings Call. As a reminder, this call may be recorded. I'd now like to turn the conference over to Sean Mansouri, the company's Investor Relations adviser with Elevate IR. Please go ahead, Sean.

Thank you, and good morning, everyone. During our prepared remarks, we will refer 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 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. Joining us on the call today are EZCORP's Chief Executive Officer, Lachie Given; and Tim Jugmans, Chief Financial Officer. Now I'd like to turn the call over to Lachie Given. Lachie?

Thanks, and good morning, everyone. This quarter showcased the continued strong financial and operating momentum across the business, disciplined execution by our team and the growing operating leverage in our platform, which drove exceptional earnings growth for our shareholders. We delivered record third quarter revenue of $319.9 million, up 14% year-over-year and an all-time high PLO of $293.2 million, reflecting sustained demand for immediate cash and affordable pre-owned merchandise across our geographies. Earnings for the quarter were up significantly. Adjusted EBITDA rose 42% to $45.2 million and diluted EPS increased 38% to $0.33, driven by operating leverage embedded in our model. As we scale, we're capturing more margin and deeper customer engagement across both new and existing markets. Turning to Slide 3. EZCORP now operates 1,336 pawn stores across the United States and Latin America, including 604 in Mexico. We remain a global leader in short-term collateralized lending and pre-owned retail. Persistent inflation and tighter access to credit continue to drive customers towards pawn as a trusted and transparent alternative for instant cash. Our value proposition is fast and accessible with no credit checks, no collections and no long-term obligations. This ongoing demand is translating into strong lending activity and deeper customer engagement across the business. Our 8,000-plus team members' commitment to customer service and innovation allows us to scale with discipline, remain highly engaged with the customer and deliver valuable financial solutions when people need them most. Moving on to Slide 4. This was a meaningful quarter for both expansion of our store footprint and earning asset base, a clear demonstration of how we're deploying capital to grow the business in ways that support long-term earnings growth. During the quarter, we acquired 40 stores under the Monte Providencia and Tu Empeno Efectivo brands across 13 Mexican states. The business offers traditional pawn loans as well as auto pawn transactions, some of which are through stand-alone auto pawn stores. These stores not only expand our geographic footprint, they also meaningfully broaden our addressable market through secured auto lending. Auto pawn is a growing category of collateral in Mexico with higher ticket sizes and stronger appeal to customers who may not qualify for traditional credit. It also allows us to reach a broader demographic and participate in a segment where we've historically been underpenetrated. In the U.S., we added 3 new stores, including a Max Pawn luxury format location in Miami Beach and opened 10 de novo locations across Latin America, focusing on Mexico, Guatemala and El Salvador. All of this helped drive earning assets to $520 million, including a record PLO of $293.2 million, up 12% year-over-year. We saw continued strength in same-store lending and rising average loan sizes, particularly given increased jewelry volume. The PLO to inventory ratio also remains healthy at 1.3x. We ended the quarter with $472.1 million in cash, down from $505.2 million last quarter, reflecting capital deployed into store acquisitions and growth in earning assets, partially offset by strong operating cash flow. In the 3-month period ending July 31, we repurchased $3 million worth of shares. In July, we also provided an additional $3 million in secured loan to Founders One, a growth platform through which we invest in Simple Management Group, which currently operates 99 pawn stores. The acquisition pipeline remains robust, and we believe that with our highly liquid balance sheet, we can continue to deploy capital opportunistically to significantly scale the platform for our shareholders. Turning to Slide 5. Although you can only see the past 4 quarters of performance here, it's worth noting that we've delivered more than 2 years of consecutive growth across all 4 of our key performance metrics: revenue, PLO, adjusted EBITDA and adjusted EPS, a testament to the durability of our model and the execution across our store network. Additionally, our earnings growth has accelerated for 3 quarters in a row, further demonstrating the momentum in our business. Total revenue increased 14% year-over-year to $319.9 million, driven by growth in PSC, merchandise sales and a significant increase in scrap. Merchandise sales grew 10% with same-store sales up 9%, supported by strong customer demand and effective retail execution. Gross profit rose 13% to $188.4 million, in line with revenue growth. EBITDA increased 42% to $45.2 million, with EBITDA margin expanding 280 basis points to 14.1% and adjusted EPS rose 38% to $0.33. It's worth noting that EBITDA margin has now expanded 5 quarters in a row on a year-over-year basis. These results reflect the operating leverage we're capturing as we scale, both in terms of loan demand and retail productivity. Slide 6 provides a closer look at our consolidated revenue and gross profit performance for the quarter. In Q3, total revenue grew 14% to $319.9 million and gross profit increased 13% to $188.4 million, supported by growth across all major revenue streams. As always, our focus is on driving both gross profit dollars and margin, whether from PSC, merchandise sales or scrap. PSC increased 10% year-over-year to $118.2 million and remains our most consistent and high-margin earnings engine. Merchandise and sales gross profit rose 19% to $70.2 million, reflecting both higher gold prices and improved execution at the counter. Gross margin held steady at 59%, even as we scaled, a reflection of the consistency embedded in our model. While PLO increased 12% year-over-year, inventory grew at a faster pace, up 32%, driven by greater purchasing activity this quarter, higher layaways as well as lower inventory turns. It's worth noting that outright purchases generally yield higher margins than pawn-sourced goods. From a mix perspective, U.S. pawn continues to drive the majority of our business, contributing 69% of revenue and 71% of gross profit this quarter. As we continue to grow in Latin America, we're applying the same operating model that's delivered consistent results in the U.S. from pricing and inventory systems to training and in-store execution. The opportunity ahead is clear to improve performance, strengthen unit economics and drive higher margin contribution as the platform scales. Turning to Slide 7, our business strategy highlights for the quarter. We continue to strengthen our core pawn operations while advancing the initiatives that position us for long-term growth across customer experience, digital engagement and field execution. Our EZ+ Rewards program continues to grow as we added 300,000 new members during the third quarter, reaching 6.5 million globally and accounting for over 70% of our known customer transactions in Q3. Website traffic grew 9% to 1.9 million visits, supported by continued improvements in our SEO programs. We also saw increased digital traction with $30 million in U.S. online payments. In Mexico, 20% of layaways and extensions were completed digitally, more than double from this time last year. Our view-online purchase in-store experience now covers nearly 80% of U.S. stores, making our inventory more accessible and convenient to browse. We also began testing Instant Quote, a new tool that gives customers a preliminary loan estimate before visiting the store. While still early, we believe it has the potential to drive stronger conversion and improve in-store efficiency. Max Pawn e-commerce platform sales increased 28%, reflecting sustained demand for affordable luxury and reinforcing our position in the high-quality resale category. From a team perspective, we completed the FY '25 team member engagement survey during the quarter with 89% participation and an engagement score of 85, both well above industry benchmarks. This speaks to our unique culture of pride to work at EZCORP, serving our customers with passion and respect and genuine alignment to our company-wide mantra of people, pawn and passion. Having a highly engaged tenured workforce is a unique competitive advantage for EZCORP and continues to be a strong focus for our leadership team. Our strategy remains focused on investing in the platform, empowering our people and delivering consistent, high-quality service at scale. With that, I'll hand the call over to Tim Jugmans, our CFO, who will provide a deeper look at our financial results. Tim?

Thanks, Lachie. Slide 9 provides a detailed look at our consolidated financial results for the third fiscal quarter. We ended Q3 with record pawn loans outstanding of $293.2 million, up 12% year-over-year and 9% on a same-store basis. Growth was driven by sustained demand, improved operational execution and higher average loan size, supported by both organic expansion and new store contributions. Pawn service charges revenue increased 10%, generally in line with PLO growth and reflecting strong lending activity across our footprint. Merchandise sales rose 10% with 9% same-store growth as customer demand continues to support strong retail performance. Inventory increased 32% year-over-year, driven by higher PLO, elevated purchase activity and growth in our U.S. layaway program. Turnover declined to 2.4x from 2.7x last year, some of which is due to a greater mix of jewelry, which naturally carries a longer sales cycle. Despite lower inventory turns, aged general merchandise declined 83 basis points to 2.3% or 2%, excluding luxury, reflecting disciplined pricing and markdown execution. Merchandise margin came in at 35.7%, while down 30 basis points year-over-year, it improved 166 basis points sequentially from Q2. As Lachie mentioned earlier, we continue to grow with discipline and deliver meaningful operating leverage. Adjusted EBITDA increased 42% to $45.2 million and EBITDA margin expanded 280 basis points to 14%. Moving to our U.S. Pawn segment on Slide 10. Revenue increased 11% year-over-year to $220 million, of which approximately half came from scrap sales. Earning assets increased 21% to $387.4 million, which includes an 11% increase in PLO to $221.1 million and a 36% increase in inventory to $166.4 million. The inventory increase is a function of higher PLO, greater purchasing activity and the customer layaways program introduced in July of last year. We remain focused on optimizing our merchandise mix and improving turnover. In the current quarter, we are increasing incentives for our team members, increasing marketing activities, including the use of reward points as well as targeted price reductions and category-specific promotions to drive further improvements. Slide 11 provides a geographic view of our U.S. operations, where we now have 545 stores across 19 states. As Lachie mentioned earlier, this quarter, we added 3 stores, including a luxury format location in Miami Beach. Our platform continues to be anchored in Texas, Florida and other major urban markets where we benefit from scale advantages, local pricing intelligence and strong brand equity. Lending dynamics remain healthy. U.S. average loan size rose 13% to $207, supported by increased values in both jewelry and general merchandise. Roughly 80% of that growth came from higher jewelry pricing, particularly gold. Jewelry now accounts for 67% of PLO and 65% of inventory, both up from prior year, given our emphasis on the category and current gold prices. Slide 12 provides a deeper look at our U.S. segment financial performance for the quarter. All loans outstanding rose 11% year-over-year, supported by higher loan values, improved store level execution and steady demand for short-term liquidity. On service charge revenue rose 8%, primarily driven by same-store PLO growth. While the growth in PSC trailed PLO, the overall performance reflects a strong lending environment across the store base. On the retail side, merchandise sales rose 4% year-over-year and 4% on a same-store basis. Merchandise margin expanded 80 basis points to 38.5%, supported by better pricing execution and improved product mix. Inventory increased 36%, driven by growth in PLO, purchases and layaways as well as a decline in turnover to 2.1x from 2.6x. Despite this, aged general merchandise improved 260 basis points to 2.5% or 1.8%, excluding luxury, a testament to active inventory management. Running a balanced business in the U.S. Pawn segment through a combination of growth in PSC, merchandise sales and scrap revenue with expense management led to an EBITDA increase of 31% to $50.3 million and margin expansion of 360 basis points to 23%. Turning to our Latin American segment on Slide 13. Revenue increased 21% to $99.9 million in Q3, reflecting continued strength across the region. Earning assets rose 18% with PLO up 16% or 4% on a same-store basis, driven by improved operational performance and increased loan demand. Inventory increased 21% and 13% on a same-store basis with aged general merchandise increasing modestly to 2.2% of total GMV inventory, which equates to a total of $800,000. The increase in PLO and inventory was also largely driven by our recent acquisition in Mexico. Importantly, we remain focused on embedding best practice from our U.S. operations to drive consistent execution and profitability growth across Latin America. As shown on Slide 14, we ended the quarter with 791 stores across 4 countries. During the period, we acquired 40 stores in Mexico and opened 10 de novo stores across Mexico, Guatemala and El Salvador and consolidated 1 store in Mexico. Jewelry PLO increased 510 basis points year-over-year to 40%, supported by focused operational initiatives in Mexico and higher gold prices. Jewelry inventory composition also increased 150 basis points to 35%. Turning to Slide 15 for more detail on our LatAm operations. Merchandise sales grew 23% with 90% same-store growth. Merchandise sales gross profit increased 17%, partially offset by a 170 basis point decline in margin due to more frequent counter-based price negotiation, a reflection of higher transaction volumes. PSC grew 13% year-over-year, supported by the growth in PLO. EBITDA rose 28% to $15.5 million, driven by higher gross profit and offset in part by a 12% increase in expenses with 7% same-store expense growth, primarily driven by labor expense. EBITDA margin expanded 90 basis points to 15% reflected continued operating leverage. From a balance sheet perspective, our robust position of $472.1 million and a low net leverage will enable us to continue funding organic growth on compelling acquisition opportunities and thoughtfully return capital to shareholders over time. This quarter's acquisition of 40 pawn stores in Mexico is a strong example of how we're deploying capital with a discipline to capitalize on the global scale opportunity. Looking ahead, we remain focused on growing PLO, improving inventory efficiency and scaling operational best practices across all geographies. Based on the current gold prices remaining steady, we expect similar scrap sales gross profit in quarter 4 and then for scrap margins to decline sequentially during FY '26. We are very pleased with the expense management to date. However, we do expect a sequential increase in total expenses. Our M&A pipeline is very attractive in both the U.S. and Latin America, and we continue to approach each opportunity with rigorous financial discipline. We believe this focused execution will continue to drive long-term compounding value for our shareholders. Now I would like to turn it over to Lachie for a few closing remarks.

Thanks, Tim. I'd like to extend my sincere appreciation to our entire team for delivering an exceptionally strong quarter of earnings growth. It reflects our rigorous focus on operational excellence, increasing scale, a robust core business model and an extremely strong balance sheet. As we look ahead, we remain confident in our ability to scale with discipline, invest with purpose and deliver sustained long-term value for our shareholders. And with that, we'll open the call to questions. Operator?

Our first question comes from John Hecht with Jefferies.

Congrats on a good quarter. First question is just the U.S. retail margins have been stronger than we expected. There's some sustained momentum there. I'm wondering, if you look at the mix of retail activity with gold, jewelry and other products as well as like aged inventory, what do you attribute the strong margin performance to? Is it that the consumer is negotiating less? Or is it just that the value of jewelry is going up with gold? Or how do we think about the trends there?

Thank you for the question. Tim, do you want to take that one?

There are two factors at play, John. The increase in gold prices has contributed positively, but we have also improved our lending practices. Both of these elements have helped to boost our margins. Improved lending means we are setting the right prices when we lend, ensuring that if the items drop into inventory, they are priced correctly to sell at the desired margin.

Okay. And then you guys have been pretty active in acquisitions and consolidation. Maybe talk about the pipeline now and the pricing in the market and maybe geographically where you guys are looking?

Sure. We completed our financing a few months ago and now have a strong balance sheet that allows us to pursue acquisitions opportunistically. We're excited about the opportunities available to us. There are plenty of prospects in our current markets, and we are also exploring new ones. Our pipeline has been robust, and with our strong capital position, we are well-positioned to take advantage of it. We've consistently communicated to our shareholders and the market that our business can achieve significant growth. We believe we currently have less capital than needed for our mission due to the vast potential in pawn broking, even within our existing markets, which present large-scale opportunities. We aim to align our capital resources with the size of that opportunity, and we currently have a healthy amount of cash. In our existing markets, particularly in the U.S., Mexico, and across Latin America, we see substantial potential. We are also implementing a strong strategy for expanding our store network, which has proven to be a great use of our capital. Regarding our capital allocation strategy, we have been clear that our main focus is on scaling. We believe that both earnings and cash flow can grow significantly from this point, although we also want to return some capital to our shareholders. We believe our stock is undervalued, and we are working to balance our capital allocation accordingly. Our primary strategy focuses on scaling our store base, profits, and cash flow, and we expect to announce more acquisitions in the next 12 to 18 months that align with this disciplined approach to growth.

Our next question comes from Brian McNamara with Canaccord Genuity.

Congrats on another great quarter. So one question I have is a pretty simple one. Why aren't you guys buying back more stock? I don't want to take away from all the strong execution, but this is by far the #1 question we've received recently from investors and #2 isn't particularly close. So your recent acquisition of Mexico, I think, was $20 million, but given the unexpected dilution from the May 2025 convert, I think you still have roughly $80 million more in cash than you would have expected previously, even including that acquisition. And I think your prior repurchase authorization expired May 3. So why doesn't the Board at least authorize another repurchase program? I understand you're prioritizing growth and scale here, but can't you do both simultaneously? I think $2 million to $3 million a quarter just feels like a rounding error given the huge valuation discount you guys trade at relative to both your larger peer in the market as a whole.

Yes. I've mentioned this earlier, but let's focus on this quarter. We achieved a 42% increase in EBITDA growth, which is a significant accomplishment. It’s rare to find companies reporting such high earnings growth. This demonstrates the potential of our platform as we expand. We are experiencing remarkable growth while maintaining a conservative balance sheet, which ensures stability for our shareholders in the long run. I have remained consistent regarding our objectives, and you can see that reflected in our earnings this quarter. Our priority is scaling up. I believe we are undercapitalized for our mission, given the substantial acquisition opportunities and new market chances available. Our real estate team is eager to build 1,000 additional stores in Mexico, but staffing those stores is essential. This illustrates the scale opportunities on the new side. Regarding acquisitions, we haven't yet explored other regions like India and the Philippines, which present multi-billion dollar opportunities. While I appreciate our cash reserves, it's insufficient for enabling true scale for our shareholders. Therefore, buying EZCORP shares should emphasize that our primary strategy is to increase profit and cash flow. I see value in the share buyback program, especially since the shares appear significantly undervalued, potentially under 5 times this year's EBITDA consensus. I understand the reasoning behind the buyback strategy, and that’s why we’re pursuing it. However, I also acknowledge your perspective that the cash on hand feels insufficient. Tim and I, along with our team, are actively looking for acquisitions that can greatly benefit our shareholders. I've consistently communicated this message: we seek balance while leaning towards scaling up. We've indeed bought back shares, totaling $3 million, which I don't consider a small amount. It's a solid capital return. Our main focus remains, as I mentioned, over the next 12 to 18 months, I expect we'll announce initiatives to invest in these scaling opportunities. However, I want to emphasize that our message hasn't changed; we've been clear about it.

Is it fair to assume that last year you did $12 million in cash for acquisitions, while the year before that it was about $15 million to $16 million? This year, year-to-date, you're at $17 million. Can we expect that number to increase over the next 12 to 18 months, as you mentioned?

I'd love to say yes. However, as you know, acquisitions require both a willing buyer and a willing seller. So while I hope that's the case, we do have the resources to pursue it. The pipeline is strong, but it's still based on opportunities, and we need to finalize these deals. That's why we've raised this capital; we believe we can use it for growth. I can't guarantee that we will exceed $15 million, but my goal is definitely to invest significantly more capital than we have in the previous year or two now that we have this financing in place.

Fair enough. So second question, you guys loaned an additional $3 million to Founders, which was invested in Simple. I think that takes your investment there north of $60 million, correct me if I'm wrong, between preferred equity and loans. Why is that the preferred investment route? And kind of what's the end game there?

Yes. Look, it's a good question. That management team is doing a terrific job in building out their platform. They're now the third largest pawn broker in our region behind First Cash and us. So I think that represents a fantastic opportunity for EZCORP and its shareholders. We're currently assessing exactly the question you've asked. So we're assessing what is the best structure going forward because they've now demonstrated over the last 3 years since we invested that they are capable of growing really well in their markets. They're in Florida, Puerto Rico, and then I think about 10 other smaller countries across the Caribbean plus Panama and Costa Rica. So while we are in Florida, most of those markets we're not in. So we're very excited that we've deployed capital there, I think, in a really conservative way over the last 3 years, while they prove up their ability to scale in markets that we're not in. But I think it's very high on our Board's agenda as to what that looks like going forward because I think the management team there has proven they can do it. They built value Pawn and jewelry, which is obviously the best acquisition we ever did for over $100 million in 2008. So we know they can do it. The last 3 years, they proved they can do it again. And as you know, we're not recognizing the preferred equity side of that investment in our income statement. So I think it's high on the Board's agenda over the next 12 months or so now that we're very well capitalized, what we do with that investment. But as I said, it's the hypothesis 3 years ago was to provide some early capital here and see what this team can do. And we're very happy with their plan. They've now got 99 stores and are doing really, really well as the third force in pawn broking. So I think we've got the key seat at the table there. And I think you'll hear more from us over the next 12 months or so on what we're going to do.

Great. Maybe a couple for Tim. This is probably nitpicky, but worth asking nonetheless. In the U.S., I think your PLO was up 11%, similar to last year, your larger peer just reported a plus 12% on top of a plus 22%. Anything to call out competitively there?

No. I think if you look at quarter-by-quarter, there's different wins for different companies as we go along. But on average, our stores do have more PLO than other competitors, and we are focused on maximizing our net revenue per store. And I think our numbers continue to prove that out.

I believe it was an outstanding quarter for the business. One notable aspect is the continuous growth in Latin America. When the management team came together four years ago, we initially focused on the U.S., which makes up about 70% of our business, and the growth there has been remarkable. However, since the team shifted their attention to Mexico and the Latin American market, we've seen approximately three consecutive quarters of exceptional performance. The leadership team, led by Blair, has done an excellent job. The positive results are not only reflected in the income statement but also in the balanced improvements across revenue, PLO, EBITDA, and inventory. We're very optimistic about the future in that region. Overall, it was a fantastic quarter, highlighted by 42% EBITDA growth and 38% EPS growth, showcasing the strong operational leverage of the business. While we've benefited from some favorable conditions in gold and scrap, this demonstrates the leverage within our platform. It truly was an impressive quarter.

Great. And just the last one is on merchandise margins in LatAm. I think they've declined 3 quarters in a row despite obviously, the EBITDA has grown really nicely there after good progress on this line last year. Aged inventory is increasing in LatAm also. So what's driving that? And how much of that is just simply the impact from some of these new acquired stores?

Tim can provide insights on age, but let's clarify our aged inventory in general merchandise. We've just reported $45 million in EBITDA, while our total aged inventory in GM is $2 million, which is a minimal figure that even includes luxury items. We're discussing a quarter with $45 million in earnings, and the general expectation is that we generate $170 million to $180 million in EBITDA annually. The aged general merchandise over 365 days stands at just $2 million, making it an insignificant amount. Are we addressing it? Absolutely. This business used to operate at 6% or 7% AGM, and it's currently down to 2%. The number is small. Are we focusing on it? Yes, we are, but it's still quite minor. Tim, would you like to add anything?

Yes. It's important to consider not just inventory on its own, but to also examine ratios. Inventory remains above 1, which is ideal; in previous periods when aging was significantly high, we had more inventory than PLO. That was not an effective way to manage the business. Over the past four to five years, we have successfully maintained our business operations, and we plan to continue this approach. I am very optimistic about the future as we enhance our sales. I mentioned earlier in the call that we are focusing on several initiatives for the next quarter, including increasing promotions and incentives for our team members to boost sales, which is a priority for us. However, we do not view this as a major problem for the business at this time.

Our next question comes from Kyle Joseph with Stephens.

It was a strong quarter. Building on the previous point, I want to focus on the U.S. margins. They've been solid, although inventory levels have increased. It seems that part of this rise is due to purchases, which should help maintain your margins. How do you see this developing in the future? I'm not asking for predictions on gold prices, but rather for insights on the overall merchandise perspective.

Yes, inventory is definitely up, but there are clear reasons for that. Firstly, growth in PLO, which is exactly what we want to see. Inventory increases as PLO increases. As mentioned in Tim's comments, we are also purchasing more, and there is layaway growth as well. Therefore, our inventory is up for very good reasons. However, turns are down. As Tim mentioned, we want to see more sales and more turns. We have incentives in place, and we will be increasing our marketing spend to drive those sales. To address whether inventory is an issue, I do not view it as a major strategic concern for EZCORP. It is growing for valid reasons, and it presents an opportunity for increased sales. Tim, would you like to add any comments regarding margins?

Yes. I think if we look at purchases, the main increase is really coming from jewelry and gold. Customers are visiting our store and instead of taking loans against their gold, they are selling it due to the current gold prices. This situation contributes to our margins moving forward. We are also enhancing our pricing at the counter regarding how much we lend on GM items. As we improve in this area, we will be able to offer better loans and consequently sell more, which positively affects our margins.

Got it. Very helpful. And then just shifting over to Latin America, just kind of hoping for a little bit of a market update there. Last year or in recent years, you've seen impacts of minimum wage increases, particularly in Mexico. In this quarter, it sounds like the redemption rate was really high, and it's never a bad thing to get paid back for a loan. But just talk about any sort of trends you've been seeing in those markets. And obviously, there's more than one market in that segment.

The market has significantly improved in profitability, which is apparent. We are very excited about the potential to enhance the stores further. When this team was formed about four to four and a half years ago, our primary focus was on the U.S. to capitalize on available revenue. We are consistently working to implement best practices across all regions. We are also witnessing positive enhancements in Latin America, particularly in Mexico regarding gold. We continue to see an increase in the gold PLO, which has become a strong contributor to our business, especially with the rising gold prices aiding us as well.

And I think, Kyle, you can see on the inventory side, I think one of the analysts raised an issue last quarter that inventory was growing too quickly in Latin America. You can see this quarter how quickly you can fix that. You can see 19% sales growth on a same-store basis in Latin America and inventory coming right back into balance. So I think they're demonstrating down there that their operating practices have improved significantly, and you can see how quickly you can bring the business back into balance. So I think it's a super exciting region. As you say, we're in a bunch of different countries, but we're obviously the market leader in Guatemala by far, and that business is doing very well, but I'm particularly excited about the Mexican opportunity as well.

Our next question comes from Raj Sharma with Texas Capital Bank.

Solid results. Congratulations. I wanted to clarify something. You've mentioned that the acquisition pipeline remains strong. Should we assume that you're focusing more on Latin America or international markets rather than the U.S.? Also, is there a certain size of acquisition that you would consider or avoid? Regarding capital return, will shareholders be a priority? Are dividends likely to be part of your plans? Could you provide some additional details on that?

Yes, absolutely. Let me begin with the acquisition aspect. We've already talked about SMG, which presents a significant opportunity for us in both the U.S. and Latin America. It is the third-largest pawn broker in our operating region, which I've mentioned before. So, that is clearly a promising area for us. As for our acquisition strategy, we consider all possibilities. This quarter alone, we made three store acquisitions within the U.S. We're open to everything from single stores to larger chains in Mexico. Additionally, we acquired Max Pawn, including a pawn shop in Miami Beach, the only one in that area. It is relatively small, but we are incredibly excited about this opportunity as it's our first venture into the luxury segment outside of Las Vegas. We're eager to see how this develops. In Latin America, we have prospects ranging from single shops to extensive chains with over 100 locations, so we have a well-rounded approach in the markets we're currently involved in. We are indeed looking at new markets, but there’s still so much potential in our existing ones, providing a balanced pursuit between the U.S. and Latin America. Regarding your question about dividends, while I can't rule anything out entirely since the Board of Directors must regularly evaluate capital allocation options, the potential for a dividend seems unlikely at this time. Our opportunities are vast, and I believe we are somewhat underfunded for our goals. Consequently, I don’t anticipate any dividends while the Board considers that aspect. Our focus will be on investing our capital in high-return scalable opportunities globally within the pawn broking industry. Scaling, as our competitor has demonstrated, is crucial because corporate costs don't significantly increase as we expand. More stores result in greater EBITDA and improved EBITDA margins, and with the opportunities available to us, that is where we will allocate our capital.

Got it. And just a follow-up. The retail gross margins have improved in the U.S., but they have decreased in Latin America. Can you provide some insight into the reasons behind this? Additionally, are your lifetime values being affected in the areas where retail margins have increased?

Tim, do you want to take that?

Yes, we are consistently adjusting loan-to-value ratios. We monitor sales prices and consumer negotiation trends closely. Our dedicated team reviews every category and adjusts prices and loan-to-value ratios accordingly. Given our 30- to 90-day loan terms, we can respond quickly to market changes. This practice has contributed to improved margins in the U.S. However, fluctuations in gold prices are also influencing our results. In Mexico, we experience some variability each quarter, with consumers sometimes negotiating harder than at other times, but overall, we maintain consistent margins. There’s nothing out of the ordinary.

Got it. Lastly, it seems that a significant part of our performance is linked to the increase in gold prices. Can you share your thoughts on how sensitive our scrapping revenues are to fluctuations in gold prices? If gold were to stabilize or decrease, do you believe it would impact our operations?

Yes, the price of gold is important, and it significantly affects how much we lend against it in the short term, especially when considering scrap gold. If gold prices remain stable in fiscal year 2026, we might not achieve the same margins on scrap as we did in the previous quarter. However, consumers often need cash. If someone needs $200 today and brings in a gold chain worth $100, they will look for other items to reach that cash amount. Therefore, gold cannot be considered in isolation; there is a consistent demand for cash that must be addressed, irrespective of the current gold price.

Got it. Got it. So that's very helpful. And just lastly, LatAm is growing really nicely, but your competitors can't seem to grow that segment that much. Any comments on the gap?

I believe that Mexico and the rest of Latin America are experiencing strong growth. This region presents a highly attractive market since a significant number of consumers lack access to banking services. Consequently, pawn broking has become an integral part of the financial landscape, functioning as an accepted means of consumer credit in Mexico and beyond. As I mentioned before, we see substantial potential in de novo opportunities, and there is a robust acquisition pipeline in that area. Our training and development initiatives are enhancing the skills of our teams, particularly in Mexico, enabling them to become better negotiators at the counter and improve their performance with jewelry. Additionally, we recognize that the potential for organic growth remains significant. We are actively exploring numerous acquisitions in the region, and most of them are performing well. Overall, this industry is expanding and plays a large role in society, especially in Mexico and Guatemala. We have observed three consecutive quarters of impressive growth, and we are enthusiastic about future possibilities.

Our next question comes from Andrew Scutt with ROTH Capital Partners.

Congrats on the strong results. A lot of my questions have been answered. So kind of a high-level one for me here. You guys posted another strong quarter across kind of growth metrics for your digitization efforts. Kind of where in the journey would you say you are for digitizing your storefronts? And then secondly, maybe more importantly, how is that kind of allowing in-store management to increase their operational efficiencies across the stores?

Andrew, that's a great question. Regarding our progress on digitization, I believe we are still in the early stages despite several years of work on the rewards program. We have just begun to roll out our online browsing and in-store pickup program to all of our U.S. locations, which has only recently been implemented. You can now view our entire inventory online, but purchases still require an in-store visit. Additionally, we are testing the Instant Quote tool in San Antonio, which allows customers to receive an initial quote online for pawning a product. While our EZ app has been available for a while, I would still characterize our digital efforts as being in the early phases. For EZCORP shareholders, it's important to note that pawn broking is primarily a store-based business. Online pawn broking presents challenges since physical items must be stored in a location for customers to be compensated effectively. Therefore, we're mainly a physical business with digital channels that enhance our services. In response to your question about operational support for our team, our online extensions and payment options help store staff by freeing them up to assist customers with loans and sales. These digital tools are expanding rapidly and are very beneficial for our store teams. The digital rewards program also provides our staff with a valuable conversation starter regarding rewards points. In summary, while our digital initiatives are indeed assisting our store personnel, we remain at an early stage in this journey.

From a global standpoint, we have primarily begun operations in the U.S., which is still in its early stages. In Latin America, we've launched layaway extensions in Mexico, but not yet in other countries where we operate. We're at a very early stage in those markets, and we're excited about the potential. We believe the success and continued growth of our layaway programs are attributed to our online payment option, allowing customers to manage their payments without visiting a store. This convenience is particularly beneficial when payments are spread over 10 months, as customers can simply pay online with the push of a button, contributing significantly to the growth of our layaway program.

I'm not showing any further questions at this time. I'd like to turn the call back over to Lachie for any further remarks.

Thank you, everyone, for joining the call. This has been a phenomenal quarter, showcasing the capabilities of our platform. I'm very grateful to our team for delivering such a strong performance, and we're excited about our future direction. I appreciate everyone’s participation, and I look forward to connecting with many of you over the next few days. Thank you, and we'll talk soon.

Thank you. Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.