EZCORP Inc (EZPW) 2016 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the EZCORP Fiscal 2016 Second Quarter 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. (Operator Instructions). 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, Kate; and good morning, everyone. Welcome to EZCORP's second quarter conference call. Joining me today are Stuart Grimshaw, Chief Executive Officer of EZCORP; and Mark Ashby; Chief Financial Officer of EZCORP.

During our prepared remarks, we will be referring to slides which are available for download from our website at investors.ezcorp.com.

Before we begin, I'd like to remind everyone that this conference call 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 in 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 SEC.

Now, I would like to turn the call over to Mr. Stuart Grimshaw. Stuart?

Thanks, Jeff; and good morning, everyone. Let me start out on the new strategy in July of last year. We highlighted there were three key areas that we wanted to look into and really around focusing, simplifying and optimizing our businesses. We've made some pleasing strides under each of these, culminating a pre-tax profit increase in the Pawn segments of 27% to $34 million. And driving this has been an increase in Pawn loans outstanding of 12%, on a same store basis is at 9%.

We've also progressed reasonably well on the comprehensive mystery shop program, which we started initiating towards the end of last calendar year. We've seen improvements in the US stores of 17% and in Mexico, 11%. I just remind you, that's a mix of video shopping staff as well as home shopping out staff. And that usually happens for each store about four times per store for the quarter. So the focus on the customer is actually absolute and this is helping drive some of the outstanding performance we have had in the stores. We've also tied the incentive compensation plan for all team members to include growth in our key metrics as well as the experience that we're seeing through the video shopping.

When it comes to the simplifying the approach to our businesses, we've had very pleasing results. We look at the return on our pawn earning assets increasing to 152% from 150%, and again, a strong merchandise margin of 38% from 33%. We continue to see the levels of aged inventory declining as you'll see on Page 3, where it's reduced from 12% to 9%.

In terms of optimizing for the future, the Grupo Finmart strategic review that's being completed with the sale of this business being the preferred option. With non-cash goodwill impairment charge of $73.9 million was recorded this quarter, which led to the loss from continuing operations of $73 million. However, in our core pawn business, we have acquired six more pawn stores in our key market area of Houston. The executing of restricted stock incentives are aligned with the shareholders' interest with the [primary performance objective progressing] through to FY18 as a cliff vest is compound annual growth of 10% from a rebased EBITDA. And finally, we're targeting reduction in corporate annual expense to $50 million by FY18.

So with that high-level overview, I'll pass it over to Mark Ashby.

Thanks, Stuart; and good morning, everybody. Alright, if we turn to Page 4, this is the consolidated GAAP results for the quarter and also showing for the first half. As Stuart indicated, there is some strong performance in the pawn segments and offset by the impairment charges associated with Grupo Finmart. The revenue lines show a headline of down 2%. That's been affected by the exchange rate and also because of the Grupo Finmart business, as we'll show later on, as we get into the pawn segments. You'll be able to see the growth coming through.

Net revenue for the quarter ended up being basically flat. If you look at the profit before tax based on a segment level, you can see that growth in US pawn up 15%, Mexico pawn up from zero to $2.1 million compared to the same period last year. Grupo Finmart had a loss of $81.2 million, and other international improvement predominantly because of CCV, improved profit compared to same quarter last year at $1.4 million.

We did perform evaluation for accounting purposes of the Grupo Finmart business, that came at the value of $46.5 million and by the time you go through the machinations of the accounting requirements that led to a goodwill impairment charge of $73.9 million, which is all of the goodwill associated on our balance sheet of Grupo. So, there is no more goodwill remaining on the consolidated balance sheet.

Corporate expenses were up in Q2, predominantly because of higher accrued incentive compensation. The first half expenses increased from restatement costs, general expense credit last year and also associated with some increased compensation costs. That led to a continuing ops net income-loss of $73 million for the quarter versus a loss of $3.4 million last year.

We turn to page 5 later, these are the adjusted results. This takes the excluding Grupo Finmart business and it takes out restructuring costs, restatement costs in constant currency and some other discrete items and the reconciliations, all shown in the back of the pack. If you look at the total revenue, you see some good growth of 3%, but more pleasingly net revenue growing by 11%, so the rate of growth in net revenue was outstripping the growth in the total revenue. And that's driven because of the operational improvements, the improvements in both PSC revenue, up 10% in the merchandise margin increasing to 38% from 33% as a result of clearing out aged inventory and focus on the customer.

If you look at the profit before tax by segment, you can see, US Pawn up 15% on this adjusted basis, Mexico Pawn up and other international which I touched on on the previous page. The corporate expenses, you can see up by $1 million for the quarter and for the first half up by a bit over $4 million, which if you on a like-for-like basis for the half is basically flat and down 3% for the quarter if we take into consideration the effect of the incentive compensation plan and the general credit last year.

The page 6, I've just paying back to Stuart, just to step us through the next chart.

Thanks, Mark. This is a new slide we've put into the pack and we think it actually describes the Pawn [stock] very well and what it shows is that the absolute focus on the customer and underneath the cash drives the results that we've seen. And if you look at the transactional activity we are having on a same store basis were up 12% for new pawn loans. And when you transfer that across to the PLO outstanding is up 9%, which is very strong result from the stores.

And there are two asset classes which drive the incomes which is the pawn loans outstanding and the inventory and as we see the same store PLO up 9%, where inventory is up 11%. But our redemption rate has been flat, suggesting that this is a quality result rather than anything that might suggest we have been overlending. Then, the pawn loans outstanding drives the pawn services charge which is up 8% on a same-store basis and then the sales from the inventory which is up 10% on a same-store basis and as market has outlined the 38% gross margin.

As you'll see, there's a walks through the charts that's led to a profit increase of 27% to $34 million. And as we look down the side on page 6, you'll see that some of the highlights there. The yields on the PLO and the inventory is strong. Redemption has been flat and the inventory turns of 2.4 times for the US is actually down slightly from where we were last year. Last year, we were washing a lot of the aged inventory out. And as I mentioned before, our aged inventory has continued to reduce over that period of time. But we feel that this slide actually accurately portrays what we are doing and how the focus on the customer is actually revealing itself through our balance sheet and income statement.

So if we turn to page 7 and we look at the US Pawn business, as CEO touched on the metrics that are driving the outcome, we've called out some of the key metrics on the US Pawn business and if I actually start on the top-right-hand side, you can see the same-store pawn loan balance growth year-on-year, at the end of Q3 2015, it was negative, and it started to grow over Q4, it was minus 6%, it was slightly positive at the end of Q1 2016 up to 7% growth at the end of Q2 which is an encouraging trend, that also does drive the revenue. So, if we look at on a total basis, the pawn loans outstanding for the quarter up 9%, pawn service charges are up 8%. -- starting to see that revenue flow through.

Merchandise margin in the US, up from 34% to 39% and that drove merchandise gross profit, increased by 9% for the quarter and if you summarize all that into a net revenue basis, net revenue is up 8% to $94.6 million.

The bottom-right-hand corner, the chart shows the continued improvement in gross profit margin resulting somewhat from the clearing of the aged inventory which you can see is now down 10% at the end of the quarter, but it's also reflective of one of the comments in the box down the bottom and the continued improvement in the quality pawn loan value. So the focus is on the quality loans, lending more to customers that have intention to redeem unless for those who are more likely to falter. And if you combine that with the pricing management and making sure our inventory is addressed appropriately and not set on for periods of time, the product life cycle improvement is showing -- is also supporting gross margin growth.

A similar story on Page 8, if you go to Mexico, the themes are very similar. The same store pawn loan balance growth of 28%, which is the seventh consecutive quarter with double-digit same store loan growth. This is on constant currency basis, I should mention to you as well. Strong EBITDA growth. Pawn loans expanding up 28%, pawn service charges 27%, merchandise gross profit up from 27% to 32%, and net revenue up 37%. So the same focus on the customer and the structure of the transactions and improvement in the aged inventory, again supporting the improvement in Mexico.

If I turn to Page 9, we've got a couple of charts here on Grupo Finmart, and as Stuart mentioned, the strategic review is complete and the sale of the business is the preferred option, and UBS has been appointed to run the sell process, which has commenced. I touched on before, the evaluation of Grupo Finmart for accounting purposes based on the DCF, assuming a capital structure, which is EZCORP's investment into Grupo, not one that an outsider may put into the organization. Later, evaluation of $46.5 million, and that resulted in the impairment charge of $73.9 million. There is no goodwill remaining in the balance sheet. As we mentioned last quarter, the focus has moved to operational improvements, and we did see, particularly, in the last six weeks of the half of the quarter, some improvements out the flow through. Collection rates started to increase and January is a very low month for the collections, that's generally, but we did see a direct result of some of the initiatives in place, collections starting to improve, particularly on resets on reserve loans, the cost reduction program starting to deliver some cash savings and reductions coming through from Q1 to Q2, originations have also been very focused.

So where the money is going is very targeted on to performing government agencies.

If we turn to Page 10, just focusing again on some of the operational initiatives, if you look at the top, the interest income was flat on a constant currency basis for the quarter. Bad debt expense is up on the same period of last year, and net revenue is a resulting decline. The profit before tax was a loss of $3 million and this excludes the impairment charge it was a loss of $3 million last year and loss of $9 million this year. The bad debt reserve increase is a similar story to the last quarter, it's really been driven by delays in payment timing. The actual out of payroll reserve rates are running 9.6%. Interest expense is down because of reduction in debt and expense increase on the same period last year was really as a result of the strengthening investment, the strengthening of management time which was done on the price and dividends.

If we turn to Page 11, some of new chaps sitting in here, the improved collections on reserve loans and all side in the bottom right hand corner, last quarter, we collected $2.1 million on the reserve loans. This quarter, we collected $4.4 million on the reserve loans. So the focus on trying to shake out some of that money is taking place, and showing some dividends. Of the $70 million reserve that's in place, $55 million of that is the payment delays, not defaults. So over time, the majority of that would be expected to be collected, so the focus is on trying to collect those on a regular basis.

We have also put under the collection of reserve loans in the in top chat months to collect reserve loans. It's an estimate based up on a comparative purposes, looking at the number of months, if you annualize the collections in quarter one versus the collections in quarter two, it's a number of months of the type that collective reserve loans. And it just gives you an indication that if we can maintain that improvement, the cash collections over time will continue to strengthen.

In terms of the cash flow, and I should say for both these charts, these do include the VIEs. So this is not just Grupo Finmart per se. If you look at the collections, collections were up for the quarter compared to the previous quarter. Originations were down as we tied up the origination profile, as Jay and I've mentioned, is also starting to tighten up. EZCORP putting $2 million to fund the operating cash flow for Grupo which is basically the same amount as Q1. And if you look at the funding structures, the VIEs, there was a significant debt repayment for the quarter and for the half of the VIEs, so that basically self-funds. So you'll see that as a neutral.

In the debt repayments, specifically attributable to Grupo, it was $4 million and that was funded by cash from EZCORP to repay some maturing debt lines that came through during the quarter. So that gives you a summary of the cash flow.

And really that concludes the financial summary. Over to Stuart. Thank you.

Thanks. We turn to slide 12. This really tries to highlight where we are on the journey. As I mentioned previously, in July 2015, we started on this journey and we said it would be a three-year program and I probably want to focus on four of the key drivers of what we do and the first one is really refocusing the Pawn store operations, and we've seen there that we've acquired a number of stores over this period of time. But we've also closed underperforming stores, both in the US and Mexico as we reshape the portfolio.

The second we've done over this period of time is we've sort of moved away from businesses where we see that the strategic value is limited and not consistent with where we need to be and that's included closing the US financial services business, closing the Mexico buy-sell business and also undertaking the strategic review of Grupo which Mark has touched on previously.

We've also been investing in our people and if you see there, we've renewed the executive team. Also, we've invested in the district managers where we've increased the numbers from 55 to 67, which enables a [span] of the district managers to stores to go from 10 down to 8 which allows a closer focus on the coaching and mentoring for store managers, which we believe is important and we've also revised the incentive plans at the store level to focus around the customer.

And lastly, what we're looking at now is investing in our customers, also through the trying to develop, but also looking at the point of sale upgrades as well as customers -- analytics, which we're just starting to move into now.

So if I conclude by turning to page 13, there are four things that really continue to occupy our sales and that's the intense focus on servicing and satisfying our customers' needs for cash as you'll recall on the slide 6 that how that works through the balance sheet and the income statement. We continue to invest in projects in customer facing systems. The Pawn fundamentals continue to demonstrate really strong momentum through the previous quarter and as Mark touched on all those, but the 27% pre-tax profit growth in the Pawn is great. PLO balances are up 12% to 9%. On a same-store basis and the merchandise margin of 38% is significantly enhanced from where we were the last year, which reflects in the earning assets of 152%. And finally, we're fully into the sale process of Grupo Finmart at this point of time.

So with that, I'd like to open it up for questions.

Thank you. (Operator Instructions) Vincent Caintic, Macquarie. Your line is open. Please go ahead.

Hey, thanks very much and good morning, guys. Two questions. First, on the sale of Grupo Finmart, I remember in the prior discussion, there were -- when talking about the strategic decisions, there was some talk about the debt restrictions or covenants that have to do with Grupo Finmart, and I was wondering how you are addressing those.

Which debt covenants we were referring to, Vincent? You're talking through the (multiple speakers).

I believe there is a cross-collateralization or that's --?

(inaudible) under the convertible bond which anyway triggers $25 million. If the judgment is $25 million or more, there is a potential trigger in the convertible bond.

Okay, got it. And then, secondly, more of a philosophical one, we saw that there was a consolidation in this industry with First Cash and Cash America announcing a merger and I was wondering if that changes your view at all in terms of EZCORP, whether to be a consolidator or to sell or to merge with other participants? Thanks.

It's always interesting to see two competitors who have been sort of competing heavily against each other get together, and we will be watching it. But I think, it doesn't change our game much at all. I mean the focus we've always had is on the customers' need for cash, and we really focus more on that than what our competitors are doing as we're seeing through the strong results that we've been recording. The industry is still quite a fragmented one, notwithstanding the merger, you still got -- the three of us will about to be two of us, really having 15% market share of the overall market in the US. So there's still, I think, plenty of space for us all to play and reap the rewards of what is a great business with a great customer. So I think we will let them focus on their consolidation and we will focus on the customer.

Okay. Makes sense. Thanks so much, Stuart.

Thank you. Kyle Joseph, Jefferies. Your line is open. Please go ahead.

Morning, guys. Thanks for taking my questions. Sorry about that.

[No problem].

Anyway, so going back to the Grupo Finmart results, they were definitely a lot better than we expected. I know you said collections improved. How much of that was seasonality versus how much of it is sort of the unions being able and willing to pay you guys back more so? I mean I just want to know what's driving the improvement in that business.

It's a couple of things. January and February are a bit slower for us. So there is a bit of seasonality that usually comes through that, but the management team have focused heavily on the collections process and what you've seen there is, as you can see through the average collection time moving quite rapidly, we've been able to make some significant inroads into the payments from some of the [convenios] that have been traditional [deferrers] and we've actually reduced the originations from convenios where we have seen performance which is detrimental to our collections. So at the moment, we're originating in 69 convenios. This time last year, we had over 200 convenios on our books of which we're probably originating from about 120 of those. So we've significantly reduced the originations into those convenios where we have issue.,We've focused the collections teams around ensuring that we don't wait as long as potentially we have in the past to collect. So while there was a small degree of seasonality, most of it actually has been strong management initiatives and action to get the cash through the door.

Okay. And then, just I am trying to calculate the core sort of the run rate earnings from the quarter. Sort of ex the Grupo impairment charge, like what sort of tax rate should I be using to -- because it's a little bit of a profit ex that when you also factor in the run rate earnings of the Grupo segment. So what sort of tax rate would I be using on that and sorry, I've tried to go through all your stuff, but I'm not sure if you guys did disclose a core sort of EPS number for the quarter ex the impairment charge.

No, I don't think we did. The weighted average tax rate probably, it would be about 35%.

Probably lower. I think you're going to get about 32%.

32%, okay and then I can calculate that number from there. And then just going back to debt and liquidity. Sorry, I haven't had time to go through your whole Q. But it looks like calculated around $140 million of debt still outstanding at Grupo, you can correct me if that's wrong, but just give us an idea of how much of that EZPW could potentially be on the hook for and how much do you expect the ongoing cash flows from Grupo to be able to pay that down?

There's a couple of components in there. The only kit associated I suppose to EZCORP is the $230 million on the convertible notes. The balance of the debt is broken into two components is the actual Grupo debt and then, there's the VIE debt, because we have to consolidate the VIEs. The VIEs is not our debt and Grupo is not obligated to fund the VIE debt. The only hook in there is that we're obligated to support the cash flow hedge for one of the VIEs, but the actual debt itself that you see in the charts, if you broke it into two, I think it's about $50 million belongs to the VIEs and about $90 million belongs to Grupo. And that is the Grupo component is split roughly 50-50 in terms of what should be paid out next 12 months versus beyond 12 months. In terms of -- so hopefully that gives you a [pale] view on the first part of the question.

Second part of the question, the trust themselves service to debt and that's difficult to -- and we guess, we have to consolidate all these numbers. Grupo itself, the collection rates are improving. How much it can service over time debt requirement, I suppose, will depend upon time. The profile of the debt, it's not spread evenly in terms of the debt obligations, if you look at the next 12 months. The next quarter is relatively low basically from the end of June onwards, it starts to increase. There is no specific answer. This depends on collection performance. New debt loans, we're also working on in Grupo at the moment, we expect one to come into play over the next few weeks around the end of May. So there are still funding loans available. So there will be some substitution effect. That's a bit of a mixed bag.

Got it. That's helpful. And then, the cash flow hedge on the VIE, is that on the entire $50 million or is that just one of the slugs of the VIE?

Down to $37.8 million.

So that's at 2017 VIE, so it's at $37.8 million. Okay, got it.

What you need to understand with that hedge potential liability is that is -- there are earnings assets in there, but generate cash flow to support the amortization schedule. So if there's any shortfall, that will depend upon the performance of the loans to support that amortization schedule.

No, got it. That's very helpful. And then just in terms of the sales process, can you give us -- I know you're probably limited in what you can say. But sort of an indication of interest you've had, a little bit of your outlook on timing for that as well.

Obviously, we're limited of what we can say. I think probably say that we've been pleasantly surprised by the level of interest. We are in the process of having discussions with interested parties. Obviously, we want to move as quickly as we can through the process and I think it is a common in the queue that we'd hope to have it done in a few months' time. And I think we've indicated before the end of the financial year, but we need to move it quite quickly because we don't want to unsettle as -- Grupo -- so it is progressing well at this stage.

[David Dymen, Rabada Advisory].

Yes, hi. Good morning, everybody. A nice job on the quarter. Glad to see the ship heading firmly in the right directions. I had a few very quick questions. First, on the gold price, we're seeing record speculative length again in the gold market. I'm curious of what gold price might this become more material tailwind for your business, if at all. That's my first question. The second, Stuart, I just wanted to dig a little deeper on the previous caller's industry consolidation question. I'm curious to what extent does the severe relative undervaluation of your stock relative to your peers and also your split shareholder structure. To what extent does that make you less interested in industry consolidation? And lastly, Stuart, if we assume a world, sort of post Finmart, for EZCORP, I'm curious assuming a nine-inning American baseball game, what inning would you consider the Company to be in once -- in your restructuring efforts once Finmart is gone? Thanks very much.

It's quite a bit in there, Dave, but so let me just see if I can pick it all up. I mean the gold price has been moving pretty much between about $1,200, close to $1,300 over the last couple of months but we're seeing commodities all around the oil and iron ore starting to come off and [Compass] coming off as well. So gold has actually held that range quite strongly as the others are starting to move. So I think that it seems to have settled around that $1,250 to $1,275 level. That doesn't really change it too much for us. I mean we haven't been an active scrapper where some of the margins were made previously and I think if you go back to the heady days of 2010-11, we were actually making some substantial profits through the scrapping, you'll see here the margin on scrap for the quarter was 13%. Some of our competitors are actually having lesser margins than that on scrap. So I think in order to make the heady days, you would have to see gold moving back towards that $1,400, $1,500 level, which I don't think we're going to see. But that's just my view, I'm not a very good commodity speculator. So you might have a better view of that than me.

In terms of the industry's consolidation, and I think the question is when would we -- you would think EZCORP would see multiples close to where our competitors are and whether the shareholding is a depressant on those multiples. I think once [new] Grupo has been dealt with, you will get a cleaner position to be able to value the Company and we're showing that with the pawn results and the focus on the customer, we are getting some very strong returns from what has been our core business. So we need to ensure that we manage the Grupo process well to actually show the Company's potential to the investment community.

Now, the split shareholder structure, I think everyone has got a view as to whether there is some form of discount for having that structure or whether there isn't. And I'm actually reasonably neutral on it to the extent that as long as we are outperforming our peers and moving forward with our customers, the focus I have is more about driving the value in the business, not worrying about the shareholding structures of the business. And if I were to look at where we are in nine innings, we're certainly nowhere near the seventh innings stretch. I think once we move Grupo and deal with it in the right manner, I think we're still probably in the second or third innings, which is where I think we are in our strategic three-year cycle as well.

So I hope that answered all those questions, David.

Great, thanks very much. Nice quarter.

Thank you. Bill Armstrong, CL King & Associates. Your line is open. Please go ahead.

Good morning, Stuart, Mark and Jeff. Couple of more questions on Grupo. So in the first half, you've provided about $17 million of funding through working capital and debt repayments. Over the next, say, three to six months, how much more funding do you think is required, assuming that that's probably about what it will take to sell the business?

I don't think we've put $17 million in. (inaudible) and got that hit. I think for the next quarter, we sort of indicated that we'll think for the next quarter is probably running that, maybe, the two to three, but it's $1 million per month, but it depends on the funding lines we put in place at Grupo as to what that actually plays out to and as Mark suggested, post June, some of the amortization of some of those funding lines pick up and we are working closely with an advisor to actually make sure we can have deadlines in place through that period of time. So we will probably be in a better position at the end of the June quarter, build with that funding line to give you more clarity about the quarter ahead.

Okay. The $46.5 million valuation, I just want to make sure I understand exactly what that represents. Is that the equity value of Grupo or would that be more of an enterprise value?

I'll say enterprise value is probably a better landing point based upon the current sort of capital structure that EZCORP has within Grupo and extrapolating out for five plus years on a DCF basis. So it's a mechanical type of process out there that comes up with that valuation.

[Mention the net assets].

Yes, [apply the] fair value of what the assets in theory worth, not necessarily what's on your balance sheet. So if anyone wants a hour-and-a-half accounting seminar, please let me know.

Okay, that also plays for that question. And then lastly, when you're going through the process and decided to sell the business and sort of looking at what the market might be for this business, do you think we're looking at more strategic buyers, financial buyers? Are we looking at just Mexican or Latin American buyers, are we looking at maybe, possibly US-based buyers as well?

I think we've had interest from all of the above. So it's not specifically coming out of one quarter. So we have had expressions of interest from US as well as Mexican. So it's still too early to see where it lands, Bill, because I think obviously, [some will be kicking tires, some will be interested] and we will figure that out over the next few weeks.

Got it. Okay. Thank you.

Thanks, Bill.

Thank you.(Operator Instructions) Christian Hoffman, Thornburg Investments.

Good morning. It looks like you guys collected $34 million of tax refunds during the quarter. Just curious, do you expect any more refunds or is that kind of the balance of it?

I would like another one of those, but no, that's it. Christian, that's all there is

Got it. Do you remind me what the payout of deferred consideration, the $14.875 million was for in trailing six-month period?

Last February 2015, we acquired a business. At that particular point in time, equity was used. And there were certain structures in that. The share price wasn't allowed to move by certain amounts for went down. Then, we had to --

Take a make whole

Yes, and substitute with cash.

Which business was that?

Yes, I think it was Cash Pawn.

Which one?

It's Cash Pawn, is around the Austin area and Central Texas area.

Got it. Is there going to be any more cash leakage associated with that or any other acquisitions?

That was payable a year after the deal was signed. So there is no more sitting on that one.

For any other ones?

No.

Can you talk about your balance sheet and leverage a little bit? How do you -- the numbers are a little bit messy, and I know, you strip out Finmart, you show with and without Finmart, and you want to sell that [in May], I appreciate all those things, but how should I think about leverage of the recourse level, leverage of the total entity, including the non-recourse debt because there are some cash needs there? Can you talk about that a little bit, because I just don't see much discussion of that in the presentation?

It's actually called a simple pub structure. At an EZCORP level, we have $230 million worth of convertible bonds.

What EBITDA supports that?

I beg your pardon?

What EBITDA supports that?

Basically the pawn business.

What is the LTM EBITDA for that?

The last 12 months EBITDA for the pawn business.

Off the top of my head, I don't know, but the maturity profile is in 2019. And so, and that's when the $230 million is due, there's no payment, there's no covenant, there's nothing -- no operating covenants sitting underneath that. So that's a pretty straightforward type of fund. The rest of it is associated with Grupo Finmart into the two components as I alluded to earlier on. And that really is split between the VIEs, which is about $50 million, $90 million is Grupo Finmart's direct debt and that has amortization schedules associated with it and obviously, you're trying to substitute new debt. No, there's no -- a lot of the loan structures have -- you have the assets sort of sitting against it, you have the loan books sitting against us in our assets, sitting there to service those loans. So it's pretty straightforward. It's not really structured around EBITDA multiples or any of those type of metrics that normally you see floating around.

Yes, I mean the convertibles trade at stressed levels. So I think it is kind of an important consideration to the extent it's not that transparent unless it's less helpful for folks, my own personal opinion. Maybe one more just lastly, what's the -- what will be the plan B if Finmart doesn't attract the price you're looking for?

We would have to look at some of the other options which, one might be complete sale or might be partial sale, would look at another range of options, but looking at putting some instruments to financing and place to ring-fence it, but it's a good business and we want to make sure that we represent it completely and we've got good expressions of interest. So we don't have to reconsider that in-depth at this point of time until we get further down the track.

In the structure you're contemplating with a non-recourse debt travel to the buyer of that business and follow off of your balance sheet.

As you've seen that there is some change of control issues, I think that's hidden in some of these, we will be having discussions with them around that. But we don't think that should be too much of an issue.

But your ultimate goal would be to not have any service requirements or --

Yes, that's correct.

Just to have [those] thing kind of cut off.

Yes, that's correct.

Thank you. Kyle Joseph, Jefferies.

Hey, guys. Sorry, just one follow-up question. Just looking at the slide 11 on Grupo and it looks like you guys put -- didn't have to put as much cash into Grupo this quarter and then I think you also highlighted not a lot of near-term maturities for that business. But given the increased collections and not a lot of near term maturities, what's your outlook for the amount of cash EZ could potentially have to put into Grupo?

We sort of mentioned it just briefly before a call. We think it's probably a couple of million a month through to June, but we're trying to work with some new financing structures, which will alleviate the pressure on us. So by the end of June, hopefully, we'll be in a better position with those discussions underway to give you a better color around that, what they would be going forward. As Mark had mentioned on the slide that June, we start some of the amortization of these lines start increasing. So we're doing a lot more than that to try and minimize any cash that does have to go into the Grupo business.

Thanks very much.

Thank you. (Operator Instructions) Sean George, DuPont Capital Management. Your line is open.

Hi, good morning. Is there any rep and warranty issues with the Grupo Finmart debt or the VIE debt?

In what regard, Sean?

So if, say, there were some issues with the loan documents or customer information, could those loans be potentially put back to the VIE or Grupo Finmart, kind of what we saw in the housing market in the US 2011, 2012?

Not that I'm aware of.

Yes. So the holders of these securities, say, well, the information was bad on these loans, therefore -- or there was missing information, there is no way for them to put the loans back to Grupo.

I haven't been through the documents and that full deep -- there's nothing I'm aware of and seem to have --

Okay, and you've never experienced anything like that to-date then?

No.

Okay. And the assets supporting the Grupo in the VIE, so the loan supporting those debt, if the asset balances are enough to support the debt, does Grupo and the VIE have to make up the difference, or can Grupo or the VIE just say well, there wasn't enough assets there in the non-recourse debt is impaired. That's another way to say is that debt recourse back to Grupo or the VIE, even though it's not recourse easy?

The base point one has with the recourse nature has requirement on us to top up any cash if there's a shortfall in the servicing. And that has been that $0.5 million a month, I think it amounted US dollars. But typically, most of these structures have overcapitalization in them, which means that even if some of the delays do occur, there's self-servicing and with our improved collections sitting behind it, the improvement in those collections has meant that they're really self-sustaining.

So they're very over-collateralized, but what about in a case where theoretically, I'm sure this wouldn't happen, but in a case where all the loans went bad, would then Grupo have to replenish.

Under the main VIE which therefore, they would be required to ensure the servicing of those loans occurs loan with the contracts that are in place, the monthly contracts in place. So there would be, as we've outlined previously with those particular VIEs, there is a requirement on Grupo in the first instance and the EZCORP -- in the second instance.

What is the servicing requirement, is it for the life of the loan or is it just for a certain amount of time.

It's the same that 2017, that the four major VIEs run off and there is a surplus portfolio of assets that sits within those.

Chris Reddy, Lazard.

Hey, good morning. I just had a couple of quick questions for clarifications sake. With regard to the Grupo Finmart debt, I understand how the VIEs work with that $50 million. But then you have the $90 million of Grupo debt. And there's a couple of notes, because we don't get a full set of financials on Grupo Finmart, there's -- on page 2, there's $51 million of total assets. Then on page 39, there is carrying value of assets and liabilities and then page 54, there is net earning assets. What are those and which are the one did actually support that $90 million of debt.

So can we start with the first one?

Yes, please.

Page 2 of --

Yes. Page 2 of the 10-Q, so it's assets and liabilities of Grupo Finmart Securitization Trust, $51.942 million (multiple speakers).

It's public securitization.

I'm sorry, that's what?

It's a public securitization that was done. So, that (multiple speakers) that start amortizing in June (multiple speakers) a bunch of assets against that.

Right. And so, I mean are we able to then take that $90 million of Grupo Finmart debt and then subtract out this $50 million that securitizes it and then, you're down to $40 million?

Listen, I don't -- if we just move on the next one, I'll pick up the answer to that question.

Okay. And then, the next one was Page 39, I believe. Yes, where there's just note 18 Subsequent Events, Carrying Values of Major Classes of Grupo Finmart Assets and Liabilities. And so would this is just a summary of the aggregate balance sheet?

Assets and liabilities when they can -- yes, that's the consolidated assets of Grupo, including the trusts.

Okay, great. And then, I guess on Page 54, there is no words as -- yes, I guess, the other data, net earning assets of continuing operations of [$86.7 million] I was trying to figure what that actually is?

That would be the net value of the loans on the books that are performing.

Okay, great.

If I [come at] you, first, just to your first point, the securitization there that does the public securitizations that amortize, and it's starting, I think, we pulled it up, it's a better million a month to somewhere in another note in the Q. And that is probably $35 million of the total Grupo budget. So your point was, great, you need to take that off to see what's all the public securitization.

Thank you. And I am showing no further questions at this time. That does conclude today's Q&A portion of the call. I'd like to turn it back over to Stuart Grimshaw for any closing remarks.

Thanks, Kate. We would just like to thank everybody who dialed along (inaudible) webcast. Thanks for your interest in the Company. Mark and Jeff are available for follow-up questions later this morning. And this concludes our call. So, thanks very much for everyone.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone, have great day.