EZCORP F4Q07 (Qtr End 9/30/07) Earnings Call Transcript

EZCORP Inc. (EZPW)

F4Q07 (Qtr End 9/30/07) Earnings Call

November 8, 2007 4:30 pm ET

Executives

Joe Rotunda - President and CEO

Dan Tonissen - CFO

Analysts

Daniel O'Sullivan - Utendahl Capital Management

Dennis Telzrow - Stephen Inc.

Presentation

Operator

Good afternoon, and welcome to the Quarter Four and Fiscal 2007 EZCORP Conference Call. At this time, I would like to introduce your host, Joe Rotunda. Thank you, and have a great conference. Go ahead, Mr. Rotunda.

Joe Rotunda

Thank you, Lisa. Good afternoon, thank you for joining us today. With me is Dan Tonissen, our Chief Financial Officer. We'll be addressing our fourth quarter and fiscal year 2007 results.

I am going to begin with a high level overview of the quarter and the year; Dan will follow with a more in-depth review of the financials; and we'll conclude with guidance for the new fiscal year.

2007 has been a busy and productive year for us. In June, we completed the largest acquisition in our history: the 15 store chain of Jumping Jack Cash pawnshops in Colorado. In August, we entered into an agreement to make the most strategic acquisition in our history: the 20 store Mister Money pawn operation in Mexico.

We just closed this deal in October, a few weeks in to the new fiscal year. By year-end we opened a 100 new EZMONEY stores, and we grew our chain to 731 stores, compared to 614 stores a year ago. And that doesn't include the Mexico acquisition.

We additionally surpassed, for the first time in our company's history, $1 billion in loans made or brokered in a fiscal year, and we maintained a strong balance sheet completing all these actions and still ending fiscal year 2007 debt free.

As a sequel to our financial performance, we also recorded our 21st consecutive quarter and seventh consecutive fiscal year of earnings improvements. In fact, after more than doubling quarter four income last year, we are very pleased to report further strong year-on-year improvement in the same quarter this year.

Our fourth quarter net income was $11.2 million, an increase of 22% on top of the 150% earnings growth achieved in the same quarter a year ago. Our diluted earnings per share were $0.26, and that compares to $0.21 last year.

For the full 2007 fiscal year, net income grew by 29% to $37.09 million, and our diluted earnings per share grew by 28% to $0.88 a share. All business segments continue to contribute to this earnings growth.

Our EZPAWN segment recorded net revenue growth of 13% in the fourth quarter, and there were three primary drivers. The first was our pawn portfolio growth. It grew 13% on a same store basis, and additionally reflected an improving redemption rate. This provided significant growth in the result and pawn service charge revenue.

The second was the integration of Jumping Jack Cash into our operations for the full quarter. The revenue from these stores, which was all incremental the last year, provided approximately half of the pawn segments growth in net revenues.

The third driver was our gross profit from the sale of forfeited collateral, which was up 7%. The gross profit generated by jewelry scrapping was, however, down about $300,000 the last year fourth quarter.

During the current year, we increased our lending on gold jewelry twice, to keep pace with changes in gold market values, and the competitive environment. This drove increases in our pawn service charges, but also decreased the margins on jewelry scrapping as the collateral from defaulted jewelry loans was scrapped.

Our melt price for the period averaged $675 announced, which we locked in at the beginning of the quarter, before the gold market shot up in September. With operating expenses well managed, the flow-through of the incremental revenues was strong. The resultants to operating income in our pawn segment grew by 24% over last year for the quarter.

For the entire year, pawn grew 9% net revenues and 19%, $10 million in store operating income. All in all it was a solid performance in EZPAWN.

Our EZMONEY signature loan segment recorded net revenue growth after bad debt of 31% in the fourth quarter. We ended quarter four with segment [P/E] growth of 40% compared to 38% in the same period a year ago.

Our same-store [P/E] growth for all stores over one year of age reflected considerable strength and grew at 23% over the same quarter a year ago. Overall, this is strong growth in a quarter, that's seasonally the weakest growth quarter of the year in payday lending.

Our bad debt was 31% of fees and this compares to 38% in the preceding quarter and 26% in the same quarter a year ago. Seasonally, the September quarter is one of the highest periods of bad debt. In fact, historically, it's been either the highest or second highest level of bad debt of fees for our entire time in payday lending.

The result of the store operating income and our EZMONEY signature loans segment grew by 16% this quarter over last year. Also want to take a moment and touch on new products in the EZMONEY segment.

As reported last quarter, we rolled out our installment loan product to 13 Texas stores and have been testing and fine tuning the product. Obviously, with the five-month term, it takes some time to understand consumer payment behavior throughout the entire loan cycle.

We expanded a total of 37 stores last month and we are now in a process of adding installment loans to an additional 60 locations next week. We will continue to rollout installment loans in a controlled manner in Texas with plans of offering this product within a 125 Texas stores by the end of the fiscal year.

Our rollout will be focused on stores located in markets with higher income demographics. In addition, we plan to move installment loan product beyond the State of Texas, sometime during 2008.

Our biggest challenge with this product has been fine tuning or underwriting. After several modifications we reached a comfort zone with a bad debt experience associated with this product. I want to share some interesting data on the installment loan with you.

The average loan is over $2,000. The average income of an installment loan customer is between $60,000 and $70,000 a year, and the threshold to qualify for installment loan is individual income of $46,000. Approximately one in six of the customers qualifying for this product is brand new, having never received a loan from us in the past.

Obviously, we feel installment loans provide a significant opportunity to expand our customer base and add incremental revenue. We also introduced a second new product last quarter, our debit card with overdraft protection. This was introduced in 15 stores and we've been modifying and reading this product since its introduction. For various reasons including a less-than-expected initial demand for the product, we have yet to expand it to additional stores.

One of the obstacles is the need for the customer to commit to direct deposit to the debit card account in order to qualify for the overdraft feature. We will continue to read and chart our path forward with this product based on consumer acceptance. For the entire year our EZMONEY segment grew 42% in net revenues after bad debt and 31% in store operating income.

Our third segment is Albemarle and Bond, A&B is a UK based operator of jewelry only pawn, payday loans, and check cashing stores. Last quarter we announced A&B's acquisition of UK's third largest pawn operator, Herbert Brown & Son Limited. The addition of the 26 Northern England stores brought in A&B's geographical reach and brought their total store count to 112 locations, the largest by far in the United Kingdom.

We maintained our position as the largest shareholder and have increased our ownership to just under 30% by investing an additional $13.4 million in A&B's recent offering. During fiscal 2007 A&B contributed $2.9 million to our pre-tax earnings from our equity interests. In addition, we realized $1.3 million in cash flow from dividends.

Since we report A&B's contribution on a quarter-like basis; our current year's earnings do not reflect the impact of the Herbert Brown acquisition. However, you can see the public market impact on the appreciation of our investment in A&B.

The public market value of our ownership at September end was approximately $90 million. At that same point in time our balance sheet reflected the asset at approximately $36 million. That's approximately $54 million in unrecorded appreciation over our book value.

If you see over the years, our share ownership in A&B has proven itself to be an excellent strategic investment. Our important business segment is EZPAWN Mexico. Although, the results of the four stores we opened are folded in to the EZPAWN results. I thought, I'd provide some color on the acquisition and our new store pro forma expectations. As I mentioned earlier, we closed on the Mister Money deal last month.

For approximately $15 million, we acquired 20 stores concentrated in Central Mexico, eight in an around Mexico City, seven in Veracruz, Jalapa, and five in the [Bahio] area. The total pawn loan balance is just over $3 million US, with an inventory of approximately $1 million. Store level operating income was approximately $2.7 million.

The stores range in age, from just under two years to one that opened in 1998, nine years ago. We are really excited about this acquisition, because we believe these stores have additional growth potential with excellent locations and a solid management team in place. Additionally, these stores would generate inventory, we can use to see new stores openings in Mexico.

Combining what we've learned from the four stores that we operate in Greenfield ourselves, and as well as the history with Mister Money stores, we are confident in the potential for new store development. We believe a new store will ramp up the loan portfolio, approximately $90,000 US at the end of the first 12 months of operation, and develop a matured portfolio, sometime during year two with modest growth in subsequent years.

We anticipate a yield of approximately 135% and a margin on the sale forfeited collateral of approximately 35%. Breakeven will occur on average between months six and eight, and we anticipate CapEx of between $75,000 and $100,000 to open a new store depending on the size and the facility characteristics.

So with that, I will turn it over to Dan for a little more detail on the numbers in the quarter and the year.

Dan Tonissen

Thanks Joe. Joe gave you an overview of some of the numbers, and I'll give you a little more detail, starting with our statement of operations, on page 3 of the earnings announcements. Now, I will start with the few comments on pawn net revenue.

For the quarter our pawn net revenues comprised of sales gross profit, which is lines 2 plus 3, less line 11. Pawn service charges, which you see on line 4 and other revenues on line 6, increased $5 million or 14% to $41.3 million.

Merchandise sales, line 2, increased $3.1 million or just over 10% to $33.1 million. Same-store sales growth for the quarter was approximately 3%. After a 1 percentage point margin improvement, merchandise gross profit. Line 2 minus line 9 increased $1.5 million or just under 13% to $13.5 million.

Scrap gross profit, line 3 less line 10, decreased $264,000 or roughly 5% to $5.4 million. During the quarter, we scrapped approximately $1.7 million grams of gold jewelry, a decrease of roughly 2% from the prior year quarter. Our proceeds per gram increased 7% to $10.08, while our cost per gram increased 13% to $7.16.

Included in jewelry scrapping sales is approximately $460,000 from the sale of loose diamonds. This is comparable to the proceeds from the sale of loose diamonds in the prior year quarter.

We typically forward contract our gold scraping, 30 to 90 days in advance, and as a result we only realized benefit from the run up in the gold market that we experience starting in September.

For the quarter we turned our inventory 3.5 times, and that compares to 3.3 times a year ago. Inventory levels per ending store at the end of the quarter were flat with prior year quarter at a $127,000.

Fund service charge revenues, line 4, increased approximately $3.7 million or 20% to just under $22.1 million. Same-store pawn service charge revenue increased 9%. Our annualized yield and our pawn loan balance improved one percentage points to a 145%, and our ending pawn loan balance was up 21% from the prior, 13% on a same-store basis.

Now let me just talk about the signature loan side of our business. For the quarter our signature loan contribution which line 5 less line 15 improved 30% to $20.8 million. The benefit of a 38% increase in our signature loan fee revenue line 5 was partially reduced by higher levels of signature loan bad debt related fees.

Signature loan bad debt expense which you see in line 15, measure as a percent of signature of loan fee revenues, line 5, increased to 31% compared to 27% for the prior year quarter. However this is 7 percentage points lower than the June quarter.

Looking at bad debt levels relative to loans originated in the quarter, our net defaulted principal as a percent loans originated came in at approximately 6% and this compares to 5.2% for the prior quarter. Loan originations for the quarter were up approximately 40% to $155.7 million. After higher levels of operation expense, line 14 administrative expense line 16, and depreciation and amortization line 17, operating income increased 28% to $16.7 million.

Increases in operations expense and depreciation and amortization are primarily due to new stores. The increase in administrative expense is primarily due to stock compensation, additional administrative staffing to support our growth, and inflationary increases.

Included in operating expense is an out-of-period charge, a store rent expense of $349,000 due to an error we discovered during the quarter in our lease accounting. Most of this out of period run expense is in our EZMONEY segment and $284,000 of that should have been applied to an earlier fiscal year.

These amounts were not material in the current quarter or any of the prior periods that would have been impacted. Operating income margins as percent of net revenues improved 1 percentage points, 1 point to 23.4% due to our pawn operations performance and lower levels of administrative expense relative to our net revenues.

Now, if you turn to page 6 of our earnings announcement for a couple of comments on our segment reporting, the EZPAWN operations segment and the EZMONEY operations segment.

Starting with the EZPAWN; after a 13% increase in our EZPAWN net revenues and a 6% increase in EZPAWN operations expense, our EZPAWN store level operating income which you see on line 15 increased 24% to $19.1 million.

Our operating income margins for our EZPAWN operations improved almost 4% points to just over 45% of net revenues. The 15 former Jumping Jack stores generated operating income of just over $800,000. After some incremental administrative expense and depreciation and amortization, we have realized an approximate $0.01 per share benefit from this acquisition in the quarter.

After a 31% increase in our EZMONEY signature loan contribution, which is line 4 less line 13, and increases in our EZMONEY operating expense line 12. Our EZMONEY store level operating income line 35, improved 29% to $8.5 million. The primary reason for the increase in EZMONEY operations expense is the 99 net new locations.

This is EZMONEY result, include an approximate $1.4 million drag from new stores, which was flat with the prior year quarters' new store drag.

Operating income margins for EZMONEY operations decreased 6 percentage points to just under 29% of EZMONEY net revenues, line 9. That's primarily due to the higher levels of bad debt, compared to the prior year period and the auto period run charge that I mentioned. For the quarter, our EZPAWN segment made up approximately 69% of our store level operating income.

Now a few comments on the balance sheet on page five, the earnings announcement. You can see that we have approximately $22.5 million of cash which you see on line 3, on our balance sheet. Roughly, $17.2 million of this amount is non-operating.

You can see that our payday loan balance on line 5, almost doubled in the last 12 months to $4.8 million. Not included on our balance sheet is $23.3 million of loans brokered with an unaffiliated lender.

These brokered loans increased 28% in the last 12 months. Our investment in Albemarle and Bond or A&B is carried on our September 30 balance sheet that's just under $35.7 million and you see this on line 14. This includes our additional investment of $13.4 million, which we announced on July 11.

Using September's ending closing price on Albemarle and Bond's stock of 2.68 pounds, and an exchange rate of $2.05 per pound, our 16.3 million shares, including the shares acquired in July, would have a market value of just under $89.6 million. This represents approximately a $1.31 on a reported book value per share.

You see on lines 35 and 36 that we ended the quarter with 298 pawn locations and 433 signature loan locations. Now let me give you a little bit more, a couple more data points on the Mexico acquisition.

You know, as Joe mentioned we closed on the acquisition on Monday, October 22nd. We acquired 20 operating locations which were located in Central Mexico, as well as the headquarters which is in Queretaro. The transaction was an asset purchase and we acquired $3.2 million of pawn loans, roughly a $160,000 per store and about $1.2 million in inventory, including the inventory which is inlay it was.

The total consideration in closing cost was expected to be approximately $15.4 million, including just over $1 million in non-recoverable [EVA] or bad tax on a portion of the transaction.

In the next 12 months, we expect these stores to generate approximately $3.5 million of store level operating income before depreciation and amortization and approximately $2.2 million after administrative expense. This would represent approximately $0.03 per share.

As Joe mentioned, we view this as a strategic investment, which will give us the infrastructure and scale to accelerate our growth in Mexico.

Now, let me turn the call back over to Joe.

Joe Rotunda

Thank you, Dan. Looking forward, we will maintain the same intensity on growing the business, improving profitability, and strengthening our balance sheet as we have over the past seven years, and we continue to expect all business segments to contribute with year-on-year growth and improvements in earnings contribution.

In our EZPAWN Operations, our guidance incorporates same-store mid-to-high single-digit growth in net revenues. Included in this is an average market price of gold at $750 an ounce for the year. In addition, the Jumping Jack Cash acquisition's layered in incrementally for the first three quarters of the year.

For our EZMONEY signature loan segment, we are planning to continue our strong growth trend. Organically, we'd expect significant double-digit same-store loan growth. We expect our bad debt to be in the range of 26% to 29% for the new year, fluctuating seasonally by quarter.

Our guidance on store growth is to add approximately 100 new EZMONEY stores. The new store builds will be in our existing 11 states plus the addition of Missouri during 2008.

In our Mexico pawn segment, we're going to focus on assimilating the 20 acquired stores in to our infrastructure during the first quarter. We will follow this immediately with the integration of our four existing Mexican stores in to their operations. During the new year, we plan to add between seven and 10 new pawnshops in Mexico, and in 2008 with a store count in the range of 31 to 34 locations.

All-in-all, we're providing guidance for fiscal 2008 of $1.12 in diluted earnings per share versus 2007s $0.88, an improvement of 27%. We expect first quarter EPS of $0.28 as compared to last years' $0.23, an improvement of 22%.

While we were pleased with what we've accomplished over the past several years, and this past year in particular, our excitement grows as we contemplate the potential we still have in front of us.

That concludes our prepared comments for today. Dan, if you'll read the safe harbor, we'll go on to questions.

Dan Tonissen

This conference call and earnings announcement contains certain forward-looking statements regarding EZCORP's expected performance for future periods, including but not limited to new store expansion, expected future benefits of acquisitions and investments, and expected future earnings.

Actual results for these periods may materially differ from these statements. Such forward-looking statements involve risk and uncertainties, such as changing market conditions in the overall economy and the industry, consumer demands for the company's products and services, actions of third parties who offer services and products in the company's locations, changes in the regulatory environment, and other factors periodically discussed in the company's annual, quarterly, and other reports filed with Securities And Exchange Commission.

Lisa we'll now open up the call to questions

Question-and-Answer Session

Operator

(Operator Instructions). Our first question comes from the line of Daniel O'Sullivan of Utendahl Capital Management. Please proceed

Daniel O'Sullivan - Utendahl Capital Management

Yes. Hi Joe and Dan, thanks for taking my questions. Great quarter guys.

Joe Rotunda

Thanks Dan.

Daniel O'Sullivan - Utendahl Capital Management

Quick question. Out of the entire group, I have to say you guys actually came right in line with my last expectations. Most other companies are little bit higher. May you can expand ….

Joe Rotunda

We lost you, Dan. Lisa

Operator

One moment, his line did [drown]. Please proceed Mr. O'Sullivan

Daniel O'Sullivan - Utendahl Capital Management

Can you guys hear me now?

Joe Rotunda

Yeah

Daniel O'Sullivan - Utendahl Capital Management

Okay, great, sorry about that. Yeah I was asking about loan losses. I made a comment that you guys came in right in line with what I was looking for during the quarter as opposed to some others in this space, which were higher. So wondering, if you guys may be have tweaked the underwriting or your collections, what are your thoughts on loan losses for the quarter?

Joe Rotunda

We did basically what we talked about last quarter. And, if you recall, in quarter three we saw that is an opportunity to expand market share and we reduced, we adjusted some of our underwriting. We were very aggressive at the beginning of the quarter, and as we saw our losses, our bad debt, began to increase, all we did was adjust our underwriting.

We thought we brought it back in line as we moved through the end of the June quarter, and it was pretty much on projection with in a point or so of where we thought it would be this quarter.

Daniel O'Sullivan - Utendahl Capital Management

Okay.

Joe Rotunda

Basically we just followed it through with what we said we were doing.

Daniel O'Sullivan - Utendahl Capital Management

Great. Do you guys feels like you picked up some market share in Texas?

Joe Rotunda

Texas performance has been good. What was really encouraging for us in the quarter was the growth that we had in fees was actually higher than the same growth we had in this quarter a year ago, we were a couple of points higher.

And when you consider the fact that we added about the same number of stores through the quarter end and through the year, a 100 stores on the basis today of 400 stores that will give you the same lift that a 100 stores does on a basis of 300 a year ago or 200 a year before that. So, we were pleased with the performance we had in the growth of business now.

As far as taking away from our competitors or peers, I am not sure about that. I believe, as I stated so many times before, this is probably $100 billion marketplace, and our industry is only scratching the surface. We still have (inaudible).

Daniel O'Sullivan - Utendahl Capital Management

Okay. Well, I mean, if we take a look at the Texas market, in particular, there is a lot of focus out there that as of way I have been mentioning more competition and saturation in that market. What your thoughts there?

Joe Rotunda

Basically, as I said in past I don't know believe we are anywhere near saturation and I think, I said on the last earnings call or the one before that, we could probably add another a couple 100 stores in Texas and continue to grow the marketplace.

Daniel O'Sullivan - Utendahl Capital Management

Okay. And Joe, I am sorry, there is (inaudible) just a few couple of minutes of the conference call at beginning. Did you talk about your consumer loan product and how that's ramping up?

Joe Rotunda

I talked about the installment loan.

Daniel O'Sullivan - Utendahl Capital Management

Okay.

Joe Rotunda

We are quite pleased with that and we believe we have arms around the underwriting and managing the bad debt and we are continuing to expand it. We will throughout Texas and windup with 125 stores by the end of fiscal year '08 in Texas and we will take it outside of that state as well.

And the debit card with overdraft protection, the customer take up hasn't been near where we thought it would be and I believe that the primary obstacle or issue we have there is that requires the customer to commit the direct deposit of their income into the debit card account and that seems to be some what of the hindrance on growing it as we thought we would but we're continuing to watch it.

Daniel O'Sullivan - Utendahl Capital Management

Okay. And one last question just given where we think gold prices over the last few weeks have you guys been opportunistic and maybe scrap it little more than you normally would?

Joe Rotunda

Yeah that scrapping more we have sort of locking in some prices, so we would get out in November, December.

Daniel O'Sullivan - Utendahl Capital Management

Okay. And how does that impact the loan to value ratio? Have you yet to move that up, I mean, there has been competition in that area?

Joe Rotunda

We haven't, we are still watching that we haven't made any changes in the last 30 days, we've made several changes, as you know, during this past, latter half of this past fiscal year and with that we've been quite pleased because we build our portfolio nicely and our redemptions have been good and the yield's been very good.

We haven't had the forfeitures that we've had in the past and we haven't been scrapping with the kind of growth that we've had in scrapping in the past. We are continuing to watch it, we haven't been much more aggressive with pricing at loan [value share].

Daniel O'Sullivan - Utendahl Capital Management

Okay. And one last quick one, given where the stock has been and you guys are sitting at almost $23 million in cash down in September, if you guys can give any consideration through a buyback, has the Board discussed that a lot?

Joe Rotunda

We've discussed a lot of different alternatives, Dan and we still believe that the long-term benefit to our shareholders is best served by continuing to invest in earning assets and that's what we are continuing to look for.

Daniel O'Sullivan - Utendahl Capital Management

Okay. So, that wouldn't preclude acquisitions in 08 then?

Joe Rotunda

No, we are very interested in acquisitions that make good economic sense.

Daniel O'Sullivan - Utendahl Capital Management

Okay, great. Again nice performance this quarter guys, thanks.

Joe Rotunda

Thank you.

Operator

Thank you Mr. Sullivan. Our next question comes from the line of Dennis Telzrow of Stephens Inc. Please proceed.

Dennis Telzrow - Stephen Inc.

Good afternoon, Joe and Dan.

Joe Rotunda

Hi Dennis.

Dennis Telzrow – Stephen Inc.

Joe on installment loan product, refresh my memory on what right were charging there and how's that structured?

Joe Rotunda

It's a five-month product, if you use an APR to calculate the type of rate that's associated with it. It's about 70% or 75% of the rates on a traditional payday loan.

Dennis Telzrow - Stephen Inc.

Okay. And the [pawn] rate there is too soon to tell where they sort of go out, I guess, you haven't had it out there long enough?

Joe Rotunda

We have quite a few loans that are out there, but they are layered with the different levels of underwriting we had, because again it's a five-month loan and as we measured the customers' behavior.

In last quarter I actually covered with you all two things that we did to adjust the underwriting and one of which was going to a different type of evaluation, a more thorough evaluation of the customer with even quasi scoring model, and then moving in to direct ACH debit as a convenience to the customer on their payday or the installment payments, and those are the two of the major tweaks that we made in that.

We have with those three layers of different types of underwriting that we were watching, and that's what's given us the confidence as we have seen the evolution of the customer's behavior, as those changes that have been made to move forward with the product now. And it probably would be slightly higher than the typical payday loan. Loss rate would be as a percent of these.

Dennis Telzrow - Stephen Inc.

And you mentioned possibly going to other states, obviously those would have to be states that have an appropriate law or I guess or has a CSO is that correct?

Joe Rotunda

That is correct. We would certainly do it under the auspices of the appropriate regulations that will allow us to do it.

Dennis Telzrow - Stephens Inc.

And Dan, from a cash flow standpoint, how much free cash flow do you think you throw off in '08 excluding any acquisitions obviously?

Dan Tonissen

Well, if you look at the trailing EBITDA, probably about $65 million, maintenance CapEx is going to be at the probably around $5 million to $6 million, and then the growth in 100 stores that's roughly $50,000 to $60,000 each, and then limited expansions, limited capital used in Mexico. It will be substantial; I would say in excess of $40 million.

Dennis Telzrow - Stephens Inc.

$40 million in excess in free cash flow

Dan Tonissen

Yeah.

Dennis Telzrow - Stephens Inc.

Right. Okay. And Joe obviously the challenge in Mexico is building inventories, it just takes maturity to stores for that to happen I guess?

Joe Rotunda

It does. And I think that we could probably expand a little faster to first year, except we are going to go through the pain of assimilation of the business. We are going to change the operating systems in the stores that are in Mexico to our EZ system here. There are a lot of features that [Jose Manuel Fernandez] who runs the business there has found very attractive that will enhance the performance of the stores there.

When you will change the operating system and you have to go through the entire organization and teach them how to use it, a little different approach to loan values and so forth. It's going to command a lot of attention for the first three or four months, and we are going to begin slowly then after that to expand.

We think there will probably be enough inventory to do what we need to do, because most of the stores, most of the inventory there is general merchandise, and jewelry is the one category of goods that we can move in as long as it's NAFTA identified product, we can move into Mexico.

We think that the first year we will start a little slow and then we will accelerate it after there, and we think the inventory issue will be taken care of.

Dennis Telzrow - Stephens Inc.

Okay. Thank you very much.

Operator

Thank you, Mr. Telzrow. And there are probably no questions waiting from the phone.

Joe Rotunda

Okay. Well, thank you all. We really appreciate your time and your continued interest in EZCORP.

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