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EZCORP (NASDAQ:EZPW)
Q4 2019 Earnings Call
Dec 05, 2019, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good afternoon, ladies and gentlemen, and welcome to the EZCORP's fourth-quarter and full-year fiscal 2019 earnings conference call. [Operator instructions] As a reminder, this call may be recorded. I would now like to turn the conference over to Michael Kim, Investor Relations. Please go ahead, Michael.

Michael Kim -- Investor Relations

Thank you, and good afternoon, everyone. During our prepared remarks, we will be referring to slides which are available for viewing or download from our website at investors.ezcorp.com. Before we begin, I'd like to remind everyone that this conference call as well as the presentation slides contain certain forward-looking statements regarding the company's expected operating and financial performance for future periods. These statements are based on the company's current expectations.

Actual results for future periods may differ materially from those expressed or implied by these forward-looking statements due to a number of risks and other factors that are discussed in our annual, quarterly and other reports filed with the Securities and Exchange Commission. And as noted in the presentation materials, and unless otherwise identified, results are presented on an adjusted basis to remove the effect of foreign currency fluctuations and other discrete items. Now I'd like to turn the call over to Mr. Stuart Grimshaw.

Stuart?

Stuart Grimshaw -- Chief Executive Officer

Thanks, Michael. Good afternoon, and welcome to the fourth-quarter results. If we turn to Page 4 of the presentation, I'd like to highlight a few of the key themes for the quarter. The board has approved an up to $60 million share repurchase program of our Class A Non-Voting common shares over a three-year period.

This decision reflects our commitment to driving shareholder value through the efficient and effective use of capital. Supporting the decision of the board has been the strengthening of our balance sheet with a cash balance of $162 million at September year end. You'll also remember that we repaid the $195 million June 2019 convertible note at maturity. Our next bond maturity is in 2024.

For the 2019 financial year, we opened 22 de novo stores in Latin America and are targeting a further 40 throughout the 2020 financial year. We also acquired seven stores in Nevada in June 2019. As we mentioned on the last call, we remain disciplined on the acquisition front. And while we continue to see attractive opportunities, the vendor asking process do not reflect the desired returns and ROC targets that we have for ourselves.

The new point-of-sale system was successfully rolled out across all stores in the U.S. and Mexico in October of this year. From a management perspective, we've achieved a lot over the past four years, with EBITDA more than doubling. LatAm presence expanding, resulting in the LatAm EBITDA CAGR of 36% since 2017; strong cash generation in fiscal 2019 with $112 million free cash flow and collection on notes receivable; our continued sound performance from the U.S.

business; and importantly, simplifying the business with a sale of Grupo Finmart as well as the closure of our U.S. financial services business. Turning now to Slide 5. Simplistically, this chart shows that we've followed a disciplined path of growth that has seen an EBITDA CAGR of 20% per annum from 2015 to 2019.

As we have highlighted, this growth has been driven by focusing that business back onto our core customer via the Pawn business, supported by strong operational performance, acquisitions, de novo store openings and expense control. On Page 6, this shows the strong free cash flow generated by the business as well as the collections of the notes receivable from the sale of Grupo Finmart business. To date, we've received $96 million from the purchases of that business. You can see the material change in free cash flow generated from fiscal 2018 of $59 million to $77.9 million in fiscal 2019.

On Slide 7, we look toward the more strategic objectives. We continue to focus on serving and satisfying our customers' need for cash, and we have seen this focus play out through a history of long-term PLO growth. As mentioned, we opened 22 stores in fiscal 2019, 10 in the fourth quarter of this year and plan to accelerate this to 40 in fiscal 2020. We remain disciplined on the acquisition front and coupled with an effective capital management strategy have authorized a three-year up to $60 million share repurchase program.

Our digital platform is in the beta stage with anticipated public release by the end of this calendar year, initially in Texas and Florida. We believe this platform, now called Lana, will enhance the retention and acquisition of Pawn customers as well as attract completely new customers to this platform. And with that, I'll hand over to Danny.

Danny Chism -- Chief Financial Officer

Thanks, Stuart, and good afternoon. I want to start by flushing out the share repurchase authorization we announced in conjunction with the earnings that Stuart mentioned a moment ago. At a high level, we remain focused on allocating capital to opportunities that can deliver the highest long-term returns to our shareholders. In light of the disconnect we see between the value of our core business and the stock's current valuation, we see EZCORP stock as one of the highest investment return opportunities with a favorable risk reward relationship, that also allows us to return capital to shareholders in a tax-efficient manner. The board's approval of a share repurchase program of up to $60 million over the next three years reflects the strength of our balance sheet, combined with a strong free cash flow generation of the business. To that point, we ended fiscal 2019 with $162 million in total cash on hand, and our net cash from operating activities continues to build.

Including collections on notes receivable, we generated $112 million of free cash flow in fiscal 2019, up 23% from the prior year. Looking back over the past three years, free cash flow plus AlphaCredit payments on those notes receivable, have compounded at a 33% annual growth rate. We maintain ample capacity for continued growth investment in the form of new store development, funding Pawn loan growth, investments related to building out our digital capabilities, repurchasing shares and capitalizing on M&A opportunities, all evaluated against our strategic and financial criteria. We're adopting an opportunistic methodology to repurchasing shares based on a number of factors, consistent with our overall approach to capital management of maximizing returns. And understanding that from time to time, we may be precluded from repurchase activity when we have access to nonpublic information, such as regarding potential M&A activities or during other blackout periods. On the investment side, we plan to accelerate new store openings in Latin America, as Stuart mentioned, with around 40 new stores or nearly double the 22 stores we opened in fiscal 2019. From a return perspective, new stores typically carry returns on invested capital in the range of 30% to 35% by year five.

The related upfront cost typically pressure near-term earnings for the first six to nine months and reduce overall operating margins until the stores mature. Turning to our financial results. On a GAAP basis, we reported a loss of $0.01 per share for the fiscal fourth quarter, representing a $0.01 per share improvement from the prior year quarter. Included in the GAAP results were $2.7 million of costs related to the build-out of our digital platform, $2 million for our portion of discrete charges recognized by Cash Converters, $1.9 million related to the expiration of a call option on an unconsolidated affiliate following their third-party capital raise, $1.7 million of due diligence costs on an acquisition that we ultimately walked away from and other smaller discrete items. GAAP results also include noncash interest expense related to our convertible debt, which is added back in our adjusted figures. On an adjusted basis, we reported diluted earnings per share of $0.19 for the fiscal fourth quarter of 2019 and $0.90 for the full year, up from $0.86 in the prior year on an apples-to-apples basis.

Subsequent to fiscal year end, on October 21, Cash Converters announced an agreement to settle its remaining class action lawsuit. As part of the settlement, Cash Converters is expected to pay AUD 42.5 million, with cash on hand and cash flow from their operations. Based on our minority interest in Cash Converters and translation to U.S. dollars, we will recognize an estimated $10 million noncash charge in our fiscal 2020 results once the settlement is approved by the court.

We're pleased to see Cash Converters put this matter behind them, as are their shareholders, indicated by the 70% share price appreciation since September 30. As shown on Slide 9, we grew EBITDA by 2% in fiscal 2019, and longer term trends remain favorable. Consolidated EBITDA compounded at an annual growth rate of 17% over the last three years, fueled by strong growth across Latin America, complemented by steady contributions from our U.S. Pawn operations. While margin expansion took a pause in fiscal 2019, much of the downtick related to the rightsizing of aged inventory levels and the seasoning of new stores.

I expect some continued pressure on short-term EBITDA margins in Latin America as we accelerate new store openings in fiscal 2020. Turning to the adjusted highlights on Slide 10. Total revenues were up $9.4 million or 5% year over year, reflecting a 37% increase in scrap sales, 3% growth in merchandise sales and a 2% uptick in pawn service charges, or PSC, all of which contributed to the increase in free cash flow. Ending consolidated pawn loans outstanding, or PLO, was up 1% year over year, primarily reflecting acquisitions and new stores, with average PLO during the quarter increasing 2%, driving a similar growth rate in PSC as related yields remain consistent with the prior period. As noted on our last earnings call, PSC in the U.S. and Mexico was negatively impacted during the quarter by a 24-hour system outage on July 9, as well as the knock-on effects related to the system performance issues in the May to June time frame, both of which were resolved by mid-July. We estimate the July system outage cost us about $0.03 to $0.04 EPS in the fourth quarter and the May to June system issues decreased EPS another $0.03, spread between Q3 and Q4, as these issues affect not only sales, but the loan portfolio in which pawn service charges are earned.

Other than the outage, there were no further system performance issues in Q4. And POS improvements implemented mid-July significantly enhanced processing speeds and stability. Merchandise sales grew 3% in total, while same-store sales growth came in at 2%. Same-store sales growth in both the U.S. and Latin America slowed partially due to our system issues as well as some social welfare programs recently instituted in Mexico.

Overall merchandise margins declined to 33% for the quarter as a result of our focus on reducing aged inventory year over year from 8% to 6%, optimizing loan-to-value ratios and improving the cash-to-cash cycle. Turning to scrap. Sales and gross profits during the fiscal fourth quarter were both up strongly year over year on a step-up in related volumes. That said, our scrap gross margin ticked down due to liquidating older merchandise with a higher cost basis as well as lower diamond prices and higher processing fees in Mexico, partially offset by higher gold prices. Adjusted corporate expenses of $12.1 million or 12% lower than the prior year quarter on a reduction in incentive compensation and an unrelated $800,000 benefit I would not expect to repeat. For the quarter, EBITDA was down year over year, primarily reflecting lower sales gross profits, higher operating expenses, higher loan loss provision at CASHMAX and an $800,000 reduction in income from Cash Converters. Adjusted EBITDA was up 2% for the full year compared to fiscal 2018. The adjusted effective tax rate for the quarter was 20%, leading to an overall tax rate for the year of 27%.

Looking ahead, I expect the tax rate to be in the low to mid-30% range for fiscal 2020. Turning to the U.S., Pawn highlights for the quarter on Slide 11. Same-store loan growth came in at 1% for the quarter, with ending Pawn balances up 2%. In turn, PSC increased by 1%, as growth in the average PLO balance for the quarter was partially offset by 170 basis point downtick in yields. Merchandise sales in the U.S.

were flat year over year, while related margins softened 320 basis points to 35%, given the incremental discounting to move aged merchandise. Aged general merchandise stands now at 6%, down meaningfully from 9% at the end of fiscal 2018, reflecting the effectiveness of our inventory management. At a high level, operating expenses remained well-managed in U.S. Pawn, which should drive margin expansion over time assuming reaccelerating revenue growth. More tactically, fiscal fourth-quarter expenses were skewed by $0.5 million workers' compensation charge from a single large claim, compared to an $800,000 credit in the prior year quarter. While segment EBITDA was down year over year, mostly reflecting lower merchandise sales gross profits and higher labor costs, full-year EBITDA in the U.S.

was up 1% versus fiscal 2018. Now focusing on Latin America on Slide 12. PSC was up 3% compared to the prior year period on a higher average loan balance for the quarter and more favorable yields. In addition, merchandise sales were up 11%, and same-store sales were up 8%, though merchandise margins declined as we remain focused on optimizing loan-to-value ratios, reducing aged inventories and maximizing sales gross profits. To support the company's efforts to reduce inventory and improve the cash-to-cash cycle, the Latin America segment conducted a deeper jewelry poll than in the past.

While this created some margin headwind in the quarter, it increased the cash generated from jewelry scrapping sales by $1.9 million or 56%. The ending PLO, which will affect the pawn service charges in the beginning of fiscal 2020, was down 1% year over year, and the same-store balance was down 3%. The ending PLO reflects recent social welfare programs in Mexico, meeting the cash needs of some of our customers in the May to July system issues previously discussed, with same-store Latin America loan balances up 2% outside of Mexico. Turning to expenses. Latin America operating costs were up 15%, reflecting store licensing requirements enacted in Mexico; higher label related and rent expenses; costs related to new, relocated and expanded stores; and an increase in robbery losses and related security costs.

Looking ahead, we recently hired a new Latin America divisional CFO, partly to enhance oversight and refined focus on improving operating efficiencies. For the fiscal fourth quarter, segment EBITDA was down year over year, primarily driven by lower merchandise sales gross profits and higher operating expenses. Full year EBITDA in Latin America was up 5% versus fiscal 2018. Finally, I wanted to provide some perspective as we enter fiscal 2020. At a high level, it will take a few additional quarters to begin to realize the full benefits of our investments in technology, distribution and customer service. That said, we remain confident our strategic initiatives will drive long-term growth of free cash flows and higher returns on earning assets over time. More specifically, the flatter trajectory of PLO growth more recently, partially driven by recent system issues, combined with the social benefit programs in Mexico, will likely continue to pressure PSC and related earnings in the near term.

Our ongoing focus on reduced -- reducing aged inventory on our balance sheet likely remains a headwind for merchandise sales and margins in the coming quarters. Turning to expenses. We believe the system issues are now behind us after mid-July, but we're still working and are making additional investments to ensure these do not recur. That said, as Stuart mentioned, we recently completed the rollout of our new point-of-sale system, providing a solid foundation to improve lending decisions, thereby driving higher yields, PSC and net revenues over time and enhancing our team members' ability to provide excellent customer service. While it's still early in the stores that have had the system a bit longer, we've already seen some improvement in yields versus stores that got it later. We remain focused on controlling expenses, enhancing productivity and optimizing leadership structures in the field, which we believe will drive higher margins and EBITDA growth longer term, but these will take a bit of time to work through the system. From a cash flow perspective, receipts from the AlphaCredit notes receivable will reduce substantially in fiscal 2020 from the $30 million to $34 million we've received annually over the last three years.

The total remaining balance due was down to $8 million at the end of fiscal 2019. With that, I'll turn the call back over to Stuart.

Stuart Grimshaw -- Chief Executive Officer

Thanks, Danny. And we'll now open it up for questions.

Questions & Answers:


Operator

[Operator instructions] Your first question comes from John Hecht from Jefferies.

John Hecht -- Jefferies -- Analyst

Good afternoon, guys. Thanks very much. Just trying to get a sense for some of these one-time questions. You talked about RDC, the call options that maybe -- I'm not aware what that is.

Can you tell us some background on that?

Stuart Grimshaw -- Chief Executive Officer

Yes, RDC is a Chemical Rich Data Corporation. We've got a 13% interest in that. That's facilitated a lending platform that goes with our Canadian operations. They did a capital raise during the year.

And we had a call option that was attached to it, which expired, and that was just the theoretical value of that call option being written off.

John Hecht -- Jefferies -- Analyst

OK. And then I understand the upcoming charge with Cash Converters instead of velocity, but there were some discrete items charge this quarter. What's the background of that?

Stuart Grimshaw -- Chief Executive Officer

Yes, those were some that actually Cash Converters took on their books. So they recently got a new CEO in there, wrote off a bit of software. They had increased reserve on some loans receivable, number of other things that -- I think it was about AUD 12 million total that they took a charge. So five or six unique items that they specifically called out in their earnings pre announcement.

John Hecht -- Jefferies -- Analyst

And then the final one is the digital platform, there's a discretionary that's empowered those aside from the -- these -- I guess how are they discrete or different from some of the investments in the point-of-sale stuff?

Stuart Grimshaw -- Chief Executive Officer

Yes. So primarily around Lana, I think, is what you're -- the section you're asking about, some of the discrete investments in technology is where we're investing -- what we've traditionally called Evergreen that now is branded as Lana.

John Hecht -- Jefferies -- Analyst

So I see. So you're adjusting simply because it's discretionary, you're doing it as a one-off expense, not a recurring expense. Is that the way to think about it?

Stuart Grimshaw -- Chief Executive Officer

Yes, we've adjusted Lana throughout the year for the -- in adjusted financials.

John Hecht -- Jefferies -- Analyst

OK. And then where will the source for next year?

Stuart Grimshaw -- Chief Executive Officer

Sorry. By the way, John, on that, I just want to let you know we will -- going into this next year, we would not plan on adjusting for Lana. So that's one that -- yes, we'll -- it should start producing revenue here fairly shortly. So we'll either put that into the other segment that we've gotten now or report it as a separate segment probably.

But I would not expect that to be an adjustment going forward.

John Hecht -- Jefferies -- Analyst

OK. And then you might have mentioned this on the call but the locations of store openings that you're expecting next year?

Danny Chism -- Chief Financial Officer

That will be in Latin America, with the majority being in Mexico.

John Hecht -- Jefferies -- Analyst

OK. And then last question, and I appreciate you guys investing on these. We've heard about the impact of seven social welfare programs in the Latin America from your peers, so that's not terribly surprising. But I'm wondering if you can give us a sense for how long you think this would be sustained based on your knowledge or you have the political environment down in Mexico?

Stuart Grimshaw -- Chief Executive Officer

Yes, we're a little surprised that the social welfare programs come into place as with the management team down there. I'm sure our peers were also. We're still seeing cash in the economy. So those programs are still working their way through, and it's coming after bonus time for most of the work.

And so we'll see a sustained cash probably through till January, February of next year. We -- I'm not an expert on Mexican politics and how AMLO thinks. We think it should run its course by then. But as we were surprised by these programs, I couldn't give you comfort that they won't reappear again, John.

John Hecht -- Jefferies -- Analyst

OK. Thank you, guys, very much.

Stuart Grimshaw -- Chief Executive Officer

Thank you.

Danny Chism -- Chief Financial Officer

Thanks, John.

Operator

Your next question comes from the line of Vincent Caintic from Stephens.

Vincent Caintic -- Stephens Inc. -- Analyst

Hey, thanks, good afternoon.Actually, continuing on that line, I thought of the social welfare programs. If you could -- is there a way to size perhaps the impact that that's had to this quarter's results? And maybe an idea if you can help us of how to think about that into the next quarter, what you're seeing so far? And then maybe just taking a step back. So I know First Cash has discussed this as well. But just in your words, if you could describe exactly what's going on and if -- one of the debates is whether or not this is a one-time payment or an ongoing payment? I'm not sure if you could maybe elaborate on that?

Danny Chism -- Chief Financial Officer

Yes. It continues to be a little bit more ongoing payment right now. So the question, Stuart was alluding to is how long do they continue to do it. I mean if President López Obrador wants to continue it, it could continue for a good while.

But I think a lot of that's probably an initial impact that they're looking for. As far as sizing, that's a little bit more difficult to isolate it. But that was one of the things that I had tried to call out as well. And I know it's a little tough to parse it out. But we saw a 3% decrease in same-store loan balance in Latin America overall.

But when I look at Latin American territories, excluding Mexico, it was actually a positive 2% same-store loan growth. So that doesn't tell you directly the income statement impact, but gives you an idea of kind of the impact on the portfolio that flows through the pawn service charges.

Vincent Caintic -- Stephens Inc. -- Analyst

OK, gotcha. And then on the flip side, so you have the pawn business and you have the retail business. So more of your customers have cash in their pockets. Have you seen maybe an offset somewhere on the retail side? And do you see your customers having the propensity to spend more?

Danny Chism -- Chief Financial Officer

Yes, we've seen a little bit of that. It's -- the nice balance in the business that you generally see is exactly that. So it's been nice to see that they -- when they do have cash, they are actually spending a bit on merchandise. I would not say, I see it as a complete offset, but we've seen a bit of an offsetting improvement there.

Vincent Caintic -- Stephens Inc. -- Analyst

OK, got you. OK. Shifting gears a bit to the Lana platform. So maybe two questions.

So the discretionary strategic investment, I guess, that's an ongoing investment and maybe if the size of that kind of stays, should we expect that sort of $1 million per month to continue along that rate? And then going forward, now you're going to have this -- you're going to have revenues associated with that?

Danny Chism -- Chief Financial Officer

Yes, I would expect the spend probably to slow a bit on that, Vincent. We're -- last year, the total spend was about $13.6 million. About $6 million of that was capex and the rest of it flow through opex. I would expect next year, the capex to slow fairly substantially, probably closer in a $1 million range or so for the year.

Depending on responsiveness from the customer, whatever we -- or introduction, development of new products, we may accelerate that some. But that's in a current trajectory plan. And I would expect the opex to be somewhere around probably a $7 million to $8 million total spend. So in total, probably a $6 million to $7 million spend versus the $13.6 million last year.

Vincent Caintic -- Stephens Inc. -- Analyst

OK, gotcha. And has the product offering changed much from when it was called Evergreen. So it's going to be like an online, sort of, virtual pawn capability. Is that still similar? Is there any differences from what Lana is now?

Stuart Grimshaw -- Chief Executive Officer

It's still list writing, it's got a bank account with a debit card attached to it. And there's no minimum balance on the bank account. So in the beta trials, that's had some very strong feedback, and we're going to also extend loans, extend the pawn loans without having to be in the store that's developed in beta trials as well. It will continue to roll out functionality as we see how our customers react to the offerings.

But we -- as I said in my comments, we believe it's actually a really huge move to be able to renew the pawn loans without being in the store. And we think it will also attract new customers to the business just through the bank account offerings.

Vincent Caintic -- Stephens Inc. -- Analyst

OK, gotcha. Last one quickly for me. So on Cash Converters, it's nice to see that stock has improved a bit. Your stock has declined.

I'm just kind of wondering how you're thinking? Similar question to maybe what I had last quarter, but how you're thinking about your ownership of Cash Converters as sort of the core long-term owning for you? Or is it something that the stock has appreciated, maybe this stuff has now been settled, and you've got to buyback on your own, where maybe you can switch over to buying your stock. Is there any thoughts?

Stuart Grimshaw -- Chief Executive Officer

Well, the board has looked at it pretty much every quarter and assess it. We have a reasonably significant holding in that stuff. We think the business model they have is actually a reasonably sound business model. The risks that we had seen in the business, sitting around the class action, have all been mitigated.

So we would actually -- we're looking to see how that stock performs before rushing in and thinking about it in a way. But the one thing I will tell you is that our board is having quarterly updates on this in assessing the usage of that capital in line with everything else that we do as well.

Danny Chism -- Chief Financial Officer

Vincent, the one other I would mention to you on the numbers on Lana, also, as I would just point out, I would expect as we put that asset into use, we'll start depreciating that. So I'd expect about $1.2 million, $1.3 million of depreciation that come through on that this next year as well.

Vincent Caintic -- Stephens Inc. -- Analyst

Great. Thanks for the details.

Danny Chism -- Chief Financial Officer

Yup.

Operator

Your next question comes from the line of Greg Pendy from Sidoti.

Greg Pendy -- Sidoti and Company -- Analyst

Thanks for taking my questions. Can you just remind us what the cadence throughout the year on the digital line item was? Was it front loaded or was it roughly $2.5 million to $3 million per year -- per quarter?

Stuart Grimshaw -- Chief Executive Officer

It was pretty much a fixed charge of about $1 million a month. That was pretty fixed all the way through. We had a little bit at the start of the year.

Danny Chism -- Chief Financial Officer

We have about $2.1 million in the first quarter. It was all opex.

Stuart Grimshaw -- Chief Executive Officer

And then it ran through at about $1 million a month, and 65% of that was pretty much expensed.

Danny Chism -- Chief Financial Officer

Yes. All right.

Greg Pendy -- Sidoti and Company -- Analyst

OK, that's helpful. And then can you just kind of give us a little bit of color, I guess, whether it's on track to launch Evergreen by year end? Is that going to be throughout just the U.S.? Or is that going to be both U.S., Latin America? And is it going to be expected to be integrated with all your stores? Or is it just a -- is there going to be some gradual?

Stuart Grimshaw -- Chief Executive Officer

It will be a gradual roll out, Greg. The -- we're looking at Texas and Florida to start with, and that's 60% of our U.S. stores. We haven't put it into Mexico as yet.

We're looking at that, but we actually want to make sure that we have a fully functioning platform for any further migration. But we've got a little bit of a trial going on at the moment in the beta stages. And we'll continue all that during the course of the next calendar year.

Greg Pendy -- Sidoti and Company -- Analyst

OK. You'll go product by product? Or is it going to be, I guess, all products or --

Stuart Grimshaw -- Chief Executive Officer

Yes. As the platform continues to develop its functionality, we'll roll out as the functionality keeps improving. So it will -- as it stands, it will be rolled out across the states that apply. And as we add new states, there won't be a different offering unless there is some legislative requirements of the state that needs changes.

Greg Pendy -- Sidoti and Company -- Analyst

OK. That's helpful.

Stuart Grimshaw -- Chief Executive Officer

Thanks.

Operator

[Operator instructions] Your next question comes from Scott Buck from B. Riley.

Scott Buck -- B. Riley FBR -- Analyst

Hey, good afternoon, guys. Just a few for me. Back on the social welfare programs in Mexico. At what point do those extend far enough that you start to kind of reassess Mexico as a area of increased investment interest versus maybe the rest of Latin America or even up here in the states?

Stuart Grimshaw -- Chief Executive Officer

Yes. I mean, we've got a long-term commitment to Mexico. So there is always -- when you operate in Latin America, there's always a degree of volatility as electoral cycles change, but it does still revert to the basics. These customers do have a need for cash over the long term, and they will come and go.

As they have cash, they will use it. So one of the potential unintended consequences of social welfare programs, as when they get turned off, our customers will have a higher need for cash as they'll have to adjust their living standards. So we think there is a potential unintended consequence that could benefit us. But we still see Mexico as a very attractive fundamental environment for us to operate within, as we do in other Latin American countries too.

Danny Chism -- Chief Financial Officer

And I'd say, our changes that we saw is more in the rate of growth or the rate of earnings, but it still represents a pretty significant earnings for us -- earnings and cash flow.

Scott Buck -- B. Riley FBR -- Analyst

Great. I appreciate that color. Moving north now to Canada. Can you give us an update on kind of where you are with CASHMAX? And what your thinking is there? It looks like we've gone a quarter now without any kind of store consolidation.

Are you happy with the footprint? And what's maybe the longer term opportunity there?

Stuart Grimshaw -- Chief Executive Officer

Yes, Scott, I mean it's 22 stores, sort of a rounding error in the statements, we were down from 27 earlier. So we have consolidated some of the stores. It operates reasonably well. It's not something core.

We just keep it running. We try to do, look at it a while ago, so whether there's any opportunity to rationalize further. At this stage, it's in a bit of a holding pattern, and we'll probably end up reviewing its relevance over the next 12 months.

Scott Buck -- B. Riley FBR -- Analyst

OK, perfect. Last one, any -- were there kind of capex investments for 2020 or areas of increased investments besides what's already been noted between Lana and the new stores -- store openings?

Stuart Grimshaw -- Chief Executive Officer

Some of capex, we're doing a fair bit of work on the infrastructure of this company. We've got a quite a legacy environment, which we're using our micro services strategy to migrate ourselves off from a very old environment. We're trying to keep all that capex within the similar trend to what we've had for the last year or so. So it's more a reallocation into fixing the infrastructure than, but we don't -- it is actually the right thing to do.

We don't believe it will impact our business.

Scott Buck -- B. Riley FBR -- Analyst

OK. Perfect, guys. Thanks a lot.

Operator

Your next question comes from the line of Aron English from 22NW.

Aron English -- 22NW -- Analyst

Hey, guys, thanks for the time here. I guess -- can you just walk through what the board's thought process was on the buyback? And whether you guys have any impact in the near term?

Stuart Grimshaw -- Chief Executive Officer

We just -- as we've outlined before, we've been looking at acquisitions over the past two years or so. And what we found is that the multiples, and if we applied capital those multiples didn't provide a very efficient return for what we believe was the appropriate risk that would be taken. As the board looked at the alternatives, they determined that, however, the best effective use of the capital at this stage would be to embark on a share purchase program.

Aron English -- 22NW -- Analyst

So the thought process is that EZCORP stock is now extremely undervalued, which seems to be objectively true because it trades under the valuation multiple that have traded in 2009, largely through self-inflicted issues, referring to the multiple convertible offerings that were widely hated by your equity holders, still Cohen returning to the board, which alone reduce the market cap by a nine-figure amount, the ongoing disaster at Cash Converters. Why not just aggressively tender for $60 million of stock right now, and then -- instead of potentially using the buyback over three years and arguably missing the window if the stock trades up? You can reward your equity holders who have been just destroyed by the governance and management mishaps of this company.

Stuart Grimshaw -- Chief Executive Officer

That's a very long statement, Aron, and I'm not sure I can get around to all of it.

Aron English -- 22NW -- Analyst

Why can't you aggressively buy stock right now? That's the question.

Stuart Grimshaw -- Chief Executive Officer

Well, one of the reasons is we're in a black out, so we can't do that.

Aron English -- 22NW -- Analyst

OK. Come on guys. It's one excuse after another. You guys have destroyed the stock.

It's just lost half its value. Are you -- where does the shareholder value orientation of this company?

Stuart Grimshaw -- Chief Executive Officer

That's why the company's -- the board are looking at the investment opportunities, and they have said the share repurchase program is a priority for them. We're there to support the board, and the board have a committee in place, and they will determine the appropriate strategies around that.

Aron English -- 22NW -- Analyst

Well, what is it looks like to everyone in the outside that the board is not aligned with the rest of the equity holders because that's really the problem you guys have here, it's a credibility problem. And announcing a buyback and then not using it or using it tepidly will not improve the governance or perceive the governance problems of this company.

Stuart Grimshaw -- Chief Executive Officer

The strategy of that is determine as to how to embark upon the buyback program, is actually one that we don't -- we wouldn't disclose openly to the market. I mean we're doing it rationally. We're using the resources and we're doing it appropriately. My discussions with shareholders have been that they have been paying the table that they believe the most efficient use of capital would have been a share buyback program, of which the board has determined as an appropriate course.

So it would be surprised if the shareholders were disappointed by the board's actions.

Danny Chism -- Chief Financial Officer

And I would add to that, Aron, that the board's discussion there was not, hey, let's announce a plan and then not do any trades, right? It's not lip service on that. It's an attention to actually act upon.

Aron English -- 22NW -- Analyst

Well, I understand that, Danny. And I'm also aware that this is not your decision nor Stuart's alone in order to execute the buyback. But what I would say is your shareholders are looking for action. And if the shares cannot be purchased at this valuation, then I don't know when you guys could ever use the buyback.

So hopefully, we see some real action on that front.

Danny Chism -- Chief Financial Officer

Yes, they're all good points, Aron.

Operator

And your next question comes from the line of Gary Steiner from Huber Capital Management.

Gary Steiner -- Huber Capital Management -- Analyst

Hey, Stuart and Danny, I just maybe wanted to follow-up on the last question. So I've covered you guys a long time, and I don't think you guys have ever announced a share repurchase authorization of the magnitude that you just announced, so that's obviously positive. During the quarter, though you did have some costs related to an acquisition that you considered, and it was not an immaterial amount, so I assume that the size of the acquisition wasn't immaterial either. So I guess maybe you're saying you can do both acquisitions and buybacks at the same time.

But I guess I'm just getting a bit of a mixed picture as to what the priority of capital is. And it would be hard for me to imagine that whatever you looked at would be cheaper than the EZCORP stock. So maybe you could just clarify that, so I understand what the intentions of the board is with regard to capital allocation.

Stuart Grimshaw -- Chief Executive Officer

Yes. I mean the board, obviously, would be looking at the best use of those free cash resources. Sometimes, the time horizons can be a little bit different. Some of the acquisitions, really, if I look at a five-year to seven-year horizon around in a one-year horizon.

So while a number of holders look at potentially a quarter to six months to 12 months, some of these acquisitions can actually be quite attractive over a longer period of time. So the board look at different time horizons as well. We do look at acquisitions all the time. The one, as you rightly pointed out, was an acquisition of some size given the extent of the due diligence costs we had.

But the right thing was determined that it wasn't the appropriate course of action to follow through on. But we will continue to look at opportunities. But at this point of time, the share repurchase program has the priority.

Gary Steiner -- Huber Capital Management -- Analyst

That's great. So can you confirm that once you're out of the couple of day period after the earnings report that you will no longer be in a quiet period?

Stuart Grimshaw -- Chief Executive Officer

After the -- I think we're in blackout now till Q1 outstanding.

Danny Chism -- Chief Financial Officer

Typically, current firm is it would go into blackout generally a month before quarter end, and we are within a month of the next quarter end. So that would black us out for this period. Stuart and I have talked about potentially needing to reassess the time frames that we self assess or self impose the blackout periods, but that would typically be from that point until, I believe, 48 hours after we announce earnings.

Gary Steiner -- Huber Capital Management -- Analyst

Got it. Thank you.

Operator

And that was our last question at this time. I will turn the call back over to the presenters for closing comments.

Stuart Grimshaw -- Chief Executive Officer

Thanks everyone for being on the call. We'll be obviously leasing with many of the buy and sell sides over the next 48 hours or so, and we look forward to those discussions. Thanks very much.

Operator

[Operator signoff]

Duration: 43 minutes

Call participants:

Michael Kim -- Investor Relations

Stuart Grimshaw -- Chief Executive Officer

Danny Chism -- Chief Financial Officer

John Hecht -- Jefferies -- Analyst

Vincent Caintic -- Stephens Inc. -- Analyst

Greg Pendy -- Sidoti and Company -- Analyst

Scott Buck -- B. Riley FBR -- Analyst

Aron English -- 22NW -- Analyst

Gary Steiner -- Huber Capital Management -- Analyst

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