International Money Express Inc (IMXI) 2018 Q3 法說會逐字稿

Greetings, and welcome to the International Money Express, Inc.

Third Quarter 2018 Earnings Conference Call.

(Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Sloan Bohlen with Investor Relations.

Please go ahead.

Good afternoon, and welcome to the Third Quarter 2018 Intermex Conference Call.

This conference call includes forward-looking statements included in our outlook for fiscal year 2018.

Actual results may differ materially from expectations.

For additional information on Intermex, please refer to the company's SEC filings, including the risk factors described therein.

You should not rely on our forward-looking statements as predictions of future events.

All forward-looking statements that we make on this call are based on assumptions and beliefs as of today, and we undertake no obligation to update them except as required by applicable law.

In this conference call, we will also make -- also have a discussion of certain non-GAAP financial measures.

Information required by Regulation G of the Exchange Act with respect to such non-GAAP financial measures is included in the presentation slides for this call, which can be obtained from our website.

And with that, I'll turn it over to our Chairman and CEO, Bob Lindsay.

Thank you, Sloan, and thanks to our investors and analysts joining us for our third quarter conference call.

As you recall, last quarter, we provided our first update as a public company based on our second quarter results.

This marks our first official quarterly earnings call, and we're excited with adjusted EBITDA growth of over 50% for the second consecutive quarter.

Given many on this call may be new to our story, I'd like to explain who we are and why our strategy and core strengths should continue to drive outsized growth in the international remittance market.

As Sloan mentioned, we will reference our earnings presentation.

Beginning on page -- beginning on Slide 3, you will see that Intermex is a fast-growing company serving the $82 billion U.S. to Latin America money transfer market.

We are licensed in all 50 United States, the District of Columbia and Puerto Rico.

We operate primarily through a differentiated base of independent and highly-productive agents.

On Slide 4, you will see a summary of our history and how much we have grown in a relatively short period of time.

Intermex was founded in 1994 but was reorganized and refocused beginning in 2009.

Naturally, our favorite highlight from this page is our 25% revenue CAGR we have achieved over the last 5-plus years.

As we've noted before, this level of growth is sustainable in our view, and in the next few pages, we will give you some background on why Intermex is well positioned for continued growth.

On Slide 5, we have highlighted the core strengths of our strategy.

First is our demonstrated ability to take share and grow in excess of the industry, while maintaining strong margins.

The reason we have had this success is because Intermex sets itself apart from peers, as described in the second bullet.

The key difference is how we prioritize agent productivity over ubiquity.

The difference to the customer is a strong differentiator, but the resulting benefit to our profitability drives shareholder value and fuels future growth.

The third and fourth bullets detail how Intermex has driven value through our investment in technology, which results in speed and reliability to our customers.

As a result of these investments, Intermex has one of the lowest cancellation rates in the industry.

Lastly, in terms of growth, we are excited about the last 2 bullets.

We believe there is an opportunity to further penetrate and take share in a number of states beyond our current stronghold states, and we see long-term opportunity to scale our platform with offerings in white-label processing and other ancillary products that will utilize our technology infrastructure and drive revenue.

Clearly, we see a lot of growth potential in our business.

And if you'll turn to Slide 6, I'd like to give you some high-level color on how big the market opportunity is.

Globally, there are about 250 million people that live outside their country of birth.

Over $600 billion was sent in 2017, and of that amount, nearly 1/4 was sent from the U.S. Drilling down a step further, our major Latin American corridor represents an estimated $82 billion of this amount.

Any way you look at it, the Latin American remittance market is very large and growing.

As we noted, the most exciting part for us at Intermex though, is that we continue to outpace the market and take share.

If you turn to Slide 7, you can see that Intermex has more than doubled its market share to Mexico over the past 4 years, and has similar growth in Guatemala as well.

Specifically, since 2014, Intermex has dramatically increased its share to Mexico while all other companies combined have suffered a market share decline of close to 10 percentage points.

Our year-to-date share in Mexico is 17.1%, which is up from 7.9% in 2014.

Additionally, our share in third quarter grew to 18.1%.

Similarly, in Guatemala, we've increased our market share from -- by 71% while the competitors have lost nearly 10 percentage points of share.

We truly believe the success that we have had is because of the value and service level we deliver to our customers, and we feel good about our ability to grow share in both our stronghold states and growth states.

Turning to Slide 8, let me give you a few highlights on third quarter earnings, which Tony will expand upon in a minute.

As you saw in our release, the third quarter was highlighted by almost 29% revenue growth over last year, which was driven by another strong quarter in remittance volumes, which were up 31%.

Similar to last quarter, we're even more excited about our outsized growth we had in our adjusted EBITDA, which was up approximately 51% year-over-year, driven by strong growth and continued scale in our model.

Year-to-date, through September 30, we estimate that Intermex has captured 38% of the growth in remittance volume from U.S. to Mexico and about 47% of the total volume growth in the U.S. to Guatemala.

Now before I turn the call to Tony, I'd like to review our U.S. footprint and where we believe our biggest opportunities are going forward.

As you can see from Slide 9, 15 states in our current footprint are what we consider to be stronghold states.

These states represent roughly 18% of the total market to Mexico.

Intermex has -- currently has a 27% share in these states, and continued to grow wires at a rate of 23% over the past year.

On the right side of this slide, you can see the 10 states that we consider growth states.

These states represent 62% of the total market share.

Here, Intermex has a current share of just 9%, but we grew at a rate of 36% over the past year.

As I noted last quarter, our biggest opportunity for the future is to replicate our stronghold performance in these growing states.

We are excited about that opportunity.

With that, let me turn the call over to Tony to review our financials.

Thanks, Bob.

And as I did last quarter, I'm going to start with a quick review of our unit economics, which we found helpful for new investors.

Looking at Slide 10, the transaction diagram shows that Intermex earns revenue in 2 ways.

First, just through the transaction fee charged to the customer, $10 in this example.

And second, we have a spread on the foreign exchange, $2.50 in this illustration.

So in total, after paying out agent and payer commissions, Intermex earns a little over $5 before overhead on an average transaction to Mexico.

With that, let's turn to Slide 11, and review our third quarter metrics.

As Bob noted, we had another strong quarter.

The number of transactions grew 28% for the quarter and year-to-date.

Recall from last quarter that May was our first month with more than 2 million transactions, and we're pleased to report that we have exceeded 2 million transactions every month since May.

It's a great reflection of our growth that it was only 3 years ago, in May of 2015, when we reached 1 million transactions in a single month.

Volume growth for the quarter of 31% outpaced transaction growth as average send amounts have increased over the prior year.

Revenue growth of 29% for the quarter is ahead of the year-to-date growth of 27% as average send amounts have coincided with a devalued peso relative to the beginning of the year.

As Bob noted, adjusted EBITDA grew approximately 51% over last year and 43% year-to-date, driven by both scale and operating leverage in our model, but also because of another quarter of strong foreign exchange income.

There are reconciliations from GAAP net loss to adjusted EBITDA at the end of this presentation for your reference.

We're pleased also to announce the closing of our new credit facility, with highlights on slide 12.

The new term loan of $90 million is roughly the same size as our prior facility, but the revolver is up $15 million to $35 million, providing us increased working capital for continued growth.

The most exciting part of this deal is that we have also secured an interest rate that's approximately 450 basis points lower than our prior facility, further validating the quality of Intermex in the eyes of the capital markets.

Lastly, on Slide 13, I'd like to close the prepared remarks with some more good news.

On the heels of another strong quarter, we're raising our adjusted EBITDA guidance for 2018 from $42 million to $44 million to the current outlook of $46.5 million to $48 million.

We're pleased that we've outperformed our previous expectations and look forward to introducing our full-year 2019 outlook on our fourth quarter call early next year.

So overall, we had another great quarter, and we are excited about our prospects for continued growth in 2019.

With that, let me turn it back over to the operator to open the lines for your questions.

(Operator Instructions) Our first question comes from the line of David Scharf with JMP Securities.

Maybe 2 things.

The first is, more broadly, can you give us an update on some of the newer initiatives you've spoken about recently, whether it be the kind of outsourcing, white labeling contract and the GPR card in particular?

Sure, be glad to do that.

David, and everybody, before Bob answers the question, I want to just offer up a little bit more data for your modeling.

So share count at the end of the quarter was 36.2 million, and we had an average of 31.0, roughly, million shares on average for the quarter.

So I'll turn it back over to Bob now, but I just -- I know you guys wanted that information.

So David, we are now in a position where we are taking applications for our GPR card at our stores.

We are just really on the heels of getting ready to make the formal announcement.

But we have gotten the approval now from the central bank of

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and have confirmation from MasterCard on their approval for the Intermex's prepaid program.

So we led into it with accepting applications in our 30-plus stores.

That's always where we pilot these new things.

But we expect by the end of the month to be live with being able to supply consumers with cards, and being able to put cards in the hands of consumers for the busy holiday season.

So that's kind of the update on the GPR.

When it comes to the white label, we've been in a very much of a sort of a pilot test with a large bank out of Latin America.

We're just about ready to make that formal announcement.

It's a little longer than we originally anticipated.

We expect to sign the agreement this week, but we have been piloting it with some of their locations here in the U.S. through the consulates they are working with and gathering information to make sure that, that will -- when it is launched, it's launched very successfully.

I would expect us to be able to make very, even more in-depth announcements on both of those within the month of March (sic) [November] or in early December at the latest.

Okay, great, that's helpful.

And then maybe one, I guess, sort of macro question in the quarter.

Obviously, the volumes continue to be exceptional.

But given the recent news flow regarding pullback in housing starts and mortgage application volume and so forth, can you provide a little background on your sense for the mix of your customers that might be directly or indirectly tied to sort of construction activity?

And maybe the profile of kind of the average send volumes for those consumers?

We've always believed, at least we have here, that there are 3 segments of our customers -- 3 primary segments: agriculture, which remains relatively stable at all times, people continue to consume the same amount of fruits and vegetables; the service industry, which is somewhat volatile; and then housing starts, which seems to -- tends to be construction, affected by housing starts, which tend to be sort of the most volatile of all, tend to be the highest compensated workers of all.

We have, though, seen as -- even during times in the past -- remember, we sort of started with this relaunch of Intermex in 2009, and that was a very difficult time in the construction marketplace.

Housing starts were really at very, very low periods relative to recent years prior to that.

And through all of that, even though the market has slowed down a bit, remember, we had gained share.

We've gone from a company with a 4 share when we started in '09 to now an 18 share as of our last quarter.

Obviously, we would love to see housing starts continue to be strong, but we feel that our momentum is such that we have been able to push through slight downturns in the economy.

We proved that.

We talked many times about the fact that the total principal amount going to Mexico didn't recover from '08 until '15.

And during that period, we grew our volumes tremendously.

And so we feel like a -- maybe a bit about of a more choppy market would provide us with opportunity to continue share -- to take share.

We also think a choppy market will create, particularly in the niche providers, even more struggles, as many of those guys are struggling, have struggled even through good times, will find it even more a difficult to struggle if things become a little bit more choppy in terms of volumes.

So we'll keep an eye on that.

It's 1 of the 3 key segments, but we're not fearful in the sense that we have been through this before and we have been able to continue to grow nicely and gather share and grow share through those downturns in housing starts.

Our next question comes from the line of Mike Grondahl with Northland Capital Markets.

Any states in particular to call out?

And then how is Arizona doing?

Well, we're really in the early stages of Arizona still.

We just really opened Arizona in the last couple of months, and it'll be part of that west footprint.

But it's really early stages.

We have a couple of agents there now, and it's just -- it's really nominal volume right at this point.

The states that continue to do well though, we've had strong performance -- continue to have great performance from the state of Texas, which has been growing really strongly.

California continues to grow at a great rate as we continue to gain share there.

And as we've talked about before, even though we might have a relatively small share in California relative to some of the states in the east, it is our biggest state today, and it provides the greatest opportunity.

We continue to do well there.

But our stronghold states continue to grow almost in every case.

There's a few that growth has slowed down a bit, but almost all of those are growing in great excess of the market.

So even in those stronghold states, where we have a share as much as 27% in the east, we continue to gain share versus the competitors.

So it really isn't a story of 1 or 2 states.

We have, really, almost all cylinders firing, as you could imagine.

We continue to grow that transaction business at 30% in a market that's growing at less than 1/3 of that.

We really are doing that well in our established states, and even in our growth states.

Got it, great.

And what about sales force additions during the quarter, kind of headcount or salespeople expansion?

We have continued to hire salespeople.

I believe that the total headcount hasn't really changed.

So any change that you would see relative would be frictional, where obviously we make changes in the sales force relative to non-production and then bring in new people.

So there are times when we might have had -- we have about X number of salespeople, 40-some salespeople at ground level.

There are times when that might go down because of frictional change.

But we don't have a lot of additional people that we are putting in the market right now.

We will have more next year.

And as we put more people in the market, those will resemble the opportunity, right?

They will reflect that.

So states like California, Texas in the west will be the places where we'll put the most people incrementally.

And you'll probably see, in 2019, us increase the sales force by about 20%, and the bulk of that 20% or 10 to 15 new people will be in those growth states.

Got it.

Lastly, how did October go?

I'm not sure we can say anything on October at this point.

(Operator Instructions) Our next question comes from the line of Joseph Foresi with Cantor Fitzgerald.

I wanted to ask about margins and maybe earnings trajectory, longer term.

You had some pretty good growth in margins this quarter.

Any more color you care to provide on what they might look like this year versus next year?

And then the same question sort of on the earnings side.

Yes.

We're going to answer in 1 second.

I just wanted to clarify, Sloan pointed out to me that when I was talking about the GPR card, I might have inadvertently misspoken and said, "through March" in there.

I don't know how I did that.

But what I intended to say was, it will be out at the very latest by the end of November and maybe rolling into early December, the first days of December.

But that's more the correct date.

So I apologize on that.

Tony do you want to start?

Yes, sure.

So let me talk about margin.

And really there's a couple of forces going on in opposite directions.

So one, our mix is shifting towards markets, both on the send side and on the receive side, that have lower gross margin per transaction.

So as you know, U.S. to Mexico is our most profitable corridor, and even more so in our stronghold states than our growth states.

As we might -- as we grow faster to other places like El Salvador, Honduras, or Guatemala, and we grow faster out west, our mix is shifting, so we're going to get less gross margin per transaction.

But that's being offset by the increased operating leverage that we're getting as our fixed costs aren't growing nearly as fast as our revenue.

And for the foreseeable future, even after investments in new products and other growth vectors, we would expect stable margins, EBITDA margins over the planning horizon.

Got it.

And then I think you did mention in some of your remarks that all your -- everything was firing on all cylinders.

But you did talk about a slowdown in specific -- in some markets.

Maybe you could just expand on that.

It sounds like they were the more mature ones.

I mean, what would -- is there anything to call out for any specific market that you were talking about?

Yes.

We really, typically, prefer not to get into it by state, because that's just more detail than we like to release.

But I didn't mean to indicate in any way, if I did, that there's a slowdown.

What I meant and what I was intending to say is there are some states in the established states growing slower than others.

I don't believe we have any states today where we would be losing share.

And you're right, those would be states -- we have some states in the east where we have a level of market share that's in excess of 30%, sometimes 35%.

So to continue to gain share in those states at great levels is difficult.

So you'll see us in states like that, and there's not a lot of them, but where our market -- we may be growing at 13% or 14% in a market that's growing at 9%.

But that's a limited number of states.

Overall, the eastern states as a whole grew more than 20%, and even much faster than that, obviously, in our growth states.

Got it.

And then, I guess, just the last one.

Given your kind of vast experience in this industry, if there were to be a slowdown, do you see it specifically in 1 or 2 states and then contagion happens?

Or -- and I'm not sure -- obviously, you're very clear that you haven't seen anything.

But just want to get a sense of, on the outside, how an analyst would measure that, and how you've seen it happen.

Did it start in the northeast and work its way across?

Is there anything specific to call out?

I'm not sure there is a place where it starts.

I think that the housing markets -- the strongest housing markets would usually be most susceptible.

So I think if you looked at the places where there are strong housing starts or where there is a lot of construction, that would be places where it would be more likely.

The agricultural communities, as I said earlier, from my experience, would tend to be more insulated because people don't change much in terms of their demand for vegetables and fruits and the like.

So that's typically what we see.

I mean, one of the things that you can look at, and I'm sure you probably have access, is that the Bank of Mexico, Bank of Guatemala, Bank of El Salvador, Bank of Honduras, report every month the volume of dollars that are coming into their countries.

And you can look that most of those have been quite strong lately.

Mexico has been, this year and recently, as strong as it's been in a long time.

And that is not to say that there couldn't be a bump in the road due to a slowdown in housing starts and other things down the road.

But it will take a bit of time.

I mean, we saw times -- the last time when Mexico went through difficulties, we saw actually negative year-over-year numbers.

And right now, we're looking at Bank of Mexico numbers that oftentimes are double-digit or close to double-digit year-over-year growth, which speaks to a very vibrant market for everyone.

Obviously, you can look at those companies that haven't grown at close to double digits or actually losing share.

And those companies like ourselves that are growing the volume to those countries at around 30% are growing 3x the market, so gaining share.

But the market has been really healthy.

The current administration, for all of the worries that it presented to the marketplace, it hasn't played out a great deal relative to border crossings and border apprehensions.

I mean, we have seen, slightly in 2017, arrests or apprehensions had gone down.

And that's usually indicative of less people crossing.

But now, in 2018, we see that number stabilizing again.

So we think the same number of people are coming in, obviously.

We think the economy has been quite rich for minority populations working, including our consumers being part of that Hispanic community, so that's been really good.

And we don't see anything in the near future that we think is going to change that.

Again, housing starts can have an effect.

But as we said, we've been able to grow through those kinds of downturns before, and it isn't in the exclusive group in terms of where immigrant workers from Mexico, Guatemala and other countries would find employment.

Got it.

I guess, last question from me on the political side.

Obviously, there are people kind of heading to the border and the present administration has sent troops to meet them.

Is that -- in your opinion, is that more headline-worthy than the actual immigration trends?

Or do you feel like that news would be a deterrent for immigration?

I mean, I don't know whether it'll be a deterrent.

I do think it's political on both sides of the aisle.

Most people that come across the border don't come across in large caravans.

It's probably one of the worst ways.

You're not going to get political asylum.

It's a great political message possibly, and if you are going to gain political asylum, a great way.

But most of the people that are coming across the border that are our customers that are coming across without being documented, and I think that's what the people we are talking about, are going to want to do that in as stealthy of a fashion as possible and do that at the -- with the least attention possible.

So this is not the typical format for people to come across the border.

And stopping of that shouldn't be indicative of stopping immigration.

It's a whole another thing.

That immigration is happening 24 hours a day, 365 days a year at various points across the border, certainly with legal, and that's not a problem, and then also with people who are undocumented coming across.

I mean, it's an industry in itself.

I mean, and it's -- whether we want to be on either political side of it, it is a fact that it's an industry in itself.

The people that bring people across make a lot of money to do it, and that's just part of how that all works.

Ladies and gentlemen, we've reached the end of our question-and-answer session.

And I would like to turn the call back over to Bob Lindsay, Chairman and CEO, for closing remarks.

Well, thank you all for joining the call.

We're very happy and proud to have talked about our great results for the third quarter.

We feel confident, and it's our view that we can continue that kind of performance going through the rest of the year.

And we look forward to talking to you after the end of 2018 with our fourth quarter and final year results.

So we'll talk to you all soon.

Thanks again for your time and attention.

This concludes today's teleconference.

You may disconnect your lines at this time.

Thank you for your participation.