International Money Express Inc (IMXI) 2018 Q4 法說會逐字稿

Greetings, and welcome to the International Money Express Fourth Quarter and Full Year 2018 Earnings Conference Call.

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

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

Thank you.

You may begin.

Good evening.

Before we begin, let me remind you that this conference call includes forward-looking statements, including our outlook for fiscal year 2019.

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 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, let me turn to our Chairman and Chief Executive Officer, Bob Lisy.

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

In previous quarters, we have started with an overview of some of the history of Intermex.

This quarter, we're going to begin our review of 2018, which was highly successful.

Our performance gives us a lot of pride in what we have accomplished in a relatively short period of time as a public company.

Before I highlight some of those accomplishments on Slide 3, I'd like to note, for those of you new to our story or possibly joining us for the first time, that introductory information on Intermex can be found on our second and third quarter earnings presentations.

As always, we're available to new and existing investors at our Investor Relations e-mail via investors@intermexonline.com.

We believe we have a great story to tell, and we strive to be accessible to our investor and analyst community.

Let's begin on Slide 3 with a review of our 2018 results.

As we mentioned, we have a lot to be proud of in 2018, and we summarized our year in 4 main categories.

First, as you know from our press release, Intermex continues to grow rapidly.

For our first -- for our full year in 2018, the company grew top line revenues over 27% and grew adjusted EBITDA by over 41%.

We'll touch on how we achieved this level of growth in a second, but before we do that, I want to frame our growth versus the industry.

First, if we look at the 2018 remittance volume growth in the U.S. to Mexico corridor, the industry grew at just a little over 10%.

Similarly, Guatemala overall, the industry grew approximately 13%.

As you can see, we believe Intermex has a different story to tell, and we are very excited about the outsized growth we achieved -- that we have achieved in 2018.

Turning to our second category of market share.

Intermex continues to gain market share by what we believe is a market leading service model.

Before I give you some of those numbers, what do I mean when I say our service is different?

In a nutshell, Intermex takes a much different approach to choosing agent retail locations.

Ultimately, we gauge our success on how well we serve our end consumers and the quality of the partnerships we create with our carefully chosen agents.

To frame it another way, our focus is to expand our service through carefully vetted high-quality retail locations in the optimal spot for easy customer access.

Each and every agent is chosen because location adds to the consumer experience by providing convenience and the highest quality of service.

We do not believe that retail ubiquity is a driving factor relative to individual choice but conversely usually detracts from the quality customer experience.

The best part of our market share gains is that we believe we have a lot to expand on what we call our growth markets.

To give you a reference point, we believe we grew a roughly 20% in what we consider our stronghold states in 2018 but grew by 36% in our growth states.

Lastly, before we move to our strategic goals for 2019, I'd like to briefly note that we are proud of the value we delivered for our shareholders in 2018 as Intermex shares have appreciated over 9% since we were listed on the NASDAQ back on July 27, 2018.

Now let's turn to Slide 4 and quickly review the key metrics for Q4 and the full year 2018.

As you may have seen in our release, the fourth quarter was highlighted by 27% revenue growth over last year, which was driven by another strong quarter in remittance volumes, up nearly 30%.

Similar to last quarter, we're even more excited about our outsized growth we had in adjusted EBITDA, which was up 35% in fourth quarter and 41% for the full year, driven by strong and continued scale efficiencies in our model.

Turning to Slide 5. Before I touch on our 2019 strategies, I would like to give you an update on our market share and our continued gains in 2018.

As we have shown in previous quarters, the Latin American remittance market is very large and growing, but most exciting part of all that is we continue to outpace our competitors in growth.

Here you can see that Intermex has more than doubled its market share to Mexico over the last 4 years and delivered similar growth to Guatemala as well.

Looking at each of these markets, Intermex has increased its share to Mexico, while all of the competitors combined have suffered a market share decline of close to 10 percentage points.

In 2018, our share to Mexico was 17.4%, up from 7.9% in just 2014.

Similarly, Guatemala, we have increased our market share by 10 percentage points, while the competitors have lost 10 percentage points.

Turning to Slide 6. We see a different view of our market share split out between Mexico and Guatemala markets.

As you can see, we accounted for over 40% of the entire market growth in 2018 to both Mexico and Guatemala.

We strongly believe the success we have experienced is due in large part to our value and service level we have delivered to our customers.

As a result, we feel good about our ability to grow share in both our stronghold and growth states.

With that backdrop, let's turn to Slide 7 and we'll talk about how we plan to drive continued growth in 2019.

Tony will give our financial outlook for 2019 in a minute, but first, I would like to give a high-level view of what Intermex will be most focused upon in the year ahead.

First and foremost, I want to be clear that our biggest opportunity is to grow by doing what we have been doing for the last few years.

We believe there's a long runway for growth in our core markets as we continue to take share in both growth and stronghold states.

We believe our differentiated approach to the market and superior service model will continue to propel our growth.

Additionally, we expect the expansion of our loyalty program to make these new customers even stickier as our network grows.

On the second bullet, we've highlighted some incremental growth opportunities that we're excited about over the long run.

We don't expect a significant impact in 2019, but our new business in Africa and planned second quarter launch in Canada are exciting given the size and potential of these markets.

Similarly, we're excited about the early stage launching of our general purpose reloadable card, which adds value and utility to our customers.

Lastly, we are clearly a growth company, but we do not expect material marginal leverage in the near term.

We are forward thinking and are excited about developing a number of initiatives that will lay the foundation for sustained revenue and income growth over time.

With that, let me go ahead and turn the call over to Tony to review our financial results in greater detail.

Tony?

Thanks, Bob.

Let's turn to Slides 8 and 9 and review our fourth quarter metrics.

As Bob noted, we had another strong quarter.

The number of transactions grew 26% for the quarter.

Recall from our previous commentary that May was our first month of more than 2 million transactions.

With our continued growth and strong performance, we completed the year with over 24 million transactions, averaging just over 2 million per month for the full year 2018.

Volume growth for the quarter of 29% outpaced transaction growth as average send amounts increased over the prior year.

Revenue growth of 27% for the quarter was driven by the combination of transaction growth and volume growth.

Fourth quarter adjusted EBITDA grew approximately 35% over last year and 41% over the full year, outpacing revenue growth as we realized operating leverage through scale benefits and savings from our efficiency initiatives.

Lastly, we'd note that there are reconciliations from GAAP net loss to adjusted EBITDA at the end of this presentation for your reference.

Turning to guidance on the next slide.

Let's review first 2018.

We delivered $47.1 million of adjusted EBITDA, which was right in line with our last estimate of $46.5 million to $48 million and well ahead of our initial guidance of $40.1 million.

We truly outdelivered against our expectations from the beginning of the year, thanks to strong execution and some market tailwinds.

Lastly, on Slide 11, I'd like to close the prepared remarks with the introduction of our 2019 financial guidance.

Our view for full year 2019 revenue is a range of $320 million to $330 million and adjusted EBITDA of $54 million to $58 million, which implies respective growth of 18% and 19% over the full year 2018.

As I've said previously, we expect margins to be relatively flat year-over-year as we continue to focus on the growth opportunities we see.

I'd like to note here that due to the front-loading of some marketing and technology investments, EBITDA growth is expected to be lower in the beginning of the year and accelerate in subsequent quarters.

Additionally, we do not currently expect much impact in 2019 from our incremental growth initiatives in new markets like Africa or Canada or our new product features like the GPR card.

But we will, of course, update you as we achieve more critical mass there.

So with that, I'll end by saying that we're excited to have had another great quarter and year and even more excited about our prospects for continued growth in 2019.

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

(Operator Instructions) Our first question is from Jason Deleeuw from Piper Jaffray.

Congratulations on a strong 2018 and start as a public company.

The first question is just on thinking about the revenue growth for 2019 and just some of the key drivers and how you're thinking about that versus the past year and then also just kind of the view on the growth you're expecting from stronghold states versus the growth markets.

Okay.

Well, we expect continued growth in the stronghold states.

In 2018, we continued to expand -- by the way, this is Bob Lisy.

In 2018, we continued to expand our market share in the stronghold states and grew faster in those states than the market did overall, probably about twice the rate of the market.

Mexico, as you know, grew about 10%, although we believe we grew right about 36% or 3.5x the market rate in the growth states.

We think more of the same.

There's still tremendous untapped opportunity for us west of the Mississippi but also in areas like Illinois and New York in the northeast, states that were later states for us to enter as Intermex expanded and as a result, the level of market penetration and thus, market share is lower in those states, they continue to be some of our fastest growers with a huge amount of greenfield.

I mean, we look at our business a lot based on how many vacant zip codes are there that we're either underperforming, down to the market share of the zip code or those where we're not present at all.

And the abundance of those opportunities for us in places in the west like California, Texas or even in states like Illinois are still tremendous.

And we think that we have many years of growth ahead of us in those areas and opportunities to, in some cases, in some of those states, quite large states, to be able to double and triple our current volume, which have a tremendous impact on the business overall.

Now while we're doing all that, we'll see our stronghold states continue to grow faster than the market growth and continue to gain more share there of our already strong market share in the current stronghold states.

That's great.

And thinking about the guidance, the revenue guidance for this year, what are some of the puts and takes as you think about the growth rates for this year versus last year?

And what about the cadence?

How should we be thinking about revenue growth kind of quarter-to-quarter because I think some quarters were stronger last year.

I just want to make sure we're kind of all on the same page on thinking about the quarterly cadence, too.

Yes, sure.

So this is Tony.

I'll tell you, the trends that we saw through 2018 are going to continue through 2019.

And that is while we're still having very strong transaction growth and volume growth, our expansion into countries that are not Mexico or Guatemala are going to be faster than Mexico and Guatemala just based on the relative size and the growth opportunity that we have there.

And I think we've told you in the past that those states or those countries have lower-margin opportunity, and that kind of depresses revenue growth just a little bit relative to transaction or volume growth.

And from an EBITDA perspective, of course, we make that up through operating efficiencies.

And from a cadence perspective, we see a pretty steady cadence of revenue growth through the year, but you have to keep in mind that in 2018 we had a big spike in the second quarter and the beginning of the third as the average send amount went way up coincident with the devaluation of the peso in the kind of May, June, July time frame.

So assuming that doesn't happen again, we would see perhaps a little bit slower growth this year in those months year-over-year but otherwise, pretty stable growth.

Our next question is from David Scharf from JMP Securities.

Bob, obviously, the volume numbers, both transaction and remittance, speak for themselves.

But I would be remiss if I didn't ask like I did a quarter ago whether there's anything anecdotal you may be seeing domestically in terms of the slowdown in housing construction and whether that has any impact on foot traffic into your units, which I assume a good portion is construction.

Yes, I mean, we've been tracking that, and as we've talked about before, there are really at least 3 main components to the business, the agricultural component, which is typically always going to be stable.

There's not a big variance in the amount of vegetables and fruit that's picked.

There's the service industry, which is -- certainly can have some variance, and then housing and construction.

We're seeing housing construction go down a bit, and we would see that, typically, that can have some impact on the business overall.

But we're also seeing that in a backdrop of a very strong economy and very, very high employment related to minority population.

And so we believe that, although construction has slowed a little bit, most of that is being offset today by just a stronger economy overall.

And as a result, we've been seeing all the way through December time frame, we're seeing Mexico year-over-year volumes growing at more than 10% all the way through 2018 and Guatemala growing even faster than that.

So is there a bit of a slowing that could occur in 2019?

I think there could be a bit, but I think part of that will be offset by a general strong overall economy, particularly leading into an election year.

So we're pretty comfortable with that, and there certainly wasn't any great push behind the business in fourth quarter.

As we indicated before, in third, there was a bit related to the election in Mexico and the accompanied volatility of the peso.

But fourth quarter was a relatively stable quarter, great comparison to the previous.

And as you saw that, that enabled us to deliver more than 30% EBITDA growth with that quarter and year-over-year.

Got it.

No, that's helpful color.

Hey, just switching to the margin outlook.

Are the -- my understanding is that Guatemala, in comparison to Mexico, has lower margins because there's a less liquid currency, so there's less of an FX markup opportunity.

Can you speak a little -- I would have thought Canada with the liquidity of its currency would potentially have not as much opportunity as peso, might have something there.

And maybe you can speak to the African markets that you're in.

I mean, are those -- is it FX that's the primary reason why you would expect the geographic mix to result in lower margins?

Well, yes.

I mean, for us, there's 2 things that are happening, right?

If you look at an apples-to-apples comparison, our pricing in a stronghold state, our margins have not moved much and they really move a lot -- most of the movement that happens relative to the margin in those states has a lot to do with the principal amount because they're very stable.

So any movement usually has a lot to do with just sort of people sending you the larger or smaller amounts of money.

But when you go into the West in these growth states, we're typically a newer entry with less leverage.

Brand is not as strongly positioned as in the East where some of these states, we have a 25%, 30% market share to Mexico and 40% to Guatemala.

So we're not as strongly positioned.

And additionally, they're much more competitive and higher velocity states, where the competition has drawn down the average margin to Mexico and Guatemala.

In addition to that though, we have some other countries that are growing, which would be a different geographical, more to sort of where is the money going in countries like Honduras and El Salvador are growing faster for us than, say, Mexico is, and they tend to have lower margins along with even some other countries that are smaller for us today but have lower margins like Dominican Republic, Colombia.

All of those countries, because they're growing so fast, is growing at a faster rate than Mexico, and there are some degradation of our overall margin because they tend to have lower margins.

So you have the country mix and then also the regional mix of where the wires -- from where they're coming.

Now you kind of asked in that, I think, a second sort of question embedded about Canada and Africa.

So for us, Canada is an outbound market.

We'll certainly focus on Latin America like we do with our U.S. business, but in addition to that, Canada is a little bit more diverse business going to other areas of the world and will create opportunities for us to grow our business going to other corridors in addition to the corridors that we currently do to Latin America.

In many cases, Canada actually has better margins because in countries like El Salvador, for instance, or Ecuador where their receiving payout is dollarized, there's a flip at least from a Canadian dollar to a U.S. dollar, which allows for a small FX gain, which doesn't exist in the U.S. So we're excited about Canada.

We think the opportunity there is probably about the size of a very large state for us, not like a California but maybe fully ramped up the size of what Texas would be fully ramped up, so a tremendous opportunity, very concentrated.

Although that's a big geographical country, most of the businesses around 4 or 5 large metro areas, and so we're excited about that opportunity.

In the case of Africa, Africa is a receiving destination for us, very concentrated business in the U.S. Mid-Atlantic, New York, some in California but a lot in Texas.

And we're beginning to put up our agents and beginning to grow that business.

We think to dimensionalize it, that business, to the core countries, which a huge share of the business is Nigeria and Ghana, is probably fully sized equal to an opportunity like Guatemala.

Now remember, Guatemala is a $9 billion market, so that's a great market for us to tap into, where we could do several million wires a year to Africa fully ramped.

Understood.

That's helpful.

And then just a couple of quick cleanup ones.

I'll get back in queue.

I guess, for Tony, can you tell us -- you obviously refinanced your bank debt in the quarter.

It was -- the cost of that was included in the interest line.

How much was the actual cash interest in the quarter and -- to give us a sense for how we should be thinking about that going forward?

Well, let me just start by -- it's probably easier if you just back out the onetimers associated with the transition.

So you know the new rate, which is L plus 4.5%, so that makes it pretty straightforward going forward.

But we had $5.3 million of onetime fees split between the pull forward of the costs from our previous facility that had been amortized over the life of the note, and then we brought them forward when we terminated that note and that plus the early termination fees associated with that.

So if you back out that $5.3 million, what you're left with would be our true interest expense for the quarter.

Our next question is from Joseph Foresi from Cantor Fitzgerald.

This is Drew Kootman on for Joe.

I just wanted to follow up from 2 questions ago regarding Canada and Africa.

How long do you expect before you start seeing any impact on revenue, what kind of impact, just anything along those lines to the top line?

Both of those will be certainly impactful.

I mean, we're seeing impactful -- with Canada today, we're drawing revenue.

In terms of it being something that you'll see moving the needle for us, I think you'll go through all of 2019 with ramping up before there's a significant dollar volume.

Remember, we have to do 2 things.

We have to go out and add agents to Africa in specific neighborhoods and then ramp those agents up and actually introduce consumers to a brand that they're not aware of.

And Latin America it's a little easier, we're one of the leading 3 or 4 brands, 4 of -- the leading 4 brands for all of Latin America, so a little different mission for us.

In Canada similarly -- in Canada, we haven't opened business yet.

We're still really in the preparation stages of that.

We've got licenses approved and banking relationships but haven't put people on the ground yet actually adding agent locations.

But I think they'll be significant contributors in 2020, but this year will be sort of the building and investment, and that's in the earlier -- when I presented I talked about that, although that we -- in our core business, it's easy to understand these economies of scale, that we're going to continue to invest in future opportunities that will sustain that growth.

And you ought to think about, in 2019, Canada outbound, Africa inbound as opportunities that will continue to sustain our high level of growth over time but not necessarily be great contributors to either revenue or profitability in '19.

Okay, perfect.

And then just second question, any recent trends you're seeing that you can point out within immigration?

And are there any concerns on any recent regulations or anything that's coming up?

Yes, I mean, we -- this administration, not from a political perspective, but the facts are that, as we understand them, in terms of legal immigration, it's actually been increased.

There were more people crossing the border in fourth quarter legally and illegally than had the previous year.

There's been less people sent and back to their country of origin because of illegal in Latin America than there has been in times during previous administrations.

So where there's been a lot of controversy and a lot of, I guess, political wrangling over the border, we don't see any great impact on the business.

As a matter of fact, it seems more vibrant than ever.

And the economic factors have been so forceful relative to high levels of employment here in the U.S., high level for the need for labor in various aspects where we just don't have the labor force to take care of it, that, that pull has far offset any kind of tension at the border that you might hear of, and the facts of it are that actually more people have been coming in both legally and illegally than previously have been happening.

Our next question is from Brad Berning from Craig-Hallum.

I wanted to follow up and get your thoughts a little bit more on same-store sales growth versus agent growth in 2018 fourth quarter and talk about what you think your agent growth in 2019 kind of looks like.

And what are the main constraints and drivers of being able to drive additional agent growth?

There's obviously a lot of agencies you talked about from an opportunistic standpoint.

What is the main constraint to be able to get out there and win more agents?

Yes.

I'm going to -- this is Bob Lisy.

I'm going to have Randy Nilsen, who's our Chief Marketing and Sales Officer, address that question.

Yes, thank you.

We anticipate that this year we'll see very similar new store growth.

Our constraint really is limited to manpower, and we -- as Bob has mentioned, we really do add agents by zip code, where we think the opportunities are greatest.

We'll continue to put our resources against the zip codes where we have the greatest opportunity in terms of foreign born.

So we anticipate we'll end the year with about the same amount of agent adds as we had last year.

Regarding same store, I think we'll put some strategies in place this year that we didn't have last year that will actually help us get stronger production out of our same-store sales.

And to be a little more specific, what was the agent adds this year?

And what was the same-store sales growth rate?

We don't disclose the agent adds.

We're very careful about our agent additions and where we put them because our agents are so different than the marketplace.

I will tell you that, on average, we know that our average agent's about 4x as productive as the average agent in the market, and we try to keep that as tight to the vest as we can.

In terms of same-store sales though, we continue to exceed the rate of growth in the market.

So it's well into the double digits, and we can -- and that's a combination of agents that have been with us for years and years and agents that are in their second or third year, which are ramping up at a very fast pace.

But overall, we're growing same store at a level that's, let's call it, 12% to 15% or more.

And then you have a component of that sales, that growth of 27% that comes from our new stores would be the remainder.

Yes, that's very helpful.

Appreciate that thought and respect the competitive environment.

And then as far as the things that you're doing to help drive production this year, would that encapsulate like the direct bill pay?

Or is there other initiatives that you're thinking about?

Sure, sure.

We are rolling out a bill pay product if that's what you're referring to, and we'll continue to leverage our check direct processing option with our agents that is significant for us.

Additionally, we've got a stronger effort on the agents that we see slowing in growth and even seeing declining growth year-over-year and our underperforming agents.

We've been focused on agents that we've signed that we just haven't seen the productivity that we know there's wires in their stores, and we're focused on getting more share in those stores moving forward.

And just to further highlight that, what Randy's speaking of, it's an ongoing process.

I mean, every year, we have agents that -- in the mix of agents, we have some that are performing better and worse than others.

So this is just an ongoing of digging deeper into that because we've added some resources in our inside sales department that now we have the opportunity to dig into the niche of that really deep.

And unlike a lot of our competitors, we know an agent and what their performance is year-over-year on a particular day of the year, the comp day.

And so now with greater resources inside, we have the ability to actually respond and head that off as we see that agent's performance begin to dip, and that's what Randy speaking of.

Additionally, we put some more people out on the road, on the street on our outsized sales team and Randy's group, and that's always been a function of building our new stores sales, is how many people do you have working at it and how many people do they do per month in terms of additions.

That's always going to be guided by our ability to balance high growth with hopefully what we bring to our shareholders, which is a great return and a great EBITDA and great cash flow as a business.

So if we were to put another 20 or 30 people out there, we could grow a bit faster, but you would see a degradation of EBITDA.

So we balance that in terms of our efforts.

But that certainly is a factor, and that's one of the things we're doing more of this year, is that because of the size of the business, we've been able to invest in more people at Street level, adding new locations as well.

Yes, understood.

Scaling the revenue source to drive more revenue, so appreciate that.

I'll get back in the queue.

(Operator Instructions) The next question is from Mike Grondahl from Northland Securities.

First question is just can you quantify the sales adds in '18 and what you think they'll be in '19 approximately.

Yes.

Mike, it's Randy.

As we talk about the agent adds in '18, I can tell you that it was very, very similar to '17.

As we review what that group of agents did year-over-year, they were right about the same level of productivity as well.

So as Bob talked about, as we put a few more heads on the Street this year, we think, number one, we'll add more locations; and number two, we'll be able to keep or exceed the level of productivity from those agents.

And Mike, if you look at it and you want to dimensionalize it, where we don't disclose how many agents we have or how many we add specifically, in terms of the endgame, transactions growing 27%, a little more than half of that came from our same store and a little bit -- and a little less than half of that came from our new store.

So they have been tremendously productive, and the new store is adding about 12% to our year-over-year growth on an annualized basis.

And then what we see is when those agents, which, typically when we add a new agent, averages about 140 transactions within their second or third month because we vet them very carefully.

We're not adding guys that aren't going to do wires.

We see them typically near to double their transactions and then continue to grow at a very high rate in year 3 and 4. They start to level out a bit in 5 and 6, but they continue to grow usually at a rate that's faster than the market overall.

Got it.

I guess, I wasn't asking agents, just IMXI salespeople serving agents.

Is that a number you'll disclose?

I was more curious there.

You can do that.

Go ahead.

Yes, sure.

So last year, we averaged feet on the Street right around 40, 45, Mike, and this year fully staffed, we'll have maybe 10 heads above that, 50, 55.

Perfect.

Got it.

And maybe for Bob and Randy, whoever wants to take a shot at it, what 1 or 2 items are you most excited about for '19?

Yes, 2 things, Mike.

We really are excited about the commercial sales, the GPR sales.

We think there's some really great opportunity associated there.

We've got a couple guys selling that now and we're still kind of getting our feet under us and the learning curve under our belt.

But a few of the sales calls that we've had already just lead us to believe there's going to be some great opportunity there.

Secondly, we're -- we've got more resources in some of these growth states than we've had in the past.

And we're -- while we've seen tremendous growth from those states, now with even more manpower there, we think we're going to even fuel the growth stronger this year.

So excited about that as well.

This concludes the question-and-answer session.

I'd like to turn the floor to management for closing comments.

Well, thank you all.

We're happy to have finished a great year, our first half year as a public company.

We appreciate all you participating in the call, and we look forward to talking to you soon.

Thank you.

Have a great day.

This concludes today's teleconference.

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Thank you for your participation.