International Money Express Inc (IMXI) 2021 Q1 法說會逐字稿

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

First Quarter 2021 Earnings Conference Call.

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

It is now my pleasure to introduce Mike Gallentine, Vice President of Investor Relations.

Thank you.

You may begin.

Good morning, everyone, and welcome to our quarterly earnings call.

This conference call includes forward-looking statements, including our 2021 guidance.

Actual results may differ materially from expectations.

For additional information on International Money Express, Inc., which we refer to as "Intermex" or "the company", 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 on this call are based on assumptions and beliefs as of today.

Please refer to Slide 2 of our presentation for a description of certain forward-looking statements.

We undertake no obligation to update such information, except as required by applicable law.

On this conference call, we discuss certain non-GAAP financial measures.

Information required by Regulation G under the Securities and Exchange Act with respect to such non-GAAP financial measures is included in the presentation slides for this call, in our earnings press release, on our quarterly Form 10-Q and our annual report on Form 10-K, including reconciliation of certain non-GAAP financial measures to the appropriate GAAP measures.

These can be obtained in the Investors section on our website, at intermexonline.com.

Presenting on today's call will be our Chairman, Chief Executive Officer and President, Bob Lisy; and Chief Financial Officer, Andras Bende.

Also on the call today is Joseph Aguilar, Chief Operating Officer; and Randy Nilsen, Chief Revenue Officer.

Let me now turn the call over to Bob.

Good morning, and thank you for joining us today.

This morning, we have some exceptional results to share with you, and we look forward to answering your questions following our prepared remarks.

As you saw in our press release we issued this morning, Intermex generated another set of impressive quarterly results.

Let me highlight some of them on Slide 3.

Net income was $9 million, a 58% increase compared with the prior year period.

Adjusted net income was $11 million, an increase of 40% over the prior year period.

Adjusted EBITDA increased 27%, to $17 million.

And revenues grew 22%, to $95 million.

Since we have become a public company less than 3 years ago, revenue has increased 52%, going from $247 million to $374 million; adjusted EBITDA has increased 78%, from $40 million to $71 million; net income has gone from a loss of $12 million to a gain of $40 million, an increase of $52 million.

Additionally, Intermex has now obtained or exceeded its quarterly EBITDA target in 11 out of 11 quarters since becoming a public company.

Driving these outstanding results is our strong operating foundation that has delivered world-class customer service for our customers (inaudible) retailers.

The company has pursued a unique hybrid focused strategy.

We focus on partnering with agents that are found in the very best locations and that share our business philosophy, placing the consumer first and, as a result, providing the utmost in customer service.

While many competitors view our industry as being a commodity, we believe quite differently.

We have differentiated Intermex's offering by providing fast, high-quality service, world-class customer care and extremely reliable delivery.

Additionally, we pick the very best retailers in the most convenient and accessible locations to best serve our consumers.

This strategy has fueled our growth in transactions in both our core markets of Mexico, Guatemala, Honduras and El Salvador as well as our emerging markets, as you see on the next slide.

In first quarter of 2021, we generated 8 million remittance transactions, an increase of 19% over first quarter 2020.

Transactions in some of our emerging markets, such as the Dominican Republic, Ecuador and Nicaragua, grew much faster than our overall business.

In total, our emerging markets grew transactions by 39% compared to the first quarter of 2020.

This strong growth in remittances in our emerging markets is also evident as seen on the chart.

While our growth slowed in Q2 in the height of the pandemic, these markets are now growing as fast as they were pre-pandemic, and they are growing at more than twice the rate of our overall business.

We believe there is a significant upside for longer-term growth in these corridors.

On Slide 5, our strong multiyear growth in transactions has led to our significant increase in market share.

In our core markets, which is approximately 75% of the entire Latin American market, we increased our share in the first quarter of 2021 compared with 2020.

We now have achieved an impressive 20% market share in these critical core markets.

Another critical characteristic of our strategy is focused on providing our customers with choices.

Many companies today either offer only one solution to consumers or, at a minimum, emphasize one alternative at the expense of others.

They spend large amounts of money and energy to entice and convince potential customers to use a service where today an organic market demand does not exist.

In some cases, these companies offer only one solution to the consumer.

In other cases, they have abandoned the highly profitable growing retail business to emphasize their online business.

Regardless, they do so while ignoring or, at a minimum, underserving the largest part of the remittance market, which is the agent-transacted business.

Intermex strongly believes in providing the customer with alternatives to choose the service that best suits their needs.

That is why the company continues to invest in our agent network with our retail digital service, which continues to grow at double-digit percentages year-over-year.

We continue to enhance that offering by accepting debit cards at retail to process consumer transactions.

At the same time, Intermex is efficiently investing in growing our consumer-based digital app offering.

On the next slide, we have continued to experience strong growth with our mobile app, with transactions increasing 140% compared with the prior year period.

Additionally, the number of overall wires that were deposited directly into bank accounts increased 47% compared with the prior year period.

This now accounts for 20% of all wires.

Transactions processed through the use of a debit card at retail are still a small percentage of our overall business, but growing at 45%, all evidence of the multiple choices that we offer our consumers.

In closing, we are confident that the underlying appeal of our unique business model, driven by our carefully selected, highly productive, localized agent network, combined with our superior customer care, will continue to drive the company to deliver strong financial performance in challenging times as well as in good times.

Our model has also proven to provide a high degree of predictability in the business and generate market share increases, double-digit revenue, adjusted EBITDA and net income growth.

This enables us to invest in attractive growth opportunities to provide additional future returns.

We remain confident that our philosophy and dedication to profitability and sustainable growth will continue to drive a significant competitive advantage in Intermex.

With that, let me turn the call over to our CFO, Andras Bende.

Thanks, Bob, and good morning to all the analysts, investors and customers that have joined us.

Turning now to Slide 7, let's walk through a really strong first quarter in more detail.

As Bob mentioned, this was another double-digit growth quarter across really every one of our key metrics.

In the quarter, revenues were up 22.4% over the prior year quarter and finished at $94.6 million, driven by a combination of factors.

The company was up 14% in customers alone; so we continue to confidently take share.

Total remittances were up 19.3%, which allowed us to capture a significant tailwind from average remittance amounts up right around 10%.

In the quarter, the company delivered net income of $9 million, an increase of 57.8% versus the prior year period, which translates to an adjusted net income of $10.6 million, which you can see on Page 8, an increase of 40% versus the prior year.

The revenue growth I mentioned was a big driver.

However, lower depreciation, amortization and interest expense were all big contributors as well.

We'll continue to see lower amortization as the intangible assets recorded in 2017 amortize less in the out years of their accelerated schedule.

We did see an increase in service charges from agents and banks.

That's par for the course with increased transactions.

We also saw anticipated increases in salaries and SG&A expense as we continue to make purposeful investments in technology, digital, key leadership positions and front-end growth.

The strong increase in revenues, partially offset by some additional spend, helped generate adjusted EBITDA of $16.8 million, a 27.4% increase over the prior year quarter.

Adjusted EBITDA margin for the quarter was 17.8%, a 70-basis point improvement compared with the first quarter of 2020.

However, as we indicated on our last call, adjusted EBITDA margin is down slightly from recent quarters due to the investments I mentioned a moment ago, but also the metrics saw a little added pressure from the February weather that impacted remittances from some of our key markets.

On Slide 9, based on a strong 1Q, we feel great about reaffirming our adjusted EBITDA and net income guidance issued in March and even better about our revenue position.

We'll provide another update after 2Q.

But for now, revenue, up between 16% and 18% versus prior year; that means $414 million to $421 million.

Adjusted EBITDA, up 11% to 14% versus the prior year, which means $76 million to $79 million.

Adjusted net income, between $47 million and $49 million; that's up 12% to 15% versus 2020.

And GAAP net income, between $40 million and $42 million; that's up 19% to 24% versus 2020.

As before, the second quarter should have the highest growth rate for us this year because the 2020 comparative was impacted by shutdowns.

Though, important to note, we still grew EBITDA almost 7% in 2Q last year.

We expect the third and fourth quarters of 2021 to be the best benchmarks for the underlying business trends.

Also worth a brief mention for those who spend time on our balance sheet, the Wednesday that closed the first quarter for us was a key funding day and the lead up to the Easter weekend.

This is Holy Week in many of our key markets.

And as a result, you'll see somewhat more pronounced variances coming from typical cyclicality in the lead up to key holidays.

So to summarize overall performance, we continue to execute on our differentiated strategy to grow.

We're making the right investments at the right time.

And the underlying environment for our high-quality service that we provide remains very, very strong.

With that, let me turn the call back to the operator for questions.

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

First off, Bob, just a little more maybe granularity or insight into the geographic mix expansion.

Appreciate the transaction growth rate provided by your markets.

But can you just remind us, particularly given how quickly your emerging markets have been growing, what percentage of the revenue mix is coming from the core versus emerging?

We haven't disclosed the percentage of the core versus the emerging, but the emerging is now -- it continues to grow in the high 30s% to 40%, or more.

And there are some quite large markets there.

Dominican Republic, for instance, as an opportunity, is amongst the top 3 or 4 markets in Latin America.

So it would easily fit in size-wise with El Salvador, Honduras and markets of that size.

It is becoming a significant share of our transactions, hundreds of thousands, but we don't disclose the exact makeup percentage versus the core markets.

Okay.

Understood.

And I think you kind of partially answered maybe sort of a follow-up in this same topic, which is maybe from the outside looking at the company, if there are any particular countries in the emerging markets category that we should be paying particular attention to in terms of either (inaudible).

Well, what I would say, David, is that our growth is still and will remain very much driven by Mexico and Guatemala.

They've been really, really strong.

Those are the largest markets in Latin America.

They happen to be the most profitable markets in terms of gross margin per transaction.

And we feel there's still tremendous headway there, even though our market shares in both of those markets have risen quite a bit over time.

We also think there's a lot of growth opportunity still in El Salvador and Honduras.

The reason we call out that second group is, not long ago, markets like Honduras and El Salvador, which are now many times bigger than the Dominican Republic, were the size of the Dominican Republic in terms of our transactions.

Also, Colombia is a really big opportunity.

Ecuador, Peru, Nicaragua, those are all opportunities for us that can grow into being not the Mexico, Guatemala size, but those are all countries that can grow into that group to be close to the Honduras and El Salvador size, which we today include in our core markets, El Salvador and Honduras.

Got it.

Got it.

And just one question.

Perhaps it's on digital-related.

But I want to make sure I understand or appreciate how to interpret some of the metrics.

And specifically, you had mentioned that still a very, very small portion of transactions at retailer initiated with a debit card, which suggests these senders are largely nonbanked, paying with cash and, therefore, would not be candidates for sending digitally, which clearly I understand that.

But on the receive side, is there any significance to the metric of 20% being deposited into (inaudible)?

I think there's a few things we'd like to signal by those facts.

One is that we talked about that we believe that many of the competitors out there, particularly those that are pure-plays digital, are missing a huge part of the market.

And we're happy they're doing that because we're spending the time picking up all those transactions.

We are continuing to gobble up market share.

So that's really working for us, and we're happy about that.

We also believe that some of our biggest competitors, the leaders, people think of as the leaders in the market, public companies, have abandoned their retail efforts, and most of their focus is at online.

And we think that that is sort of lopsided today, particularly related to Latin America, when so much of the business is driven through retail.

What we're trying to demonstrate through all of that is we provide the consumer with options.

You can go online, but we're not going to push the consumer online if they're comfortable and happy at retail.

You can go to retail, and in many of our retailers you can use cash for a transaction or you can actually use a debit card.

Most other companies don't accept the debit card at retail.

So we're able to do that.

We're also depositing a lot of our transaction for consumers who can send money over-the-counter to their loved ones and be paid out in cash or it can be deposited in bank accounts.

So we work really closely with some of our largest payers to incentivize consumers to do that.

And so all of that is building this, letting the consumer do what they want to do and giving them choices.

You're going to see our digital business be a small part of our business until it's not time for it to be.

When the market demands are there, when the market stops having that be an expensive proposition, more expensive than it is to bring in a wire, then we'll drive more towards that business.

We'll continue to grow it, but we'll grow it in the context that, in January, we grew, for instance, our Mexico business grew at 40% principal amount to Mexico, mostly given that we're at retail.

So that, to us, says there's a huge amount of headroom still at the retail level, and we'll continue to be aggressive there while growing our online, while growing these other options, card at retail, while growing bank deposits.

All of those are just other options for the consumer.

Our next questions comes from the line of Mark Palmer with BTIG.

The principal amounts during the quarter were quite large once again.

And just wanted to get your perspective on what is accounting for these sizable principal amounts which would seem to occur early in the pandemic in terms of their emergence.

And what is your thinking about the persistence of the larger principal amounts?

Is this something that's part of a new normal?

Or is this something that's likely to moderate, going forward?

Well, we see it having been pretty consistent now well into April.

We were just talking here before the call just how much larger principal amounts have been through even the current time.

We think it originally sort of had its origination when the people here, particularly the Mexican consumers, were still working because they were in a lot of the businesses that are really critical, like farming, agriculture, food processing, construction, and they were still working and the needs back home were larger.

So they were sending larger amounts back home and average principal amounts.

We feel like that it's continued, though.

And it's hard to really put an exact finger on it.

Part of it has been we think that one of the largest components of the sending community are those people that are working in construction, and housing starts have been really good.

There's been the stimulus money, which we're not sure much of it goes directly to our consumers, but may trickle to them through people putting on, doing landscaping in their yard or building a deck on the back of their house or something like that.

But we don't have an exact understanding of that.

And that's part of the reason, Mark, where you see that even though we came in really, really strong in first quarter, that we didn't change our guidance.

Because we're kind of -- in our numbers is the assumption that they become more normalized.

We have seen in the past, though, this sort of plateauing of average principal amounts, where there's been an instance, maybe a change in presidential election or something happened in Mexico, where there's a spike in principal amounts, and they don't continue to go up, but they relatively plateau.

It becomes something new or the new normal number.

And we can't predict whether that's going to be the case or not.

And that's why we've been really cautious as we look at the final 3 quarters of the year before we really raise our guidance.

We're kind of baking in principal amounts coming back to normal.

If they don't, then we're going to have a very, very strong last 3 quarters of the year.

And looking at your cash flow, we are modeling that free cash flow is going to continue to be very strong for quite some time.

If you can talk a bit about capital allocation, what your thoughts are right now.

I know in past calls you've discussed the very lofty multiples that are being demanded by potential digital targets.

What is your thinking about other avenues for M&A, picking up chains of stores, things of that nature, and other means through which you would allocate some of that cash?

I'll take the first part, this is Andras Bende, on capital allocation.

Just from our overall cash flow, I think our preference is certainly something in the M&A space to allocate.

But I think we're not going to -- we're approaching it from a position of strength.

We're not going to make the first mistake and pay too much, and it's very easy to pay too much in the current environment.

That would probably be our first, or would definitely be our first route if we found the right property, and I'll let Bob talk about properties of interest to us in a moment.

I think, after that, we could entertain a moderate-size buyback, could, at some point in time if the M&A front does not pan out for us.

But I think those are the 2 at the top of the list.

But again, those are things that as the situation and the environment evolves, those could change in terms of priority.

But let me let Bob talk a little bit more about M&A properties that we might consider.

Thanks, Andras.

So Mark, I think there's 3 categories of things we might consider.

And really, a digital acquisition probably is not one of them, not at least the way we think about digital remittances.

They really aren't.

Most of them, their valuations, most are private, their valuations would be bigger than our market cap and probably wouldn't make the best marriages.

Some of the ones that are out there sort of foundering, that are relatively small, their businesses, actually, as much as we say ours is really small, their business might be smaller than ours, and it's not profitable, and we would just be simply paying a lot of money for the privilege of investing in their business and growing it, the same way we can ours.

So I think putting digital aside, there would be 3 areas that we might consider acquisitions, and I think we have discussions going on really early and preliminarily in all of these areas.

One would be sort of niche markets in the U.S. outbound.

These could be countries that today we don't service that could be even in the Caribbean or that we don't service to the level that some really niche provider does service today.

And that really is easy fold-in for us because we don't have to think about overlap, we don't have to think about places where we lose wires because we're in the same retailer.

So those are really easy to do.

They typically would be retail-oriented.

They may have a little bit of an online component, but typically retail-oriented.

The second place that we might look in the U.S. would be related sort of businesses that would be adjacent to remittances.

This could be things that are like B2B or B2C payments.

We've had discussions.

There's been a few things on the market, one that's back coming around that we were talking to right before the pandemic and it got pulled back.

And these kinds of businesses might facilitate payments between companies that are paying people on a regular basis, on a 1099, and they may do it on a card basis, whatever.

So there's a lot in that whole universe of companies related there that we'll take a look at.

And we think the B2C or the B2B markets are really attractive.

Those companies tend to be a lot more affordable than digitals, but more expensive than the retail guys that have a niche market outbound from the U.S. So that's 2 of the verticals.

The last one might be expanding geographically.

We think there could be some opportunities to actually be in other places originating wires.

That could be out of Europe, that could be out of other areas in the world that there are companies that we could merge or acquire.

Those are very early discussions and very early looks.

But I think those are the 3 categories.

Digital acquisition is probably not in there.

We think we can grow that business more cost effectively than we could acquire something today.

(Operator Instructions) Our next questions come from the line of Timothy Chiodo, with Credit Suisse.

I wanted to talk about agent location runway.

So certainly, there's a long runway in some of your core states and, of course, additional states as well.

Maybe you could just give us an update there in terms of how much remains, how you're attacking it and how that could support further share gains ahead?

I'll open that up, and then I'll ask Randy Nilsen, who is our Chief Revenue Officer, if he wants to add a little bit of color at the end of that.

There is a tremendous opportunity west of the Mississippi.

In the Eastern United States, I would say that we are the dominant, #1 player to Latin America, most likely.

I can't speak that as a fact, but that's how we feel.

There's markets there where Mexico and Guatemala, where we might have 25% to 30% share, states that are like that.

West of the Mississippi, we have a really great business.

The #1 state for us in terms of total wires is California.

It's bigger today than our whole business was 10 years ago.

But there's such an opportunity in the West, in states like California still, in Texas, even in states like Arizona, Nevada, Utah, Colorado.

Our average level of what we call penetration, which isn't really market share, it's a little different, but it's certainly indicative of how well we've conquered the West versus the East, is probably about 1/5 as much as we are in the East.

So we could grow there many times over.

We don't really even think about it in terms of equaling the same kind of market penetration in the West as we have in the East, not at least from the outset.

What we think about that, that business in the West, which is a big part of our overall business, could easily be more than doubled in the next several years.

We think there's a huge opportunity still for us in a lot of those states.

A lot of that is driven by Mexico, Guatemala, El Salvador, Honduras.

But some markets out West are quite diverse.

Some markets, like Texas and others, have wires going to Africa, for instance.

There's a population of almost every Latin group in the L.A. area and in San Francisco.

Quite diverse markets.

They can offer even opportunities for us to send money to even countries today that we don't serve.

So we think there's a huge amount of opportunity.

We have about 1/3 to 1/4 as many retailers per foreign-borns in the West as we do in the East.

So again, a lot of work to be hitting the right ZIP codes with our distribution and to capturing wires away from competitors and driving that business.

Randy, do you want to...?

Sure.

Thanks, Bob.

So just to add a little bit more color to that, we are looking, as we continually do, at ZIP codes, as Bob said, housing foreign-borns.

We look at it by U.S. ZIP code, by state, by our selling district.

So we know in each sales district what their top ZIP codes are in terms of underperforming ZIP codes or underserved ZIP codes or unserved ZIP codes.

So we'll prioritize those ZIP codes based on opportunity.

And Bob is exactly right.

We've taken a very sophisticated look at the state of California, and we know exactly the number of ZIP codes that are unserved.

We've got sales team members pointed to those ZIP codes.

We know the ZIP codes that we're underserved in, and we've got sales team members pointed to those ZIP codes.

We've also looked at ZIP codes by country.

We've taken our top 9 countries that we serve outbound to, and we know by ZIP code which ZIP codes house the most Mexican foreign-borns, Guatemalan foreign-borns, et cetera.

We know what our level of penetration is in each of those ZIP codes, how many ZIP codes we're unserved in, and we've got sales plans pointing our team members to those ZIP codes as well.

So we think it's a fairly sophisticated look at growing our business, and it's exactly where we're headed the remainder of this year.

And just to add to that, just how it kind of ties back to what we've talked about principal amounts and if the business continues to stay where it is, part of that when we talk about that, hey, don't look for us to have better EBITDA margins, it will be an investment, part of that will be an investment in more people out there in the field, particularly in the Western states, to drive that ZIP code penetration that are going to drive wires, not only immediately but going forward.

So we'll be investing more and more into the retail side as well as investing in our online and new products.

But we feel like the retail side is really the cash driver with many, many, many more years of cash to drive for us.

And the more that we invest in that, we just think that provides us with many more resources to invest into our other lines of business.

Our last questions for this morning will come from Mike Grondahl, with Northland Securities.

2 questions.

One, you sort of laid out the runway for agent expansion, but could you talk a little bit, and I know you don't give numbers, but maybe the last 6 months, kind of the new agents you've signed up?

Just has it been above trend line, below trend line?

And then secondly, could you just talk about productivity of the sales force?

I'll start that off, and again I'll have Randy add a little more detail.

I think that one of the things we're proud of is even during the pandemic we were very resourceful and Randy and the sales team were able to even add new retail locations, which I don't think hardly any of our competitors were doing.

Not only did we service -- and I'm talking during the worst states, when people couldn't be out in the field, we actually added retailers remotely.

We'd talk to them over the phone and we'd ship the PC, and we'd train them without actually physically being in their facility.

But that did have a slowing effect on us.

And until we got into third quarter of last year, we were -- it slowed down in terms of the retailers we're adding.

But that also created a big pent-up demand.

And I think our sales force have a lot of stuff to go out and actually execute against.

And we really have picked up the pace in terms of adding new retailers third and fourth quarter and into first quarter.

So we think that that will continue.

And our average sales rep has been highly productive.

Again, we don't talk about that in terms of what our expectations are in terms of new retailers, generally, because it's just too much competitive information out there, but it has picked up.

We're adding many more retailers.

And remember, as we always talk about that, the big inputs of transactions from our new retailers happen in Year 2 and 3. When we put up a retailer, on the average, they're usually getting to "x" number of wires in 3 months, but that number of wires doubles in Year 2 and then grows more again in Year 3. And that's part of that whole, over all, where we talked about having that very, very high transaction per retailer performance.

So not only we're adding retailers, but they're highly productive, as normal, and they're going to, we talked about, the correct ZIP codes where we have opportunities, which are going to drive transactions.

Thanks, Bob.

Mike, just a little bit more color on that.

Bob's right.

Of course, as we went into the pandemic last March, our sales team, although active, wasn't as active as they would have been had they been out selling in-person in the streets.

And remember, we kept them working out of their home offices for a couple of months.

So as we got back into full swing working in the field Q3, Q4 last year, fair to say that the agent activation levels increased by about 25% over Q1 and Q2 last year.

As we circle around to Q1 this year, we actually activated about 50% more agents this quarter this year than first quarter last year.

One more, I think, dynamic that may be helpful to you is Q1 of this year, we were as fully staffed as we've ever been.

So more feet on the street and activating more agents per sales rep than previously as well.

So we really like the way that our sales team are activating new agents now, where, to Bob's point, we're going to have a pretty good grow over the rest of this year.

One other factor, we've changed the compensation plan, as we typically do each year.

And this year, there is greater emphasis on new agent productivity.

We'll be commissioning our sales reps a little bit more tied to their new agents being more productive.

So hopefully, that helps.

There are no further questions at this time.

I would like to turn the call back over to Bob Lisy for any closing remarks.

Thank you all for your attention on the call.

We appreciate the interest in the company, and we look forward to talking to you all very soon.

Have a great day.

Thank you for your participation.

This does conclude today's teleconference.

You may disconnect your lines at this time.

Have a great day.