International Money Express, Inc. (NASDAQ:IMXI) Q1 2023 Earnings Call Transcript

International Money Express, Inc. (NASDAQ:IMXI) Q1 2023 Earnings Call Transcript May 6, 2023

Operator: Good morning, and welcome to International Money Express Incorporated First Quarter 2023 Earnings Conference Call. During the presentation all participants will be in listen-only mode. [Operator Instructions]. As a reminder today’s conference is being recorded. I would now like to turn the conference over to Mike Gallentine, VP of Investor Relations. Please go ahead.

Mike Gallentine: Good morning, and welcome to our quarterly earnings call. I would like to remind everyone that today’s call includes forward-looking statements, including our second quarter and full year 2023 guidance, and actual results may differ materially from expectations. For additional information on International Money Express, which we refer to as Intermex or the company, please see our SEC filings, including the risk factors described therein. All forward-looking statements on this call are based on assumptions and beliefs as of today. You should not rely on our forward-looking statements as predictions of future events. Please refer to Slide 2 of our presentation for a description of certain forward-looking statements.

The company undertakes 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 for such non-GAAP financial measures is included in the presentation slide, our earnings press release 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 of our website at intermexonline.com. Presenting on today’s call is our Chairman, Chief Executive Officer and President, Bob Lisy; and Chief Financial Officer, Andras Bende. Also on the call today are Chris Hunt, Chief Operating Officer; Joseph Aguilar, President, Latin America; Randy Nilsen, Chief Revenue Officer; and Marcelo Theodoro, Chief Digital Officer.

Let me now turn the call over to Bob.

Bob Lisy: Good morning, everyone, and thank you for joining us. As always, we appreciate your interest in Intermex. We had another strong quarter building upon the company’s sustained track record of healthy growth. On Slide 3, Intermex grew revenue and EBITDA in double digits once again. Additionally, the key fundamentals that drive our superior operating performance quarter after quarter are trending in the right direction. Our CFO, Andras Bende will review the numbers in greater detail during his portion of our prepared remarks. Without question, our core business is strong, and we are on track to meet our full year expectations. As a public company’s fastest-growing omnichannel remittance company, Intermex is positioned to excel well into the foreseeable future.

As you know, the business we have built in the U.S. provides a differentiated value proposition to the Latin American corridor that is unparalleled in the industry. Because of our unique value-added model, an increasing number of consumers from Latin American community turn to Intermex to send money home. Powered by our state-of-the-art proprietary technology, we deliver value-added service to our consumers and thousands of highly productive retail agents who partner with us nationwide. Our customer-focused omnichannel business is powered by superior technology that is difficult to replicate. The rock solid foundation the company has been built upon drives our sustained growth and creates uncommon value for our shareholders. With all the elements of the La Nacional acquisition now closed, the integration of Land’s U.S. business is well underway, and we’re well into the process of assessing the significant opportunity that exists for our business in Europe.

While we acquired La Nacional primarily for its geographical complement and superior brand to the Dominican Republic, the La Nacional’s European i-transfer business presents an attractive growth opportunity for Intermex. The i-transfer division is currently profitable, and we see an opportunity to grow revenues and income many times over. For our digital business in the U.S. is demonstrating strong growth, the digital opportunity is likely larger and a near-term target for us in Europe. The i-transfer business represents a significant digital opportunity with minimal risk of channel conflict. The consumer base of senders is more likely to be banked in Europe. This will present the perfect landscape for us to thoughtfully execute our omnichannel strategy.

Across Europe, we can selectively focus on retail and/or digital when and where it makes the most sense, an advantage that few retail providers and no digital players have today. Currently, i-transfer operates in Spain, Italy and 1 company-owned location in Germany, representing a tremendous outbound remittance opportunity. We think i-transfer’s current presence Ulster with Intermex’s strategy and capital creates a powerful combination. We’re excited about the growth ahead. As we have stated previously, there are a number of components of the La Nacional investment that will become much more efficient over time, driving higher margins. Simultaneously to seizing the opportunity in Europe, which is underway, we have made great progress ramping up the full-scale integration and rightsizing of La Nacional’s U.S.-based business.

The upside potential for La Nacional in the U.S. is more about rightsizing the retail network and maximizing efficiencies and margins. Growth opportunities will exist, but they will be driven by careful profitable growth. We are also instituting our disciplined operating rigor and efficiency to the U.S. operations. By that, I mean our focus will be enhancing margins by capturing synergies and eliminating waste wherever possible. While La Nacional’s U.S. footprint actively has been reduced by some 500 unprofitable retail agents under our management with some additional reductions planned. Shortly after closing, we also rightsized the sales organization to match the reduced service area footprint. Our formalized restructuring plan is in place, and we will be at a run rate of 9% to 11% EBITDA margin by late 2023 or early 2024.

The La Nacional is proving to be a great asset for Intermex, and we’re just getting started. On Slide 4, including the La Nacional, prompts us to rethink how we discuss market share in the U.S. and Latin America. Adding the La Nacional substantial presence in the Dominican Republic changes the equation. Instead of tracking our share versus the market at four largest countries in Latin America, now makes sense for us to expand that to the top five countries, of which the Dominican Republic is parked. These countries amount to 82% of the money spent from the U.S. to Latin America and the Caribbean. We estimate our 2022 market share in these five key Latin American receiving countries was just over 20% when adding La Nacional. It further solidifies our position as one of the leading remittance providers in that market.

Additionally, if you look at Slide five, showing the top eight countries, which represent 92% of the money transferred from the U.S. to the region, you see that Intermex has steadily grown our market share to almost 20% for 2022. Our priority continues to be expanding our footprint in the most important ZIP codes for our spending consumers with a differentiated value proposition for both our consumers and our agent partners. The majority of transaction growth is produced by same-store locations, with the balance coming from new agents. When we recruit a new agent retailer, it provides incremental transactions in year one, but that same retailer will grow by larger percentages in years two and three. Our continued pipeline of quality new agents is critical to new store performance, but even more important to same-store growth over time.

Based on Intermex’s superior service for both the consumer and the agent retailer, our share of the remittances within the store will grow as we become the preferred provider over time. To accelerate our 2023 growth, we have added more than a dozen regional sales executives, whose job is strategically add a high-performance new retail locations. Especially in the West, where the unfilled market opportunity is greatest for us. The potential for growth in the region is significant, and we are confident that our investment will prove to have an excellent return in terms of building our business in the Western states. In summary, it has been another strong quarter for Intermex. Our best-in-class retail core business continues to perform at a high level.

The addition of the La Nacional’s U.S. business and the i-transfer business in Europe has provided significant growth opportunity. We’re excited about the top and bottom line potential contributions of these two business units as they are rightsized and instilled with the Intermex approach to the market. With that, I’ll turn the call over to Andras, who will drill down into the numbers and offer perspective on our first quarter operating performance. Andras?

Andras Bende: Thanks, Bob. Intermex had another strong quarter, thanks to our competitive advantage in the marketplace and the highly efficient management of our growing lines of business. The intelligent thoughtful investments we make in people, innovative new products, scalable technologies and new markets continue to drive the company’s double-digit growth. We’re executing a differentiated omnichannel business strategy for expanding our ecosystem productive and profitable retail agents with a laser focus on efficiency, engaging in only the right partnerships in the right geographies. We’re also rapidly growing and best-in-class digital offering and differentiating that focus on profitability as opposed to growth at any cost.

On Slide six, the strength of our underlying business, along with the addition of La Nacional has driven up the number of unique active customers by 37% during the first quarter to $3.6 million. These customers generated a record 12.9 million remittance transactions, 29% more than a year ago. On Slide 7, within the growth of the overall transaction, it was a 68% increase in digitally originated transaction as strong customer acceptance of our mobile app continues. 30% of our transactions either sent or received digitally, up almost 5% from a year ago. These numbers reflect double-digit growth in our core business and the contribution of La Nacional U.S.-based business. The international entities of the La Nacional transaction didn’t close until April 5, following a final approval from the Bank of Spain, which we received on March 22.

The international entities did not impact the first quarter, but will be consolidated for the majority of Q2, in line with our expectations and our previous guidance. Adding to Bob’s comments, we think adding La Nacional to our portfolio is an excellent use of capital, and we’re excited about what we’ve achieved to date and what lies ahead for us. We’re confident in our ability to capitalize on material opportunities the business presents to us in both the U.S. and Europe. Now that the business is entirely under our management, we’re excited about enhancing profitability in the U.S. in providing capital and strategy to fuel growth for i-transfer in Europe. On Slide eight, total principal transfer grew 22% to $5.3 billion, driven by the strength of our core business, coupled with the addition of La Nacional.

The average remittance amount was down 5% for the quarter year-over-year at $415 per transaction. So the decline is primarily due to lower average transaction amount to the Dominica Republic, which are now a larger share of our business since the acquisition of La Nacional. Our core remittance trend continues to be down only slightly about 0.8%. For comparison purposes, the core Intermex average spend was $433 during the quarter compared with $301 per La Nacional. As Bob mentioned earlier, with La Nacional now fully consolidated, it now makes sense to look at the 5 largest markets in Latin America and the Caribbean, where we set and our market share is up 150 basis points from the first quarter of last year to over 21%. On Slide nine, looking at the top line, ages and customer growth contributed to the 27% year-over-year increase in revenue, reaching $145.4 million during the three-month period.

As for the contribution to revenue from our digital business, we continue to thoughtfully pace spending around our app and online offerings to match or stay ahead of consumer acceptance. We’re successfully growing the digital business efficiently and profitably with the revenue contribution of our digitally originated transaction, up 79% year-on-year in the first quarter. We keep a tight pulse on consumer behavior, which positions us to intelligently invest in digital, always ensuring the unit economics are there to support it. It was a very good quarter, and growth in the business was strong. It’s worth mentioning, however, that net income growth, while in line with our expectations, with areas, seasonality in 1Q in the La Nacional business, higher interest and depreciation expense and a higher effective tax rate in growth in Czech.

Net income was up just under 1% at $11.8 million. GAAP EPS growth was better at about 3%, driven by our opportunistic stock buyback activity. Looking at Slide 10. Adjusted EBITDA increased more than 16% to $24.1 million, benefiting from strong revenue growth, partially offset by that same seasonality exhibited by La Nacional and an exceptionally strong February 2022, which made for a challenging [indiscernible] in the quarter. Adjusted net income was up 6% during the first quarter to $14.2 million, impacted by the same underlying drivers of GAAP net income, but excludes items like share-based compensation, transaction-related expenses, amortization of certain intangibles and the tax impact related to those items. Turning to the balance sheet on Slide 11.

Intermex continues to be an efficient operator and a strong generator of cash. The company ended the quarter on a Friday with a cash balance of $85.5 million. It’s worth it to mention that Friday is the operational low point weekly for cash balance for the business. Net free cash generated is our internal measure, which excludes working capital cyclicality, and it remained strong during the quarter at almost $14 million, an increase of more than 37% from the first quarter of last year. From a buyback perspective, we continue to be active in the market during the three-month period, purchasing 316,000 shares for just under $7.6 million at an average price of $23.95 per share. Additionally, we previously disclosed it in our fourth quarter call, but it’s worth mentioning again the Board recently authorized an additional $100 million for share repurchases.

The opportunistic buyback program as another excellent use of capital, we anticipate remaining active. The company has repurchased over 3.1 million shares for about $66.9 million. This includes the original $40 million authorization in 2021 and amounts we purchased directly from a significant shareholder in the third quarter of last year. Also worth mentioning is the recent April upsize of the revolving line within our credit facility, which now has a capacity of $220 million, up from $150 million. This additional capacity gives us more flexibility to grow organically and through M&A while also creating additional room for opportunistic buyback. On Slide number 12, we’re holding firm on our guidance for the full year based on our positive first quarter results.

We’ll go through it once again today. For the year, we expect the flow revenue to be in the $67 million to $88.5 million range, an increase of 22% to 26%. Net income of $66.5 million to $69 million, an increase of 16% to 20% and adjusted EBITDA of $120 million to $124.5 million range, an increase of 14% to 18%. For the second quarter, we expect the following revenue to be in the $168.6 million to $174.1 million range, an increase of 23% to 27%. Net income of $16.8 million to $17.1 million, an increase of 5% to 7% and adjusted EBITDA of $30.7 million to $31.4 million range, an increase of 11% to 14%. This guidance considers the full impact of La Nacional, the U.S. business that closed in the fourth quarter and the international business we just disclosed at the start of 2Q.

We also want to highlight that starting with our Q2 earnings release, we’ll start to communicate guidance in the following 3 metrics: revenue, EPS and adjusted EBITDA. In summary, we continue to execute and we feel well positioned to deliver another strong year for our shareholders. With that, I’ll turn it over to the operator for questions.

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Q&A Session

Operator: [Operator Instructions] I will proceed with our first question on the line from Mayank Tandon with Needham. Please go ahead with your question.

Operator: Thank you very much. We’ll get to our next question on the line from the line of David Scharf with JMP Securities. Go ahead.

Operator: We’ll get to our next question on the line is Mike Grondahl with Northland Securities. Go ahead.

Operator: [Operator Instructions] And we’ll get to our next question on the line from Chris Zhang with Credit Suisse. Go ahead.

Operator: I will now proceed with our final question for today is from the line of Alex Markgraff with KeyBanc Capital Markets.

Operator: Mr. Lisy, we have no further questions on the line. I would like to turn the call back to you for any closing remarks.

Bob Lisy: Well, thank you all for joining us. We appreciate your time, and we look forward to talking to you all soon. Have a great day.

Operator: Thank you. And that does conclude the conference call for today. We thank you for your participation. Please disconnect your lines. Have a good day, everyone.