International Money Express, Inc. (NASDAQ:IMXI) Q4 2023 Earnings Call Transcript

International Money Express, Inc. (NASDAQ:IMXI) Q4 2023 Earnings Call Transcript March 2, 2024

International Money Express, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day, and welcome to the International Money Express Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Alex Sadowski, Investor Relations Coordinator. Please go ahead, sir.

Alex Sadowski: 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 2024 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 two 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, EVP of Retail Sales; Marcelo Theodoro, Chief Digital Officer; Beth Erickson, Chief Human Resources Officer; Andrew Kugbei, EVP, Finance and Business Intelligence; and Karim Baroni, Director of Financial Analysis.

Let me now turn the call over to Bob.

Bob Lisy: Good morning. Intermex is proud to announce fourth quarter earnings that are a testament to who we are as a company. On Page 3, you can see that in the quarter we delivered revenue of just under $172 million, up 11.2% year-over-year, and diluted GAAP EPS of $0.49, up 40% year-over-year. Furthermore, adjusted EBITDA was up 14.5% to $33.3 million, and adjusted diluted EPS of 21.7% to $0.56. We continue to deliver solid earnings and cash generation for our shareholders in every environment, and our fourth quarter results fully demonstrate that. We believe our omnichannel strategy is most efficient way to serve the varying needs of the consumer in this market. Intermex continues to offer our best-in-class service and loyalty offerings through both our Retail and our Digital products.

This is an advantage that no other provider can claim. Our Retail network required years of careful precision effort to build and as a result is very difficult to replicate. Our technological advantage makes transacting fast and convenient for both Digital and Retail consumers. These critical factors have made our model highly profitable and drives exceptional generation of cash. How we deliver our products and service to the market is even more important. At Retail, Intermex has taken and will continue to take a highly refined rifle-shot approach while building our network of retail agents. This strategy enabled the company to deliver products and services to consumers through the highest-performing retail agent network in the industry. All this occurs while maximizing agent retail performance that drives ROI and profitability.

We are most interested in connecting with consumers in markets where our value-added approach resonates the strongest. This is when and where Intermex is able to best differentiate our value-added service where we can in turn capture margin and where we ultimately benefit our shareholders. Our Retail model requires a modest investment. Our sales and marketing costs are roughly 8% of gross margin and only 3% of total revenues. In our Digital offering, we continue to demonstrate that same focus on efficiency and profitability while growing our transactions 43% this quarter and doing that by way of a highly efficient customer acquisition spend. As a result, we are delivering a highly attractive margin. Finally, we continue to develop and introduce new features and functionality to deliver a user experience that is among the best in class.

We continue to upgrade our application, and has received a rating of 4.8 out of 5 from our users. Our expanding margins related to our Digital product place us in a great position to expand in new markets, including India, the Philippines, and others through our new partnership with Visa. In the broader market, significant amounts of capital have been spent by some providers to grow digital market share. In many cases, spending may not have achieved an ROI that would support that investment. Our strategy is to carefully cultivate and grow our digital business with the same efficiency that we have demonstrated while building our retail network. That is one key reason why our current digital business is profitable and growing. We’re taking the approach that no one else in the industry has taken by offering a value-added product and carefully crafted strategy to capture share in the right markets.

As we do with our Retail business, we will leverage our best-in-class customer service and our metrical orientation to drive profitable wire growth. This translates into consistent product expansion, strong margins, exceptional cash generation, and a fortress of a balance sheet. As we talked about previously, La Nacional acquisition we closed in Q4 of 2023 brings in amidst meaningful presence in the US to Dominican Republic market. With that acquisition on board for over twelve months, you will see on Page 5 we have recast our market share calculation over time to include the DR. In 2023, we captured a 21.4% share in the top five markets to Latin America. We have successfully grown our market share over time while sustaining attractive margins year after year.

Our Q4 EBITDA margins, excluding acquisitions, were well north of 20%, some of the best we have seen in the history of the company. We have been able to attain these outside results through the execution of our metrically driven strategy. We have a highly efficient base of retail agents who rely on our products and services. We offer and deliver these products to customer base who appreciates Intermex’s value-added approach. We continue to strengthen our relationship with our retail agents while deepening our competitive mode and growing our mutually beneficial high-margin business. Additionally, we have the ability to carefully select where and when to aggressively pursue wires and reduce gross margins. This practice is put in place when meaningful incremental transactions can be captured in areas where Intermex as a low market share, and the upside potential is quite large.

This approach enables us to capture new business in such a way that we do not affect margins at our current high-profit retailers. As a result, we’re able to generate incremental earnings for our shareholders. We refrain from reacting to market pressures with a broad-brush approach that degrades margins for the company. Our approach is simple, but not easy. It requires focus and disciplined execution. These behaviors are in our corporate DNA but are very difficult to replicate. In our quest for new business and to catalyze incremental growth, we have launched bold strategies to penetrate previously untapped and underdeveloped markets. Our focus sharpens on locales ripe with untapped wire potential, detailed to the zip code where our presence has been minimal.

As a part of our aggressive approach to drive revenue in high potential areas, we’ve decided to expand our outside sales force by adding six new positions to our already robust team of 40. This expansion is a fresh strategy designed to intensify our market penetration and coverage. Moreover, we’ve taken a decisive step by significantly enlarging our inside sales team, a move that marks a departure from traditional methods by tripling the team’s size from twelve to 36 members and strategically positioning these roles offshore. We’re not only enhancing our capacity to engage with our current agents but also tripling our daily interactions in cost-effective manner. This strategic enhancement is expected to dramatically boost our same store sales, representing an almost 60% surge in our total sales force capacity.

This considerable investment in our sales infrastructure is an approach we are confident will yield substantial returns over the next twelve to 18 months, signifying our aggressive pursuit of growth through innovative staffing strategies. From an inorganic perspective, we’re also making great progress. The I-Transfer business in Europe grew at 17% in Q4. We continue to expect great things from our European division, including strong digital opportunity to access in the coming months. While the Nacional business in the US is much more profitable and efficient than a year ago, we believe significant opportunities remain to expand to additional corridors through our current agent base. To Mexico alone, now armed with the Intermex payer network and fee structure, we see potential for millions of dollars of increased margin annually.

We have begun to execute against this plan. Additionally, there will be more efficiencies to be leveraged as the year unfolds. These businesses are proving to be great additions to Intermex, and we’re excited and optimistic about their combined future. Before I turn the call over to Andras to go deeper into the numbers, a few final thoughts on operating discipline and why we say Q4 was a testament to who we are as a company. By almost all key measures, we’re strong and exceeded market expectations we faced some revenue headwinds. In spite of that, we persevered and delivered a solid quarter of growth. We talked about our plan to capture incremental wires in Q3. I am pleased to report that our efforts are continuing to be productive, and the sales team continues to execute on that plan.

At the same time, shortly after Q3 earnings, we saw Mexico market growth slow considerably to levels we have not seen in years. In true Intermex fashion, we put a critical eye on our business and challenged every corner of the company to maximize efficiency. We delivered on what we set out to do and generated strong earnings despite a weaker than expected top line. While it is difficult to predict what our key markets will do in 2024, the guidance Andras will take you through later in the presentation anticipates underlying softness in that market for a period of time. Our guidance also anticipates a tenacious focus on efficiency and execution, that is part of our culture and why we feel better positioned than anybody else in the market. We are confident in our differentiators, and the management team and the board feel there is tremendous value in Intermex stock.

We will continue to be highly profitable and produce considerable free cash in spite of the investments we are making in our future growth. And finally, we will use a share of that free cash to increase our stock buyback program. We anticipate being twice as active in our existing program and will continue to assess block trades that benefit our shareholders. With that, I’ll turn the call over to Andras.

Andras Bende: Thanks, Bob, and good morning, everyone. On Slide 6, you can see both unique customers and transactions up double digits year-over-year. Most importantly, we grew this business at healthy margins, which you’ll see reflected in the coming pages. On Slide 7, the strong trend in profitable digital growth continued. Transactions were up 42% at the best margins we’ve seen for our digital product. We’re confident in our product, our digital partnerships, and the team that’s bringing it all to market. Also worth mentioning is the growth on the Digital Receive side. Those transactions terminating by electronic payout methods like bank accounts, mobile wallets, et cetera are a key factor in that almost 18% year-over-year growth you can see to the right.

These transactions are typically very cost-efficient ways for us to deliver a wire, so this trend is also a nice margin tailwind for us. On Slide 8, we present a picture of our volume growth in the Average Principal Sent. On face value, it appears that the Average Principal is down year-over-year to $406 a transaction in Q4, that is mostly driven by the inclusion of La Nacional and iTransfer, where the send amounts are structurally lower. Principal amounts, excluding those businesses, were essentially flat for the quarter. On the next page, you can see revenue growth, up 11.2% for the quarter and 20.5% for the year. As Bob mentioned earlier, revenue was at the lower end of our guidance, as we were not immune to the slowdown in send to Mexico.

However, as you see next on Page 10, our strategy to grow transactions in the core while preserving margins, coupled with a rigorous cost agenda, yielded strong earnings results. You can see net income up almost 34% for the quarter and diluted EPS up 40%. As we closed on the Nacional acquisition in Q4 last year, we’re growing over about $2.5 million in transaction costs, which is bolstering the GAAP number. On the next page, you can see a little cleaner reflection which among others, adjusts out of those transaction costs. Adjusted net income is up 13.5% and adjusted diluted EPS is up 21.7%. Finishing up the P&L, adjusted EBITDA grew at 14.5% in the quarter with adjusted EBITDA margins at 19.4% versus 18.8% in the prior year. So again, our targeted strategy to grow wires in this environment without degrading margins is delivering for shareholders.

Also worth it to note, Q4’23 includes a full three months of La Nacional and iTransfer, both structurally lower margin businesses, yet our year-over-year margin still improved by 60 basis points, a testament to our focus to deliver a premium product through highly tactical execution. Finally, on cash on the balance sheet, we ended up the quarter on a Sunday of a holiday weekend with $239 million on the balance sheet and $106 million undrawn revolver capacity. Free cash generated, which again removes day of the week cyclicality, was up 26% year-over-year. The balance sheet remains in great shape, while the headline shows up as about 1.6 times levered. We have to remember that we closed on a weekend with $114 million drawn on the revolver, and most days of the week that revolver sits completely undrawn.

If we look at our average daily debt position for 2023 versus our adjusted EBITDA for all of 2023, it implies a leverage of below one times. As far as capital allocation goes, at the top of the list are aggressive incentives at retail that deliver highly accretive transaction and margin growth. After that, we continue to see great value in the stock. In the quarter, we purchased about $25 million in stock, $10 million via our regular quarterly program, and another $15 million through block purchases. As Bob mentioned earlier, we expect to double our quarterly underlying program from $10 million to $20 million, and we’ll continue to make block purchases when and where it makes sense for our shareholders. As far as M&A goes, we’re always going to look for opportunity especially with the balance sheet we have.

However, we’re going to continue to be selective stewards of the company’s capital resources, exercising a prudent approach with robust screens for value. On the final slide, I’ll take you briefly through our guidance for 2024 and for the first quarter. For the full year 2024, we anticipate the following. Revenue of $681 million to $701.8 million, fully diluted GAAP EPS of $1.81 to $1.96, adjusted EBITDA of $124 million to $127.7 million, adjusted diluted EPS of $2.13 to $2.31. For the first quarter, we anticipate the following. Revenue of $150.4 million to $155 million, fully diluted GAAP EPS of $0.32 to $0.35, adjusted EBITDA of $24.4 million to $25.1 million, and adjusted diluted EPS of $0.39 to $0.42. This guidance takes into account a noteworthy step down in market growth for Mexico, the key corridor in Latin America.

While we’re not immune to the effects of growth slowing at the single largest country-to-country corridor in the world, we anticipate four things. We’ll continue to beat the market growth rate in both retail and digital. Our margins will remain strong, justified by a premium product and highly tactical execution. We’ll pivot to an even leaner operating model, maximizing returns in the face of a market whose pace of growth has come back down to earth. And finally, we’ll utilize our strong liquidity and ability to generate cash to more aggressively pursue shares via our buyback program. In summary, we continue executing the Intermex playbook and are well positioned to deliver another strong year for our shareholders. With that, I’ll turn it over to the operator for questions.

Operator: [Operator Instructions] Our first question comes from David Scharf with Citizens JMP. Please proceed.

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Q&A Session

David Scharf: Great. Good morning, and thanks for taking my questions. Bob, can you provide a little more, I guess, background and geographic context for the sales force expansion since it’s such a dramatic increase, particularly the internal team? Is this bolstering up efforts in the western regions? Those zip codes, I know you’ve long been targeting or I thought you said something about offshore. Can you just provide some more background on kind of how we ought to view this in a broader kind of multi-year context of kind of what you think your footprint will look like?

Bob Lisy: Yeah. The inside team has been primarily located in Miami, with a few folks out in California to be more productive relative to time zones. And we had 12 folks that were directly responsible for contacting agents by telephone. Those were separate and apart but supporting our efforts at retails with our outside sales team. We recognized that our reach could be benefitted by having more folks available. And what we did is, created 24 positions in Guatemala with people that are fully bilingual, that will be augmenting those 12 folks, and then work in teams of three people, one in the US, two in Guatemala, that will have a set of agents, approximately 12 different teams. So, each team will have about one-twelfth of our existing agents.

And what they’ll be doing is calling those agents and looking at opportunities where we might have a decline in wires, where it’s a slow startup with a new agent. Our experience is that contact drives many more wires, and the payback is really even good if the US team, but the fact that it’s much more efficient cost wise to do this in Guatemala, we’re able to triple our reach from the inside perspective without anywhere near tripling the cost of that function. Now, additionally to that, we’ve had 40 district sales managers in the US that have been separating or accounting for our existing business and going out after a new business. Those will be augmented by a 15% increase. So, we’ve tripled the size of the inside, and then a 15% increase of the folks out there in the US at retail that will be visiting our existing agents will have the primary responsibility for adding new agents in the vacant zip codes where we have opportunities.

We’ve coupled this with a approach that is looking at different offerings that will be more attractive to both the agent and to the consumer in certain zip codes where today we haven’t penetrated. And as we talked about and signaled in the text, that these are opportunities where we’re not giving away any margin, where even if we’re taking a lower margin, be more aggressive, it’s all found transactions because we have not penetrated those zip codes in the past. So, it represents a total remake of what we’re doing from an aggressive perspective in the west, but also a remake relative to supporting our existing base and becoming more aggressive at retail. So, we think that it’ll pay large dividends in the next 12 to 24 months, and we’ll see an ascension of our rate of growth of further separation from our rate of growth over the market rate of growth in that period of time.

David Scharf: Got it. Understood. Maybe as a follow up along that thought of increasing the internal sales force focus on monitoring existing agents, it looks like a lot of the forward guidance is impacted by what you’re witnessing in Mexico. I mean, notwithstanding some of the movement in some of the Bronco to Mexico data. I know kind of one of the largest global player I know on their call had mentioned they had returned to gaining share in Mexico after a long time and you’ve talked about pricing pressures in that corridor in past calls. Is there — are you — do you feel like you’re maintaining share in US to Mexico at sort of your mature agents?

Bob Lisy: Yeah, I mean, we think there are two things going on. We think we’re gaining share at retail and we’re gaining share at digital. The challenge for us is today our business is not weighted the same way as the market. So we’re not having 20% of our business to Mexico go digital. And that’s the faster growth piece in the business. I think we believe we’re growing just as well as the digital pieces and just as well as the retail pieces. But our percentages are more like 95% retail today and 5% digital. So that weighting causes our growth to maybe look not as good as it does. We think, again, we’re beating and exceeding at retail and beating and exceeding at digital. And we think this program where we’re adding — not only adding the folks to target, but also the fact that we’ll be taking a look at what we’re willing to offer the agent and the consumer at retail in these underserved or unserved areas.

It’s going to make a lot of difference and will make a further separation between us and market share. Us in the market growth, which will gain further market share for us.

David Scharf: Understood. And I thought just a quick follow up for Andras. I guess, salary benefit, the largest OpEx after agent charges, I guess it was $72 million last year, there may be somewhat La Nacional noise, but as we think about the increase in sales headcount, I don’t know if it’s all variable and commission-based, but is there a kind of good figure we ought to think about for an annualized figure in salary and benefit this year? It seems like that would be the line item moving the most.

Andras Bende: Yeah, I think it’s relatively small, these additions. I mean we — in terms of our salary movement year-over-year, you’re going to see an aggregate for the business 4% to 5%. So, we’ve really dialed back on that. So that impact of these ads is relatively small, and taking into account all the other areas where we’re dialing back costs as much as we can, it’s not really going to push through to be a visible impact.