Greetings, and welcome to the International Money Express Second Quarter 2019 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Sloan Bohlen, Investor Relations. Sloan Bohlen;Solebury Trout;Managing Director: 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. I refer you 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. 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 on our website. We also refer you to Slide 16 through 17 of this presentation for a reconciliation of certain non-GAAP financial measures to the appropriate GAAP measures. I am joined on the call today by Chairman and Chief Executive Officer, Bob Lisy; and Chief Financial Officer, Tony Lauro. Let me now turn the call over to Bob.

Thanks, Sloan, and thank you to our investors and analysts joining us for our second quarter conference call. Similar to last quarter, let's start with a review of our strong year-to-date performance relative to strategic priorities we have laid out for 2019. As you can see on Slide 3, our priorities are largely unchanged, and we're excited to say that we are on track with each of our key initiatives. First and foremost, our top priority is also our largest growth opportunity. That opportunity is to drive further penetration across both our more established markets in the East and Southeast and to expand further into our very large Western markets. As we have mentioned before, we see a long runway for growth and believe our rate of growth relative to the market continued to support our conviction in that ongoing opportunity. Secondly, we continue to push ahead in the early days of our outbound service to Africa as well as our Canadian outbound business, which launched in early third quarter. We're excited about both markets and see Africa and Canada have similar volume opportunities to Guatemala and Texas, respectively, when both are fully scaled. We'd also remind you that we do not expect any meaningful EBITDA contribution from either market in 2019. We're excited to say that the results in both new markets have been encouraging thus far. In Africa, we booked our first wire on January 10. And in Canada, our first transaction occurred on July 9. We have made good early progress on key hires in both markets, and we'll continue to update you as our business continues to grow. Let's now turn to Slide #4 to review our second quarter against key performance indicators. Similar to the first quarter, we are pleased across the board with our…

Thanks, Bob. Let's turn to Slide 8 to review the current state of the competitive market. Similar to past quarters, we continue to take share, as Bob mentioned. We believe there's ample momentum to continue to do so even with moderating industry growth. As you can see here, through the second quarter, Intermex grew share in both Mexico and Guatemala. Since 2014, we've more than doubled our market share to Mexico and delivered similar share gains to Guatemala. Even more recently, our success has continued and we continue to take share during the first half of 2019. Specifically, we believe our market share in Mexico grew nearly a full percentage point to 18.3%. Similarly, in Guatemala, we increased our market share nearly 1.5 points to 25.4%. As you'll see later in the presentation, we're growing even more rapidly in our Tier 2 markets of El Salvador and Honduras. Before I drill down on Mexico and Guatemala, let me again note that while we don't target any specific market share, we're focused on penetrating both our existing and newer growth markets with our service model and reiterate that these results are proof that Intermex's value-added, customer-focused proposition is a winner and we can continue to drive share gains across all of our markets. Now turning to Slide 9. You can see our share of the market growth split out between Mexico and Guatemala markets. Year-to-date, as of June 30, Intermex accounted for 56% of the total growth in Mexico and 40% of all the growth in Guatemala. We strongly believe the success we've experienced is due in large part to the value and service level we deliver to our customers. As a result, we feel good about our ability to continue to grow share across all of our markets. Further to…

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

Let's move to the next question, please.

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

Congratulations on the quarter. Any observations on the competitive environment? Anything new or different than what you're seeing out there?

I don't think we've seen anything differently than we've been seeing. I think we continue to see a large amount of discounting from the small independents, particularly a few them that are sort of as a small brand. And we've kind of seen the same with majors, nothing new from Western Union or MoneyGram. It's really been a consistent sort of marketplace. The only difference has been, obviously, as we talked about a little bit of slowing of the year-over-year growth, and that's -- I think sometimes the smaller guys tend to get a little bit more desperate and discount a little bit more, but it hasn't really seemed to be productive for them to do that in terms of grabbing share.

Got it. And then just as a follow-up. Any states that you want to call out as maybe above or kind of under plan? How do you feel there?

I think we're doing quite well across the country. I think that if we had to delineate a bit, we've been even more pleased with our ability to hold share and grow it at places where we're really strong. And we continue to always set the bar really high for our ability to gain share in those big markets out West where we're still less than at the level where we'd like to be, particularly compared to the East. So we always want to continue to do better out there. But we've been really pleased at how well we've done in our Eastern markets where we have very large market share than Guatemala and Mexico, where we continue to grow faster than the market and continue to take share. So we've been pleased with that in those stronghold states.

Our next question comes from David Scharf with JMP Securities.

A couple of things. One is, either for Bob or Tony, just a general question. I know in recent quarters, you've made a point of highlighting that at least near term, that Intermix is principally a top line market share growth story as opposed to a significant kind of margin expansion story at this point, particularly given all your investments. But this was once again sort of a surprisingly strong margin quarter. I know a year ago in Q2, there was very strong FX volumes because the peso was declining, and that tends to kind of juice up gross profit. But is that -- was it maybe stronger-than-expected FX volumes that drove that this year? Or should we be rethinking more broadly the operating leverage this year?

Yes. I wouldn't think more broadly the operating leverage, David, it's Tony. The FX income didn't come in stronger really than we expected it to. Where we got the spread between revenue and EBITDA margins was really we got operating efficiencies in a couple of areas. One was in bank fees and the other was in salaries and benefits. And bank fees, which, as you know, are a big part of our expense base, we've got this initiative to move our agents to lower cost deposit methods. And as a result, that line only grew between 3% and 4% in the quarter year-over-year. Salaries only grew 2%, as you can see in the stuff that we filed, and some of that will catch up as we ramp up hiring in the second half.

Okay, got it. No, that's very helpful. And then just secondly, on the demand front, maybe just expanding on Mexico. Once again, you've commented the last few quarters, I think, that we're coming off a couple of years of above trend growth at the pretty whole industry for the U.S. to Mexico corridor and that expectations are that it moderates into more of a normalized maybe mid-single-digit level this year. Year-to-date, that's kind of where we are. It was a little below that for the industry in Q2. Just trying to get a sense for whether you're modifying that outlook a little more incrementally on -- as we sit here in August. Or if you still feel similar to the last 3, 6 months where, hey, it's not -- this isn't a 10% growing sector anymore, those were about [ 10 ] years, 5% seems to be realistic.

Yes. The only thing I would change is just that the -- anymore. I think the market ebbs and flows and has for a number of years. And one of the things that we look at a lot is the 2-year trend because sometimes there are blips in 1 year over another. And when you look at second quarter of '19 and you look at the 2-year growth because it has such great growth in 2018, the 2-year growth, '19 over '17, was almost 21%. And if we look at that back to, let's say, fourth quarter of '18, the 2-year growth of '18 to '16 in the fourth quarter was about 26.7%. So we haven't come way back from the 2-year growth numbers. We have such a -- in the industry, I think, first of all. And of course, we did even better in the second quarter. But we had such a large growth number in '18, some of which I would call somewhat artificial, right, because it was produced above the normal level because of the volatility of the peso because of the election in Mexico and the threat of a candidate being elected that maybe was not going to be favorable for the economy. And so as the peso suffered, we had an unrealistic growth in second quarter last year. But when you look at that 2-year growth, I think it said, as you know, if we really were declining a lot, we wouldn't have been at a place where we actually even grew over last year because that last year growth was artificial, at least a big part of it was artificial because of the election. So we were able to still grow past that. And the 2-year number now being almost 21%, so we'll see as it unfolds. I mean we're not -- as Tony mentioned, we think it's a -- we want to err on the side of being conservative about the second half and our ability to be well within our guidance. It's not dependent on the numbers being as strong as they might have initially thought. But what we want to do is to get a stronger look at that because the second quarter was just such an anomaly last year. And again, like I said, looking at that versus some of the other quarters previous to that, it really wasn't that weak from a 2-year sort of growth perspective.

Our next question comes from the line of Brad Berning with Craig-Hallum.

I just wondered if you could touch a little bit more on the payroll and reloadable card, progress and initiatives, and just kind of hear a little bit about how far along are you in those efforts. And when do you think we can see more meaningful contribution? How to think about the timing on those initiatives?

Well, we've got some good things going on with the card. I mean we've been testing it and selling it in our brand stores, which we, as you may know, we have about 32 stores of our own that we actually own and it's our personnel. But the bigger news on the card is we've been working with some direct access to companies that bring in Mexicans and others from Mexico to work and are sponsoring them with their visas. And we think we're very close to activating our first tranche of people, first group of people on the card. That should happen within the next couple of weeks. And that's a great universe for us because these are folks that are typically 4-times-a-month senders. It's not a huge universe, but it is hundreds of thousands of people. And we've been tapping into that. We're working with one specific employer that brings in about 3,000 people here in August, and we'll bring in another group of people in September and then in October. So that's really going to be the best kind of quick way that we start to build the card. We're doing a lot of calling on businesses, obviously, that employ a lot of Mexicans, Guatemalans and El Salvadorans, Hondurans, our basic customers. And we've made a lot of progress in that area. And then we're also again beginning to sign people up with the card on the one-off basis in our retail locations. But really excited about the H-2B visa program. We think that's going to be a really great opportunity for us.

And as a follow-up, are those people typically going to be loading those cards directly with payroll and then digitally transferring money to -- across the border? Or do they still go visit a store? And I'm just kind of wondering if the margin profile on that is different for you at all because of that program?

Well, 2 things. One is that they will have their payroll directly put on the card. So that's going to be given as their first option when they get here. Obviously they could decline, but they'd be given the checks still. But that's their first option. So their payroll will be directly loaded up on the Intermex card. Second thing is, is that we think most of the centers will continue to still go to retail, in places where we're beginning to -- and as you may know, we've also put card readers at many of our agents. So we continue to expand in areas where we think there's an opportunity for that. So they would be able to use the card at our retail locations at one of our agents that has a card reader or they could go online to use it. Today, there's not a big difference in margin between our online business and the business at retail. Part of that is customer acquisition cost. On this case, let's say that the customer acquisition cost has gone, but even in the sense of gross margin line, there's not a big difference. The difference is you pay a retailer a commission. But on the online side, there's other costs, processing costs, fraud costs. There's other things that add up. So at the end of the day, they're very close today in terms of the margin on either side.

[Operator Instructions] Our next question comes from the line of Jason Deleeuw with Piper Jaffray.

Good work on the second quarter. Question on the Africa, Canada expansion. How much of a headwind -- can you just remind us how much of a headwind is that to margins this year? And can we expect some of the headwind to abate for next year?

It's a building stage this year. And we've been pleased with how quickly Africa has grown, but it's still a very small contributor in terms of, really, transactions versus other countries. And we don't really disclose until things get to be meaningful, so it's still small. Canada was just started. We just did our first wire just a few weeks ago. And so that's just been opened. So you're not going to really see any significant volume in Canada, I don't think, until later in the year next year, probably as we get into the second quarter, but maybe even the third quarter. Africa, I think that we can begin to see some trackable transaction levels by the time we get into probably second quarter or early next year. But these things take time to build. Great opportunity, but they're slower as you start them up. And we've got a big commitment to it over time.

Great. And then the slides highlighted the Tier 2 U.S. to Lat Am channels. And just help us think about, as you grow in those channels, are you leveraging your existing network? What's kind of the margin profile? I mean is it just a scale game, as you get more transactions with your agents, you just get better margins? Just kind of help us think about kind of the margin benefits from that -- those Tier 2 corridors.

Well, the -- typically, Tier 2s have lower gross margins per transaction than Mexico and Guatemala. Think about it this way, Mexico is by far the most profitable, Guatemala is the second most profitable, and then El Salvador and Honduras are about the same sort of profitability per transaction. But what they are is great add-ons. Once you build -- we had a very definite strategy. And even though we have a ton of opportunities still to Mexico and Guatemala, we've built a big enough railroad, if you will, at Guatemala and Mexico, that adding on, on the transactions to Honduras and El Salvador and even the other countries, which we're not disclosing by country right now, continue to be a big opportunity for growth for us. So in themselves, if they were the lead product, let's call it, like Mexico is or the secondary like Guatemala, it wouldn't be a huge opportunity, but as add-ons, they're greatly profitable. You did ask if it was some of the same retailers. Generally, it is. Mexico -- some Mexico retailers would do wires to all 3 of those countries, Guatemala, El Salvador and Honduras, probably more likely Honduras -- a Guatemalan retailer that we have will do additional wires to Honduras and El Salvador. They're more closely aligned. But those 4 countries together can sort of intermingle at the same retailers where it wouldn't be the same, say, for Colombia or Dominican Republic where they have a distinct group of retailers, culturally more different kinds of consumers and different neighborhoods.

Our next question comes from the line of Joseph Foresi with Cantor Fitzgerald.

This is Dan Reagan on for Joe today. I have a question. How has the dynamics changed in the past quarter regarding your ability to take market share in your territories? And how should we be thinking about this moving forward?

Well, it hasn't changed. We continue to take market share. In the second quarter, if you look at the total growth to Mexico, our growth to Mexico was equal to 130% of the total growth in the industry. So what we've always talked about is even when things slow down, we continue to grow. We've seen now a quarter where if you take us out of the industry picture, all the other competitors together, it's not to say that singularly, each of them are negative. But as a group, they're still negative. You put us in, there's been slight growth in the market for second quarter. So change is in the sense that it hasn't been explosive growth year-over-year. As we talked about, the 2-year growth line is still really strong. But what hasn't changed is our ability to continue to take share. And even though it was a slower market, you saw we gained -- added almost a full percentage point in market share to Mexico, and we added almost [ 0.5 ] to Guatemala as well as we continue to take share from the competitors.

Excellent. Got it. And I just wanted to follow up, how has your approach to customer service evolved as of recent? And how should we be thinking about it as a differentiator?

Look, our customer service and our technology continues to evolve in the sense that it's not a matter of lately, but we're -- this year, we'll spend millions of dollars on CapEx for our technology, and a lot of that technology is directly related to customer service. It relates to how we take care of a wire from sort of cradle to grave until the time it's placed by a consumer here in the U.S., until it's paid out on the other side. We continue to invest in our call centers, both in Mexico and Guatemala, and making sure that we're picking up calls in a very short notice in terms of how long the consumer waits to get a live voice and then the total time for reconciliation of any problem where there's a service-related problem or whatever. So those metrics, we continue to work and continue to work at improving. We've extended hours this year, earlier in the year for some of our areas, tech support, because of our expanding business in the West and because 12:00 here at midnight is only 9:00 in the West. So we've extended hours for accounts receivable for tech support for a number of our departments. And we continue to try to be as responsive and almost anticipatory for the needs of our agents and our consumers because, again, that's our value-add. It's really technology and customer service, using technology as a mechanism to increase customer service, and that continues on an ongoing basis.

Ladies and gentlemen, we have reached the end of the question-and-answer session, and I would like to turn the call back to Bob Lisy for closing remarks.

We thank you all for joining us on the call. And we will talk to you all soon. Thank you again. Bye-bye.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.