Greetings, and welcome to International Money Express, Inc.'s Third Quarter 2019 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Sloan Bohlen, Investor Relation. Thank you, sir. You may begin.

Good evening. Before we begin, let me remind you that this conference call includes forward-looking statements, including our outlook for fiscal year 2019. Actual results may differ materially from expectations. For additional information on Intermex, please refer to the company's SEC filings, including the risk factors described therein. You should not rely on our forward-looking statements as predictions of future events. All forward-looking statements that we make on this call are based on assumptions and beliefs as of today. 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 Slides 14 and 15 of this presentation for a reconciliation of certain non-GAAP financial measures to the appropriate GAAP measures. I'm joined on the call 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 third quarter conference call. Similar to last quarter, let's start with an update of our key strategic priorities and a review of our strong year-to-date performance. As you can see on Slide 3, our priorities are largely unchanged, and we are pleased to say that we are on track. Our #1 priority remains the expansion and growth of our core brick-and-mortar business. The continued evolution of this core business presents the largest opportunity for overall growth. Our focus is to continue to drive further penetration across our more established markets in the east and southeast and expand further into the very large markets in the western states. As we have mentioned previously, we see a long runway for growth, and we believe the pace of growth relative to the market continued to support our conviction in this multiyear opportunity. Secondly, our new service to Africa as well as our Canadian outbound business continued to perform in line with our expectations. We'd also remind you that we do not expect any meaningful EBITDA contribution from either market in 2019, but the performance we have seen in both markets has been encouraging thus far. We have made good early progress in both markets, and we continue to -- and we will continue to update you as the business grows. Our white label processing service is now live with 2 partners, and we are pleased with the progress we have seen within this service offering. Although the business can be a nice complement in the future, we would reiterate that we do not expect any meaningful contribution from this offering in 2019. Lastly, I would like to take a moment to highlight 2 key hires we made in the…

Thanks, Bob. Let's turn to Slide 6 to update you on where we are from a competitive standpoint. As Bob mentioned, we continue to see good momentum in our market share accretion. In the third quarter, Intermex again grew share in both Mexico and Guatemala. Since 2014, share of the U.S. to Mexico corridor has increased 1.3x to 18.2% and the U.S. to Guatemala corridor has nearly doubled to 25.7%. Now turning to Slide 7. You can see our share of the market growth split out between the Mexico and Guatemala markets as well as the trajectory of our market share gains. Year-to-date, as of September 30, Intermex accounted for 27% of the total growth to Mexico and 37% of all the growth to Guatemala. On Slide 8, we provide a continuing update on our Tier 2 markets, which we began reporting last quarter. Recall from Slide 6 that El Salvador and Honduras represent the #5 and #6 markets in the LATAM and Caribbean corridors. We employ the same operating strategy in these markets as we do in Mexico and Guatemala and are generating the same strong results. Our targeted approach in differentiated service offering has driven market share growth to El Salvador from 4.2% in 2014 to just under 11% year-to-date. In Honduras, we now have more than tripled our market share since 2014 and processed over 15% of the industry remittance volume through that corridor. In summary, we continue to have success with our model across all our corridors with lots of room to grow and take additional market share. We turn to Slide 9. Let me quickly break down the third quarter financial highlights, including a few special items to call out. As Bob noted, we grew revenues by 17.7% on 20.6% growth in volumes as growth…

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

So Bob, I appreciate the -- just the margin commentary and margin qualification as well. Because obviously, the shifting country mix, we understand, is going to have somewhat of a dampening effect. But at the same time, it hasn't gone unnoticed that you seem to be delivering margin upside every quarter. I'm just wondering, as we think about some of the operating leverage aspects that have helped mitigate at least so far, the mix shift, and you called out bank fees in particular, I'm just wondering, are there other areas of cost reduction that you would -- I don't want to say characterize as a low-hanging fruit, but sort of stand out as still areas where there's potential for improvement or just lends itself naturally to operating leverage as you get larger?

Yes. I think that we did call out the bank fees, and that, I think, continues to be more opportunity relative to the bank fees. But other than that, I mean, one of the things that helped us leverage this quarter a little bit better is somewhat unintentional. We've been down a little bit relative to the full staffing of our sales team, and that's really been a quality issue. I mean, we're very discerning with the sales reps that we bring in. They're not typically the same people from other companies. And as a result of that, we've been having more difficult time finding the quality that we want in our sales organization. So we've been down about 10 or 12 people. And that affects 2 things. Remember, those people would be productive, bringing in more new business, so the revenue number would be a little higher, but then their cost would also be in the cost structure. So ultimately, margins would be a little lower. So once we get those positions filled, you could expect the revenue to -- for that to at least start to pick revenue up initially and then more over time, but then there would be more cost in the cost structure. So that's somewhat unintentional in the sense that we haven't had them filled, but that's really will have an effect over time.

Got it. No, that's helpful. And maybe as a follow-up. Regarding the early indicator coming out of your flows out of Canada into a couple of the African countries. Clearly, it's sort of rounding error at this point. I'm just curious, given that, when you comment that it is effectively performing in line with your expectations, I mean, what are some of the metrics that you're monitoring or...

Yes. I mean, we would monitor new agent ads and performance wires per agent, and we're finding that our Canadian business, in terms of the average transactions per agent, is in line with our U.S. business in the early stages, which is really very exciting to us because we have really high performance in total wires per agent per month, and we're similar in Canada as we are in the U.S. The other metric with that is just that we haven't gone into Canada full tilt. We only have a couple of sales people there, and we want to kind of prove the concept and understand the business. It's a little bit complicated in the sense that even in dollarized countries, we're flipping from a Canadian dollar to U.S. dollar. And so we're making a slow but steady incursion into the country. But we're really happy with the indicators so far, particularly related to performance per retailer in terms of transactions per month.

Our next question comes from the line of Jason Deleeuw with Piper Jaffray.

Great. Good to see the strong quarter. My question is on the revenue mix shift dynamic. So can you just help us understand kind of exactly what's going on there? And it seems like it's pretty abrupt here in the fourth quarter. Just -- is there like any other kind of onetime factor that's kind of impacting it here at the end of the year?

Well, I mean, when you look at it in terms of abruptness, I mean, you might think that. But if you look at Page 5, right, transactions grew at 19%, and that's the main driver for transaction -- for revenue rather, whereas volume grew at 21%, and as a result, revenue was up 18%. Remember, most of the money we get for any country, but particularly these newer countries that are growing, which in many cases, are dollarized or also a controlled currency, it's coming from the fee side. So you're going to see transactions maybe growing a little bit faster than revenue, but not a lot faster, and you're going to see volume growing actually faster than revenue because you're not really getting the FX tweak on countries like -- or the upside on FX, countries like El Salvador and Honduras, which are growing faster today than, say, Mexico and even in Guatemala. Now our all other countries are growing very quickly as well. And those tend to be, again, lower FX-gain countries, if there's any FX at all. For instance, Dominican Republic, you could pay out in either local currencies or dollars, but the preferred payment mechanism is U.S. dollars. So again, most of those countries do not have the upside of the currency exchange that Mexico has or even Guatemala. And we're just growing those a lot. It's not so much that Mexico and Guatemala slowed down a lot, but we have been growing in countries like Honduras, at a very, very fast rate, and that's been obviously changing that mix. And as you know, like we've talked about a number of times, we also have a little bit of a mix shift as we have more wires coming in from discounted states. We're not a discounter, but states where we might not have as margins as high as our very stronghold states and that continues. That's a good thing because we want a lot of our growth driven by our growth opportunity states.

That's great. And then just philosophically, in the margins kind of over the long term, it sounds you're kind of talking us back to expecting flat margins, but there are some benefits here. But in terms of managing the business, do you think you kind of take the approach of investing kind of outperformance back into the business for growth? Is that how we should kind of think about it over the long term? Or could we still going to get some margin expansion over the long term also?

Yes. Jason, this is Tony. We do -- I think the way you characterized it is exactly in line with our thinking, which is we would invest any outperformance back into future growth. So we've consistently guided to stable margins, and we still aspire to do that.

Our next question comes from the line of Mike Grondahl with Northland Securities.

Where are you sitting today with your sales staff? And where do you see it going over the next 6 months?

Yes. I mean, Mike, as we were talking about in the earlier question, I think the thing with our sales group is that we really can't always get people from the industry, right? Because we have a little different model, and that's a value-added model. A lot of the guys that are selling, particularly for the niche companies out there are salespeople that have sold based on discounting over the years. So we're really discerning, and unfortunately, that leads sometimes to more openings as we expand. And we've had some jobs filled, but then others become open, and that's been a position where we had probably an average of about 10 or so jobs open throughout most of the year, different jobs as we move along. Different jobs get created because they're on plan to maybe be started in May or in August. Other jobs where we might have made a change or whatever. So our plan is to continue to expand the sales group. Our plan is that we have great opportunities in the western states, but we've been even relooking states that we thought of it as our stronghold states, where we might not have the same level of market penetration or share that we have in other stronghold states that still represent an opportunity. So we're constantly looking to bring in new salespeople. We just created another region just in the last couple of days in the business, and we believe we'll continue to grow the sales staff. But at the same time, we don't just want to move them bodies in and out, the ones that really won't represent the Intermex way and won't represent the way we go about selling our differentiators like technology, service and the rest. We can't really just bring in people that are focused on having the cheapest product, right? It makes it difficult for them to fit into our system. So it is a challenge for us to find quality people, and we're looking at ways to be able to make sure that we can keep people and continue to have a funnel of people coming into the business, and we're exploring some new channels with that, and that could include having interns that are not really interns but people that are in a training program. So we're looking to make sure that we have those positions filled because it's critically important, and it does slow down our growth when we don't have quality people in open geographies.

Got it. And then just secondly, Joseph Aguilar, the new COO. What are you going to have him focused on in the near term?

Well, Joseph brings a tremendous background in call centers for one. He came from Sigue. And remember, Sigue has a little bit different way of taking most of their wires. They're tele heroes, which means people pick up a phone and an agent and call, and then someone in their call center picks up that call. So he's managed call centers, and ours are mostly computer-based. So he has managed call centers that are 2 or 3x as big as ours. So he's a tremendous background in that area, and he'll be responsible for our call centers in Mexico and Guatemala. He'll also be focused on our product development team and our project team, which we haven't had here at Intermex previously. So we've been doing some shuffling of some heads and creating that group, which will have a lot to do with managing our new products and then managing projects. It's an operational capacity, and we haven't had a Chief Operating Officer, so that's new. Joseph will also have IT reporting directly to him. And then our online service, which will include not only online, but our processing leg, which is part of our online business. So he's got a pretty big piece of the business. You should think about it in the sense that Tony and Randy. So Tony is the financial piece of the business. Randy's the Chief Revenue guy, driving the Revenue. And then Joseph's in between there in the glue of operations between all of that.

Our next question comes from the line of Josh Beck with KeyBanc.

Yes. I wanted to peel back the growth on Mexico a little bit. It seems like the market share level in Q3 was flattish, I would say, versus first-half levels. So anything to read into that? Is it just a matter of law of large numbers? Or some of these western state and central states just ramping? Just any other color you can provide on the Mexico market share dynamics?

I mean, it is a tricky thing because if you look at the change in market share, as you go from a quarter-to-quarter, it's not a great indicator. We have to look at the gain in market share year-over-year because that will throw you off. For instance, there are different markets that we might be stronger in that have seasonal transactions stronger than others. So we've continued to gain our market share. It's just not necessarily would you -- every month would be higher than the previous month, but every month is higher than the previous year. Year-to-date, and we're a little bit -- I might as well get that out on the table, we feel like the numbers from everything we can see for third quarter from the industry, we can't reconcile. The largest -- to Mexico. The largest payer in Mexico, we think grew -- they tell us they grew less than 10%. The other payer that has -- the second largest player, between the 2, they have -- over 70% of the market grew just a little over 10%, and the market's reporting much stronger than that middle teens. Also, if you look in the aggregate, us, Western Union, MoneyGram and Ria, it would appear that, in aggregate together we grew in sort of middle single digits, and we're about 75% of the market. So it would mean the remainder of the market would have had to have grown at like 50% for that to make sense. So we hear that the Bank of Mexico has indicated that they didn't make good, that they were catching up on some wires that weren't reported in first and second. And that's why that third quarter came in so strong year-over-year growth. We're kind of looking at using more the year-to-date, which, if you look at the year-to-date number, we still took about 27% of all growth to Mexico, which means based on our market share around 18%. We're continuing to grab share. It's not huge, because remember, now we're at 18% share. I mean, in the past, we are at 4% or 5% or 10%, and we had 27% of the growth, it was very accelerated. But we're continuing to grab growth, and even more so, we're having growth continuing in Guatemala and Honduras and in El Salvador and then all other countries.

Okay, that's very helpful. And then I wanted to follow up a little bit on the hiring commentary. I realize you have high standards, and that's a big part of your success in terms of agency -- agent's efficiency. But when you look at maybe some of the areas you weren't able to hire in, did it have a regional bias? Was it related to new country initiatives or new states? Or was it not that specific when you think about maybe some of those slots where you wanted to hire, but weren't able to find the right candidate?

Well, it would -- in most cases, they were in the western states, so in our growth states. We've been very steady in our team in the east. We've been there a long time, and that's a team that's really, really strong for us. And so there's been far less positions in east of the Mississippi versus west of the Mississippi, or in the North Central. So south, it would be west of the Mississippi, where the positions would be more likely to be opened. And in the north, either Western Mississippi and in the Upper Midwest, like through Illinois and places like that. But primarily, we're talking about a phenomena that's really mostly out far west. California and some of those states have tended to be sort of the wild wild west in terms of sales reps and people changing companies and all the rest of it. We've tried to kind of stay away from that, and again, trying to bring in quality long-term people. I also think that we'll change a little bit and shift a little bit. We've only opened Arizona in the last year or so, and we really haven't put any business there. It's a huge opportunity. Other states out there like Colorado, Utah, those are out -- Nevada are all big opportunities for us. It's not to say that we won't continue to believe in California and its growth, but we think there's also an augmentation that we can do to that growth with other western states that, frankly, relative to their foreign-born populations are much bigger than some of the states that we drive lots of wires in east. So you'll see us kind of shift a little bit in terms of that and putting more effort into those kinds of states.

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

This is Steven Chang coming on for Joe. I was just wondering -- I believe in your opening remarks, you talked about how you expect kind of a deceleration of -- deceleration when -- due to faster than expected shift to lower revenues per transaction. I was just wondering if you could maybe provide any more color on any updates on pricing, maybe as you move -- as you continue to move into maybe California or Canada and Africa. And just maybe if you could -- if that will continue on in the future, maybe the 2020 and on?

Steven, this is Tony Lauro. So I think we've said it a couple of times here that not only are we going to get lower FX revenue per wire as we grow faster to countries other than Mexico. But as you mentioned, as we grow out west, we find that, basically, the service is offered at a lower FX rate in California and places like that. So as we ramp up there, you'll see us -- we charge a little bit of a premium relative to the market, but at a little bit of a premium relative to the market. In California, it's going to look like a discount relative to, say, Tennessee or something like that. So it's not that we are actively becoming a discounter, but for us to be a couple of points more expensive than our competition is still a price cut relative to what we see in other parts of the country.

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

Just wanted to talk a little bit about the dynamic on service charges versus revenues. You talked about some of the different mix issues going on for revenues. But if you look at revenues net of service charges, kind of the combined those 2 actually grew faster than your reported revenues and closer to where your transaction growth. Can you talk about the dynamics that are going to drive that issue going forward?

Brad, it's Tony. So what you're seeing there is that it's -- the service charges include the components of cost of sales that lead us to gross margin, but they also include bank fees. And as we touched on in the prepared remarks, our bank fees, we've had a strong initiative now for a little over a year to migrate to lower-cost deposit methods, and it's really taken hold and driven pretty significant savings for us throughout the year, and especially in the third quarter.

Okay. So that's where those bank fees actually show up. So that should be able to carry through over the next 4 quarter or next 3 quarters kind of follow-through that year-over-year basis to think about?

Yes. That's right. Yes. You got it.

And then just real quickly, I know you've kind of touched around this on edges, but I just want to make sure to follow up. So the market share gain numbers that you guys are showing in the slides on the growth capturing on a year-to-date basis you think might need more of a fair representation than quarterly type analysis, it sounds like. But the pace of share gains this year versus kind of last year still obviously above your market share, so driving growth not quite as strong as last year. Can you talk about where you're seeing growth in the markets that you're not fully participating in? And just talk about the industry dynamics where growth is being driven in the industry?

Yes. I mean, I think that one of the challenges we have is that we've always sort of been a little bit under the radar before we were a public company, right? And we certainly have dealt with now people understanding our growth level. And certainly, some of the discounters that we'll be kind enough not to mention their names, but discounters who have been out in some of the growth markets and been really, really aggressive in price. And what it requires is a bit of an adjustment for us. One is the adjustment related to what price point are we comfortable with. And we've always talked about in the past that it's like a sliding scale. We know that our technology, our customer service and our agent selection mitigates a certain level of price elasticity. We have to figure out what that is relative to the discounters in these new markets where there's been a bigger and more aggressive incursion. But secondly, we also know that there are some markets that, particularly through the South Central, through the Central, through the Midwest, even in the west that we haven't called out to the same level of California and Texas, that have tremendous opportunities, opportunities that are far larger than our best states in the east where we might be doing 100,000 or 150,000 wires a month that we have the opportunity to develop. So this is just a shift -- bit of a shifting for us. It's not, in any way, moving away from California or Texas, but it's saying we're going to go into those markets and grab wires that make sense for us and continue our growth track, but we're going to adjust our plan a little bit more into some other states that will provide growth and provide growth and margins that we're even more comfortable with.

And really quickly, to follow up on that. Where are you at in the status of these other newer target areas that probably provide a little bit better elasticity opportunities? Are you started already? Or is that a next year plan?

Yes. In some of them -- it's a great question. In some of them, we have people added recently. For instance, in South Central, we've added a couple of people in some of the states there, and we've added people in the Upper Midwest. You'll also -- we've actually created a new region just recently in the Southeastern United States, and we had 3 regions there previously. We created a whole another region with experienced guy came in from inside back in the outside running a region. And so you'll see us kind of go a little deeper in some of these opportunities. It's not to say that we are at all backing off of the tremendous opportunity in California and Texas. But what it says is that we're going to go after the opportunities in California and Texas that makes sense, which there's plenty of them still to access, and we believe we can get some strong growth from other areas. And for instance, there is -- I think, 10 of our jobs that are open are in states like Utah, Nevada, Colorado, other states in the west that have large foreign-born populations. Nothing is going to be like California or Texas, but certainly large populations that compare favorably to the southeast where we're either hiring or in the process of hiring someone to target on those states.

There are no further questions left in the queue. I would like to turn the floor back over to management for any closing remarks.

Okay. Well, thank you all. We appreciate your participation and the great questions. We look forward to speaking to you all very soon. Have a great night.

This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation, and have a wonderful day.