International Money Express, Inc. (IMXI) Q1 2020 Earnings Report, Transcript and Summary

Good afternoon and welcome to International Money Express Incorporated First Quarter 2020 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Sloan Bohlen, Investor Relations. Please go ahead.

Good evening. Before we begin, let me remind you that this conference call includes forward-looking statements, including our outlook for fiscal 2020. 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 will 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 at the Investor Relations section of our website at intermexonline.com. We also refer you to Slides 14 through 18 of this presentation for a reconciliation of certain non-GAAP financial measures to the appropriate GAAP measures. I am 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.

Good evening and thank you to our analysts and investors for your participation in tonight’s earnings call. Clearly, this is a unique time for all of us. And as a result, we have altered the usual sequence of our remarks to focus more time on COVID-19 and how Intermex is proactively responding to the crisis. Before I begin our formal remarks, I would like to offer my thanks to all of our hardworking employees, agents and of course, our loyal customers. I take a lot of pride in the hard work and talent that exists at Intermex and those traits have never been more obvious than over the past month and it continues today. With that, let’s turn to Slide #3 with the company’s response to COVID-19. In a very compressed timeframe, we have ensured the safety of all of our employees in both our corporate offices and our call centers with social distancing procedures and remote access tools. We did all of this without missing a beat. As you likely know, our business has been deemed an essential service in most states and municipalities. As we noted earlier this month, 95% of our locations remain open and transaction volumes have remained quite strong to-date. Additionally, the majority of our retailers are in the food or food-related businesses, so they are deemed essential on that criteria as well. Now, what high level trends have we seen in the business since the onset of COVID-19? Initially, because of the volatility in the Mexican peso, we saw an uptick in the number of wires, but an even more pronounced increase in the average amount sent. The transaction flow has begun to normalize, but at a greater level than we would have initially anticipated with brick-and-mortar transactions down approximately only 10% year-over-year in April. Conversely, our online unit has begun to experience growth at an even greater level than previously. That business grew our year-over-year – grew at a year-over-year rate of approximately 130% in Q4. However, our projection for April is a growth rate of 282% year-over-year. This represents an approximate doubling of our online transaction volume from February to April. In summary, I will say one more time thank you to our employees and agents who have worked so hard to maintain our high standard of service through these difficult times. We certainly appreciate it as do our customers who have come to rely on us for best-in-class service. With that, let’s turn to Slide 4 to provide some color on what we are seeing on the ground with COVID-19 as it has evolved here in the U.S. As you read from our release, Intermex experienced an increase in volume, which has historically been consistent with the initial onset of an increased volatility or distress. The key unknown will be at what level will transaction volumes stabilize as the economic impact of the pandemic is realized. We would note that our customers tend to be less economically sensitive than most. Without generalizing, in many cases our customers work multiple jobs and are quick to move to opportunities that are available when certain options are limited. Oftentimes, they go through great hardships to come to the U.S. The whole purpose for being here is to make money and take care of critical needs back home. Additionally, many of our customers work in essential businesses such as agriculture, food processing and construction, and as a result they continue to work. Intermex has also built a strong franchise by means of our core strategy to be located oftentimes in more rural areas as opposed to being heavily concentrated in large metro centers. There has been less disruption of business as usual in those geographies. Before speaking to the quarter results, let’s first ground you all in why we believe Intermex is well-positioned from a competitive and business model. Many of you have heard me describe Intermex as a house built of brick during our fireside chat we conducted a few weeks ago. I would like to spend a minute or two on what that means. First and most importantly, Intermex has always taken an approach to drive profitable and sustainable growth, both in our legacy and new markets. Profitability and sustainability sound like an obvious enough strategy, but I can tell you that many competitors in our industry and companies in general do not follow that approach. We have never focused on growth on the top line that is not ultimately profitable and sustainable. We believe many competitors in the remittance industry, some in retail and many online providers, focus on volume growth with little consideration for profitability and sustainability. This has created two issues for those companies. They often have to compromise service quality because of the absence of a long-term viable model. And more importantly today, these companies have little to no margin of error, as the volume of remittance drops off before they become unprofitable. Intermex is well-positioned because our model provides us with the leverage to withstand challenging conditions, such as the one we are experiencing and the resources to become more aggressive during these times to maximize growth opportunities. This is the main reason we tend to gain share in weak markets just as we do in stronger ones. The other important and related component of the house made of brick is that our model creates exceptional liquidity and superior free cash flow. This is a powerful capitalization model, which is critically important in times of uncertainty. Tony will detail our liquidity later in the call, but I will simply state upfront, Intermex has more than ample capital to fund our business in a wide range of scenarios over the coming quarters. I would also like to highlight that Intermex is run by a very talented and capable team that has operated remittance businesses through recessions and volatility previously. There is a lot that goes on behind the scenes in this business. And in our view, it is critical to have an organization that is proactive rather than reactive. The past month Intermex has again proven its operational superiority in this regard. Lastly, we believe our reputation for customer reliability is a significant differentiator in times of stress and volatility. In recent weeks, we have heard from some of our payers that a number of smaller competitors have had liquidity shortfalls. The result of these issues is that receivers are not receiving their funds in a timely fashion. These issues do not occur at Intermex, and we expect our reputation as a highly reliable provider will only grow in the coming months. If we turn to Slide 5, let’s review our first quarter results across key performance indicators. First for revenue, we exhibited a solid 13% year-over-year growth. As I began the call, we highlighted an increase in year-over-year volume growth compared with last quarter. We believe that COVID did increase the average principal amount of the transactions for several days in March, but conversely as the month further unfolded, the transaction growth year-over-year began to slow. As I just spoke to, we are proud of how the company has handled our customer needs without any disruption and believe our service, quality and reliability will continue to win new customers from our competitors. Turning to profitability, Intermex continued to drive operating efficiencies in Q1. Our adjusted EBITDA grew at 23%, which again is unmatched across our industry. Same goes for EBITDA margin which ended up the quarter at 17.1% or nearly 140 basis points higher than a year ago. Finally, we grew our adjusted net income by over 30% compared to last year and drove free cash flow $7.3 million in the quarter. Tony will walk you through our liquidity and the broader results in a second, but I would like to reemphasize that our EBITDA growth and free cash flow generation is a significant outlier in our industry. Clearly markets are in flux, so I won’t speak to valuation or how we believe our model is underappreciated. I will say that our philosophy and dedication to profitability and sustainable growth will drive significant competitive advantage for Intermex, however the coming months and quarter play out. With that, I will turn the call over to Tony.

Thanks, Bob and good evening to our analysts and investors on today’s call. To continue Bob’s point about the house of brick, I would like to provide a little more detail on our liquidity and cash generation than we have in the past. On Slide 6, you will see that we added $7.3 million of free cash generated in the quarter, up $2.5 million or 52% from the first quarter a year ago. These figures reflect a conversion of adjusted EBITDA to free cash of 55% after taxes, investments and debt servicing. Our business model, which combines strong margins and variable cost structure, where 80% of our costs vary with transaction volume, has positioned us well to weather this crisis. Turning to Slide 7, let’s look at the efficiency of our adjusted EBITDA conversion to free cash. In Q1 of this year, we converted 55% of our adjusted EBITDA to free cash, of which we’re extremely proud. This represents growth of over 10 percentage points to the conversion rate from the same period last year. We feel that our profitability and free cash generation are differentiators that will serve us well in the quarters and years ahead. Turning now to Slide 8, I will quickly walk through our first quarter results, as Bob touched on a number of these metrics already. First, on the top half of the page, we grew transactions by nearly 14% over last year on volume growth of over 17%, again an uptick in year-over-year growth compared with what we saw last quarter. Turning to the bottom half of the page, you can see that our revenue growth year-over-year was 13%. Despite a favorable mix shift towards Mexico transactions, revenue grew slightly more slowly than transactions. This was driven in large part because of the extreme volatility in the USD to Mexican peso exchange rate, which led to an abnormally high volume of cancellations in March. Last on the bottom right, our adjusted EBITDA growth of nearly 23% was impressive again, especially given the FX backdrop I just spoke to. The key drivers here were one, our mix which shifted back in favor to Mexico compared to less profitable markets; and two, operating leverage gained through slower growth of our fixed costs. Now if we turn to Slide 9, we continue to see our strategy and execution pay off in the form of market share gains, as you can see in the increased share to Guatemala in the lower middle portion of the page. Unfortunately, since we are reporting earnings in late April, the first quarter market share data are not yet finalized from the Bank of Mexico and typically become available in May. We will update our investor presentation on the day they become available. I will close my remarks on Page 10. Let me start with a comment that should be expected. Given the current state of our global economic uncertainty attributable to the pandemic, we’re suspending our full year 2020 outlook for revenue and adjusted EBITDA. Bob mentioned what we have seen so far in April is about a 10% decline in volume year-over-year. At this level, we remain very comfortably profitable and continue to generate free cash. While this is not a projection of future performance, we wanted to at least provide transparency on the current month’s performance so far. In closing, I would like to note once more an exceptionally strong quarter with nearly 23% adjusted EBITDA growth, remarkable in light of this crisis. While we don’t know what will happen in the quarters to come, we’re very confident in our ability to continue to provide our essential service to the communities we serve. We are equally grateful for the resilience we have seen from our agents and our customers. I wish the entire Intermex community, our employees, agents, customers, analysts and investors’ good health and safe passage through these trying times. With that, let me turn the call back to the operator for questions.

[Operator Instructions] Our first question comes from Mark Palmer with BTIG. Please go ahead.

Yes, thank you. Thanks very much, gentlemen. You touched during your remarks on the fact that some payers had said that smaller competitors had been facing liquidity shortfalls. Could you speak a little bit more broadly on what you are seeing in the competitive environment, particularly among those smaller independent players who make up a lot of the market and whether you are seeing other signs of weakness that could potentially translate into share gains?

Yes, Mark. Hi, this is Bob. I will begin to answer that and then give you some of the top line and then maybe turn it over to Randy for some additional color, Randy Nilsen, our Chief Revenue Officer. So we have seen quite a bit. I mean, there has been one competitor that actually shutdown over entire weekend, Easter weekend. I won’t name their name at this time, but it’s a relatively middle sized competitor. We have seen other people shutdown parts of the country. What happens in those cases is, is that it’s a good sign of a liquidity problem even ones other than the ones we hear from the payers. They are really not having enough pesos that they were able to fund in time at the time that they were buying the pesos for that day and not willing to take the risk with the volatility that’s going on. So we have seen that on a sort of intermittent basis with at least three different competitors. We also heard from as I said a number of providers, payers in Mexico and in Guatemala with certain providers, certain money transfer companies, not being able to pay their wires and then having to hold off on paying wires until they were able to fund. For those of you that are sort of maybe not as aware of how the market works, on a Friday, any company is really going to have to buy the number of pesos that they are going to need for Friday, Saturday, Sunday and they are going to fund that in advance. And for us, it’s tens of millions of dollars. For the small guys, even it could be $10 million or more. And as these days get where margins get thinner or where some agents may shutdown temporarily and because of quarantine issues and they can’t collect funds, all those kinds of erratic sort of behaviors lead to guys that are right on the brink failing and not being able to have the funding available to pay the wires out at the other end on a timely basis. So, what happens at the end of the day is that the customer, the receiving customer is turned away at the Elektra or turned away at Bancomer or wherever they go to pickup the money down in Mexico, calls back to the sender. The sender goes back to the agent retailer. Agent retailer has to call the provider. The provider is on the phone and may not even have a real answer. The wire ultimately has to be refunded, but they don’t have the money to refund the wire either at that time. And so it really ties up the consumer’s money. The consumer doesn’t want to use that provider again. And ultimately the retailer who ended up spending maybe an hour or so of their time sort of tracking this down doesn’t want to have the consumer send through that provider again. So, it starts to move wires to the more reliable companies. And from what we are seeing and what we have heard from the one public company that’s reported already, it seems as though that’s been reflective in that our transaction volume where it’s down, it’s been down a lot less than the competition. We are hearing that from payers as well. So, we won’t know how much share we have attained or picked up, Mark, for a month or two, because of the lag in the reporting. But the feel is, is that we are grabbing share from the small competitors and actually some of the larger competitors as this crisis has unfolded. Randy, I don’t know if there is anything you would add to that?

Yes, if I may please. Thanks Bob. Hi, Mark. Bob has done a really nice job explaining how the market works on the weekends. And we in the sales team, we hear from time to time and even more so during March that companies have slowed down or that their service is unavailable, but it’s all basically rumors. But I was just thinking as Bob was talking, 5 or 6 companies, we have had salespeople from 5 or 6 companies contact us in the past couple of weeks looking for employment that have been confirming that their companies have had downsizing events. And that confirms the rumors we have heard in the marketplace with respect to some of what Bob has just illustrated. And what that does for us on the sales team, Mark, to kind of answer your question, does it open up opportunities for us, every time we hear the events like the one Bob referenced where a competitor was down for about 2.5 days over Easter weekend, it gives us the opportunity to go to all of the retailers that share our service with that company and send a strong reminder that they want to be offering a service that they can have confidence in the leader. That gives us another opportunity to go to retailers, where we may not have our service today, but a competitor may and talk to them about the same messaging. So, our sales team has been very, very active over the past several weeks on a competitive front, contacting retailers that we don’t do business with as well as our own retailers over the phone, stressing all of the solutions that we bring them and reinforcing doing business with the leader that they can have confidence in. So, we do think it’s going to open up some great opportunities for us moving forward. Thank you.

Thank you. And just one quick housekeeping question for Tony is what was the company’s cash balance and revolver availability as of the quarter-end?

Yes, so, hi, Mark. When you say cash balance, I assume you mean our free cash that’s available outside of working capital.

That’s correct, yes.

In which case, yes, so we had about $36 million available, and based on the day that we closed, our $35 million revolver was all available as well. But we feel like even towards peak needs of working capital, we’re still sitting at about $35 million, $36 million of free cash.

Very good. Thanks very much.

The next question is from David Scharf with JMP Securities. Please go ahead.

Hi, good afternoon. Thanks for taking my questions, and I know Florida has been in the news quite a bit lately, so hopefully everybody is staying safe down there. A couple things, Bob. One, I just wanted to briefly touch base on the agents. It looks like the 95% figure you cited, I mean that’s tremendously positive. I think when we think about a lot of these small businesses, even if they’re in food services and essential; that they would be more struggling. It sounds like you have a high degree of comfort level with the kind of relative health of the agent base. Are you aware of whether or not any of them are applying for PPP loans or have you had any – or have your salespeople in the regular course of just contact with them have any sense that any are sort of more struggling around the brink, or do you feel like that 90% to 95% figure is going to hold up over the next couple quarters?

Well, you asked a lot of questions here. I think during any downturn, there’s always the possibility that the agent network, which are mostly small businesses, has a chance for some of those businesses not to make it and that brings in a whole other piece which relates to agent defaults and all that. And we think we’ve got a great handle on that. We don’t see – at this point see a lot of agents that look they’re struggling to that degree. I mean relative to the money transfer business, as we’ve said and we disclosed, our April numbers are better than 90%. And when you look at most parts of the country, it’s disproportionate, as you can imagine in a place like New York or the Northeast, where it’s been decimated by COVID, it’s a much deeper cut into our transaction volume. So many areas of the country are operating at pretty close to 100%, if not at 100%. So those agents are – I don’t want to say unaffected, but in many cases they’re unaffected. I mean they’re not unaffected in terms of the impact of COVID being out and being a pandemic. But from the standpoint of their business, have been somewhat unaffected. We have heard, and Randy might comment on that, we’ve heard of the agents that have even asked our advice or could we help them out in applying for a small business loan, and we’ve done what we could to help with that. I think there will be agents that will apply and many of them that will get it. But I think again, I think we feel like it’s a pretty solid base. We have been really surprised and delighted at really the level of agents that are still up and active. For one, I think there is a few things that it’s really proving about really the industry to start with. Number one is that this is a really essential service, right? I mean when you start thinking about, well, what services are essential; well, for us, it’s drugstores and food stores and all this. But this is the money that’s going back to people in Mexico, Guatemala, El Salvador, Honduras and others to pay for food, to pay for medicine, to pay for shelter. So it has been deemed an essential service. There has been a few places where agents – I think there was the San Francisco 7-county area, there were a couple little pockets of more upscale neighborhoods where they were forced to shut down if they weren’t in food stores. But generally speaking, they’ve not been forced to shut down. Some have self-quarantined because it’s been really rampant in their area. But we really, I think it says something about how resilient the business is in itself, how resilient our worker is. Because you think about it, I mean, our Mexican volumes have been staying pretty close to 100%, and we’re finding that others and again in a few pockets, the Northeast has been hit much, much harder. But there is states that are really, you know, the middle of the country for us has remained quite strong. So at this point, again, Tony said it well in the end. We can’t really predict what’s going to happen in the next month or two. I mean as states start to go back into business a bit, Georgia leading the way, Florida has removed other than our area here down South Florida, restrictions for starting Monday or starting to peel some back. We expect the business to begin to pick back up again. Is there a second run of the virus and things? We can’t look into that. But the way we see it right now today, we feel like our business is really, really solid. We feel like if things continue at the level that they are right now, we’re going to remain very cash flow positive, very profitable, and with a lot of extra cash in the bank and free cash that we’re never going to have to really even begin to think about using for this purpose still available for us for any other purposes, whether it be acquisitions or whatever. So as much as you could feel good about such a terrible pandemic, we feel really good about how we are positioned right now, and how our interaction with the agents is working, and the collection of the funds and all the rest of it.

Got it. No, I mean I think resilient is the appropriate word. Hey, I am wondering as a follow-up, when Randy shared the anecdote about 5 or 6 salespeople from smaller competitors reaching out to you guys, it got me thinking. As you think about the sales strategy, with all of the uncertainty that the pandemic has introduced and all of the operational considerations that kind of forces you to refocus on; has it altered how you’re viewing sort of the 2020 sales plan in terms of trying to open up new agents in new states or are you putting your foot on the brake a little bit or are you still…

Let me begin with an answer, and then again, I’ll let Randy give more detail. First, it’s not just the small guys. Remember, MoneyGram early on, I mean early, early on before I think any of us knew the impact, put a 20% pay cut across their whole organization. And when you start talking about salespeople, I mean if we cut our salespeople pay by 20%, we’d have half of them out on the street ready to leave, because they’re very price-sensitive. That’s salespeople. So I mean it’s not just the small guys. It’s been MoneyGram as well. The second piece of that is, is Randy will talk to it, but we’re still putting up agents. And we think that whereas – and we’re doing it remotely. We’re shipping it out. We have a coming that ships the PCs out. We can do the training and the activation, all of that remotely without going out. We also know that there’s going to be come states that we’re probably within the next week or two, going to be able to start putting our salespeople back on the street, because those states restrictions are peeling back, and we’re going to equip them to work safely with all the PPE that they need to be able to do that, and with certain protocols. And we’ll be back out in the field in those areas. But lastly, I think the thing that’s most important is that this is a great opportunity for strong companies. This is a great opportunity for companies that have built these houses of brick like we have built, which is a company that has the kind of margins built in, that have not been built on sort of fluffy sales, if you will, right? They have been built on sustainable profitable business and they have been built in a way that has put money in the bank and it’s made it a solid company. And we are so well-positioned to go in and after these small guys now that have disappointed retailers and disappointed consumers. And so once we hit the ground running, I think certainly we miss a month or so here where we’re not activating agents at the same level we would have been if we were in the field. But I think we’re going to have a pent-up opportunity to go after agents, because there’s going to be a lot more opportunity that’s frictional, because of the shortfalls of the companies that have failed their retailers during this period of time. So I think if things start to wave back in as we’re seeing, in stages, and we start to get back to normal here in the summer; I think we are going to have an incredible second half of adding agent retailers because there’s going to be a great level of dissatisfaction between consumers, retailers and actually sales reps in companies who have either been laid off, didn’t get paid or have their pay cut during this time. And fortunately, we’ve been able to mobilize our people to continue to be selling, to continue to drive in transactions that in some days are 100% year-over-year in April. So we’re really pleased about that. We really can’t wait to be able to get back out there, even though we’ve been really productive while we’re not out there, because we think there’s more business for us to gather up than we can imagine, because of the shortfalls of the companies we are competing with. Randy, is there anything you’d like to add to that?

Yes, two quick comments. Thanks Bob. Hi, Dave. I do want to say that the number we told you, the 95%, in fairness that’s a little bit fluid, right? Even in your neck of the woods, in the Bay area, we had some agents that went down initially maybe for a week or two. And then they called and said, we are missing out on business. We need to get reactivated. We need to get back in the game. And they’ve been up now for a couple of weeks. And then maybe in another part of the country, we see someone else for a few days or a couple of weeks, temporarily suspend themselves. So it hasn’t like a big group of agents just have been shut down during this entire time period. The other thing I do want to stress, Bob’s right on. We have really taken advantage of this opportunity to try to fine-tune our selling skills. And every day our sales team are calling their agents over the phone and they’re prospecting over the phone. And they’re taking every advantage, like I mentioned a few minutes ago, to call these retailers who are offering an inferior service to ours and to make them aware of everything we can bring to them. So Bob is right, we have got regions of the country that will hit their activation goal in April in spite of doing it 100% virtually. And we’ve got a lot of pent-up prospects that we can’t wait to get out to as soon as we hit the streets again. So you know, again, if it’s only these few weeks that have impacted us, we feel really good about coming out and hitting full stride here midyear.

Great. Thanks, Randy.

Sure.

The next question is from Mike Grondahl with Northland Securities. Please go ahead.

Yes, thanks guys, and congratulations on the quarter. Any update on the – I think it was 10 to 12 salespeople you hired last fall, how are they progressing?

Sure, Randy, why don’t you just go ahead and talk about that directly?

Sure, sure. So, hi, Mike, how are you?

Good. Randy, thanks.

We did make – gosh, I think you’re right. I think about 8 or 10 people at the end of the year, beginning of this year. Two were sales leaders that are doing a really nice job for us. We really like the way they’ve come in and made an impact. And we do a very good job, I think, as we’ve shared with you before. We literally track, here’s the business that each sales representative inherited and here’s what they’ve done with it week one, week two, month one, month two; and really track that from the very beginning. In fact, there are lists our sales managers earlier this week, reviewing that new hire performance plan and again, some of the new folks have been a little bit impacted, because they started in January. They went through some orientation in February, and then they didn’t get a full month in, in March on the street building up their prospect bank. And they of course had to be doing it virtually in April. But we like the talent we’ve brought in and we’ve seen an immediate turnaround in some markets, but we like what we see in really every market right now. And we have a couple vacant positions right now, but we’re still interviewing for them. We have every intention to fill those once we find the right candidate, and continue to add where we need to add.

Got it. And then one more quick, there was a mention about some volatility, FX volatility in March in Mexico and some cancellations. Did that affect – I couldn’t tell if that was industry, smaller players, or if you guys even had a little bit of that activity?

Yes, Mike what happened – this is Bob – what happens is, is that it’s a simple thing. Let’s say that the sender on a Sunday decides to send money and he sends it and at that day he’s quoted a peso rate of 24 pesos per dollar. And on Monday there’s bad news, and the peso plummets and it goes to 26 pesos a dollar. And at that point, his beneficiary, the receiver on the other end, hasn’t picked up the money yet. He goes in and he decides that he’s going cancel the wire and replace it. So those kinds of cancellations will cause there to be some losses, if you will, when people trade and re-trade a wire. It happens in these cases of volatility, and it’s kind of baked into the number. But it will be part of the ways that you might see FX not be quite as big of gains as you normally would see. I think the other thing that happens that’s not really cancellation-oriented is that when the peso is continually trading down, it does allow people that are short of funds a little bit better opportunity to lean into it, because they might be able to buy those pesos tomorrow at just as good or a better rate than they did the day before. So we talked before about the fact that a declining peso over time can sometimes favor people that are shorter of funds. But in this case, the volatility kind of crosses some of that out, because it’s hard to predict. We had days in March where the peso went from 24 to 26, and other days when it went back from 26 to 23 in day, or something like that, maybe not specifically. So you can’t really take a bet on either side of that and believe that either way is going to – it was just very hard to pick which direction the peso was going. So I think some of that was just baked in. And in some cases, we had to end up cancelling wires and then reissuing them at a better FX rate, which in the end can end up costing us money to do that. And that’s baked into that FX gain.

Got it. Okay. Hey, thank you guys.

The next question is from George Mihalos with Cowen. Please go ahead.

Hi, guys. This is Phillip on for George. Thanks for taking my question. I wanted to know if you could discuss a little bit about your customer segments, specifically ones that are focusing on restaurant and hospitality and what kind of stress you’re seeing in those customer areas?

We’re really not seeing a great stress in those areas in the sense that – let’s first talk about the Mexican component of our business, which is the largest, is probably mostly focused in the areas of agriculture, and in construction and then sometimes food processing. And those areas have all been very much deemed essential businesses. And that’s why the Mexican component, which as you well know is a big share of our business, has been really strong. Guatemala would be similar to that. I think there’s other groups and some Mexicans and others, but particularly more other countries that might be more involved in the restaurant business. But in those cases, in a lot of cases even in that, these are delivery people. They’re not typically chefs. We’re not typically talking about bartenders. We might be talking about busboys, in that case that there’s some sensitivity. But the thing about our consumer is, is that the numbers play out. Let’s just talk about the numbers. I mean, you know, we continue to hold a strong growth number. We continue to hold a strong growth number through April. And our customers are resilient. They are people that will move quickly from one job to another. If they’re working a restaurant, they will go off and start delivering food, or they’ll go to a car wash or whatever happens to be open to find work. As we said in the earnings release in the earlier part that our customers will move from one project to another, because they’ve gone through such hardships to get here and their work really is essential work for everyone back in their family. The other thing that I think that’s really important for us is that we’ve always been a business that’s been more focused in agriculture, in the rural areas than we’ve been a city-based business. We do a lot of business in – more business in agricultural areas than we do in metro areas, like New York or in LA. So because of the result of that, where the virus has not been as rampant, our business has held up really, really well. So we feel pretty strongly about it, and it continues to hold up as we said, quite well through April.

Great, appreciate that color. And then for a follow-up, can you just talk about what kind of flexibility you have in the non-service expense line? It looks like it trended down a little bit year-over-year even with strong revenue growth. So if you could just help contextualize that for us, that would be great?

Yes, sure. Bob, do you want to take that?

Yes, sure. So first you just need to think about in our entire cost structure, about 80% of our costs are variable with transactions. So that remaining 20% is kind of split between salaries and other operating expenses, if you will. The flexibility we have, and some of it is – the flexibility we have in the situation, there are some costs that just naturally are going to come down, like T&E for example. Obviously you’re going to take a little bit of a hit to your hiring plans during a time like this. You can’t get people in to interview and those sorts of things. And some of that is just timing and will come back. We have flexibility in other things like advertising, which is in there. But by and large, it’s going to be in your hiring and it’s going to be in things like travel and expense. But more importantly, I think the big takeaway here is going to be that we’re getting great leverage out of the fact that 80% of our costs are variable. So when we get a volume decline, we don’t see a big impact to our unit profitability on a fully-loaded basis.

Yes, I think one of the things you have to remember is, is that versus maybe one of the other public companies that reported recently, I mean they had a 1% revenue growth and a 20% EBITDA decline. We’ve proven ourselves to be great operators, because we had a 13% revenue growth and a 20% EBITDA growth. So I mean still with a positive revenue growth, some others have already struggled and we have already proven that we are typically leveraging our revenue growth to a much better EBITDA growth. So we are very, very good at that, and have been good at that over time. And right now, we don’t see a necessity to do a lot of that, because we’re still holding quite strong in the disruption with our team to be able to start to think about the things that something like MoneyGram has done, which has cut salaries 20% across, we think that that would be more destructive to our business than it would be productive, because it sort of feeds on itself. I mean that’s part of the reason the business is holding up well into the 90s in terms of year-over-year, even through this pandemic in terms of April.

Great. Really appreciate on that. Thank you.

The next question is from Timothy Chiodo with Credit Suisse. Please go ahead.

Alright, thanks a lot guys. Good afternoon. I wanted to dig into the online, the strength that you called out in terms of the volume surge. I want to talk about the extent to which you think there could be some lasting behavioral change there, and maybe a little bit about the types of customers that are using the online platform. Is it an existing customer switching over? Is it a new incremental customer? Is it a banked or an unbanked customer? Are they sending to someone in Mexico that is banked or unbanked? Just maybe break down that a little bit so we can get a better sense of how this might last in the future.

Yes, let’s talk about a few of things. And I’ll start maybe with the back part of it. The first thing is that most people in Mexico, the studies that are out there, say that the majority of people in Mexico are unbanked, somewhere between, anywhere between 65% to 75% of people in Mexico are unbanked. So in most cases, they’re going to be sending to an unbanked customer, just statistically. And given in most cases that people that are more likely to banked in Mexico are probably not the ones that have crossed the border to wash our cars or pick our oranges, that probably they’re sending more likely to unbanked customers. We have percentages of bank transactions even in our brick-and-mortar business. And we don’t disclose those versus our over-the-counter. And some of them do go into bank accounts. The percentage of people that would be banked that would be online sending the wire would be 100%. I mean you need to have a debit card, a credit card or a checking account to be able to send money. There’s no other way to do it, and that’s been the obstacle for the online business for the most part for everyone. The technology has never been an obstacle or at least hasn’t been for years and years. Mostly everybody, if you went out into the fields in Central California, and all the guys picking the vegetables and fruits and you look, every one of them on their hip has got a smartphone, either an Android or an iPhone. The issue has been a bank account. And it’s been a lot of issues that we’ve gone through, and I can go through in detail. It might bore people again to do that, but the proximity of the banks, the fact that they don’t have bank accounts back in – even in Mexico, the fact that banks aren’t really looking for their business. Banks are now looking for people that deposit $600 on Friday and draw it down to zero on Thursday. They’re not looking for a lobby full of people that might be coming in with cash or checks. They want direct deposits; all of those factors. What we’re seeing in terms of the business that is growing in terms of online, we’re seeing both new customers and we think those customers could be coming from the fact that we believe a lot of the online providers to Mexico or Guatemala or El Salvador or Honduras, simply do not know how to cater to those businesses. They don’t have call centers in those markets. They don’t speak the language. They don’t know the geography. They certainly don’t know the culture. And as a result of that, we are going to see people not that online will become a threat to us. But we will become more of a threat to the online or the typical online provider over time as we build our online business, because they’ll find a home where we actually specialize in Latin American business, right? I mean you can check where the call centers are of most the online providers, but you’re going to find that very few of them are either going to be in Mexico or Guatemala, like we are. So we think there could be some people that have tried online that had been at retail before. We know we also take – by the way at retail, we do a thing called card direct. So we take a debit card or retail per transaction, for instance. So, some of those people could have decided to go online. But I think in more cases these are – these could be new customers that we’re really getting that are on the online circuit if you will, and they’re moving over from other providers, because we’re becoming more aggressive in the online service. And I don’t know. Joseph, if there’s anything? Joseph Aguilar who is our Chief Operating Officer, manages our online directly. I don’t know if there is anything you would add to that, Joseph.

No, I think you covered most of it, Bob. But I think we do see the opportunity here continuing to impact us. And also we see customers who haven’t tried us now are taking the opportunity during this process or during this event to try our service and are liking the service. So we’re pleased about that and we’re pleased that customers are reaching out to Intermex and attempting to use our service and using the service. So that reflects I think the year-over-year growth that we’re seeing in this product.

Just adding to that, we think [indiscernible] later in the year that this will become a more material part of our business and we’ll disclose probably a little bit more information as we go on the online. Today it’s growing very quickly and it’s quickly becoming a material piece. But I wouldn’t yet call it a material piece. But we’re quite excited about its growth and we think that the pandemic has given us an opportunity to kind of – to focus on it a little bit more and see if we can move that needle along a little better and a little faster.

Okay, that’s great. Thank you. I fully follow you on the unbanked mix that you started off with there, same page. And what I was really getting at was there was a mix of new customers versus existing, and I think you covered that quite well. So thanks a lot.

Okay, thank you.

The next question is from Josh Beck with KeyBanc. Please go ahead.

Thanks for taking the question. I am glad to hear that everyone is doing well. I am just wondering macro-wise, obviously there’s been a lot of traditional linkages that have been completely flipped upside down. Just as we go into the middle of the year and the back half of the year, are there any one or maybe set of macro indicators, whether it’s unemployment or immigration flows that you will be tracking closely to kind of gauge what could happen to the remittance market?

I think it’s really – I mean no one can gauge anything about the second half of the year. I mean it’s very difficult to gauge. I think what we’ve seen is that we’re going to operate and function a lot better than the market does, and the market has held up quite well. But I don’t think anyone can predict the greater marketplace at this point. I think we’d be stretching and making something up to tell you that we could in the face of a pandemic that we haven’t even started to restart the economy that we could tell you what the second half of the year is going to look like in terms of overall money transfer business remittances to Latin America. What we can say is we think we’re going to continue to be at the very top of that and outperform the marketplace, as we’ve continued to do since we have been a public company.

Okay, that’s helpful. And then obviously there some nice strength within Q1 certainly it sounds like in the middle of March. I mean was there anything I guess versus your internal plan that stood out in terms of just how things materialized?

I think that Q1 we began to get back to some of our fundamentals and we had talked about that, that we had seen some deep discounting from small providers and whereas the marketplace in some cases was anxious for us respond in ways that would have made us maybe grow revenue a little bit quicker, but be less profitable; we decided not to take that path. And as a result, we saw first quarter volumes growth coming in at 13%, because we put in place plans to be able to go and attack against those small providers that had come after us. And I think it was taking hold. As a matter of fact, we think that had the virus not hit and the pandemic not hit when it did, we think that our 13% would have been slightly stronger. I’m not going to say it was a lot stronger, since it was only two or three weeks. But we think we probably would have come in at maybe 14.5% growth or whatever for the quarter. It doesn’t matter. That didn’t happen now. But it really is the execution against those plans, against those small providers that were really coming in and undercutting with price. And we have some things that we have been doing and we are not going to talk about them in detail, but has been winning us business while sustaining our margins. And it’s been working quite well, and we think it will continue to work quite well. What we don’t want to do is get into a situation where we become part of the sort of the circling the drain, if you will, where the small guy gives a deep discount and we discount to that level or a little bit more, and he’s a little bit more. Pretty soon we drive margins down to where nobody is able to really deliver a quality product and deliver profitability over time. So we took our time to do that and I think it was working quite well. I think it’s also a testimony in terms of how well our business is working in April so far – not so far, we’re on the 30th day and where business is holding up quite well, a lot better than I would have thought. I mean as I’ve said, we’ve had some challenges in the Northeast where the pandemic has run obviously much more strongly and put a lot more businesses I think either shut down completely or more likely to be shut down to limited hours or whatever. And like I said, in the middle part of the country, our business has been quite strong and approaching close to 100% year-over-year, down a little bit from where it was, obviously not at the 13-14% growth, but staying pretty strong. So we feel pretty good about where we are. We felt like we were really on the rebound and it could have been back to a high double-digit 15-16, pushing near 20% growth as the year unfolded. We’ll have to restart that now. But we do think that we’re going to be a big outlier versus the industry over the next several months, even through the pandemic and as we restart the economy, outlier in a positive way, by the way.

Great. Thanks for all the color.

The next question is from Drew Kootman with Cantor Fitzgerald. Please go ahead.

Hi, good afternoon. Thanks for taking my question. So I just wanted to touch on the negative 10% for transactions in April that you mentioned. Have you seen it accelerating through the month or is it starting to stabilize, just any color that you’ve seen over the last 30 days?

Yes, I mean actually it’s probably getting stronger as the month has gone on. But you know, it could be a wave. There are ups and downs. But I think we saw earlier in the month some more softness than we’re seeing now. And lately we’ve been approaching many days 100% year-over-year. So we’re pretty happy with where things are going, and we think as some of these states – again, it’s not a prediction. It’s not a guidance. But we think as some of these states really start to restart up that have been shut down either partially or completely, I think we’re going to start to see their transaction volumes pick up again a little bit more than where they are.

Great. And then just given how strong margins were this quarter, just if you could touch on what you expect moving forward throughout this year and then even longer term?

Margins in terms of our – are you talking about our EBITDA margins, I am sorry.

Yes.

Okay, yes, I mean we’ve already talked about it, and I’ll let Tony get more into detail on this. But we’ve always talked about that we don’t see our EBITDA margins getting a lot stronger. We got them. We’ve done it and been stronger from time to time, as necessity has presented itself, meaning in these times where of a pandemic or whatever, and we’re able to be quite early on and understanding what’s going on and manage our fixed costs really well. But over time, we really need to be able to continue to invest in the tremendous opportunities that we have out West. And we know that as we invest out West that the margins typically there are lower than they are in the East. We still have a huge upside in California, Texas and the entire Western part of the United States, and even part of the Midwest and the Northeast. And we have great opportunities still in terms of our card product and in terms of our online. So as we invest in the business, we don’t expect our EBITDA margins to get a lot bigger. We expect to be able to invest in those to perpetuate margins similar to that or in that area for a long period of time, over time by investing into building new product lines and also building new profit centers that will originate those brick-and-mortar wires. You know, California still remains a huge opportunity for us. Texas still remains a huge opportunity. And as those things happen, we’re not necessarily going to increase our EBITDA margins, whereas we’re going to increase the top line, increase the absolute number of dollars of EBITDA, but the margins may not go up a lot. But I’ll have Tony kind of comment maybe in more detail on that.

Yes, the only thing – I think Bob said it pretty comprehensively. The only thing I would add for you there is that some of this depends on our volume mix to Mexico and Guatemala versus countries that don’t have a foreign exchange gain component. And as through the fourth quarter, we saw our mix moving away from Mexico. And now here in the first quarter we’ve seen it moving back towards. So we can’t say today how that’s going to play out for the rest of the year. But that dynamic is an important part of what’s going on. But I still think it’s exactly right what Bob said as far as we don’t – any excess adjusted margin we would expect to invest back into our future growth.

Thank you

This concludes our question-and-answer session. I would like to turn the conference back over to Robert Lisy for any closing remarks.

Yes. Thank you all for your time today on the call, and thank you for your questions. We look forward to talking to you all soon, and hope you all stay well, and best wishes from all of us to hopefully we’ll all be through these difficult times soon and back to normal days, where we’ll towards even rosier days in terms of the business world. So thank you again for your time. We’ll talk to you soon. Take care.

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.