International Money Express, Inc. (IMXI) Q2 2021 Earnings Report, Transcript and Summary

Thank you for standing by. This is the conference operator. Welcome to the International Money Express Inc. Second Quarter 2021 Earnings Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions] I would now like to turn the conference over to Mike Gallentine, Vice President of Investor Relations. Please go ahead.

Good morning, everyone and welcome to our quarterly earnings call. This conference call includes forward-looking statements, including our updated 2021 guidance. Actual results may differ materially from expectations. For additional information on International Money Express Inc., which we refer to as Intermex or the company, 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 on this call are based on assumptions and beliefs as of today. Please refer 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. On this conference call, we discuss certain non-GAAP financial measures. Information required by Regulation G under the Securities and Exchange Act with respect to such non-GAAP financial measures is included in the presentation slides for this call, in our earnings press release, our quarterly Form 10-Q and our annual report on Form 10-K including reconciliation of certain non-GAAP financial measures to the appropriate GAAP measure. These can be obtained in the Investors section on our website at intermexonline.com. Presenting on today's call will be our Chairman, Chief Executive Officer and President, Bob Lisy; and Chief Financial Officer, Andras Bende. Also on the call today is Joseph Aguilar, Chief Operating Officer; and Randy Nilsen, Chief Revenue Officer. Let me now turn the call over to Bob.

Good morning and thank you for joining us today. This morning, we have some exceptional quarterly results to share with you. And later we look forward to answering your questions, following our prepared remarks. As you saw detailed in our press release that was issued this morning, Intermex recorded another remarkable quarter of record setting operating and financial results. Let me highlight some of these accomplishments on Slide 3. Net income was $13 million, a 47% increase compared with the prior year period. Adjusted net income of $15 million, a 41% increase over the prior year period. Adjusted EBDA increased 33% to $23 million compared with the prior year period and revenues grew 37% to $117 million compared with the prior year period. Additionally, we generated a record number of remittances with over $10 million, while transferring $4.4 billion for our customers. This represents a remarkable 53% increase in dollars transferred over the second quarter of 2020. Lastly, we achieved a record high market share of 21% in our core markets of Mexico, Guatemala, El Salvador, and Honduras, as we continue to grow faster than the overall very robust market. These results underscore the success of the company's omni-channel strategy. We are focused on partnering with the best retail agents that are strategically picked to meet the consumer needs and offer the very best service quality in the industry. We do this while continuing to expand our online digital business for those consumers, who prefer that option. We carefully and aggressively expand our payout network to deliver wires more efficiently and effectively than ever before. Whether those remittances are paid digitally into bank accounts, loaded on a mobile wallet, available through an ATM were paid out over-the-counter in cash. We are proud to say that more than 20% of our remittances are settled digitally in the receiving country. One of our biggest growth opportunities continues to be to maximize our retail digital business by improving our presence in ZIP codes that are currently unserved or underserved. Although these opportunities are primarily in the Western states, many growth opportunities remain throughout the U.S. even in our most established states. This opportunity fully once accessed and maximized could more than double the size of our retail remittance business over the next several years. Pursuant to that opportunity, we have added more new retail agent locations than any time over the last several quarters in Q2 2021. Our omni-channel strategy focuses on meeting consumer needs with the best retail and online product and service in the marketplace. It is fueled by our exceptional growth in transactions across our core markets of Mexico, Guatemala, Honduras, and El Salvador, as well as our emerging markets. You can see this illustrated on the next slide. In second quarter of 2021, we're proud to have generated 10 million remittance transactions. This represents an increase of 33% over second quarter of 2020, and was the largest total number of remittances ever sold by the company in one quarter. Please keep in mind as illustrated on the chart, unlike many of our competitors, we continue to grow both total transactions and emerging market transactions throughout the height of the pandemic last year in second quarter 2020. Transactions in many of our emerging markets such as Dominican Republic, Ecuador and Nicaragua among others continue to grow at an even faster rate than the overall business. In total, our emerging markets grew transactions by 41% compared to second quarter of 2020. This total growth in total remittances and emerging markets is also very evident as seen on the chart. It is important to note that the two year growth is 37% in total transactions and 69% in emerging market transactions in Q2 demonstrating our ability to grow our business in both good and also in more challenging times. On Slide 5, the strong multi-year growth in transactions has led to our significant increase in market share. We continue to grow at a rate well above the market growth numbers overall and gain share. We believe our consumer orientation is driving this outsized growth. We offer the consumer all possible options to send a wire. Our consumers can send a wire at retail by using cash or debit card, online by using a debit card, credit card or ACH. Additionally, on the receiving side, consumers can receive money digitally into their bank accounts, loaded on a mobile wallet, paid out in an ATM or pick up cash at a convenient location. Importantly, all of these funds are available in minutes. Our omni-channel strategy is focused on providing our customer choices, not forcing the consumer into options that are very expensive from a consumer acquisition cost perspective. Historically, we empowered our consumers to choose the best option for them. This consumer focused approach has led to a total increase in dollar cent of 88% over the last three years. At the same time, Intermex is efficiently investing in growing our consumer-based digital app offering. On the next slide, we have continued to experience strong growth with our mobile app with transactions increasing 66% compared with the prior year period. Based on the definition of some of our competitors, who define a digital transaction as a transaction where either side of the remittance is cashless. Intermex processes more than 22% of its transactions digitally. These remittances were initiated as digital transactions on the send side or was settled digitally to the receive side. During the second quarter transactions that were deposited directly into a bank account, increased 50% compared to the prior year period. Transactions processed through the use of debit or credit card at retail are small percentage of their overall wires, but are growing 117% year-over-year. These transactions will continue to grow as we expand the number of retailers who accept debit cards. In closing, we are confident that the underlying appeal of our omni-channel model driven by our best-in-class retail network combined with our digital online strategy, the acceptance of debit at retail, along with the ability to settle transactions both digitally into bank accounts, as well as over-the-counter in cash placed Intermex in a unique position to continue to outpace the market growth and gain share. Our best-in-class customer care, unique agent selection process, and technological advantage at retail will continue to drive the company to deliver strong financial performance. Over the years, our model has proven itself to provide a high degree of predictability by delivering double digit revenue as well as EBITDA and net income growth. This enables us to reinvest in attractive growth opportunities to provide additional future returns. We remain confident that our philosophy and dedication to profitable and sustainable growth will continue to drive a significant competitive advantage for Intermex. With that, let me turn the call over to our CFO, Andras Bende.

Thanks, Bob, and good morning to all the analysts, investors and customers that have joined us today. Turning now to Slide 7, let's walk through the second quarter results in more detail. As Bob mentioned, we broke records across all of our key measures and did it against the 2Q 2020 comparative that was positive for our company, which is very different baseline comp versus most of the industry, which was negative in 2Q 2020. In the quarter, revenues were up over 37% versus the prior year quarter to $116.7 million, our first time breaking $100 million in the quarter and beating consensus by over $10 million, a combination of factors contributed here. The company was up 23% in customers, remittance transactions were up 33% and the average remittance amount continued to climb in our favor, 15% higher than a year ago. Net income for the quarter was $13.2 million, up over 47% versus the prior year period, which translates to an adjusted net income of $15.3 million, which you can see on Page 8, an increase of over 41% versus the prior year period, not just a record growth rate, but another milestone for the business to break $15 million in a single quarter. Pretty dynamic revenue growth was the key driver, however, lower depreciation, amortization and interest expense all contributed to a great bottom line result. Service charges from agents and banks were up, but again, that's a function of our success at the front end. These costs move in line with transactions. Salaries and SG&A expenses were up as in past quarters and these are in line with our plans. We're confident that our thoughtful investment in key leadership positions, front-end growth, but especially technology and digital are positioning us well for the second half for 2022 and beyond. All of what we've been speaking about drove adjusted EBITDA up over 33% to $23.2 million. Again, this was against the 2Q 2020 comp where we were growing as a company. Adjusted EBITDA margin for the quarter was 19.9% and aside from the ultra-low spend during the height of the pandemic, it's really one of the strongest margin quarters the company has seen for years. We expect our investments, especially in digital, to normalize margins some in the coming quarter, but at just a hair under 20%. Q2 was a really, really healthy margin quarter for us. It's worth to mention that we successfully refinanced our $87.5 million loan facility at significantly lower rates, at LIBOR plus 250 to 300 depending on our company leverage, down from LIBOR plus 450 in the old facility. In addition to better rates, we significantly expanded our revolving credit facility from $35 million to $150 million. It was the right time for us to capitalize on the sustained performance of the business and the strength of the balance sheet. The new facility and our expanded banking relationships put us in an excellent position to grow. On Slide 9, we had a great first half and we're going to confidently raise our full year 2021 guidance. We now expect revenue to be between $441 million and $450 million, GAAP net income between $43 million and $45 million, adjusted net income between $51 million and $53 million and adjusted EBITDA of $80 million to $83 million. We're going to keep executing and the company is in a great position to grow earnings in the second half of 2021. The only reason our earnings won't be even more dynamic than the guidance I just gave will be our investment plans, where efforts, especially around digital and technology are going to accelerate even more. With that, let me turn the call back to the operator for questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question is from David Scharf from JMP Securities. Please go ahead.

Thank you. Good morning everyone and thanks for taking my questions. Bob, two things I want to inquire about. The first is something that sort of ripples throughout the income statement. And it relates to the steep rise in principal per transaction, you, I think, started to see this phenomenon emerge probably late last year. I know until recently, you've been hesitant to classify it as a new normal, but it obviously has a lot of positive implications on FX volume and margin. With it up 15%, I mean, do you have any more insights into what may be still driving that? And whether you believe is a new normal and, therefore impacts the margin outlook going forward?

Well, it's clearly been the new normal for more than a quarter or two now. We've seen this happening later in 2020, and it's – as we built the plan for 2021, we wanted to be really conservative and we were, and kind of went back to closer to normal principal amounts, particularly with Mexico, because that's really where it makes the biggest difference. It's the biggest market. It's the one where we gained the biggest FX gain. So we were really conservative. We're seeing it sustain itself. And we think the factors that are contributing to it is that we've had a very strong economy in the U.S., but relatively speaking we've also seen a relatively weaker economy related to COVID and its effects south of the border. We know that from our own call centers. We know that from talking to people in this – that are there. We have a lot of employees in Mexico and Guatemala. And we know that those countries continue to be hit harder by COVID than we are north of the border. So I think it's a combination of both stronger economy here, more troubled economy in the south, and people are sending more money to be able to help their families. I think in addition to that, that certainly, the amount of money that's been put in the economy that's bolstered every economic factors, also helping our consumers and our senders, some of which benefit directly relative to actually getting checks from the government because they're documented, and they've been on the books and they're getting these stimulus checks. Others because they're benefiting from it in a secondary manner. They may work for someone who's getting a stimulus check. People that are getting stimulus checks may decide it's the right time to landscape the yard or put a deck on the back porch or whatever it might be that creates a greater stimulus. So I think the strong economy – and through all of this, housing starts to remain relatively strong. I mean we've seen – as we've talked about, our consumers work in construction, agriculture and service. And two of those three have been really, really strong even through the biggest and hardest days of the pandemic. So we're not ready today yet to say this is the new normal. But when you look at our guidance, and it's up in guidance in the second half, we're certainly assuming a stronger number. Now part of what you also have to understand is that extra profitability, if you will, that we're getting from that has been very, very efficiently invested in the business. A lot of it related to our digital and creating a better technology, particularly for our app, for the mobile devices, as well as investing into our digital-related to promoting that business, as well as promoting other businesses like our card business. So this increased principal amount that ultimately triples to the bottom line is being invested very efficiently in new divisions, new verticals for us to help make us stronger and more vibrant in the coming years.

Got it. That's very helpful. And maybe just one follow-up. In terms of the footprint on the sense side, in the past, you've always strongly emphasized agent productivity and quality over quantity that agent count alone isn't the key metric, but you did call out specifically in your prepared remarks how this quarter you added more than any other prior three-month period. Can you talk more about where they were added? And what the outlook is for the balance of the year on that front?

Well, they were added throughout the country, and some of it is a little bit of pent-up too, right, where – we had some slower quarters last year as we were forced like many to pull our sales force back and have them work for more from home and working over the phone with their agent retailers, which slows down the ability to us to add new retailers. But we've been adding them throughout the country. And as you heard from my remarks, whereas we think the West still remains the place where we have the greatest opportunity, and that's just factual based on our market share in the West versus our market share in the East and the number of agents we have per forborne in the West versus number of agents we have per forborne in the East. But we still think there's a lot of opportunity in the east. So we're adding agents throughout the country. And new agents have always been a big part of our growth; it's just productive new agents, right? So we want to continue to make the agents we have, grow on a same-store basis, which is continuing. We'd like to see that be a double-digit same-store growth, at least. But lately, that's been much higher than that. And then the new agent retailers are also adding to that. So they've always been an important component, but we kind of slumped a little bit through COVID because we had people out of the – not in the market every day, adding agents, and now they're back in full speed. And there's a little bit of a backlog of agents to be added. But we think now we can sustain that because one of the things we're doing with some of the extra revenue that could be even above that increased guidance we gave is investing even in more folks in the field, particularly in the West to be able to drive even more agent acquisition to be able to drive more volume and have us roll into 2022 with even more momentum than we otherwise would.

Got it. Great. Thank you and congrats.

Thank you. Appreciate it.

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

Thanks a lot. Good morning and thanks for taking my question. I wanted to talk about what Visa has been discussing publicly on some of their earnings calls at conferences, in terms of their partnership with many other of your competitors, in terms of remittance providers. Maybe you could just talk a little bit about in terms of the payout method. You mentioned many that you already offer to your customers. Maybe you could talk about the potential to work with a Visa Direct, Mastercard Send, et cetera, and where you think that fits in really to the overall broader industry?

Yes. I mean, today we have – we talked a little bit about, I mean, and I think sometimes it gets lost in the shuffle in terms of what our business looks like. On the payout side, today, some of our payouts are in cash, some of them go directly to bank accounts, which is now a significant number, about 25% of our remittances go directly into bank accounts, there's a share that get paid into mobile wallets, and there's a share that can be accessed at ATMs. So we continue to look at every option that the consumer might want to be able to access money in funds, both on the receiving side of the border and the send side. Relative to the retail side, we've been ahead of the curve. We were the first guys, I believe, in the marketplace that took debit cards in retail. And we have a number of agents to do that. And as you heard us talk about in our prepared remarks, our credit card and debit card and retail has grown 170% year-over-year, and we plan on extending that card reader to more of our retail agents because we think that many of our consumers still prefer retail, but they prefer a cashless kind of a send. Now, cashless on the send side may also end up still being cash on the payout side. There's a – sort of a mismatch of how people send. Sometimes it can be by card here, in cash on that side, cash on this side to a card there. So what's important is to really offer the consumer every possible option, and we think we're doing that. We'll certainly look and explore Visa and Mastercard options, if that makes sense for our consumer. We've been less likely and less involved in trying to grab headlines with Fortune 100 companies in signing. You saw how well one of our competitors work with – working with one of the cyber currencies and how well that worked and how well when that rug got pulled out and how it affected their financials. So we're not really, really big into things that are form, we're things over substance. And that's why our market share continues to grow. That's why we have a 21% market share now to the four core countries of Latin America that represent 75% of the money going to Latin America. No one else has that kind of share is growing that way because day in and day out, we're looking at the very best options for our consumers on both sides of the border. But you won't find us just trying to steal headlines because what we're trying to do is do what's best for our consumers and best for our retailers. And that we continue to do and offer many, many options that are paying very big dividends, as you can see from our numbers.

Excellent. Thank you so much for taking the questions.

You’re welcome.

[Operator Instructions] The last question is from Mike Grondahl from Northland Securities. Please ago ahead.

Hey guys. Congratulations on the quarter. And Bob, you mentioned new agent growth that was stronger than it had been. And it sounds like several years – and you mentioned a little bit about the backlog in the pipeline. Could you speak a little bit more to the backlog in the pipeline, how robust that looks? And is the larger sales force, obviously helping to contribute to this a little bit, too?

Yes. I mean, I think it's – I don't know that we have a huge backlog today, but what we do have is a larger sales force. We've been closer to full – as you've heard us talk over the years, sometimes we've had some open positions as we try to expand the sales force we were growing faster, and the need for our salespeople was growing faster than our ability to fill those jobs. We've been much closer to full employment in the jobs that we have. But we recently have made a decision to add, we don't want to talk too much about it relative to making it open to our competitors, but we are investing in more people at retail that will be focused exclusively on adding new retail locations, particularly in areas, and you know those areas are mostly the West, where we're under agent represented related to the population. So when we look at it, and we don't share those numbers, but I'll give you sort of the general directionally. When we look at the states in the East, we have far more retailers per forborne population. So we're much more penetrated with quality retailers in the right geographies to support our business. In the West, we have much more opportunities to fill in sort of the bald spots. And that is where we're going to be continuing to engage more people at retail to sign more retail locations. And we think that that's going to be, if you will, a backlog. It doesn't mean necessarily we have a list of people that are saying, I want to be a retailer, but the backlog of places where we need to go and then we'll be able to fill much quicker because it's always been a factor of how many people do you have, how many people months do you have, right? If you got 50 people, or if you have 70 people, particularly if you have 70, that extra 20 may be exclusively focused on adding retail locations. And we think there's a huge opportunity for us still in the west. And the thing about our financial performance which has been obviously very strong with the growth we've – EBITDA growth in the 30s; we have some resources, right, to continue to up that guidance and actually beat our original plan but also invest more in the field that will get us rolling into 2022 with a lot of momentum because really when we add retailers, it takes a little while to ramp up. But more importantly, when we add sales reps, it takes a while until they're able to add those retailers that need time to ramp up. So these investments we're now making in the second half of 2021, we feel are going to pay really big dividends in 2022. Additionally, any retailers that we've already added in 2021 remember, we've talked about that our typical retailer we add in a given year usually doubles their transactions the next year. So we've got that momentum that started swinging our way in terms of adding new retail locations and more emphasis on it even in the second half of the year.

Got it. That's great. And have you quantified roughly the dollar amount of growth investments in 2021?

Yes, we have. And we don't – we're not going to share that, but we have done it, and that's why we have the guidance that we have. I mean, if we were out to deliver the highest EBITDA and net income we could, we would be higher. But what we're doing is building the business in several ways. And the first way is that we recognize that our business at retail is going to be a cash power for a long time for this business. We also recognize the importance of building our digital option for our consumers. And when we say digital, digital includes a lot of things. It can be digital on one side of the border or the other? And what' why you heard us talking about Paint to mobile wallets or people getting the money directly out of an ATM that don't necessarily have a bank account or it's taking a card at retail. So, and the conventional and traditional online transaction. We are going to invest a lot of money in that and the investments that we put in the field, in retail continue to extend that really high growth, right, that has continued, and actually accelerated. Keep in mind; we are the only public company that grew in second quarter of 2020. So we lapped a strong 2020 number with a growth number in 2021 that was well into the 30s for both transactions – for both, I'm sorry, EBITDA and for revenue growth. So we're sorry, EBITDA and for revenue growth. So we're investing in the core business that we feel is important because it drives the bottom line, but also that core then enables us to invest in the online, all then enables us to invest in the online, all these other digital options as well as our own card business, which you know we're building and growing and is growing for us. So that's kind of how we're doing it. We're not talking about the dimensional size of that, but we'll continue to try to make good decisions that we think most benefit our shareholders in balancing the need to drive profitability and cash flow today, with the need to be able to make sure that we have a vibrant business in a year, two years, five years, 10 years down the road as we stay ahead of the curve of the consumers and the options they want to send and receive money in.

Got it. And just lastly, Bob, the 33% transaction growth and 23% customer growth. Was there any geography that really stood out that maybe surprised you? One or two regions or geographies that...

Yes. As you know, Mike, we don't share that because it’s just a signal to the marketplace where to attack us. So – but generally, I will say that our growth has been very, very promising throughout the country, and we continue to grow and take share in really just about every state. So we don't have a lot of problem areas, and the growth is both in the West and in the East. They're very close in terms of their total growth and year-over-year. We still have a lot of opportunities to target in the East. So none of its very surprising. We feel that a lot of people have vacated retail right, and we think they are still, we not only think, but people proving there is still a lot of business there. Now we don't do that by turning our backs on all these new things, all these new options with consumers, and that's why we talk about mobile wallets and deposing into accounts and taking a carter retail in our online business and our own card product, because we will continue to invest in those, but we've – they need to as a leader to Mexico and Guatemala. We have grown much faster than the market in both of those countries, because we continue to take share, and that's just the factor that, and we are taking share from a lot of different folks and its throughout the country.

Great. Sounds like broad based. I appreciate it guys. Thank you.

You're welcome.

This concludes the question-and-answer session. I'd like to turn the conference back over to Bob Lisy for any closing remarks.

Thank you all for joining us. We are happy to have you on the call, and we are looking forward to a strong second half of the year. We will talk to you soon. Thank you.

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.