Q4 2019 Earnings Call
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Greetings and welcome to the International Money Express fourth quarter 2019 earnings Conference call.
At this time all participants are any listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded I would now like to turn the conference over to your host Sloan Bolan Investor Relations. Please go ahead.
Sir.
Ladies and gentlemen, we're experiencing a bit of technical difficulties. Please standby.
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[music].
Greetings and welcome to the International Money Express fourth quarter 2019 earnings Conference call.
At this time all participants are any listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded I would now like to turn the conference over to your host Sloan Bowman Investor Relations. Please go ahead Sir.
Good evening before we begin to let me remind you at this conference call. It includes forward looking statements, including our outlook for fiscal year 2020.
Actual results may differ materially from expectations for additional information on interacts please refer to the company's actually see filings, including the risk factors described there and you should not rely on our forward looking statements as predictions of future events. All forward looking statements. We make on this call are based on assumptions and beliefs as of today I refer you to slide.
Two 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.. If the exchange Act with respect to such non-GAAP financial measures is included.
In the presentation slides for this call, which can be obtained on our website.
We also refer you to slide 16, 17, and 18 or 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, Let's see <unk>, Chief Financial Officer, Tony Lauro, Let me now I'll turn the call over to Bob.
Thanks slow and thank you all for joining us our year end 2019 call.
As you can see from our press release, we ended 2019 with another strong quarter with double digit revenue growth and over 22% growth in adjusted EBIT da compared to last year, which put our full year profitability at the top end to her guided range.
Little detail, both our financial and strategic accomplishments in in a second but before we do that I would like to thank our management team and our employees for another successful year as we noted last quarter industry volumes began to slow in the second half of the year, but because of the differentiated way that intermec serves our customers and the hard work of our team we continued.
Oh pace, both the industry growth rate as was the growth through our peers.
With that let's turn to slide number three and review our key accomplishments for 2019 compared to our strategic priorities. When we began the year.
You can see that we began 2019 with the following goals first we believe our biggest stop because growth opportunity remains in the expansion of our core business in markets we serve today.
As we've noted in the past there are more ZIP codes in the United States that represent transaction growth opportunities in which we do not do business that those where we currently operate.
Second we continue to develop our new products some quarters as seeds for future growth in 2019, we successfully launch both Africa Canadian businesses as well as our wafer level processing service. We believe these initiatives are good examples of how we can leverage our strength into a new source of revenue and profit.
Third we are pleased with the continued strengthening of already strong balance sheet, we generated roughly $29 million or free cash in 2019 and ended the year with a total debt I'm, just 1.76 times adjusted EBITDA, our cash generation and debt capacity provides us with the necessary resources to pursue quality acquisition.
And opportunities.
Fourth we are excited about how we have strengthened our leadership team.
As we've noted last quarter, we are pleased to add Joseph Aguilar, because our chief operating officer, Joseph brings a wealth of skills and the industry experience to us we have already seen great contribution since his arrival in January of this year. We also added Max labor as our Chief Information Officer, Max's already developed a great road map to take.
Our industry, leading platform to the next level.
Finally, we caught we constantly look for efficiencies in our business as evidenced by our strong operating leverage we've driven today I want to highlight our recently announced partnership with ripple as a good example, we're working closely with them to leverage Triple net platform to speed, our connectivity to new partners as well, it's using on demand liquidity to drive capital of fish.
And sees so at the high end, we're very proud of the progress we've made to grow the business in 2019 and simultaneously strengthen intermix for years to calm.
We now move to slide four let's review of our fourth quarter and full year 2019 across our key performance indicators first for revenue as I begin the call Intermix continues to grow at multiples of the industry and we're pleased to have grown nearly 11% for the quarter and nearly 17% for the full year across all of our key markets.
When those where we already have a high market share. We grew up brought the market growth rate once again.
As we've noted industry volumes have moderated from the last few years of exceptional growth I'll touch on industry trends in a minute, but I must say, we're extremely proud of how intermix continues to drive significant growth profitability, even as the market slows a bit.
As you can see adjusted EBITDA grew by two times, our revenue growth in fourth quarter, nearly 23% and we had similar growth in our adjusted EBIT da over the full year 2019 compared to 2918.
Lastly, we continued to take share across both our existing and new markets and believe Intermetro remains the best position competitor in this space given the metal approach, we take relative to agent recruitment, we combine that approach with industry, leading technology in a world class customer service, Tony will give more details on our CFO.
Thank you of market share in a minute.
Before that let's turn to slide number five to review our growth compared to last year's fourth quarter.
First on the top after the pace, we continue to grow much faster than the market would transactions in volumes growing its 12, and 11% respectively over last year on the next page I'll give some historical context on the industry growth, but it goes without saying that we're again happy with their ability to outpace the competition based on our differentiated approach that business.
Moving to the bottom half of the page we grew revenues by nearly 11% over last year and we're pleased with our adjusted EBITDA growth of nearly 23% this growth and profitability again showed significant amount of operating leverage is embedded in our model as we noted last quarter, our adjusted EBITDA margin decline sequentially.
Primarily driven by the mix of business, which Tony will speak to in a minute at a high level, we are seeing higher growth in our markets outside of Mexico, where margins are generally lower to be clear. Despite the mix shift sore overall volumes in Q4, we still expanded year over year adjusted EBITDA margins by 160 basis points.
In Q4, nearly 17%, which drove the full year adjusted EBITDA margin 18%.
Turning to slide number six.
Which is new on our materials this quarter I would like to spend a minute on historical industry growth in the U.S. to Mexico corridor. The reason being that I would like to provide some background as to where we are today relative to the trends that we experienced over the last few years.
First things first to observe here first the low single digit growth. We're seeing today represents growth on top of what has been strong growth for three plus years. We continue to have a high degree of confidence in intermixed ability to outpace the industry growth given our model, but our relative pays to growth will always be impacted by the broader industry trends.
The second thing I would like to point out here is why we saw outsize growth us to Mexico wires or the past few years to summarize we think it's a combination up relative to the disparity between the strengths of the U.S. in Mexico labor markets with U.S. unemployment falling steadily for the last three years and.
Medical uncertainty on both sides of the border that is often created a volatile market for the Mexican peso versus us style.
Before I turn the call over to Tony to detail our market share in quarterly highlights I would like to emphasize once more intermix generated free cash of roughly $29 million.
Based on our current market cap it implies a yield up roughly 8%. We're very proud of the growth that we have achieved in 2019, but even more proud of our efficient cash conversion without I would like to turn the call over to Tony.
Thanks, Bob before I discuss our market share in detail some highlights from the quarter I'd like to take a minute to elaborate on Bob's pointed our free cash generation.
As you can see on slide seven which is new in our presentation. This quarter. The intermix model is highly cash generative, where the history of converting roughly 40% to 55% of our adjusted EBITDA to free cash in 2019, we generated free cash of $29 million.
As a side note, we measure free cash after capital investments taxes and debt servicing.
I certainly echo Bob's comments about how unique our company is to have free cash flow to roughly 8% with historical annual adjusted EBITDA growth over 20% to put it simply our company requires relatively little capex, but boasts a highly scalable operating model and massive total addressable market.
We plan on highlighting our free cash generation going forward as we believe one that it's an underappreciated component of our financial metrics, but also because we believe the allocation of that free cash to accretive investments can serve as an enabler future growth acceleration.
Let's turn to slide eight to review the competitive landscape as Bob mentioned, we experienced continued accretion of market share throughout 2019, and both our Mexico in Guatemala markets.
For the fourth quarter Intermix market share to Mexico was 18% up 60 basis points since the end of 2018.
We grew share to Guatemala to 25.4% as compared to 24% a year ago.
Frame this market share growth from historic perspective, intermec share of the U.S. to Mexico Corridor has increased 2.3 times and 1.8 times in the U.S. to Guatemala corridor since 2014.
Now, let's turn to slide nine to review Intermix, a share industry growth for our tier one tier two countries, which for competitive reasons, we will disclose on an aggregate basis moving forward.
For the full year 2019, intermix accounted for 31% of the total growth to Mexico, Guatemala, El Salvador and Honduras.
This growth highlights a significantly higher growth rates, we're seeing in corridors outside of Mexico and demonstrates the mix shift dynamics in our business at Bob touched on.
If we turn to slide 10, let's review the fourth quarter financial highlights in the fourth quarter. We grew revenue is 10.9% on volume growth of 11.4% as a result of our mix shift away from Mexico to lower margin corridors. Adjusted EBITDA grew nearly 23% for the fourth quarter as margins expanded hundred six.
80 basis points to 17%.
Net income of 5.3 million for the quarter was up 9.8% from the prior year.
We also solidified our sales staffing and high priority Western States.
Turning to slide 11, let's review the full year 2019 financials.
For the full year, we grew revenues by nearly 17% on 15.7% growth in volumes.
We grew adjusted EBITDA by 22%, 22.2% for the full year as we've been able to deliver strong operating leverage throughout the year by successfully executing key efficiency initiatives.
First and most importantly, we've been diligent in our efforts to migrate our agents to lower cost deposit methods with our backs, we realized over $2 million and savings in 2019 and believe there is some additional savings to be captured in 2020.
We remain focused on building a highly scalable business across all functions and our SGN expense growth is outpaced by our revenue growth.
Executing on these initiatives drove adjusted EBITDA margin of 18% for the year up just over 80 basis points.
Lastly, moving to slide 12, I'll discuss 2020 guidance as you saw in our press release, we're forecasting 2020 revenue in the range of 340 million to $355 million embedded in this range is our estimate that industry growth will remain similar to what we observed in the past few months.
I share bops conviction that indirects can continue to outpace the broader market, but industry trends were clearly impact our absolute growth.
Moving to adjusted EBITDA, we remain confident our ability to deliver operating leverage in our forecasting a range of $62 million to $66 million. We're excited about our prospects for 2020 and look forward to updating you on our progress as we move throughout the year with that let me turn the call back to the operator to take your questions.
Thank you at this time, we will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is into question Q.
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Your first question comes from line of Mike Grondahl with Northern Capitalmark Northland Capital markets. Please proceed with your question.
Yeah, good afternoon guys.
Could you talk a little bit about the competitive environment and what you're seeing there.
Sure.
Good afternoon, Mike. This is Bob and then I'll have Randy you had a bit more to this because he's a lot closer to the action or chief revenue officer.
I think we're seeing consistent behavior from competitors that we saw throughout the second half of 2019.
They've continued to.
I think a little sharper discounting than we've seen previously or at least through the first half of 2019, but I don't believe that it's gotten any more he did.
We certainly see that more and.
Hi, velocity markets, like California, and Texas and less so in the in other markets that are not as large relative speaking to Mexico Guatemala.
But it's been a can continued sort of basis. We however have been able to begin delay in place plans that don't put us in the eye of the discounting, but put us in a position to battle against that without necessarily discounting in the same way the competitors are and we're finding that thats beginning to take hold and a new.
Number of markets and become successful for us so.
We think that these things happened on an intermittent basis, you will see discounting get really heavy but they're 90 cases, they are unsustainable numbers that.
Good obviously, because they are unsustainable are not something that people typically the competitors will hold up for long periods of time, because ultimately there's no conversion of that to long term profitability. So, whereas it's been going on we think like we're in a position that were responding to well and and secondly, we think that is something that happens intermittently.
We but if it if it continues we still have a I think we're well positioned with the plans we put in place to attack against that in those markets, where it's really strong Randy I don't know if you want to make sure I noticed that thanks, Bob Mike Good afternoon.
Bob is exactly right. So only thing I would add is that we stop maybe two or three new entrants in markets like California and Illinois.
And to Bobs point, I think where we've seen throughout the year, especially the back half of the year is that these competitors who have come in as discounters positioning themselves as discounters really are moving wires from previously previous competitors, who would kind of done that same thing. So we.
We like where we're positioned and it to Bobs point, we feel really good about the quality service, we're providing to the customer that's looking for value moving forward.
Got it great I'll just follow up with a quick question on Whipple.
You have a a big concentrated market, 60% of your business going to Mexico. So.
Is your plan to get some of that on ripple, how do you kind of see that progressing in 2020 and what are the benefits.
Hey, Mike It's Tony.
We're looking at ripple for a couple other products, which I think we mentioned in the press release, the first of which is reported that which as you know is there.
There are hub connecting financial institutions, together, which will enable us to onboard new payers faster than we would if we were doing direct connections to each one.
So that has more applicability for us outside of Mexico, where we're building out our network into other corridors.
But the other would be on demand liquidity I think that might be more of what you're talking about where.
We can use.
Next RP as kind of a pivot currency.
To a swap us dollars for pesos 24 seven.
And it's early days, but we would expect to a you know be testing that later this year and to the extent that is.
A viable either from a rate perspective, or a capital efficiency perspective, we'll we'll expand it but it's too early to say how much we intend to do.
Okay. Yeah, I think the only thing that would say as Mike that that ripple will not be an answer for places like Mexico. We're very proud about the relive the relationships, we have there and as one of the top two providers. We believe today the company wise with Western Union in one of the top four with with Western you Moneygram and Ria that we don't think that we could.
Yep click replicate the kind of relationships, we have with the key payers like Banco Pal Electra with a ripple typesetting, that's a commoditization and we differentiate ourselves a great deal through those relationships, we have very tight relationships that strategically setting plans and objectives with those payers.
So you won't really see us leveraging ripple in our core markets I think it will bring us more growth in newer markets in places, where we're exploring going into ancillary products, but probably not in our core business. Because those are really critical where we differentiate ourselves from others because of the kind of.
And we driving the relationships, we built over the years with direct relationships.
Okay. Thank you.
Your next question comes from line of Tim Chiyoda with Credit Suisse. Please proceed with your question.
Thanks, a lot and good afternoon guys.
A couple of things here one on the take rates. So just kind of a core take rate not even looking at the FX fees, which I understand as as an important part of it.
It looked a little strong at least relative to our number I just wanted to see that take rate upside was there any sort of the mix shift there do you could call out maybe a mix shift towards sort of the better states for you the better price stays less competitive.
Or was there any other type of pricing that might have been taken during the quarter and then a follow up question is just if we could dig into a little bit more those salesforce hires I know in the past you mentioned that it's challenging to find the right people, maybe just to expand upon the folks that you added where there will be and when we should start to think about them, becoming productive part of the organization.
Thanks, a lot.
Okay well this is Bob let me answer the second question first and then I'll ask for a little bit of clarity just to make sure I'm not going off on an answer we as a group are not going off on an answer on your first question that's not.
Directly on target on the second piece.
We've gone from having as many as 12 vacancies in our what we call districts, which are the where the sales rep meets the agent retailer. So thats our field salespeople, we have that going into parts of the second half of the year and now as we began the year, we have vacancies down to about four.
For and we have very few of them out in California, and that's a typical numbers. So don't even look at it from 12 to four but look at it that we have a more than 40 of those jobs, we have less than a 10% vacancy you're typically going to have vacancies, a 5% or to 10%. So we'll fill those jobs, but there's always frictional. So.
Year to movement in those roles. So we feel like we're just about up to full employment, we brought in a very experienced recruiter.
Who was was.
A big investment for the company relative to where we were spending on recruitment and then individuals done a tremendous job and bringing in not only talent for our sales organization, but also for our sales management team. We brought in a couple of new sales managers, one directly for the state of California, Who's done a great job in the early going in one new who has the wraparound or the mountain states in the.
Yes, what is critically important and so that recruiters done a great job as well as other jobs not just sales from the company. So we're really happy with that effort and we think we'll continue to be closer to full employment one thing I want to stress, though is that.
Just like driving unsustainable growth driving the hiring of people who are not sustainable and don't believe in our mission and the way, we do business, which has been high profitability, which was into value added service in a commoditized industry and growing many times the rate of the industry is more difficult than hiring people from other.
Companies, who traditionally have gone about putting up as many retailers as fast as they can and discounting the product and so that they can sell as many wire. So they can't it's not sustainable it doesn't deliver the kind of quality retailers in relationship to consumers that we want and so we have a little bit tougher mission now what.
The way, we reposition ourselves from a recruiting perspective, we think we're right on the Mark really happy with the results than we think we'll be able to continue that but our difficulties are not difficulties that will be shared by all of our competitors, whose models look quite a bit different and expect a lot less from their salespeople than we necessarily do.
And then if you could clarify your first question again I want to make sure that I am unclear about what you're asking.
No problem. Thank you Bob and that was very helpful. On the hires very impressive. The question was really just versus our model. When we look at wire transfer money on or fees divided by volumes that percentage take rate looks a little bit higher than maybe what we were modeling and just wanted to see if there was any mix shift or maybe pricing that might have been taken to help drive that are.
Or maybe there is not not much to call out there.
It's it was in line with what we were expecting broadly so.
We have seen a little bit more of a mix shift.
To the lower margin core doors, but you know nothing nothing outside the normal volatility we would expect.
Okay.
We're you know we've been for a while I mean to movements that you'll see is that the business is moving into directions and the way. This business has been built we purposefully built it with a tremendous focus on Mexico in Guatemala first because they're the two countries with the highest margins and we have to lay the ground.
Don't work with all fixed cost and then profitability coming through those countries now you see us growing very quickly to the other countries in Latin America, which include El Salvador in Honduras Dominican Republic.
Peru, Ecuador, amongst others, Colombia, and those countries typically will have lower margins and youre going to see those growing faster as a percentage not an absolute wires, but faster as a percentage the Mexico in Guatemala, because they're very new countries for us we have very low market shares and so that will miss that will settle.
Shift a little bit the average make per transaction typically most those countries are either dollarized or have a very.
Controlled currency or or lightly traded currency so the opportunity to make money on FX is much smaller if at all and then Additionally, you see us growing faster in markets, where meaning us outbound markets, where prices are little bit more competitive and we're a later entry and so thats not.
Say that in our.
Apples to apples comparisons if you looked at our core market than in a particular ZIP code in a stronghold state that margins have gone down dramatically. It's more about the shifting of both the country destinations and also the shifting of a higher growth and zip codes in geographies, where margins might be lower even for.
In Mexico in Guatemala.
All right on completely with all of that thank you so much about.
Welcome.
Your next question comes from line of Joseph Foresi with Cantor Fitzgerald. Please proceed with your question.
Your next question comes from line of David Scharf JMP Securities. Please proceed with your question.
Hi, good afternoon. Thanks for.
Taking my questions.
Listen I'm going to apologize in advance for.
I think to raise corona virus contingencies, but obviously its top of mind.
Im wondering.
First question, Bob can can you just remind us.
Obviously, it's going to be spreading nationally but.
Those of us in California, or close to ground zero at least for the initial.
Expansion.
While you've shifted some of your new recruiting away from.
Original California targets were it's still expected to be the largest outbound date can you remind us of maybe the mix.
Well.
I want to stay away from reminding you of the mix, but California is our largest outbound state.
It delivers more transactions than any other state we've also talked about in.
Hello.
Yes, yes, sorry, Okay, we kind of lost a permanent there we had some really weird feedback. We've also talked about the fact, the California is a very unpleasant underpenetrated state for us in terms of market share, but thats not really production related to this.
So yes. It is it's a really important state for us, but no we have growth coming from throughout the country. We don't think were over exposed going away in California, and such way that if that is disproportionately hit by the Corona virus that that's going to have a deeper impact on us certainly not than our competitors, but certainly not then proceed.
Fortunately throughout the United States with any other state.
Got it.
And sort of similar theme to maybe last question on margins and currency.
Just waking up today to learn about Uh huh.
New news, new shot in oil or Mexico.
As much as a decade ago, but is still very.
Energy dependent economy.
Does this morning.
Im just trying to get a sense.
And that creates more volatility in the pay so.
Are there any rules of thumb, we should think about four.
The opportunity to make more on.
The FX markup.
Something that's just well the volatility comes from typically.
The peso has been very earmarked to the US economy. It seems in when we can you know even even the easy earmark has been if you look at the volatility the peso over the last few days as U.S. stock market's been quite volatile and headed downward you'll see that the pesos gone up as much as a whole peso, which is a big movement.
Even though that's a pace so on 20 pesos or 5% movement.
It's still.
A lot compared to a normal movement of the pace. So we don't see a whole pace. So we're usually talking in terms of centavos or sense Mexican sense. So it's been moving a lot. It's been moving a lot in sort of in the so the peso gets weaker when the US economy is predicted to be weaker if this.
Stock market gets week and it starts to downturn and usually the peso.
Gets weaker.
When that happens you we've talked about before we see higher average amounts being sent because the consumer doesn't know how long this will last and they take advantage of the peso being on sale and we'll see principal amounts. The average that people are sending sometimes go up by as much as 50 to $100 and remembering that the FX.
Gains or are very sensitive to that and we make a percentage of FX gain on that so that comes down to the bottom line. It's very helpful. When those things happen.
Typically it's not sustain because the worker only has so much money they might send a little bit more money, but they can't send 20 or 30% more on an ongoing basis. So if the peso then basically when it if it stays at that high level. It's no longer proceed on said on sale it becomes a new normal and the principal amounts.
Kind of stabilize and the opportunities to make worn FX stabilize again.
The difference is that if it's you know if it stays at a higher level of course, which doesn't do in the long term, you're making more on every transaction not necessarily with the fee, but the percentage, we're making on me on the exchange rate. So when you short term, yes, and the long term it kind of moderates in sort of catches up and flattens out, but we're going to see.
Page right now, where obviously its new to people a 20 $1.21 peso per dollar first time ever I think if were correct and that is historic in that causes people to drive more wires and particularly larger principal amounts in their wires at least in the short run.
Got it.
And I think you saw that phenomenon.
Yes, well, it's it's happened a number of times you know and.
The Mexico election was was almost two years ago now in June of.
Of 2018, and that was a really volatile time, where things went crazy and you know I think right at the time of the first Trump was elected in November of 16, we saw so we've seen intermittently right when the market response, but it always sort of responds even when you have an off day that just in the middle like some price.
But taking in the Dow goes down by two 300 point, sometimes we'll see the peso bought by 10 or 12 cents levels and that day. So it is correlated in lots of the U.S. stock market.
Got it in one last question I guess.
Sort of sensitivity analysis.
I believe that.
Commented that Youre.
Yeah.
Was based on comparable industry growth as a year ago or recent.
Second half trends, which I mean.
Was not factoring in any.
Potential recessionary pressures.
That we might find ourselves.
In the balance the 2020.
I guess the question is about.
Really.
The penny but.
If for whatever reason.
Confluence of external shocks that led to let's say.
Topline coming in maybe 5% below.
Guidance.
It just point.
Would you anticipate responding with some.
Areas of expense.
Additional information to kind of maintain at 18 plus percent margin.
Actually cut back some near term investments or would you continue to invest for the longer term and things like that.
Well I mean, I mean, let but like when we talk about ripple in that I'm not sure. That's the greatest example, the long term investment first of all so I think it's it's part of our overall.
Pablo where we're headed but I think more importantly is what we're doing what our online business with our card base business with our processing business. Those are our businesses that are really that we invest in.
I think that you know what I'll say, rather than where it will go is I think we've proven look at our fourth quarter results, so 20% to 23% EBIT da in a market that slowed a bit and we proved our ability as operators well and above the industry. I mean look at the numbers of everyone else everybody else at negative EBITDA I mean, you know I mean, even our even.
The guys that had been the stars right their money transfer division came in at a minus six and EBITDA year over year, we came into positive 23, yet our growth was half what it's been so weve demonstrated over the years, our exemplary ability to get to to operate and we'll make decisions that will be best for the business.
And those decisions may can meet may very well be to continue to invest or they may very well be to drive a higher operating number at the bottom line, but we certainly have the capacity to do that I mean, we've been sort of the in a bit of the kandarian. The mine shaft right. I mean is that volume slowed down in second quarter, we work.
Hi, guys that told you guys about it long before anyone else, we took a little bit of heat because we lowered our guidance for revenue topline right, but what do we do we delivered the high end of our EBITDA guidance almost right up against what a great showing of what great operators. We are here at INOMAX and we'll continue to do that and continued.
Your drive numbers that our shareholders can be really happy with particularly on the EBITDA line.
Thank you very much.
Your next question comes from line of George Mihalos with Cowen and company. Please proceed with your question.
Hey, guys. Thanks, good afternoon, and thanks for taking my question just just to maybe to follow up on that last question little bit.
Tony looking at at the 343 55 in.
In revenue guidance for next year, so sort of implying sort of the 6% to 11% rate of growth.
Can you just help us whats baked in implicitly at at that low one of the range of 6% versus the 11%.
Yes, so I would just say kind of the middle of the ranges what we've seen through.
The fourth quarter as we exited last year and those are the trends that it's that it's built on so to the extent that I'm like David like David asked if theres, a shock to the economy or or things like that then that could drive us down towards the low end of the range or if we see.
The pricing pressure that we've seen so far if somehow that goes deeper that could move us down on the revenue side as well and a you know Conversely on the top end the range would be.
The market starts to grow something more like would it grew over the last three years and not just what it did in the fourth quarter.
Yeah. Those are the those are probably the big objects are big eventualities that could move us.
In the range right, obviously, theres a macroeconomic component in there.
And there is that Theres, a general belief for modeling assumption that things will continue the way that they are.
Okay. That's that's helpful. Then in terms of.
Growth from a modeling perspective throughout the course of the year I would assume you're thinking about growth being a little bit more back end loaded just given comparisons of the first quarter.
Yeah I'm not.
I'm not sure that our growth is going to be back end loaded the way that we're looking at it.
We're actually going to looking at some tough comps from a year over year perspective. So I think our growth is probably going to be pretty steady throughout the year is the way that I would I would think about it.
Okay. Thank you.
Your next question comes from line of Mark Palmer with BT Ji. Please proceed with.
Yes, Hi, gentlemen, thanks for taking my question.
You had mentioned the company debt capacity and how you had.
Ankle debt capacity and can you just talk about how comfortable you are with different leverage levels, but essentially adding leverage in the current environment, how that would guide you're thinking with regards to pursuing M&A opportunities.
Yeah, Hi, Mark.
So we're sitting at about 1.7, EBITDA leverage ratio now between 1.7 and 1.8.
You know our lenders would be comfortable taking us to three in a quarter or even three and three quarters.
We're going to be much more comfortable keeping it under three.
And.
You know keeping it under three would would mean.
If we bought something that brought with it no EBITDA, there's about $8 million of capacity.
But I don't think that we would be inclined to do that so.
Yes, I would say generally speaking, we're pretty conservative when it comes to debt and especially if we're heading into some sort of weird macroeconomic times.
But you know somewhere between two and three is our comfort level.
Thank you very much.
Your next question comes from line of Josh back.
Keybanc. Please proceed with your question.
Thanks for taking the question I just wanted to ask about.
Maybe the market share gain trends, obviously, you're you're doing really well versus.
Editors, just given what your expectations are for that.
Trend as we look into the.
To the 2020 and beyond.
I think you'll you'll see us continue to gain share across all the countries that we have been focused upon which includes Mexico in Guatemala remember our denominators now is getting pretty large in both Mexican Guatemala over an 18 share to Mexico, 25, or 26 to Guatemala, So you're not going to you know obviously you have to grow the incremental.
Will portion the upside of Guatemala at more than 26% to gain share. So the hurdle is much larger we do expect to continue to gain share in both Mexico, Guatemala, but more importantly, we think theres a huge amount of opportunity to gain share, which we're doing quite well in countries like Honduras, El Salvador, Dominican Republic and.
Others, where we may have a market share of 15 or less percent, sometimes even in single digits, where we are growing at a very high rate and growing up large percentage of the.
Margin percentage of the overall business, we think theres a lot of headroom I talked about a little bit earlier. The way. This thing's been built was built strategically for a reason we took a lot of heat as a company that we were two centralized in Mexico and watch them all but it proved to be very good strategy in the sense that those are countries that have the best margins and were able to build the company.
That brought down an 18% EBITDA margin continued to grow very nicely in terms of both EBITDA and free cash flow and as a result now it enables us at that margin to be able to be more aggressive as we add market share in the other countries like El Salvador, Honduras, and others that we named where.
For the margins are quite as good frankly, because either they are dollarized countries are very tightly regulated currencies.
That really isn't a bunch of an opportunity to add the FX component. So there the for the revenues not a lot lower but the margins lower because there don't have that FX piece. So now we're able to continue to be much more aggressive and many of those countries are much more concentrated in terms of less zip codes, where the.
The expatriates Woodward reside Mexico for sure in Guatemala to a lesser extent are very expansive throughout the entire country, but we can target a couple of hundred zip codes that really drives many of the countries like what Dominican Republic and others.
And that's a much easier chore now is add ons and is growing those market shares. This the first time as you'll see we talked about our our growth in terms of number or percentage of wires. We delivered to all of our core countries and we delivered I think was more than 30% of the growth in those which obviously, we're nowhere near 30% share overall.
All those countries, which means that we're grabbing share a pretty quickly when it when it comes to all of Latin America.
Okay very helpful. I also wanted to ask just about the growth states, obviously, there's a really big opportunity there versus some of your stronghold states and as we go through the year what are some of the key.
Milestones and initiatives that you're gauge in some of those growth states.
Well, what we're trying we're really not talking as much in calling out states because it's really we find many of our competitors some of them, which did enjoy the status of being public.
That come directly after us when we give too much information about our business, but what we will say is that there's certainly a much lower level of market share in the states that have the largest populations of foreign born is particularly our core markets. We continue to work against that and we think that we have an ability to double in many of the.
Those large states and so there's a tremendous opportunity there we continue to work again, so thats why weve had the hires that we've had and we think that.
That will go on for a period of time.
We don't want to talk too much about specific states because that that's a difficult thing that provides none of our competitors really provide even country based information I'm talking about up on countries, let alone initiating states in the U.S.. So thats kind of is a difficult thing for us to share because we're sharing it try to figure out how much to share with you as an analyst.
Without saying too much to our competitors and that's a difficult line to walk sometimes.
That makes total sense I definitely respect.
Thanks for the answers there Bob Cushing.
You're welcome.
Your final question comes from line of Joseph Foresi Cantor Fitzgerald. Please proceed with your question.
Hi, I hope can you hear me Okay. This time I hope that.
There really clear yeah good.
I wanted to circle back on sort of the deceleration.
On the topline.
Could you just break that down by component I am not is it is a tough comps versus lower volumes versus FX versus just want to make sure I understand.
Sort of what's going on the numbers sort of properly.
Well I think Theres, a theres a few things right I mean number one the industry has had the industry numbers have been tremendously high for the last few years really starting in November of 16, with the Trump election, and we've had more and more stay.
Months, where the new year over year number has been in double digits than we've had in I think probably my recollection. So that's the first thing we as a company have had tremendous comps because in 2018, we grew our transactions to Mexico dollar volumes at over 40% and then followed up in 2009.
Team with a with an overall number on the average of of close to 20% to 20%. So we were going against not only difficult comps from our own perspective, but difficult comps from the industry perspective, So thats clearly there.
It's only natural that the industry.
I'll start to pull back a bit and you know you're talking about something that's been growing at probably three times on the average I'm talking about the industry numbers the rate of the GDP, if not close to four times already the Jeep PDP and then a company where we personally have grown at a rate of three or four times the industry growth. So that's something that's hard to sustain.
That level now having said that.
We think that there were also some competitive pressures that were greater in fourth quarter and in the second half of the year than it happened previously part of that back to my last answer has a lot to do with a lot of our information we've shared maybe a little bit to freely and I think we found competition coming at us.
Pretty heavily we think that we saw most of that.
I think from a standpoint, if that we put in place some strategies that have allowed us to kind of come back after that business and I think they're being applied as we speak and Weve experienced some really great success.
Into December and beyond obviously, we're not going to address first quarter, but but you know it going forward already with that I think the last piece was is that.
We.
We talked about that in some of our key markets. We had some difficulty in filling key positions and now we're up to full employment in those key markets and even with our sales leadership and that's also going to have something to deal with going forward, but I think it's really important understand just how much the industry and we have grown over that period and still.
Growing on top of that so it's slowing growth, but it's still kind of still solid growth and then there's been the movement I think from you know as we talked about earlier that some of our secondary and tertiary countries have grown faster, the Mexican Guatemala, which doesn't necessarily affect transactions, but does affect.
Revenue per transaction a bit so I think those are all the factors when you kind of look at the revenue line.
Got it and then so and this is kind of my last one my follow up so we know thinking about this industry is being sort of.
High single low double digit grower over a long period of time or again. This is just because I think I'm trying to get a handle of how you guys work versus the industry or could there be years, where there's decelerations and then re accelerations just trying to get to handle on sort of along I think there's there's acceleration the diesel or.
Patients I think any industry that would be up high single low double digit grower forever. When you know and for perpetuity would be a tremendous industry right I mean that I don't know too many industries if thats happening.
Not in sustainability terms of profitability, some that end up to creating a bubble. So I don't know that that's the baseline I think the baseline is more like a middle single digit growth and I think you have variance from that end down periods that can go to zero I don't think we're in that period now and I think you can have you can have variants in an up period that.
Can go to low double digits.
No. Its highest 12 13, 14% you do have anomalies like for instance in June of 2018.
When the Socialist candidate was coming to power in Mexico, we saw that the great volatility of the Mexican peso and it created a growth that had been unprecedented but thats, usually something that comes and goes with enough 30 to 60 day period, the ongoing sort of I think your earmarked is industries typically been.
You know running at 50% higher to maybe.
70% higher than the GDP growth. So you got to Threex GDP growth of.
3% I think you can have five 6% in the industry, but when you have these political factors along with a good GDP growth and you have very low minority unemployment, which has been the case for the last several years and then you have the volatility that's been going on it's really a prescription for a really tremendous growth mark.
But that's been out there certainly through part of 16, 17, and 18 and in the early parts of 19, we really started to see the symptoms of a slowdown in early 19, which really started to slow down a little bit stronger as we got into fourth quarter, but we're already I think we're seeing that that's not a.
Putting aside the recent developments of the economy. This week and stuff, we're seeing that that was not as drastic or continuing to move downward in the way that it appeared in fourth quarter, particularly early that it was a bit of a depth that started already come back a bit. So we I think we expect you know more north.
We will numbers, which I think our middle single digit industry growth this year unless again given if.
Something goes our stride history with the grown of is greatly or something like that then obviously all bets are off but I think under normal conditions I think we're looking at a middle single digit.
Got it thank you.
Well.
Ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back to Mr., Bob let's see for closing remarks.
Yes. Thank you all for joining us on the call. We look forward to speaking with you. All soon thanks again have a great deck.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
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