Q1 2021 International Money Express Inc Earnings Call

May 5, 2021

[music].

Greetings and welcome to the International Money Express Inc. First quarter 2021 earnings Conference call.

At this time all participants are in a listen only mode.

A question and answer session will follow the formal presentation.

And then he wants you require operator assistance during the conference. Please press star zero on your telephone keypad.

As a reminder, this conference is being recorded.

It's now my pleasure to introduce Mike Allen Vice President of Investor Relations. Thank you you may begin.

Good morning, everyone and welcome to our quarterly earnings call.

This conference call includes forward looking statements, including our 2021 guidance.

Actual results may differ materially from expectations.

For additional information on International Money Express, Inc, which we refer to as index 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 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.

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.

And our earnings press release on 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 measures.

These can be obtained and the investors section on our website at intermix online Dot com.

Presenting on today's call will be our chairman and Chief Executive Officer, and President Bob Lissy.

And Chief Financial Officer Andreas <unk>.

Also on the call today is Joseph Aguilar, Chief operating Officer, and Randy Nelson Chief revenue Officer.

Now turning the call over to Bob.

Good morning, and thank you for joining US today. This morning, we have some exceptional results to share with you and we look forward to answering your questions. Following our prepared remarks as you saw in our press release, we issued this morning intermix generated another set of impressive quarterly results let.

Let me highlight some of them on slide three.

Net income was $9 million is 58% increase compared with the prior year period, adjusted net income was $11 million and increase of 40% over the prior year period, adjusted EBITDA increased 27% to $17 million and revenues grew 22% to $95 million.

Since we have become a public company less than three years ago revenue has increased 52% going from $247 million to $374 million. Adjusted EBITDA has increased 78% from $40 million to $71 million net income has gone from a loss of $12 million to a gain of 40 million.

And increase of $52 million.

Additionally, intermix has now obtained or exceeded its quarterly EBITDA target and 11 out of 11 quarters since becoming a public company driver.

<unk> driving these outstanding results as our strong operating foundation that has delivered world class customer service for our customers and <unk> and retailers and the company has pursued a unique hybrid focused strategy. We focus on partnering with agents that are found in the very best locations and that share our.

This philosophy placed and the consumer first and as a result, providing the utmost and customer service.

While many competitors view of our industry is being a commodity we believe quite differently, we have differentiated intermix offering by providing fast high quality service world class customer care and extremely reliable delivery and additionally, we pick the very best retailers and the most convenient and accessible locations to best serve our consumers.

Strategy has fueled our growth and transactions and both our core markets of Mexico, Guatemala, Honduras, and El Salvador as well as our emerging markets as you see on the next slide.

And first quarter of 2020, one we generated 8 million remittance transactions and increase of 19% over first quarter 2020 transactions and some of our emerging markets such as the Dominican Republic, Ecuador, and Nicaragua grew much faster than our overall business in total our emerging markets grew transactions by 30.

89% compared to the first quarter of 2020 does.

This strong growth and remittances and our emerging markets is also evident as seen on the chart, while our growth slowed in Q2 and the height of the pandemic. These markets are now growing as fast as they were pre pandemic and they are growing at more than twice the rate of our overall business. We believe there is significant upside for longer term growth and these corridors.

On slide five our strong multi year growth and transactions has led to a significant increase in market share.

And our core markets, which is approximately 75% of the entire Latin American market, we increased our share and first quarter of 2021 compared with 2020, we now have achieved impressive 20% market share and these critical core markets.

Another critical characteristic of our strategy is focused on providing our customers with choices. Many companies today either offer only one solution to consumers or at a minimum emphasize one alternative at the expense of others. They spend large amounts of money and energy to entice and convince potential customers to use a service where today and organic mark.

Demand does not exist and.

And some cases these companies offer only one solution to the consumer and other cases, they have abandoned the highly profitable growing retail business to emphasize their online business, regardless, they do so while ignoring or at a minimum under serving the largest part of the remittance market, which is the agent transacted business.

Intermix strongly believes and providing the customer with alternatives to choose the service that best suits their needs and that is why the company continues to invest and our agent network with our retail digital service, which continues to grow at double digit percentages year over year, we continue to enhance that offering by accepting debit cards and retail.

And to process consumer transactions.

At the same time intermix as efficiently investing and growing our consumer base digital app offering and the next slide we have continued to experience strong growth with our mobile app with transactions, increasing 140% compared with the prior year period.

Additionally, the number of overall wires that were deposited directly into bank accounts increased 47% compared with the prior year period. This now accounts for 20% of all wireless.

Yes.

Transactions processed through the use of a debit card and retail are still a small percentage of our overall business, but growing at 45% all evidence of the multiple choices that we offer our consumers.

In closing we are confident that the underlying appeal of our unique business model driven by a carefully selected highly productive localized agent network combined with our superior customer care will continue to drive the company to deliver strong financial performance and challenging times as well as in good times our model is.

And also proven to provide a high degree of predictability and the business and generate market share increases double digit revenue adjusted EBITDA and net income growth.

This enables us to invest and attractive growth opportunities to provide additional future returns and we remain confident that our philosophy and dedication to profitability and sustainable growth will continue to drive a significant competitive advantage and intermix with that let me turn the call over to our CFO and her spending.

Thanks, Bob and good morning, and all the analysts investors and customers that have joined us.

Turning now to slide seven let's walk through a really strong first quarter and more detail as Bob mentioned this was another double digit growth quarter across really every one of our key metrics and the quarter revenues were up 22, 4% over the prior year quarter and finished at $94 $6 million driven by a combination of factors. The company was up 14.

And customers alone. So we continue to confidently take share total remittances were up 19, 3%, which allowed us to capture a significant tailwind from average remittance amounts up right around 10%.

And the quarter the company delivered net income of $9 million and increase of 57, 8% versus the prior year period, which translates to an adjusted net income of $10 6 million, which you can see on page eight and increase of 40% versus the prior year.

The revenue growth I mentioned was a big driver, however, lower depreciation and amortization and interest expense were all big contributors as well.

We will continue to see lower amortization as the intangible assets recorded in 2017, amortize less and the out years, if theyre accelerated schedule.

We did see an increase in service charges from agents and banks that's par for the course with increased transactions. We also saw anticipated increases in salaries and SG&A expense as we continue to make purposeful investments and technology digital key leadership positions and front end growth the strong increase in revenues partially offset.

By some additional spend helped generate adjusted EBITDA of $16 8 million at 27, 4% increase over the prior year quarter.

Adjusted EBITDA margin for the quarter was 17, 8%, a 70 basis point improvement compared with the first quarter of 2020. However, as we indicated on our last call. Adjusted EBITDA margin is down slightly from recent quarters due to the and investments I mentioned, a moment ago, but also metrics little added pressure from the February weather that impacted <unk>.

<unk> from some of our key markets.

On slide nine.

Based on our strong <unk> feel great about reaffirming our adjusted EBITDA and net income guidance issued in March and even better about our revenue position, we'll provide another update after <unk>, but for now revenue up between 16, and 18% versus prior year that means $414 million to $421 million adjusted EBIT.

<unk> up 11% to 14% versus the prior year, which means $76 million to $79 million.

Adjusted net income between 47% and 49 million, that's up 12% to 15% versus 2020 and.

And GAAP net income between 40% and 42 million, that's up 19% to 24% versus 2020 as.

As before the second quarter should have the highest growth rate for us this year, because the 2020 comparative was impacted by shutdowns, though important to note. We still grew EBITDA almost 7% and <unk> last year, we expect the third and fourth quarters of 2021 to be the best benchmarks for the underlying business trends also.

Worth a brief mentioned for those who spend time on our balance sheet. The Wednesday that closed the first quarter for US was a key funding day and the lead us the Easter weekend. This is Holy week, and many of our key markets and as a result, you will see somewhat more pronounced variances coming from typical cyclicality and the lead up to key holidays.

So to summarize overall performance, we continue to execute on our differentiated strategy to grow we're making the right investments at the right time and the underlying environment for our high quality service that we provide remains very very strong with that let me turn the call back to the operator for questions.

Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.

Confirmation tone will indicate your line is and the question queue you.

You May press Star two if you would like to remove your question from the queue.

And for participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys.

We ask that you please limit yourself to one question and one follow up question. One moment. Please while we poll for your questions.

Okay.

Our first questions come from the line of David Scharf with JMP Securities. Please proceed with your question.

Thank you good morning, everybody.

First off Bob just a little more.

Maybe granularity or insight into the geographic mix expansion.

I appreciate the.

The transaction growth rate provided by your markets, but can you just remind us.

Particularly given how quickly your emerging markets have been growing.

What percentage of the revenue mix is coming from the core versus emerging.

Yes, we haven't disclosed the percentage of the.

Core versus the emerging.

And the emerging is now continues to grow and at the high 30.

240% or more and there are some quite large markets. There I mean, Dominican Republic for instance, as an opportunity is amongst the top three or four markets in Latin America, So would easily fit and size wise with El Salvador, Honduras and markets and that size.

It is becoming a significant share of our transactions hundreds of thousands, but we don't disclose the exact makeup percentage versus the core markets.

Okay.

And I think you kind of partially answered maybe sort of a follow up and the same Tom.

Topic, which is.

Maybe is free.

On the outside.

Looking at the company if there were any particular.

Countries and the emerging market category, and we should be paying particular attention to in terms of yes, what I would say, David and set our growth is still and will remain.

Very much driven by Mexico, and Guatemala, and had been really really strong.

Those are the largest markets in Latin America.

They happen to be the most profitable markets in terms of gross margin per transaction and we feel there is still tremendous headway there, even though our market shares and both of those markets have.

And have risen quite a bit over time.

Also think theres a lot of growth opportunities still in El Salvador, Honduras. The reason, we call out that second group is.

Not long ago markets, like Honduras, and El Salvador, which are now many times bigger than the Dominican Republic, where the size of the Dominican Republic in terms of our transactions also colombians are really big opportunity.

Ecuador, Peru, and Nicaragua, and those are all opportunities for us that can grow into being and Napa, Mexico, and Guatemala size, but those are all countries that can grow into that group to be close to the Honduras and El Salvador size, which we.

Included in our core markets Salvador Honduras.

Got it got it and.

And just one question perhaps.

Digital.

But I want to make sure I understand or appreciate.

How do we interpret some of the metrics and specifically.

You had mentioned and it's still a very very small.

Portion of transactions and retailer initiated with a debit card.

Alright, which suggests the centers.

Largely.

Non bank paying with cash and therefore would not be candidates for sending digitally.

<unk>.

And the receipt, which.

Clearly understand that but on the receive side.

Is there any significance to the metric of 20% being deposited cash.

I think theres, a few things, we'd like to signal by and by that by those facts one is that.

And we talked about debt, we believe that many of the competitors out there, particularly those that are better than a pure play digital are missing a huge part of the market and we're happy they're doing that because we are spending the time picking up all of those transactions.

Typically and continuing to gobble up market share. So that's really working for us and we're happy about that we also believe that some of our biggest competitors. The leaders people think of as the leaders and the market public companies have abandoned their retail efforts and most of their focuses and online and we think that that and sort of lopsided today, particularly related to <unk>.

In America, and so much of the business is driven through retail and what we're trying to do to demonstrate through all of that is we provide the consumer the options you can go online, but we're not going to we're not going to push the consumer online as they are comfortable and happy retail you can go to retail and and many of our retailers you can use cash flow transaction, where you can actually.

Use a debit card and most other companies don't don't accept the debit card and retail so we're able to do that we're also depositing a lot of our transaction for consumers, who can send money over the counter to their loved ones and be paid out and cash are can be deposited and bank accounts and we work really closely with some of our largest payors to incentivize consumers to do that.

And so all of that's building this letting the consumer do what they want to do and giving them choices.

Youre going to see.

Our digital business be a small part of our business and channel, it's not time for it to be when the market demands are there when the market stops having that be and expensive proposition more expensive and it is to bring and and wire and then we'll drive more towards that business will continue to grow it but we'll grow it in the context said.

In January we.

Grew for instance, our Mexico business grew at 40% principal amount to Mexico.

Mostly given that we're at retail so that to US is there's a huge amount of headroom still at the retail level and will continue to be aggressive there while growing our online while growing these other options card and retail walgreen and bank deposits. All of those are just other options for the consumer.

Got it thank you very much.

Thank you. Our next question comes from the line of Mark Palmer with <unk>. Please proceed with your question.

Yes, good morning.

The principal amounts during the quarter were.

Quite large once again and just wanted to get your perspective on.

What is accounting for these sizable principal amounts, which would seem to occur early in the pandemic and in terms of.

Their emergence and.

What is your thinking about the persistence of the larger principal amounts is this something thats part of a new normal.

Or is this something that's likely to moderate going forward.

Well, we see it having been pretty consistent now well into April we're just talking here before the call just how much larger principal amounts have been through even the current time.

And we think it was originally sort of had it.

Origination when the people here and particularly the Mexican consumers were still working because they are and a lot of the businesses that are really critical life and farming and agriculture and.

Food processing construction and they were still working and the needs back home are larger so they were sending larger amounts of backhaul and average principal amounts.

And we feel like that.

It's continued though and it's hard to really put an exact finger on it I mean part of it has been we think that one of the largest components of descending community are those people that are working and construction and housing starts have been really good and theres been a stimulus money, which we don't not sure much of a trickles or goes directly rather to our consumers.

But may trickle to them through people and putting on.

Doing landscaping and the yard and building a deck on their back in their house or something like that but we don't have and exact understanding of that and thats part of the reason Mark where you see that even though we came in really really strong and first quarter that we didn't change our guidance because we're kind of and our numbers is the assumption that they become more normal.

We have seen in the past, though this sort of plateauing of average principal amount, where theres been an instance, and you change and presidential.

Election, or something happened and Mexico, where there's a spike and principal amounts and they don't continue to go up but they relatively plateau becomes something new or the new normal number and we can't predict whether that's going to be the case or not and that's why we've been really cautious as we look at the final three quarters of the year before we really raised.

Our guidance, we're kind of baking in principal amounts coming back to normal if they don't and we're going to have a very very strong last three quarters of the year.

Thank you and.

And.

Looking at your cash flow.

We are modeling net free cash flow is going to be continued to be very strong.

For quite some time.

And if you can talk a bit about capital allocation and whats your thoughts are right now I know and in past calls you've discussed.

The very lofty multiples that are being demanded.

Bye.

<unk> digital targets.

Hmm.

What is your thinking about other.

Avenues for M&A.

Picking up chains of.

Stores things of that nature, and other means through which you would allocate some of that cash.

And thank you.

Yeah I'll take the first part this is under spending on capital allocation.

Just from our overall cash flow I think are our preference is certainly something and the M&A space.

To our case, but I think we're not going to we are approaching it from a position of strength, we're not going to make the first mistaken and pay too much and its very easy to pay too much and the current environment I said that that would probably be our first or definitely would be our first route. If we found the right property and I'll, let Bob talk about property is of interest to us.

And in a moment I think after that.

We could entertain.

Moderate sized buyback could at some point in time, if the M&A front does not pan out for us, but I think those are two of the top of the list, but again those are things that.

And as the situation and the environment evolves.

Change in terms of priority, but let me, let Bob talk a little bit more about M&A properties that we might consider.

Yes, so thanks Vince.

And Mark I think there's three categories of things, we might consider and really a digital acquisition, probably not one of them non at least the way we think about digital remittances.

Arent most of them their valuations and most of our private their valuations would be bigger than our market cap and probably wouldn't make the best marriages and some of the ones that are out there sort of floundering that are relatively small they're businesses actually as much as we say ours is really small their business might be small and ours.

And it's not profitable and we would just be simply paying a lot of money for the privilege of investing and their business and growing it. The same way. We can so I think putting digital aside there'd be three areas that we might consider acquisitions and where I think we have discussions going on really early and preliminarily and all of these areas one would be sort of.

Niche markets in the U S outbound and this could be countries debt today, we don't service.

And that could be even in the Caribbean or that we don't service to the level that some really niche provider does service today, and Thats really easy fold and for us because we don't have to think about overlap. We don't have to think about places where we lose wires because we're in the same retailer. So those are really easy to do.

And they typically would be.

Retail oriented they may have a little bit of and online component, but typically retail oriented.

The second place that we might look in the U S.

And would be related sort of businesses that would be adjacent to remittances. This could be things that are like b to b or b to C. Payments. We've had discussions had been a few things on the market. One that's back coming around debt, we were talking to right before the pandemic and it got pulled back and these kinds of businesses might facilitate pain.

<unk> between.

Companies that are paying people on a regular basis on a $2 99, and they may do it on a card basis, whatever so theres a lot and that whole universe of companies related there that will take a look at it and we think the BDC or the <unk> markets are really attractive those companies tend to be a lot more.

Portable and digital's, but more expensive than the retail guys that have a niche market outbound from the U S. So that's the two two of the verticals. The last one might be expanding geographically and we think there could be some opportunities to actually be and other places are originating wires that could be out of Europe that could be honest.

Other areas and the world that there are companies that we could merge or acquire.

Those are very early discussions and very early looks but I think those are the three categories.

Digital acquisition is probably not and there we think we can grow that business more cost effectively and we could acquire something today.

Thank you.

Well.

Yes.

Thank you as a reminder, if you would like to ask a question. Please press star one on your telephone keypad.

Our next questions come from the line of Timothy Chiodo with Credit Suisse. Please proceed with your questions.

Great. Good morning, Thanks for taking the question I wanted to talk about <unk>.

<unk> location runway, so certainly theres, a long runway and some of your core states and of course additional states as well maybe you could just give us an update there in terms of how much remains how youre attacking it and how that could support further share gains ahead.

Yes.

And that up and then I'll ask Randy and no sense, our chief revenue officer, if he wants to add a little bit of color at the end of that.

There is a tremendous opportunity west of the Mississippi.

And the eastern United States I would state and we are the dominant number one player to Latin America, and most likely I cant speak debt back, but that's how we feel there is markets, there, where Mexico, and Guatemala, where we might have 25% to 30% share of states that are like that.

And the west of the Mississippi, we have a really great business. The number one state for us in terms of total wires and California is bigger today than our whole business was 10 years ago, but there is such a such an opportunity and the western states like California, still and Texas, even in states, like Arizona, and Nevada, Utah and Colorado.

Our average level of what we call penetration, which isn't really market share, it's a little different but it's certainly indicative of how well we've conquered the west versus east is probably about a shift as much as we earnings. So we could grow there many times over.

Really even think about and in terms of equaling the same kind of market penetration and the west as we have and the east not at least from the outset, but we think about that business and the west which is a big part of our overall business could easily be more than doubled and the next several years, we think there's a huge opportunity still for us and a lot of those states.

And that's driven by Mexico, Guatemala, El Salvador Honduras.

But some markets out west are quite diverse some markets like Texas and others wires going to Africa. For instance, there is a population of almost every lap and group and the L. A area and San Francisco quite diverse markets. They can offer even opportunities for us to send money to even countries today that we don't serve so we think theres a huge amount of <unk>.

Opportunity, we have about a third to a fourth as many retailers per foreign borns and the west as we do and east. So again, a lot of work to be hitting the right ZIP code with our distribution and to capturing wires and weight from conference competitors and driving that business. Randy do you want to sure yes. Thanks Bob.

No.

Just to add a little bit more color to that we are looking at as we continually do add ZIP codes as Bob said housing foreign born we'd look at it by U S. ZIP code by state by our selling districts. So we know and each set sales district, what they are.

Top the ZIP codes are in terms of under performing ZIP codes are underserved zip codes or Unserved ZIP code. So we'll prioritize those zip codes based on opportunity.

And Bob is exactly right we've done taken.

<unk> taken a very sophisticated look at the state of California, and we know exactly the number of ZIP codes that are Unserved. We've got sales team members pointed to those ZIP codes and we know the ZIP codes that were underserved in and we've got sales team members pointed to those ZIP codes and we've also looked at.

The zip codes by country, we've taken our top nine countries that we serve outbound too and we know by ZIP code, which ZIP codes how's the most Mexican foreign borns, Guatemalan foreign borns et cetera, we know what our level of penetration is and each of those ZIP code, how many zip codes, where unserved and and we are.

<unk> got sales plan, pointing our team members to those zip codes as well so.

We think it's a fairly sophisticated look at growing our business and.

And that's exactly where we're headed for the remainder of this year and just just to add to that.

Just how it kind of ties back to we've talked about principal amounts and if the business continues to stay where it is and.

Part of that when we talk about that he don't look for us to have better EBITDA margin there'll be an investment part of that will be and investment and more people out there and the field, particularly in the Western states to drive that ZIP code penetration that are going to drive wireless not only immediately but going forward. So we will be investing more and more into the retail side is.

Well with investing and our online and new products, but we feel like the retail side is really the cash driver with many many many more years of cash to drive for us and the more that we invest and now we just think that provides us with many more resources to invest into our other lines of business.

Yes.

Great. Thank you plenty of great detail, there really really appreciate you addressing that.

Paul.

Okay.

Thank you our last question for this morning will come from Mike Grondahl with Northland Securities. Please proceed with your questions.

Yeah, Hey, guys, thanks, and congrats on the progress two questions. One you sort of laid out the runway for AG and expansion.

But could you talk a little bit and I know you don't give numbers, but maybe the last six months.

Kind of the the new agents you have signed up just has it been above trend line below trend line and then secondly could you just talk about productivity of the sales force.

Yes, I'll start that off and again odd Randy we'll add a little more detail.

I think that one of the things. We're proud of is even during the pandemic, we were very resourceful and Randy and the sales team, we're able to even add new retail locations, which I don't think hardly any of our competitors were doing not only did we service and I'm talking to you and the worst days when people couldnt be on and the field, we actually added retailers remotely.

And we talk to them over the phone and we ship the PC and we train them without actually physically being and their facility.

That did have a slowing effect on us and until we got into third quarter of last year.

Slow down in terms of the retailers were adding but that also created a big pent up demand and I think our sales force had a lot of stuff to go out and actually execute against and we really have picked up the pace in terms of adding new retailers and third and fourth quarter and into first quarter. So we think that that will continue.

And our average sales rep has been highly productive we can we don't talk about that because in terms of what our expectations are in terms of new retailers generally because.

It's just too too much competitive information out there, but it has picked up we're adding many more retailers and remember as we always talk about debt the big the big influx of transactions from our new retailers happened and year, two and three when we put up a retailer.

On the average they are usually getting to X number of wires and three months, but that number of wires doubles and year, two and then growth Morgan and year, three and Thats part of that whole overall, when we talked about that having that very very high transaction per retailer performance. So not only were adding retailers, but they're highly <unk>.

Reductive as normal and there are going to do if we talked about the correct Zip codes, where we have opportunities which are going to drive transactions.

Got it.

Thanks, Bob Good morning, Mike just a little bit more color on that.

And Bob is right of course, as we went into the pandemic last March we our sales team although active.

Wasn't as active as they would have been had they been out selling in person and the streets and remember we kept them working out of their home offices for a couple of months. So.

As we got back into full swing working in the field Q3, Q4 last year fair to say that.

H and activation levels increased by about 25% over Q1 and Q2 last year.

As we circle around the Q1 this year, we actually activated about 50% more agents.

Quarter this year than the first quarter last year.

One more I think.

Dynamic debt may be helpful. To you is this was Q1 and this year. We were asked fully staffed as we've ever been so more feet on the street.

And activating more agents per sales rep and previously as well so we really like the way that our sales team are activating new agents now where to Bob's point, we're going to have a pretty good grow over the rest of this year.

One other factor we've changed the compensation plan as we typically do each year and this year. There is greater emphasis on new agent productivity will be commissioning, our sales reps a little bit more tied to there.

And there new agents being more productive.

So hopefully that helps.

Yeah. Thanks, guys.

Yes. Thanks.

Thank you there are no further questions at this time I would like to turn the call back over to Bob listen for any closing remarks.

Thank you all for your attention on the call. We appreciate the interest and the company and we look forward to talking to you all very soon and have a great day.

Thank you for your participation. This does conclude today's teleconference. You may disconnect. Your lines at this time have a great day.

[music].

Greetings and welcome to the International Money Express Inc. First quarter 2021 earnings Conference call.

This time, all participants are in a listen only mode.

A question and answer session will follow the formal presentation.

And even once you require operator assistance during the conference. Please press star zero on your telephone keypad.

As a reminder, this conference is being recorded.

And it's now my pleasure to introduce Mike and onetime Vice President of Investor Relations. Thank you you may begin.

Good morning, everyone and welcome to our quarterly earnings call.

This conference call includes forward looking statements, including our 2000 and 'twenty one guidance.

Actual results may differ materially from expectations.

For additional information on International Money Express, Inc, which we refer to as index or the company. Please refer to the company's SEC filings.

And the risk factors described therein.

You should not rely on our forward looking statements as predictions of future events and.

All forward looking statements on this call are based on assumptions and beliefs as of today.

Please refer 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.

And.

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.

And our earnings press release on our quarterly form 10-Q and.

And our annual report on form 10-K, including reconciliation of certain non-GAAP financial measures to the appropriate GAAP measures.

These can be obtained and the investors section on our website at intermix online Dot com.

Presenting on today's call will be our chairman and Chief Executive Officer, and President and Bob Let's see.

And Chief Financial Officer, Andreas that day.

And also on the call today is Joseph Aguilar, Chief operating Officer, and Randy Nelson Chief revenue Officer.

I'll now turn the call over to Bob.

Let me highlight some of them on slide three.

Net income was $9 million at 58% increase compared with the prior year period, adjusted net income was $11 million and increase of 40% over the prior year period, adjusted EBITDA increased 27% to $17 million and revenues grew 22% to $95 million.

And increase of $52 million.

Additionally, intermix is now a change or exceeded its quarterly EBITDA target and 11 out of 11 quarters since becoming a public company.

Driving these outstanding results as our strong operating foundation that has delivered world class customer service for our customers at <unk> and retailers and the company has pursued a unique hybrid focused strategy. We focus on partnering with agents that are found in the very best locations and that share are busy.

And this philosophy placed and the consumer first and as a result, providing the utmost and customer service.

While many competitors view of our industry is being a commodity we believe quite differently. We are differentiated intermix offering by providing fast high quality service world class customer care and extremely reliable delivery and additionally, we pick the very best retailers and the most convenient and accessible locations to best serve our consumers.

Strategy has fueled our growth and transactions and both our core markets of Mexico, Guatemala, Honduras, and El Salvador as well as our emerging markets as you see on the next slide.

And first quarter of 2021, we generated $8 million remittance transactions and increase of 19% over first quarter 2020 transactions and some of our emerging markets such as the Dominican Republic, Ecuador, and Nicaragua and grew much faster than our overall business and told our emerging markets grew transactions by 30.

9% compared to the first quarter of 2020.

This strong growth and remittances and our emerging markets is also evident as seen on the chart, while our growth slowed in Q2 and the height of the pandemic. These markets are not growing as fast as they were pre pandemic and they are growing at more than twice the rate of our overall business. We believe there is significant upside for longer term growth and these corridors.

On slide five our strong multi year growth and transactions has led to a significant increase in market share and.

Spend large amounts of money and energy to entice and convince potential customers to use a service where today and organic market demand does not exist and.

And in some cases these companies offer only one solution to the consumer and other cases, they have abandoned the highly profitable growing retail business to emphasize their online business, regardless, they do so while ignoring or at a minimum under serving the largest part of the remittance market, which is the agent transacted business.

And to process consumer transactions.

At the same time intermix as efficiently investing and growing our consumer base digital app offerings and the next slide we have continued to experience strong growth with our mobile app with transactions, increasing 140% compared with the prior year period.

Additionally, the number of overall wires that were deposited directly into bank accounts increased 47% compared with the prior year period. This now accounts for 20% of all wireless.

Transactions processed through the use of a debit card at retail are still a small percentage of our overall business, but growing at 45% all evidence of the multiple choices that we offer our consumers.

And also proven to provide a high degree of predictability and the business and generate market share increases double digit revenue adjusted EBITDA and net income growth. This.

And this enables us to invest and attractive growth opportunities to provide additional future returns and we remain confident that our philosophy and dedication to profitability and sustainable growth. We will continue to drive a significant competitive advantage and intermix with that let me turn the call over to our CFO and her spending.

Thanks, Bob and good morning, and all the analysts investors and customers that have joined us.

Turning now to slide seven let's walk through a really strong first quarter and more detail as Bob mentioned this was another double digit growth quarter across really every one of our key metrics and the quarter revenues were up 22, 4% over the prior year quarter and and finished at $94 6 million driven by a combination of factors the company was up 14%.

And customers alone. So we continue to confidently take share total remittances were up 19, 3%, which allowed us to capture a significant tailwind from average remittance amounts up right around 10%.

And the quarter the company delivered net income of $9 million and increased to 57, 8% versus the prior year period, which translates to an adjusted net income of $10 6 million, which you can see on page eight and increase of 40% versus the prior year.

The revenue growth I mentioned was a big driver, however, lower depreciation and amortization and interest expense were all big contributors as well.

We will continue to see lower amortization as the intangible assets recorded in 2017, amortize less and the out years of their accelerated schedule.

Some additional spend helped generate adjusted EBITDA of $16 8 million at 27, 4% increase over the prior year quarter adjusted EBITDA margin for the quarter was 17, 8%, a 70 basis point improvement compared with the first quarter of 2020, However, as we indicated on our last call adjusted EBITDA margin.

And is down slightly from recent quarters due to the and investments I mentioned, a moment ago, but also metrics little added pressure from the February weather that impacted remittances from some of our key markets.

On slide nine based.

Based on a strong <unk> and feel great about reaffirming our adjusted EBITDA and net income guidance issued in March and even better about our revenue position, we'll provide another update after <unk>, but for now revenue up between 16, and 18% versus prior year that means $414 million to $421 million <unk>.

Adjusted EBITDA up 11% to 14% versus the prior year, which means $76 million to $79 million adjusted net income between 47% and 49 million, that's up 12% to 15% versus 2020 and.

And GAAP net income between 40% and $42 million, that's up 19% to 24% versus 2020.

Worth a brief mention for those who spend time on our balance sheet. The Wednesday that closed the first quarter for US was a key funding day and the lead us the Easter weekend. This is Holy week, and many of our key markets and as a result, you'll see somewhat more pronounced variances coming from typical cyclicality and the lead up to key holidays.

So to summarize overall performance, we continue to execute on our differentiated strategy to grow we're making the right investments at the right time and the underlying environment for a high quality service that we provided remains very very strong with that let me turn the call back to the operator for questions.

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We ask that you please limit yourself to one question and one follow up question. One moment. Please while we poll for your questions.

Okay.

Our first questions come from the line of David Scharf with JMP Securities. Please proceed with your question.

Thank you good morning, everybody.

First off Bob just a little more.

And maybe granularity or insight into the geographic mix expansion.

I appreciate the.

The transaction growth rate provided by by your markets, but can you just remind us.

Particularly given how quickly your emerging markets had been growing.

What percentage of the revenue mix is coming from the core versus emerging.

Yes, we haven't disclosed the percentage of the core.

Core versus the emerging.

And the emerging is now just continues to grow and in the high <unk>.

It is becoming a significant share of our transactions hundreds of thousands, but we don't disclose the exact makeup percentage versus the core markets.

Okay. Okay.

And I think you kind of partially answered maybe sort of a follow up and the same.

Topic, which is.

Maybe as.

On the outside.

And get the company if there were any particular.

Countries in the emerging markets category, and we should be paying particular attention to in terms of what I wanted to sneak David and our growth is still and will remain.

Very much driven by Mexico, and Guatemala, and they've been really really strong.

Those are the largest markets in Latin America.

Have risen quite a bit over time.

We also think there's a lot of growth opportunities still in El Salvador, Honduras. The reason, we call out debt second group is.

Corridor, Peru, and Nicaragua, and those are all opportunities for us debt can grow into being and not the Mexico, Guatemala side, but those are all countries that can grow into that group to be close to the Honduras and El Salvador size, which we.

Good day to include in our core markets Salvador Honduras.

Got it got it and just one question perhaps.

Digital.

Related but.

And I want to make sure I understand or appreciate.

How do we interpret some of the metrics and specifically.

You had mentioned and it's still a very very small.

A portion of transactions and retailer initiated with a debit card.

Right, which suggest these centers are largely.

Non banked paying with cash and therefore would not be candidates for sending digitally.

And the receiver which.

Clearly understand that but on the receive side.

Is there any significance to the metric of 20% being deposited and.

I think theres, a few things we'd like to signal by that by those facts I mean, one is that we.

And we talked about debt, we believe that many of the competitors out there, particularly those that are better that are pure play digital are missing a huge part of the market and we're happy they're doing that because we are spending the time picking up all of those transactions.

And continuing to gobble up market share. So that's really working for us and we're happy about that we also believe that some of our biggest competitors. The leaders people think of as the leaders and the market public companies have abandoned their retail outlets and most of their focus is that online and we think that that and sort of lopsided today, particularly related to Latin.

America and so much of the business is driven through retail and what we're trying to do to demonstrate through all of that is we provide the consumer the options you can go online, but we're not going to we're not going to push the consumer online and third comfortable and happy retail you can go to retail and and many of our retailers you can use cash flow transaction, where you can actually.

And so all of that is building this letting the consumer do what they want to do and giving them choices.

And youre going to see.

Our digital business be a small part of our business and channel, it's not time for to be when the market demands are there when the market stops having that be and expensive proposition more expensive and it is to bring in and wire and then we'll drive more towards that business will continue to grow it but we'll grow it in the context that.

And in January we.

Drew for instance, our Mexico business grew at 40% principal amount to Mexico.

Mostly given that we're at retail so that to US is there's a huge amount of headroom still at the retail level and will continue to be aggressive there while growing our online while growing these other options card and retail while growing bank deposits. All of those are just other options for the consumer.

Got it thank you very much.

Thank you. Our next question is coming from the line of Mark Palmer with <unk>. Please proceed with your question.

Thank you.

Yes, good morning.

The principal amounts during the quarter were.

White large once again.

And just wanted to get your perspective on what.

What is accounting for these sizable principal amounts, which would seem to occur early in the pandemic and in terms of.

Their emergence and.

And what is your thinking about the persistence of the larger principal amounts is this something that's part of a new normal.

Or is this something that's likely to moderate going forward.

Well, we see it having been pretty consistent now well into April we're just talking here before the call just how how much larger principal amounts have been through even the current time.

We think it was originally sort of patents and two.

Origination when the people here and particularly the Mexican consumers were still working because they are and a lot of the businesses that are really critical life and farming and agriculture food processing.

Structured and they were still working and the needs back home and larger so they were sending larger amounts of backhaul and average principal amounts.

And we feel like that.

It's continued though and it's hard to really put an exact finger on it I mean part of it's been and we think that one of the largest components of the sending community are those people that are working and construction and housing starts have been really good and theres been a stimulus money, which we don't not sure much of a trickles or goes directly rather to our consumers.

But may trickle to that through people and putting on.

And the landscaping and the yard and building a deck on their back in their house or something like that but we don't have an exact understanding of that and thats part of the reason Mark where you see that even though we came in really really strong and first quarter that we didn't change our guidance because we're kind of and our numbers is the assumption that they become more normal.

We have seen in the past, though this sort of plateauing of average principal amount, where theres been an instance, maybe a change and presidential.

Election, or something happened and Mexico, where there is a spike and principal amount and they don't continue to go up but they relatively plateau becomes something new or the new normal number and we can't predict whether that's going to be the case or not and that's why we've been really cautious as we look at the final three quarters of the year before we really raised.

Our guidance, we're kind of baking and principal amounts coming back to normal if they don't and we're going to have a very very strong last three quarters of the year.

Thank you and.

Looking at your cash flow.

We are modeling net free cash flow is going to be continued to be very strong.

For quite some time.

If you can talk a bit about capital allocation and whats your thoughts are right now I know and in past calls you've discussed.

The very lofty multiples that are being demanded.

Bye.

<unk> digital targets.

Hmm.

What is your thinking about other.

Avenues for M&A.

Picking up chains of.

Stores things of that nature, and other means through which you would allocate some of that cash.

And thank you.

Yeah I'll take the first part this is zane or spending on capital allocation.

Just from our overall cash flow I think are our preference is certainly something and the M&A space.

To our case, but I think we're not going to we're approaching it from a position of strength, we're not going to make the first mistaken and pay too much and its very easy to pay too much and the current environment I said that that would probably be our first or definitely be our first route. If we found the right property and I'll let.

Bob talked about property is of interest to us in a moment I think after that.

We could entertain a moderate sized buyback could at some point in time, if the M&A front does not pan out for us, but I think those are the two of the top of the list, but again those are things debt.

And as the situation and the environment evolves.

It could change in terms of priority, but let me, let Bob talk a little bit more about M&A properties that we might consider.

Yes, so thanks. Thanks.

And Mark I think there's three categories.

Things, we might consider and really a digital acquisition, probably not one of them non at least the way we think about digital remittances.

Really arent most of them their valuations and most are private their valuations would be bigger than our market cap and probably wouldn't make the best marriages and some of the ones that are out there sort of floundering that are relatively small they're businesses actually as much as we say ours is really small their business might be small and ours.

And it is not profitable and we would just be simply paying a lot of money for the privilege of investing and their business and growing it the same way we can so I think putting digital aside.

Three areas that we might consider acquisitions, and where I think we have discussions going on really early and preliminarily and all of these areas one would be sort of niche markets in the U S. Outbound and this could be countries debt today, we don't have service.

That could be even in the Caribbean or that we don't service to the level that some really niche provider does service today, and Thats really easy fold and for us because we don't have to think about overlap. We don't have to think about places where we lose wires because we're in the same retailer. So those are really easy to do.

And they typically would be.

Retail oriented they may have a little bit of and online component, but typically retail oriented.

And the second place that we might look in the U S.

Would be related sort of businesses that would be adjacent to remittances. This could be things that are like b to b or b to C. Payments. We've had discussions had been a few things on the market. One that's back coming around that we were talking to right before the pandemic and it got pulled back and these kinds of businesses might facilitate pay.

<unk> between.

Companies that are paying people on a regular basis on a $2 99, and they may do it on a card basis, whatever so theres a lot and that whole universe of companies related there that will take a look at it and we think the BDC or the b to B markets are really attractive those companies tend to be a lot more.

Portable and digital but more expensive than the retail guys that have a niche market outbound from the U S. So that's the two two of the verticals. The last one might be expanding geographically and we think there could be some opportunities to actually be and other places are originating wires that could be out of Europe that could be added.

Other areas and the world that there are companies that we could merge or acquire and those are very early discussions and very early looks but I think those are the three categories.

Digital acquisition is probably not and there we think we can grow that business more cost effectively than we could acquire something today.

Thank you.

Well.

Thank you as a reminder, if you would like to ask a question. Please press star one on your telephone keypad.

Our next questions come from the line of Timothy Chiodo with Credit Suisse. Please proceed with your questions.

Great. Good morning, Thanks for taking the question I wanted to talk about agent.

<unk> and runway so certainly there's a long runway and some of your core states and of course additional states as well maybe you could just give us an update there in terms of how much remains how youre attacking it and how that could support further share gains ahead.

Yes.

And that up and then I'll ask Randy and no sense, our chief revenue therapy wants to add a little bit of color at the end of that.

There is a tremendous opportunity west of Mississippi.

And the eastern United States I would say that we are the dominant number one player to Latin America, and most likely I can't speak debt pack, but that's how we feel there is markets, there, where Mexico, and Guatemala, where we might have 25% to 30% share of states that are like that.

And the west of the Mississippi, we have a really great business. The number one state for us in terms of total wires, California, its bigger today than our whole business was 10 years ago, but there is such a such an opportunity and the western states like California, still and Texas, even if states like Arizona, and Nevada, and Utah, Colorado.

Our average level and what we call penetration, which isn't really market share, it's a little different but it's certainly indicative of how well we've conquered the west versus east is probably about a fifth of as much as we are and the east. So we could grow there many times over.

Don't really even think about and in terms of equaling the same kind of market penetration and the west as we have and the east not at least from the outset, when we think about that business and the west which is a big part of our overall business could easily be more than doubled and the next several years, we think there's a huge opportunity still for us and a lot of those states.

And that's driven by Mexico, Guatemala, El Salvador Honduras.

But some markets on western quite diverse some markets like Texas and others wires going to Africa. For instance, there is a population of almost every lap and group and the la area and San Francisco quite diverse markets. They can offer even opportunities for us to send money to even countries today that we don't serve so we think theres a huge amount of <unk>.

Opportunity, we have about a third to a fourth as many retailers per foreign borns and the west as we do and niche. So again a lot of work to be hitting the right Zip code with our distribution and to capturing wires and away from competitors and driving that business. Randy do you want to sure yes. Thanks Bob.

No.

Just to add a little bit more color to that we are looking at as we continually do add ZIP codes as Bob said the housing foreign borns wed look at it by U S. ZIP code by state by our selling districts. So we know and each set sales district, what they are.

Our top the ZIP codes are in terms of under performing ZIP codes are underserved zip codes or Unserved ZIP code. So we'll prioritize those zip codes based on opportunity.

And Bob is exactly right we've done taken.

<unk> taken a very sophisticated look at the state of California, and we know exactly the number of ZIP codes that are Unserved. We've got sales team members pointed to those ZIP code and we know the ZIP codes that were underserved in and we've got sales team members pointed to those ZIP codes and we've also looked at.

The zip codes by country, we've taken our top nine countries that we serve outbound too and we know by ZIP code, which ZIP code how the most Mexican foreign borns, Guatemalan foreign borns et cetera, we know what our level of penetration is and each of those ZIP code, how many zip codes, where unserved and and we are.

<unk> got sales plan, pointing our team members to those zip codes as well so.

We think it's a fairly sophisticated look at growing our business and.

And that's exactly where we're headed for the remainder of this year and just just to add to that.

Just how it kind of ties back to what we've talked about principal amounts and if the business continues to stay where it is and.

Part of that when we talk about that he don't look for us to have better EBITDA margin there'll be an investment part of that will be and investment and more people out there and the field, particularly in the western states to drive that ZIP code penetration and that are going to drive wireless not only immediately but going forward. So we will be investing more and more into the retail side is.

Well and investing in our online and new products, but we feel like the retail side is really the cash driver with many many many more years of cash to dry for us and the more that we invest and now we just think that provides us with many more resources to invest into our other lines of business.

Yes.

Great. Thank you plenty of great detail, there really really appreciate you addressing that.

Paul.

Okay.

Thank you our last question for this morning will come from Mike Grondahl with Northland Securities. Please proceed with your questions.

Yeah, Hey, guys, thanks, and congrats on the progress two questions. One you sort of laid out the runway for age and expansion.

But could you talk a little bit and I know you don't give numbers, but maybe the last six months.

Kind of the the new agents you have signed up just has it been above trend line below trend line and then secondly could you just talk about productivity and the sales force.

Yes, I'll start that off and again odd Randy we'll add a little more detail.

I think that one of the things. We're proud of is even during the pandemic, we were very resourceful and Randy and his sales team, we're able to even add new retail locations, which I don't think hardly any of our competitors were doing not only did we service and I'm talking to you and the worst days when people couldnt be on and the field, we actually added retailers remotely.

We talk to them over the phone and we ship the PC and we train them without actually physically being and their facility, but that did have a slowing effect on us and until we got into third quarter of last year.

And our average sales rep has been highly productive we can we don't talk about that because in terms of what our expectations are in terms of new retailers and.

Generally because it's.

It's just too too much competitive information out there, but it has picked up we're adding many more retailers and remember as we always talk about debt the big the big influx of transactions from our new retailers and happened in year, two and three when we put up a retailer.

On the average they are usually getting to X number of wires and three months, but that number of wireless doubles and year, two and then growth Morgan and year, three and Thats part of that whole overall, where we talked about that having that very very high transaction per retailer performance. So not only we are adding retailers put their highly.

Productive as normal and there are going to know if we talked about the correct Zip codes, where we have opportunities which are going to drive transactions.

Thanks, Bob Good morning, Mike just a little bit more color on that.

Bob is right of course, as we went into the pandemic last March we our sales team although active.

And as active as they would have been had they been out selling in person and the streets and remember we kept them working out of their home offices for a couple of months. So.

As we got back into full swing working in the field Q3, Q4 last year fair to say that.

And activation levels increased by about 25% over Q1 and Q2 last year.

As we circle around the Q1 this year, we actually activated about 50% more agents.

Quarter this year than the first quarter last year.

And one more I think.

Dynamic that may be helpful. To you is this was Q1 and this year. We were asked fully staffed as we've ever been so more feet on the street and.

Their new agents being more productive.

So hopefully that helps.

Yes, thanks, guys.

Thanks.

Thank you there are no further questions at this time I would like to turn the call back over to Bob listen for any closing remarks.

Thank you all for your attention on the call. We appreciate the interest and the company and we look forward to talking to you all very soon and have great day.

Thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time.

Great day.

Q1 2021 International Money Express Inc Earnings Call

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