International Money Express Inc. Q1 2023 Earnings Call
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Good morning, and welcome to International Money Express incorporated first quarter 2023 earnings Conference call.
During the presentation, all participants will be in a listen only mode.
Afterwards, we will conduct a question and answer session at that time. If you have a question. Please press the one followed by the four on your telephone if at any time during the conference you need to reach an operator, Please press star zero.
A reminder, today's conference is being recorded.
Now I'd like to turn the conference over to Mike Valentine VP of Investor Relations. Please go ahead.
I would like to remind everyone that today's call includes forward looking statements, including our second quarter and full year 2023 guidance in.
And actual results may differ materially from expectation.
For additional information on the international money Express, which we referred to as <unk> or the company.
Please see our SEC filings, including the risk factors described therein.
All forward looking statements on this call are based on assumptions and beliefs as of today.
You should not rely on our forward looking statements as predictions of future events.
Please refer to slide two of our presentation for a description of certain forward looking statements.
The company undertakes no obligation to update such information, except as required by applicable law.
On this conference call, we discuss certain non-GAAP financial measures.
Is there anything on today's call is our chairman Chief Executive Officer, and President Bob Let's see.
Chief Financial Officer Andreas spending.
Good morning, everyone and thank you for joining us as always we appreciate your interest in inter mix we.
We had another strong quarter building upon the company's sustained track record of healthy growth on slide three intermix grew revenue and EBITDA and double digits once again at.
Additionally, the key fundamentals that drive our superior operating performance quarter after quarter are trending in the right direction.
Without question, our core business is strong and we are on track to meet our full year expectations.
Because of our unique value added model and increasing number of consumers from Latin American community turned to intermix to send money home.
Powered by our state of the art proprietary technology, we deliver value added service to our consumers and thousands of highly productive retail agents, who partner with us nationwide.
Our customer focused omnichannel business is powered by superior technology that is difficult to replicate.
The rock solid foundation. The company has been built upon drives our sustained growth and creates uncommon value for our shareholders.
With all of the elements of both the National acquisition now closed the integration of <unk> U S business is well underway and we are well into the process of assessing the significant opportunity that exists for our business in Europe .
While we acquired the national primarily for its geographical complement and superior brand to the Dominican Republic, the nationality European I transfer business presents an attractive growth opportunity for intermix.
The high transfer Division is currently profitable and we see an opportunity to grow our revenues and income many times over.
The transfer business represents significant digital opportunity with minimal risk of channel conflict.
Consumer base of centers is more likely to be banked in Europe .
This will present, the perfect landscape for us to thoughtfully execute our omnichannel strategy across Europe , we can selectively focus on retail and our digital when and where it makes the most sense and advantage that few retail providers and no digital players have today.
Currently I transfer operates in Spain, Italy, and one company owned location in Germany, representing a tremendous outbound remittance opportunity.
As we have stated previously there are a number of components of the one national investment that will become much more efficient over time driving higher margins simultaneously to seizing the opportunity in Europe , which is underway. We have made great progress ramping up the full scale integration of right sizing of what nationality U S based business.
The upside potential for the national in the U S is more about right sizing the retail network and maximizing efficiencies and margins growth opportunities will exist, but they will be driven by careful profitable growth.
By that I mean, our focus will be enhancing margins by capturing synergies and eliminating waste wherever possible.
We'll nationals U S footprint actively has been reduced by some 500 unprofitable retail agents under our management.
With some additional reductions plan.
The national is proving to be a great asset for <unk> and we're just getting started.
We estimate our 2022 market share in these five key Latin American receiving countries, which just over 20% when adding the Nash now.
So those are those are those are those although the balance coming from new agents when.
We're executing a differentiated omnichannel business strategy were expanding our ecosystem productive unprofitable retail agents with a laser focus on efficiency engaging and only the right partnerships and the ratio.
Spine is primarily due to lower average transaction amount and the Dominican Republic, which are now a larger share of our business since the acquisition of <unk> now our core remittance trend continues to be down only slightly about <unk>, 8% for comparison purposes. The core <unk> averaged <unk> $433 during the quarter.
Yes, there will be some we already go to deliver from Europe to a different set of countries than we do necessarily out of the U S.
Some countries will still be in.
Partners one of the biggest quarters would be Turkey. So we will work to get a better relationship to send money back to Turkey, a lot of money going to sub Saharan Africa, some money going over to Asia money going over to eastern Europe , and we have some solid relationships in that area today right out of the chute, but one of the things.
We'll be doing is building better connectivity.
With.
With payers in those countries, it's very easy to get bank connectivity there as you know.
Big networks like visa and Mastercard that can provide that for everybody. The key will be to layer on top of that payers that will differentiate us as a differentiated us in the U S and payers that can do over the counter cash and you do various ways of disbursing cash so that again, we continue with that Omnichannel.
Model that we brought to bear in the U S and we carry that over to Europe .
That's great color. Thank you for that and just as a quick follow up question I wanted to ask on margins.
We're already running ahead of the medium term margin goal that you set.
Last year. So just wanted to get any policy is there any reason to expect a step back in margins or.
Have the dynamics changed so the medium term target might be.
Vendor too conservative.
I think youre, referring back to the Investor day in 2022, I think we have an opportunity to do a bit better than what the those margins would've guided too.
I think as we increase the amount of business that we're doing in digital you'll see a little bit of downward pressure, obviously from bringing on my last thing now which is a lower margin business by nature. They have gone down a bit but I think we have the opportunity to do better than that.
Great I'll get back in queue. Thank you so much.
Thank you.
Thank you very much look at her next question on the line from the line of David Scharf with JMP Securities go right ahead.
Hey, good morning, Thanks for taking my question.
Hey, Bob.
<unk>.
Yes.
Les a question.
Kind of a quarter.
Wanted to get maybe your updated thoughts.
Yes.
The slides regarding market share.
And how we ought to think about.
Particularly for those top five Latin American receive countries.
How we ought to think about ultimately the Tam the opportunity for you.
I mean as you think about.
This can get.
Do you look at it from a bottoms up perspective, meaning here's all the underserved ZIP codes in the U S that are setting to these countries that were not in and we can be in.
Or do you look at it more top down in the sense that.
Here is based on your experience your sense for kind of what a natural ceiling is for market share.
Because the 21% it's already pretty formidable.
Which way should investors think about the business as they try to assess how big hitter mixed use to those five countries could get.
Well it would be bottom up.
To me a top down is a bit of a fantasy it's a bit of an arbitrary number and so we look at bottom up.
And I think that my.
Support for that would be that a consumer that's sitting in Salinas, California doesn't care that we have a huge share in Atlanta, Georgia, we still have the same opportunity to gain share and get more wires from that consumer there and so we look at what our performance looks like ZIP code by Zip code.
Frankly, some of these zip codes have more challenges than others and we've talked about that for years. We're.
We're not as early as an entrant there is some irrational exuberance of competitors that.
Over discounts to gain what they think is share on unprofitable wires, but at the same time that we look at that we see a huge opportunity.
When we talk about our growth and the growth opportunity, we're not talking about obtaining in the western states are in California anything close to the kind of margins, we'd never projected that to the market that we obtain in certain states out east or even the same market share that we have we do recognize there is a huge them.
Out of headroom and a huge amount of open field for us to compete in and that is that.
That I think it's still drive market share now theres two ways to think about that one is Mexico, and Guatemala, where we are clearly a market leader in Guatemala. We're the number one brand we believe in the world sending money to Guatemala of any kind digital or retail Mexico were amongst the probably the two largest brands sending money.
<unk> two.
But theres also brands is also countries that are coming on with tremendous growth that have a huge upward opportunity. We've seen a lot of growth in countries like Nicaragua in Ecuador, and Colombia. These are don't have the same margins as Mexico, but theres a huge amount of growth. There. So we have those core countries that still have a lot of open <unk>.
Territory a lot of.
ZIP codes that are either not fully built out or not built out at all and then you have these other countries in Latin America that we purposefully built that way because we started with the foundation of Mexico, and Guatemala for a number of reasons largest markets. Most profit per transaction and this is just all part of that plan. So we believe there's still an opportunity.
To move our overall share to those big five and then the next group, which includes countries like Nicaragua, Ecuador, Colombia, the eight which is like 90 some percent of the market. We think there is a tremendous opportunity still to gain share in those markets and by the way those markets are also growing so there's going to be.
Growth by holding service and then Theres a growth that we think will grow faster than the market.
Got it understood. Thank you for the color.
A couple of just quick follow ups for Rogers.
Yes.
You can put on the tax rate.
For the quarter of the year, yes.
No that was it.
Good one to note and talk about with the acquisition of let US you know.
That is a lot of revenue driven at the New York, New Jersey area. So higher state tax jurisdictions, just it's just proportionment, it's attracting more.
Our bottom line and an overall tax rate. So it's really additional let asking now and that the spillover from that concentration of business.
Okay should we think about the full year effective rate that is it.
Yes, I think closer to 29 versus the 27 that you would've seen in the past is probably better way to look at it.
Got it got it and.
<unk> on the cash side, obviously, ending on a Friday I think.
I think as much as like happier.
Cash can get eaten up by pre funding for the weekend.
But more broadly can you update us on how we ought to think about.
Sort of sort of a conversion rate of EBITDA to free cash flow what youre running at.
As we think about how much is ultimately lift or.
About 60% about 60.
About 60% to 65%.
660, <unk> got it and then lastly, somewhat related as we think about buybacks.
Can you also remind me are there any covenant restrictions I mean, I know some companies might have.
Aggressive authorization, but they're limited by loan covenants that for example, repurchasing only 50% of net income on a trailing basis is there anything restricting the level of buybacks areas yes.
Yes.
We're unrestricted up two two and a quarter.
Two and a quarter times leverage and then beyond that we do get a percentage allocation of trailing 12 every year, even if we're beyond that two and a quarter. So if you look we would it would be detailed in our past releases.
Got it got it perfect alright.
Our covenant calculation isn't the straight up where you and on the quarter, because we have that revolver balance right. So youre, taking about a 14 day average which.
Suggest that on average our leverage is pretty low from a covenant perspective.
Alright, thanks very much.
Thank you.
Next question on the line.
Mike Grondahl with Northland Securities Correct ahead.
Hey, guys good morning.
Could you guys break out revenue from law national Q1and what.
What's embedded in Q2 Q2, so we can understand the core revenue growth rate.
Yes, no problem happy to do that because this is Andrew <unk>.
One Q on Este now revenue was $17 5 million.
And then for the year and then Thats all U S right and then for the year when NASA now U S is probably going to be around $75 million and then three quarters of I transfer, there's going to be around 12% to $13 million.
Got it got it.
That's helpful. We can back into that one Q core growth.
He wants to tour growth got 11, and a half in terms of transaction revenue.
About 11 five okay.
11 points.
So 11, 5% so spot on and the core business.
Got it.
And then.
For Bob I think.
You talked about how.
Hiring 12 regional directors 12 salespeople.
One.
How recently did you hire those.
And.
What triggered that.
We've had this.
Three large outsized opportunity out west so.
So I'm kind of curious what triggered the hiring of those 12, especially if it was.
No really reason.
And then I hate to pile on one more but.
Obviously, that's going to.
The goal is to drive agent growth there.
Can you talk about what a new agent growth has been and sort of what your expectations are for it I know you don't give us an exact number but just how we should think about the growth rate for Asia.
Yes.
I'd like to start by saying, we're never trying to deliver agent growth returned to deliver transaction and revenue growth. So it's really easy to deliver agents.
Could add we could double our agent network Tomorrow, we probably have the smallest network of any company doing the kind of volume business. We have in the market. Today. So this is about driving revenue agents or a vehicle and there are channel partner, and we really respect and value them, but it is not about adding it's about adding quality agents. So I wanted to just.
Reemphasize share according to how we target and the right places with pre qualifying and agent that we know or believe we'll deliver a certain amount of transactions not just putting up agents.
The second part is it's not necessarily just we've always had in our call <unk> regional sales executives and there are people that float. So what that means is they might not be an exact just district it might be in southern Cal and there might be for district in southern calendar selling two or three of them are they might be selling them.
And Randy will deploy them as necessary based on the open opportunities.
Those open opportunities have been there that's correct. There is no doubt about it and we've been working against those but this year, we felt that we needed to put a little bit more generation in new retailers that would be driving wires that would start to build the pipeline a little bit faster, particularly in the western states.
And we're able to put them in the plan and still be able to be in line with consensus. So the opportunity was to do invest a little bit more.
In those areas. We also think that the marketplace has gotten a little tougher in the west there is <unk>.
<unk> as we've talked about relative to particularly some of the the.
Private companies, but at least one or two of the of the public companies that have done.
And discounting in a way that we need to be more assertive to continue to grow our market share in those states. So all of those things being considered that thats, where the investment comes from.
Maybe just a follow up.
The 12.
All added in 23 like really recently.
And are most of them out west or can you say sort of what percentage of them.
Werent all added in 23 number one some of them are with us in the fourth quarter and they're not all the way out west there is disproportionate share. If you think about west, Texas and West Theres, a bigger share, but we have some in some markets in the east as well, where we have opportunities to grow our market.
Got it got it well good to hear about that growth and thanks guys.
Okay. Thank you.
Thank you very much.
What's kind of on the phone today, if you'd like to ask any questions or have any comments you may do so now passing the one four on your telephone keypad.
And we'll get to our next question on the line is from Chris <unk> with Credit Suisse go right ahead.
Alright, Thanks for taking our question. So I had one on the value added services that you highlighted at your Investor day.
Include co branded processing.
<unk> card and additional incremental products, including in the international market. So maybe can you give us an update on the size of their value added services in terms of what portion of contribution they have on your overall revenue and.
What's the growth rate there and also.
International acquisition, what are some of the opportunities on the value added service that youre seeing.
Okay well.
Wouldn't consider them value added we consider them products onto their own when we talk about value add we talk about all the ingredients of our core product, but if we talk about the GTR card or we talk about our payroll card those our fledgling products through the early stages, we think that over the course of the next several years.
Can be significant contributors in revenue, but even more so in terms of EBITDA. They are really high margin products. We think we're well positioned because no. One is really delivering a card to the Latin American community the way that.
Some folks have done through.
The Wal Marts, and the with the little little hooks hooks and stuff like that no one's really done that in our community of consumers. So we think there is a huge opportunity there, but it's really early on and youre not going to see a significant impact.
From either card, that's our payroll card or GTR card in terms of our revenue or EBITDA growth.
A couple of years, it's going to be a non material, but it will grow we're very satisfied with how we've been able to grow the payroll card, but at this point, it's a small business.
Alright, I appreciate all the color, Bob and just to follow up on the quarter.
Unique customers at the end of the quarter, just a very slight decline from three 7% to <unk> one.
Understand there might be some right sizing with.
Hi, all acquisition or maybe some seasonal factors maybe unpack.
Okay can you maybe unpack the cost of the slight tick by and also I understand that youre more focused on the transaction revenue growth rate you delivered pretty robust growth in the first quarter. So.
Just trying to understand so that we can talk about them I just want to make sure you're referring to the decline is that a year over year is that fourth quarter to first quarter youre referring to.
Fourth quarter fourth quarter to first quarter from $3 seven yes.
The cost side.
Caution to all the analysts like a lot of times I can do it again that sequential quarters do not work in our industry.
The weakest month of the year as January the second weakest month of February .
Strongest months of the year two of those are in fourth quarter October and December so by design, you're going to have a lot more new customers.
I'm pleased that we can be that close really frankly to be honest. It shows that our business is doing better in first quarter than in the fourth quarter with the holding the line that close with that less of a business relative to how things seasonally are slower in January and February .
Yes.
Yes.
Seasonality.
In the in the first quarter upon it too and that was in the first of all kind of one its flattish thought I just wanted to make sure that's more seasonal and Thats what youre asking my question. Thank you.
Okay great.
Great. Thank you.
Thank you very much I will now proceed with our final question for today is from the line of Alex Mark Graf with Keybanc capital markets go right ahead.
Hey, Thanks for taking my question.
A follow up on the sales side.
Talent.
Hires that you outlined how you are thinking about it.
Eric.
Is there more opportunity or desire.
That's continued to add at that stage just any comments there.
Right now we are.
We want to make sure that we maximize the efforts now will have.
A significant upgrade in the number of people out in the marketplace and the key will be to make sure that we're efficient in driving.
Increased transactions of gross margins from each of those People's book of business.
We could add more later, but there is not a plan at this point, we will first make sure that these additional head counts are driving and basically getting to a point, where they are paying to put themselves within the time period that we expect that to happen, which is kind of within six seven months, where they are.
They are bringing in enough business that they have exceeded their cost and then theyre starting to be contributors.
Very clear and then maybe Bob just for you.
Would love to just kind of revisit your perception of the competitive environment in some of the various end markets.
Europe .
Maybe kind of I don't know if you can.
Provided similar analysis.
A few questions to go around.
Yeah that'd be helpful. Though.
Yes.
So the question is.
Assessment of the competition U S to Latin America.
No sorry, just around the various end markets that you noted across Europe .
That.
You're currently in in kind of a little bit.
They get a lot of capital then I don't I don't know that we have all the data I think some of the same players are there.
Some of the public three public companies that you know over there. There's another strong competitor that has some decent size by the name of small world.
Equally I would say from my early acquaintance with it its a market thats not.
Unlike the U S and its fragmentation of some smaller players regional guys.
Think of the countries, they're almost like states and regions here in the U S. Some people are in Italy. Some people are in Spain.
No.
There will be an there'll be the three the three public companies will be there, obviously that youre familiar with but.
The game will be a little bit different but the process that we go under which is really to how big is the market who owns it how do we get and when do we get if we get it.
I think different than almost any company in the industry that we don't aimlessly go out after opportunities just because there'll be just because they are bit just can we get that business. What do we get if we get it into a return on investment and we will go through analyzing the market and finding the key opportunities we have in the U S that are the ones that can be.
Drive the business forward the fastest.
We.
It's really easy to go add and us to expand into.
30, or 40 or at least 10 countries in Europe quickly, but the business will be driven by Spain, Italy, France, Germany.
Maybe another one or two countries and so our focus will be similar that it has been in the U S from the U S. We focus primarily on Mexico, and Guatemala, we drove tremendous volumes of high market share and high profitability and that foundation to build from there. So.
For us.
I don't want it sound like we're not concerned about the competition, but it's about execution market analysis and awareness of the opportunities and return on investment the same basic core competencies that we brought to the business in the U S played out in a little different marketplace.
And so that's the way we'll approach it.
Awesome. Thank you.
Thank you very much.
Mr. Leasing we have no further questions on the line I'll now turn the call back to you for any closing remarks.
Thank you all for joining US we appreciate your time and look forward to talking to you. All soon have a great day.
Thank you and that does conclude the conference call for today. We thank you for your participation. Please disconnect your lines have a good day everyone.
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