Q3 2024 International Money Express Inc Earnings Call
Good day, and thank you for standing by and welcome to the International Money Express third quarter earnings Conference call.
This time, all participants are in a listen only mode.
The speaker's presentation there'll be a question and answer session.
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Speaker Change: Please be advised that today's conference call is being recorded.
Speaker Change: I would now like to turn the conference over to.
Alex: Too Alex.
Alex: Please go ahead.
Alex: Good morning, and welcome to the Intermix third quarter 2024 earnings call I would like to remind everyone that today's call includes forward looking statements and actual results may differ materially from expectation.
For additional information on international money Express.
Alex: Which we refer to as intermix, where the company. Please see our SEC filings, including the risk factors described therein.
Alex: All forward looking statements on this call are based on assumptions and beliefs as of today.
Alex: You should not rely on our forward looking statements as predictions of future events. Please.
Alex: Please refer to slide two of our presentation for a description of certain forward looking statements.
Alex: The company undertakes no obligation to update such information, except as required by applicable law on this conference call. We will discuss certain non-GAAP financial measures information required by regulation G. Under the Securities and Exchange Act for such non-GAAP financial measures is included in the presentation.
Alex: Our earnings press release, and our annual report on Form 10-K, and quarterly report on Form 10-Q, including reconciliation of certain non-GAAP financial measures to the appropriate GAAP measures.
Alex: It can be obtained in the investors section of our website at intermix online Dot com presenting on today's call is our chairman and Chief Executive Officer, and President and Chief financial.
Natural officer, Andrew spending as well as other members of the senior leadership team.
Speaker Change: Now I'll turn the call over to Bob.
Bob: Good morning, everyone. Thanks for joining us I'll get straight to the point.
Bob: This quarter is a pivotal one for international money Express.
Bob: Changed strong results that underscore our position as a leader in the remittance marketplace.
Bob: Additionally, we are making significant strides in executing our strategy shift to fully realize the market opportunity relative to our digital channels offering and ultimately, creating greater balance and sustainability.
Bob: <unk> business model.
Bob: <unk> to deliver exceptional performance across all metrics, our GAAP EPS for Q3, and a new high of 53.
Bob: Up 29, 3% year over year, and our adjusted EBITDA and an all time high of $33 9 million growing 7% year over year.
Bob: This quarter's results demonstrate our ability to perform through both the retail and digital channels underscoring our role as a multichannel company espousing an omnichannel strategy designed to meet customers wherever whenever and however, they choose to send money.
Bob: We have expanded our send capability to more than 90 destinations, including 14 at the top 15 corridor worldwide.
Bob: This quarter was not only about short term results. It was about building four and securing the future of intermix.
Today, we stand as a profitable highly digital ready company with a powerful and extremely profitable retail network backing us.
Bob: As our digital channels margins have surged pass those retail the proposition is now many times more economically promise in just a few years ago.
Bob: Additionally, the remittance market is becoming increasingly digital and we are working to balance our company's portfolio accordingly.
Bob: As a result will be in the best position to maximize our market share and profitability in a market that today is estimated to be about 30% digital to Latin America.
Bob: We hold an important place in the lives of over $4 million Latin American consumers, who use intermix each year. These consumers trust intermix to send their hard earned money back home to loved ones equipped.
Bob: Equipped with highly profitable proposition in both segments of the market. The timing is now a deal to execute a more substantial but highly efficient investment in our digital channels and extended new business lines that can further benefit our centers in the U S and a similar number of receivers in Latin America.
Bob: The company's board of directors and its management currently believes that our current market valuation does not fully capture the companys performance.
Bob: <unk> positive cash flow intrinsic value or growth potential.
Bob: We are committed to acting in the best interest of our shareholders and to that end, we are initiating a process to assess strategic initiatives, which could include among others a potential sale in a private transaction.
Bob: The company has retained FTP securities known as Ft partners.
Bob: Financial adviser we.
Bob: We believe this move will create flexibility to optimize our growth and better fulfill our potential as a industry leading fintech.
Bob: We feel the optimal time is now to unlock the company's opportunity with regard to its digital channels offerings.
Andras Bende, CEO Alphabet and Google
Speaker Change: Combined with the highest standard of superior customer care and our strong reputation in Latin American corridor, Intermex is an ideal position to compete and to win.
Speaker Change: From a financial perspective, we have successfully improved our digital channel's unit economics, and today, a digital-initiated transaction delivers a superior gross margin, on average, than a retail transaction.
Speaker Change: Digital channels have never looked more promising for Intermex. All that remains for us is to invest in the customer acquisition strategy that will build our business.
Speaker Change: We will bring the same efficiencies to the digital-based business that have made us so successful in our retail portfolio, reducing the digital consumer acquisition cost even further.
Speaker Change: In support of delivering against that full opportunity, our approach is to ensure we unlock the full potential of the business and deliver maximum value to shareholders and stakeholders alike. We believe this is the right time to become much more active and aggressive relative to our digital channels and new business lines.
Speaker Change: And as stated earlier, the board of directors and the management team jointly feel the opportunity will best be assessed through re-evaluating the strategic options through the initiation of a formal process.
Speaker Change: During this quarter, we encountered some headwinds in the form of slower market growth and economic shifts, which continue to put pressure on retail.
Speaker Change: Yet, we are in an excellent position to navigate this transition effectively. Our adaptability remains a hallmark of our operations, and we continue to pivot smartly to respond to those dynamics.
Speaker Change: We believe that we will continue to grow our retail business faster than the market and gain share at retail. I want to reinforce that our retail business remains highly profitable and produces tremendous free cash flow.
Speaker Change: And importantly, when it comes to certain markets such as Mexico and Guatemala, the majority of remittances still originate from retail market-wide.
Our digital channels have become the real success story.
Speaker Change: Not only are we seeing strong transaction growth, but as I indicated earlier, our gross profit per transaction from a digitally initiated transaction has now surpassed that of retail.
Speaker Change: This represents a huge advantage. It's one of the main reasons we're leaning so heavily into digital as a core part of our strategy going forward. We're meeting the consumer where they are, and increasingly they're choosing digital solutions for speed, convenience, and security.
Speaker Change: Meanwhile, our retail base, which brings in about $600 million in annual revenue, remains a crucial part of our business.
Speaker Change: As other competitors pull back from retail, we are capturing more of the market, maintaining a profitable retail operation that helps fuel our growth in digital.
Speaker Change: This balanced, omni-channel strategy enables us to capitalize on diverse opportunities and ensures that we are not leaving any potential customers behind.
Speaker Change: Retail has shown remarkable resilience and continues to support our growth, especially as we escalate digital.
At this time, although the digital market is growing faster,
Speaker Change: For many of our core customers, cash is still paying, and it is not going away in the foreseeable future. This fact helps keep retail relevant. About 70% of the outbound remittance business are sent from retail in the overall Latin American market.
Speaker Change: We feel deserting this segment of the market prematurely would not be wise for our customers or our shareholders.
Speaker Change: At Intermex, we do not just run a network of retail locations or offer digital solutions.
Speaker Change: We are in the business of facilitating the movement of money for our customers faster, more reliably, and more safely than anyone. That is who we are, and that is what sets us apart. We have built a strong, reliable brand that customers trust. Our operations are robust, and our call centers are world-class.
Speaker Change: Our customer service has set the industry standard. We also have a top-notch banking and payer network that ensures transactions happen seamlessly every time from cradle to grave. We never fail to honor or pay out a transaction on time, and that is a trust we protect fiercely.
Speaker Change: We have an efficient, productive retail network that is highly cost-effective, which enables us to strategically expand our digital channels offering.
Speaker Change: It is worthwhile to mention that our retail sales and marketing costs are well below 10% of gross margin, making this business highly profitable.
Speaker Change: Our digital solutions provide the best-in-class user experience that is fast, secure, and designed to meet the needs of today's consumer.
Speaker Change: By blending the strength of both our retail and digital operations, we are positioned to maximize growth and profitability while meeting our customers' needs with flexibility and convenience.
Speaker Change: Q3 has been a quarter of achievement. Digital channels are performing better than ever with customer acquisition costs down and retention at record levels. Our digital transactions have increased significantly outpacing the market by a large margin. These are metrics we're excited about and they point to the growth potential ahead of us.
Speaker Change: Internationally, our licenses that include EU as well as the United Kingdom are an important step forward in fulfilling our strategy and providing a base from which we can grow in Europe. As we have indicated previously, we believe that the digital channels opportunity will be significant in both geographies.
Speaker Change: This expansion into new corridors aligns perfectly with our vision for a truly omni-channel future.
Speaker Change: Domestically, we have streamlined operations to reduce backroom costs significantly to be more efficient.
Those cost reductions will be fully realized in 2025.
Speaker Change: Additionally, we have successfully refinanced our credit line on very favorable terms, giving us greater flexibility to fund our growth initiatives. Our staffing costs are also down as we continue to shift tasks offshore to maximize efficiency and lower our cost basis.
Bring up more capital to invest in strategic initiatives.
Speaker Change: The National and I transfer to K acquisitions remain on track and we are confident they will reach their margin targets by 2025. Both continue to expand their year over year EBITDA performance.
Speaker Change: In summation, we are proud of the results in Q3, but even more optimistic about the future we are building for the company. With that, I will turn the call over to Andras Bende, our CFO, for a deeper dive into our financial performance.
Andras Bende: Thank you, Bob. On the financial side, in this third quarter of 2024, the National Money Express continues to demonstrate the resilience and adaptability of our business model.
Andras Bende: In a challenging retail backdrop, we posted total revenue of $171.9 million, with exceptional digital revenue growth, climbing over 66% year-over-year, as we see growing adoption across our digital platforms and the success of our digital partnerships.
Andras Bende: For the consumer base now reaching 4.2 million, a 5% increase from the previous year, our expanded market reach underscores the effectiveness of our omni-channel approach.
Andras Bende: Our Adjusted EBITDA reached $33.9 million, up almost 7% from a year ago. Importantly, our Adjusted EBITDA margins remain strong at 19.7%, a testament to being the player best positioned to capitalize on the almond channel opportunity with the premium product to Latin America.
Andras Bende: That being said, Intermex's relentless focus on efficiency continues to serve us well and further bolster our margins, as staff costs and G&A are both down year over year.
Speaker Change: As Bob mentioned earlier, we're very pleased to report that we're in the very final phases of the La Nacional and ITransfer integrations, and in 2025, we expect fully realizing the synergies and margin expansion anticipated when we entered the deal.
Speaker Change: The contribution from that deal is on target to deliver the EBITDA margin potential we saw before the acquisition.
Speaker Change: As for EPS, on an adjusted basis, earnings per share came in at $0.61, up $19.6, while diluted gap EPS reached $0.53, representing a 29.3% increase from the prior year.
Speaker Change: These results reflect our commitment to operational efficiency and profitable growth.
Speaker Change: Interest expense rose to $3.2 million, marking a 14% increase. However, most of the year-over-year increases due to fees from a highly successful refinancing we completed in August.
Speaker Change: Our tax rate came in at 30%, down slightly from a year ago.
Speaker Change: Net free cash generated, again, our internal measure that attempts to remove working capital day-of-the-week cyclicality, came in at $17.6 million this quarter, underscoring the strength of an efficient, highly productive model as it pertains to cash.
Speaker Change: Much of the cash we generated was used to repurchase over 1 million shares this quarter as we leaned heavily into the buyback after our share price pulled back.
Speaker Change: As I mentioned earlier, we successfully refinanced and upsized our credit facility on favorable terms, enhancing our financial flexibility as we enter the next phase of growth.
Speaker Change: As we close the third quarter, our financial strategy remains focused on fortifying our position and outpacing the market at retail, the highly profitable, cash-generating heart of our business.
Speaker Change: Managing cost down above for any macro headwinds and accelerating our journey in digital as we patiently set the stage to grow profitably with the best-in-class product.
And with that, I'll turn it back to Bob.
Bob: In closing, Q3 has been a meaningful quarter for Intermex with strong results and a clear strategic direction.
Bob: We are moving forward with purpose, with the needs of our customers and our investors at the forefront of our decisions.
Bob: We're excited about what lies ahead, and we're ready to take Intermex into the next chapter.
Bob: Thank you for your support and belief in our vision. We look forward to your questions and to diving deeper into our progress and plans.
Bob: We are now ready to take your questions and provide further insights into our performance strategic initiatives and the outlook for InterMex's future. Thank you.
Speaker Change: Thank you. As a reminder, if you would like to ask a question, please press star 1 on your telephone.
Speaker Change: We also ask that you wait for your name and company to be announced before proceeding with your question.
Speaker Change: And our first question for the day will come from Gus Gala.
of Manes, Crespi, and Hart. Your line is open.
Speaker Change: Can we talk a little bit more, Pat, about competition in brick-and-mortar retail here? I mean, where are we seeing the most degradation in retail? Is this the pricing of the ramping agents?
Speaker Change: Or maybe in the existing agents, you're seeing more competition at the margins there for Wireshare.
Speaker Change: And I just wanted to clarify, should we take your commentary in the prepared remarks to mean...
Speaker Change: Digital share in LATAM is like, it's accelerating beyond what we expected. And anything you can share on what you're seeing in terms of changes, maybe habituation or behaviors, of bankification maybe in the U.S. and proliferation of digital endpoints.
in Latin America. Thank you.
Speaker Change: I'm gonna try to remember all those questions first. So let me start with this. No, no, that's cool I just get help me out if I've missed something. So I'll start with the
Speaker Change: would be talking about the competition. I don't believe that there's...
Speaker Change: Any competitive issues at retail that haven't existed for the whole entirety of our time in the industry.
Speaker Change: The challenge that we have related to these days, you know, related to growing our business faster.
Speaker Change: is number one, is that the market that just two years ago was growing in double digits, about 12 percent, is now growing somewhere around flat to 2 percent. So that, along with the fact that the digital business now to our core countries
Speaker Change: is about 30% or more. So it's growing. It's not accelerating or absorbing or overtaking retail. Retail is more than still two times as big as the digital side, but the digital now is a significant piece of the business to Latin America. And that piece is growing faster than the retail piece. That is really absorbing almost all of the industry growth.
Really, more than all industry growth, retail is actually negative.
Speaker Change: So, when you look at the two pieces, we're beating the rate of growth in retail, and we're beating the rate of growth in digital by a large margin.
Speaker Change: The difference for us is that whereas the mix is about 70% or so in the industry and retail and 30% digital, in our mix is a fraction of that. We're more like a little less than 10% digital and about 90% retail.
Speaker Change: So as the the market has softened a bit and as digital is taking a bigger share You'll see our retail numbers look a little weaker. Although we're continuing to gain share at retail versus the competition
Speaker Change: Does that, on that first question, does that kind of hit that, or is there? Yeah, it does, and I want to, if I could clarify one thing. Is the margin that you guys are beating retail, you know, in the last couple of years, last call was kind of clear, it's compressed.
Speaker Change: Can you talk about that Q over Q? Did that further compress? I mean, or is it, you know, have dynamics have gotten better?
Thank you very much.
Speaker Change: are you your question is our margin per transaction or the margin we're beating no your spread versus what the industry grows in retail growth okay yeah
Speaker Change: I think that we're also sort of calibrating ourselves in retail, and I think that
Speaker Change: are spread and our difference between us and the rest of the market has is smaller today than it was. That's not unusual in a market that's
starting at the growth numbers that are flat.
Speaker Change: Because what you'll see is more desperation from the small guys who are going to get more aggressive in retail. And so, you know, it's not, we're still beating retail, but that difference can get a little smaller during a down market.
And that difference will be accelerated in an up market.
Speaker Change: People tend to be optimistic, meaning the competitors. And even if they're growing...
Speaker Change: Less than the market when the markets grown at eight or nine as long as they're growing five or six. They're less aggressive They're more aggressive and a down market even if they even though the market might be down So you see some of that and it's not unusual in a tougher market to have a smaller spread between us in the competition
Okay.
Speaker Change: No, no, that's fine. Your next, can you just rephrase again your second question?
Speaker Change: Can you talk about what you're seeing domestically in terms of more bank accounts amongst your senders?
Speaker Change: And then, insofar as you have visibility, and then considering endpoints in Latin America, I mean, like, are you seeing increased digitization kind of changing?
Speaker Change: behaviors and maybe I'll squeeze in another one that wasn't even in the original question but anything interesting on endpoint diversification at retail in Mexico I think OXO owned by FEMSA is looking at doing work there there's an opportunity for pricing
Be Favorable to U.S.
Speaker Change: Yeah, I mean, I'll start this out and then I'll ask Marcello Theodoro, who's our head of digital and product, to kind of chime in, because he's certainly the resident expert.
having accessibility to banking on the U.S. side.
But one of the biggest hurdles that remains
Speaker Change: is the fact that many of our consumers, many of the consumers in the marketplace, particularly to places like Mexico and Guatemala, are not necessarily bank account eligible in a traditional sense.
even ourselves.
in our own card products.
Speaker Change: We have challenges to make sure that we can get people banked that are not traditionally having a social security number or an ITIN number and have a foreign ID.
Speaker Change: So that's a challenge. There's also not a huge willingness on a lot of the parts of those consumers where, you know, we kind of talked about a little bit in the prepared remarks that
Speaker Change: Cash is still king and then retail's got a lot of resilience
Speaker Change: And so we're seeing on the edges, maybe people that more consumers that are coming in when they're coming in documented, when they're coming in with a work visa, when maybe they're a younger generation, whatever might be the case.
I don't think there's every consumer
Speaker Change: That's it at retail is an eligible consumer today for digital, nor do I think everybody that's digital is someone who came from retail. I think many of those consumers are different than they have been people that were using bank wires in the past.
beginning to be deposited into bank accounts.
Speaker Change: And that's digital on that side, and sometimes we just, you know, talk about that a little bit more clearly than we did this time. But that's a higher share of our business on the digital, on the pay side, in some cases 25-30% in some of those payers, that wires are actually going to bank accounts.
Slower on this side, remember, still 70%.
Speaker Change: about, you know, we don't know for sure. No one has an exact number, but somewhere 30, 31, 32% of the market's digital. The remainder is retail, and it's moving, but I don't see that as something, when we look at our projections, we're not looking at a retail market that we think goes away in five years.
Thank you for watching!
Thank you.
Speaker Change: Okay, that's super helpful. And my last question will be, you guys removed the guide, can we talk through that decision? Is that in the conflict? What does that have to do with the strategic review? Is there any connection there? And Bob, you were around for one...
Speaker Change: I think it was 07 to 2016 when you were held by Lindsay Goldberg. Can you talk maybe about the environment of like maybe the approaches you got from potential different homes back then versus what you've seen in the past couple of years? We don't even have to go past 2022, but just tell me, think about it.
Speaker Change: Thank you as well approaches from what I didn't hear that put approaches from potential acquirers back in the
Speaker Change: 07-2016, when Intermezzo was held by Lindsey Goldberg, you know, it's privately held, right? Well, when I walked in, in 2008,
probably through 2012 or 13 we weren't exactly the
Speaker Change: You know, the prettiest company, right? So, there weren't a lot of people trying to buy.
Speaker Change: remittance companies and certainly Intermex wouldn't have been at the top of the list.
Speaker Change: We went through a large transformation that took a company that was a million dollars in EBITDA to where it sits today. So, as we became more...
Speaker Change: successful we've had a number of inquiries in recent years we won't disclose who those are or what some strategic some you know sponsors that that have you know come around the business because of our the quality of our performance
Speaker Change: And, you know, we think that, you know, when you look at our business and you look at the cash that we throw off,
Speaker Change: And the fact that, you know, our, you look, think about if we looked at where we were trading in 2000, third quarter of 2021, and you applied the increase in earnings per share, we'd be a 25 or $30 stock right now. So very, and we were underpriced then.
Speaker Change: So very, very unappreciated right now in the marketplace, and I think
Speaker Change: from my perspective that that appreciation will be greater in a in potentially in a
Speaker Change: different environment. And that's why we're looking at those strategic alternatives. We also find ourself at a time where we've now maximized. We believe our our app is as good as anybody's, including the people at the very top of the success ladder in digital.
Speaker Change: We believe it's just as good as anybody's. And we also believe that our unit economics now make us incredibly competitive in terms of it being financially lucrative.
Speaker Change: But we also understand that we need to make an investment, that the most challenging thing on the digital side of the house is the customer acquisition cost.
And so we need to
Speaker Change: When we do that over the next three to five years and all of that obviously impacts the decision to look at how do we? Take the company forward for the shareholders to maximize their their their shareholder value going forward
We hope to see you next time!
Speaker Change: Well, that'd be guidance, which we're not getting, so there are two components to it. I mean, it's not unusual to not guide when you go into a strategic process.
Speaker Change: You know, we carefully examined that with our board and with our council.
Speaker Change: And then secondly, some of the things that we talk about, we're going to begin immediately. Some of that investment into the digital and things like that. So it's not going to be something we're going to do right now in giving guidance. And so those are the reasons for it.
Speaker Change: Okay, that's all. Thank you. I appreciate the clarification. I'll jump back in again.
Thank you. One moment for the next question.
Thank you.
Speaker Change: And our next question will be coming from Raina Kumar of Oppenheimer. Your line is open.
Raina Kumar: Good morning. Thanks for taking my question. It's good to see that the digitally sent money transfers increased 76% in the quarter. I was just wondering if you can walk us through how the economics of digital money transfers versus retail transfers feel.
Thank you.
Speaker Change: Okay, so do you mean that you want to talk about the unit economics?
The Unit Economics and Margin Profile
Speaker Change: Okay, so I'm going to do a Mexico wire. So that'll be a little easier. And I'll do the retail side. And then I'll ask Marcelo to do the digital side. So on the retail side, essentially, we have about a $10 fee. It's $10 almost everywhere up to $1,000 cent.
Speaker Change: And then with that, we gain an exchange profit for foreign exchange. And that's typically, let's call that about 60 basis points.
Speaker Change: And we'll do a round number, it's a little less than we send, but on $400. That would mean a revenue stream of $10 for the fee, and about 60 basis points on $400, or about $12.40.
Speaker Change: From that, the agent-retailer, it's a blend, most of them around 50%, some get more, but let's call that about $5.25.
A payer fee that's a little over $2?
Speaker Change: That will bring you down to a margin that will be a little over five dollars for Mexico wire
Speaker Change: And that's sort of the retail side of things for Mexico, which is our most profitable. Other countries that are dollarized, for instance, would be much different because you wouldn't have that FX component. And in those cases, the unit economics.
Speaker Change: could be as low as $3 or less. Guatemala's a little more than those countries without NFX, but not nearly what Mexico. If I took you through that, you'd come to a bottom line of around $4 on a Guatemalan wire. And that would be the exchange of dollars to Quetzals.
Speaker Change: Plus the fee minus the what we pay the agent minus what we pay the payer and then that's what we call gross margin
Speaker Change: We don't include the banking fees in our gross margin because those are very, they differ, you know, depending on how the agent banks. So we don't include that. That's the next level down. But that's how we would get to our gross margin number. And I'll have Marcelo talk about the same thing with digital.
Thank you
Marcelo: On the digital side, we have a gross revenue per transaction around $11.
Speaker Change: It's important to highlight that, different from what Bob said, we don't have to pay any fee to agents, which helps a lot with the costs of it.
Speaker Change: But on the cost side, the main one is related to the card processing cost. We have around $2.50 when we think about our average ticket.
Speaker Change: Then you have costs related to chargeback losses and payers commission All together around three dollars and twenty which bring us to something between six and six fifty per transaction
Speaker Change: Understood. Thank you for that color. That's really helpful. I understand you're not giving 2024 guidance, but I'm wondering if you can say anything about what you're seeing so far as for fourth quarter trends, maybe on transaction growth or active customer growth.
Speaker Change: Yeah, I mean, again, we're not, I think it's difficult to start commenting on parts of guidance, right? Weeks, though, but I'll try to do the best I can here. We believe that...
The top-line growth in the industry to our core market
especially Mexico will remain soft in fourth quarter.
Speaker Change: We might start to see some acceleration, but those are driven by a number of factors, which have been mainly driven by a stronger peso.
Speaker Change: low housing starts, and the fact that we've had a long bull market in Mexico. So we're lapping a long history of sort of high single-digit growth. So we expect that to be relatively flat in the overall industry growth.
Speaker Change: We expect that the digital business continues to grow at a high measure and if you've got the digital business and we'll use the round number
Speaker Change: of 30% of the business, I'm talking market-wide to Mexico, and that piece of the business has grown at 30%, and if the industry's flat, you get a 9% lift from the digital, it means that retail will be kind of negative still.
Speaker Change: And so we're expecting that challenging retail market, but it's not, I want to reemphasize, and I do it a lot, but
Speaker Change: I don't think it's always clearly heard. This is not a simple factor of that digital has accelerated to a level.
Speaker Change: that retail can never be positive again. If we were to plop in the growth that we had at the market overall two years ago, I think the retail market would be growing, slowly, but it would be growing. So it's a factor of slow top-line growth.
Speaker Change: with the migration to digital where the digital is a disproportionate share of that high growth and So when you look at it digital might be growing at 30% Which then leaves the retail market growing it may be a minus 9 or minus 10 percent
Speaker Change: We are beating each of those. We're doing much better than the retail market, but we're even doing much better as a differentiator related to the digital market. As you see, our numbers were in the 60s. We're probably doubling the rate of growth in the digital side of the marketplace.
Thank you for watching!
Speaker Change: Scott, it's very helpful. Appreciate that. And if I can just sneak in one more, just your early thoughts on how a Trump administration could impact your business speed with
Speaker Change: policies surrounding banking regulation and immigration. Thank you. I hope that he impacts our business the same way he did last time.
Speaker Change: because we had the best four-year run we've had in the industry. I think this is an economics issue. I think when our economy is strong, the challenge we've had to Mexico for the last few years is that we've had a very weak dollar.
Speaker Change: And so it became less attractive for someone to go through the trouble to come across the border, either in a documented or undocumented way, because when you sent $500 home, you were getting far less pesos. Maybe, you know, you were getting maybe 24, and now all of a sudden you were getting as low as 16.
Speaker Change: So that was a, that was actually a disincentive to come across economic factors.
Speaker Change: And then the fact that about a third of our constituents work in the housing industry, which is picking up a bit now, but it's been really slow. Part of that is due to high interest rates, which is also tied to the fact that the peso, you know, it made a lot of ground against the dollar in terms of the dollar's weakness.
So from our perspective
You know, we feel like that it hadn't had.
Speaker Change: I don't want to make this political at all, but it did not have a negative impact on our business last time around. It actually had a very positive impact.
Speaker Change: It was the, if we look at, you know, the time that I was here at Intermax, which started in 2009, and I guess 2009 would have been the end of the Bush administration through President Obama.
Speaker Change: through Trump's first administration, through Biden's first administration, the strongest period we had was during the four years of the Trump administration in terms of growth.
Appreciate all the color.
Thank you. One moment for the next question.
Speaker Change: And our next question will be coming from the line of Mike Dollar of Northland. Your line is open.
Hey guys, thanks. Um, first question, Bob...
Speaker Change: I just want to make sure I understand your or IMXI's response to the challenges on the retail side.
Speaker Change: Are you adding salespeople? Are you pushing more incentives? What's your response to that?
Thank you.
Speaker Change: Well, I don't know what you mean, the response to what?
Speaker Change: We can't change the market. I mean, the market's growing flat. And so we're still gaining share at retail.
Speaker Change: I mean, so we are trying to be more efficient and being more efficient related to targeting the right zip codes and also being more aggressive where we don't have wires and we have an opportunity to get them. We'll be much more aggressive on price.
Speaker Change: But I want to be clear, this isn't our frailty or our failings at retail. This is a marketplace condition where the Mexico business is about 12% slower growth than it had two years ago.
Speaker Change: And when we sort of model in the digital side in that growth, it means the retail growth today is negative. And so I don't think that's permanent, but I think, you know, as the Mexico growth as an industry stays flat.
The retail market will have more challenges.
Speaker Change: Now, I'm happy to address what we're doing to that. We focus in now on retailers where we have wires, but we don't have the bulk of the wires and we have a high margin, where you have an opportunity to go in and lower our margin with a huge amount of upside in terms of transactions.
And that's working really well for us.
Speaker Change: We also have some other strategies that I don't want to give too much detail on because competitors will understand, but incentives for retailers to sign longer-term agreements, things like that that we're executing against. But I want to be clear that it's not us underperforming the market, we're still overperforming the market at retail.
Speaker Change: Yeah, no, hey, I get that. I just wanted to make sure you weren't just waiting for Mexico to come back either.
How long you know me, Mike?
Speaker Change: for many many quarters you talked about hiring sales this call you didn't spend a lot of time
Speaker Change: talking about your response. And I'm happy to address that. I mean, I think the reason there's only so much, you know, you guys don't want to hear me drone on too long, right? So we could talk longer about everything we're doing, but this was much more about this digital opportunity that we think is very ripe for us today. But we do have now a team of...
Speaker Change: 50 direct sales people at retail. We've really bolstered our retail sales management, you know, as we've introduced you to Chris Koala in the last call, brought in a new regional manager, regional VP in the southeast.
Speaker Change: in ever. You know, we have 50 direct salespeople been rolling up to, um, some cases a middle manager onto the regional VP. So we've increased the level of people in places like California. We have, I think we've had is is
Speaker Change: As few as six people on the ground in terms of sales, now I think we have 11 people on the ground.
Speaker Change: In Texas, we've increased that group. And it's more important than people that the strategy would work. Because remember, we're rifle shot. Anybody can go out.
Thank you.
Speaker Change: discount across the board and discount on the, you know, the four million wires we already have.
Speaker Change: It's really more important in a strategic way to discount at the margin so these wires are a net add and we're not giving away discounts on wires that are already in the house. And I think we're executing against that quite well, although I don't think we've fully hit our stride. I think there's a lot more to do there.
And I think we'll continue to work against it.
Speaker Change: Fair, that's helpful. And then hey, pivoting to the digital side.
Speaker Change: What does that investment look like between now and the end of 25?
5 to 10 million bucks or more.
Speaker Change: The CAC and the payback. Like, hey, if you spend a million dollars, how many new customers does that get you? And what is the payback on that?
Speaker Change: Yeah, so first of all, I mean, at this time, we're not going to disclose.
What we plan on spending in
Speaker Change: in, you know, 25. We haven't even talked about 25's plan, but we will begin to invest.
and immediately the...
Speaker Change: The digital business is something that, you know, everything I think today, and, you know, just in case someone were to say, well, geez, Bob, you were kind of negative on digital. When we were negative on digital, the
Speaker Change: The gross margin on a digital transaction was about $1.50, now it's over $6. So we've done a huge amount of work to make that profitable on a unit economics perspective.
Speaker Change: was not one of the best apps in the industry. Today, I think we have one of the best, if not the best app in the industry. And we've been able to be successful in working particularly with partners to be able to bring down our attack. And I'll have Marcello talk a little bit more about that. But we think that there's...
Speaker Change: a great opportunity to build that business, it will take a bit of an investment, and that's partly why we made the announcement of looking at a...
Speaker Change: strategic alternatives because there is a short-term period where you need to invest to build that business up. And Marcello, would you like to comment more on that?
Marcello Theodoro: Thank you, Bob. I agree 100% with Bob. I think we have the best solution in the market today.
Marcello Theodoro: We are set up to success when you think about unit economics, and once we are able to make the necessary investments, considering the current CAC that we are seeing, the current acquisition cost that we are seeing, the opportunity to grow exponentially is
Marcello Theodoro: ahead of us, so we are very comfortable and confident about the future.
Speaker Change: Got it. And can you give us roughly what is that?
Speaker Change: CAC today. Is that down to $40, $50, $60 per customer?
Speaker Change: I think you are closer to the number we prefer to don't disclose it right now but what you're saying is a reasonable number versus our reality.
Speaker Change: And I also think it's important to understand that the more that we can leverage and again, we don't want it That's also not something would disclose because you know, these same payers work with other folks that the more we can leverage
Speaker Change: I also think, which we haven't really talked about, we talked about uniformly in my remarks the digital business or digital solutions, and we kind of did said plural, and a big part of our strategy is also wires as a service.
Speaker Change: with third party partners. And we've got a couple now that are really successful and a lot more in the pipeline.
Speaker Change: And we believe that that's really a software solution that's working quite well for us, where the margins aren't quite as high as our own product, but we do so much less of the work.
Speaker Change: And there's really not any need to go out and actually spend money on a customer acquisition cost Because someone's bringing us that who already has that relationship with a consumer and what we're bringing then is the things we do really well Which is a license in 50 states, which is banking relationships, which is payer relationships and technology
Compliance. So we have all the...
Speaker Change: We have all of those factors that make it easier for us then to be the wires as a service solution for others that can bring those customers and it actually lowers our customer acquisition costs dramatically.
Got it.
Hey guys, thank you.
Thank you, Mark.
Speaker Change: Thank you. As a reminder, if you would like to ask a question, please press star 1-1 on your telephone.
Speaker Change: One moment for the next question. And our next question will be coming from the line of Chris Zhang of UBS. Your line is open.
Thanks for taking our questions.
Chris Zhang: So I have two questions. The first one relates to your near-term investment needs.
Bye.
Speaker Change: I think from the Q&A so far, I think you've touched on a number of areas.
Speaker Change: I appreciate digital is still an important area, but I just wanted to see if we could maybe discuss some of the
Speaker Change: other specific areas, and if it could also record the areas of your near-term investment needs.
Speaker Change: In the fourth quarter and going to 2025 and also related if there's any change in your needs, priorities or timelines during the strategic review process.
Thank you for watching!
Um
Speaker Change: I want to make sure I understand your question, you're talking about investments in the business separate and apart from our digital investment, or what's the question? Just make sure I understand.
Speaker Change: Just overall investment needs. This is all sales, hiring, and all those. This ran for over a third of an hour.
There really aren't. I mean our sales...
Team is fully staffed
Speaker Change: Our call center, which is a pretty big expense even though it's offshore will actually be reduced because some of the biggest
Speaker Change: sort of customer care we have is with certain components of our retail business.
Speaker Change: So the really the really only core investment that we're making and it really I mean obviously we can continue to always evolve our app
Speaker Change: and have more products available. That's the big opportunity with the four million customers we have today is to be able to sell more things to them, right? Not just the digital remittances, but more things to them. So there's going to be opportunities to continue to evolve our app. But as far as the utilitarian nature of it today, it's among the best. So we don't need a lot more.
Speaker Change: investment into the app. What we just need to spend money on now is customer acquisition, which is putting ourselves out there related to various ways to promote our business. We think we've got different ideas than what has standardly been done, which has delivered in some cases, you know, very, very high expenses for many years for many of the
Speaker Change: The lead players in the digital side, but we still do need to invest in that customer acquisition and bringing customers to the digital site.
Thank you for watching!
Thanks a lot for the color, Bob.
Speaker Change: My follow-up question is around the changing the loyalty terms. I appreciate there can be some benefits, but I guess just from what you're saying, is there any impact on your retention or is there any customer response to that?
You've been disturbing in the early days.
Speaker Change: You're breaking up a lot, so I'm going to try to think I'm hearing what you're saying. I'm sorry. Can you hear me better? Basically, I was talking about the change in loyalty terms and the impact on customer retention or any customer response to that.
So
The loyalty chart, what do you mean? I'm sorry.
Speaker Change: Basically the expiration of the loyalty points, changing from 180 days to 90 days. Yeah, I mean, we took a look at that and we did it with a lot of...
analysis, and we found that
The Loyalty Program.
wasn't necessarily working to its optimal.
Speaker Change: In the way it was put and we restructured that, we don't expect any impact from that. We had a very low redemption rate on the loyalty points. We think it was more of a fact of the speed of which we were able to handle a wire because you're a loyalty customer. And that remains intact, so we don't expect any impact from that at all.
Thanks for the color, appreciate it.
Thank you for watching!
Thank you. One moment for the next question.
Speaker Change: And our next question will be coming from the line of David Schwab of Citizens.
Please go ahead.
Speaker Change: Hi, good morning. This is Zach on for David. Quick question first on the
Speaker Change: 10% share and for digital just wanted to first check if that's on the send side or what the send ratio is for digital And then just some broader sense You know any kind of guidance or insight into trends in the Mexican market and you know, particularly with volatility in the currency Thank you
Yes, so the first piece is is that
Speaker Change: I talked about that it's under 10% and that is the SEND side of the house.
Speaker Change: If we were to consider the payout side, it would be much higher, more in the 30% range or more.
Many of the wires for years have been migrating.
Speaker Change: to bank deposits and that would be considered digital on that side of the house.
So we're talking about the thin side.
Speaker Change: And it's not quite 10, but it's getting closer to 10 as we go forward with the digital capture side.
on the Mexico side of the house.
Speaker Change: I think as the pace so weakens, which is likely to happen.
Speaker Change: But, you know, we saw a little weakening of it for a day or two there and and, you know, but you will see.
Speaker Change: Stronger wire service, there's more of an incentive for people to come to the U.S. and work.
Speaker Change: when the money being sent home is worth more money, worth more pesos.
The
Speaker Change: so that helps us. A weaker pay so helps our business typically, but also the fact that as interest rates might come down, then that might have a greater effect on housing starts, which are a little better than they were, but still far off where they were a couple of years ago. And I remember a lot of our consumers
Speaker Change: The people that send money work in the highest housing industry and they're probably some of the highest paid of our consumers, much higher than agriculture and service.
Thank you for watching!
Got it. Thank you.
Thank you for watching!
Speaker Change: Thank you. This does conclude the Q&A session for today and I would like to turn the call back over to Bob for closing remarks. Please go ahead.
Bob: We thank you all for your time and attention and we look forward to talking to you all soon. Thanks again.
Bob: [music].