International Money Express - Earnings Call - Q4 2018

Transcript

Speaker 0

Excited about over the long run. We don't expect a significant impact in 2019, but our new business in Africa and planned second quarter launch in Canada are exciting given the size and potential of these markets. Similarly, we're excited about the early stage launching of our general purpose reloadable card, which adds value and utility to our customers. Lastly, we are clearly a growth company, but we do not expect material marginal leverage in the near term. We are forward thinking and are excited about developing a number of initiatives that will lay the foundation for sustained revenue and income growth over time.

With that, let me go ahead and turn the call over to Tony to review our financial results in greater detail. Tony?

Speaker 1

Thanks, Bob. Let's turn to Slides eight and nine and review our fourth quarter metrics. As Bob noted, we had another strong quarter. The number of transactions grew 26% for the quarter. Recall from our previous commentary that May was our first month with more than 2,000,000 transactions.

With our continued growth and strong performance, we completed the year with over 24,000,000 transactions, averaging just over 2,000,000 per month for the full year 2018. Volume growth for the quarter of 29% outpaced transaction growth, as average send amounts increased over the prior year. Revenue growth of 27% for the quarter was driven by the combination of transaction growth and volume growth. Fourth quarter adjusted EBITDA grew approximately 35% over last year and 41% over the full year, outpacing revenue growth as we realized operating leverage through scale benefits and savings from our efficiency initiatives. Lastly, we'd note that there are reconciliations from GAAP net loss to adjusted EBITDA at the end of this presentation for your reference.

Turning to guidance on the next slide, let's review first twenty eighteen. We delivered $47,100,000 of adjusted EBITDA, which was right in line with our last estimate of $46,500,000 to $48,000,000 and well ahead of our initial guidance of 40,100,000.0 We truly out delivered against our expectations from the beginning of the year, thanks to strong execution and some market tailwinds. Lastly, on Slide 11, I'd like to close the prepared remarks with the introduction of our 2019 financial guidance. Our view for full year 2019 revenue is a range of $320,000,000 to $330,000,000 and adjusted EBITDA of $54,000,000 to $58,000,000 which implies respective growth of 1819% over the full year 2018. As I've said previously, we expect margins to be relatively flat year over year as we continue to focus on the growth opportunities we see.

I'd like to note here that due to the front loading of some marketing and technology investments, EBITDA growth is expected to be lower in the beginning of the year and accelerate in subsequent quarters. Additionally, we do not currently expect much impact in 2019 from our incremental growth initiatives in new markets like Africa or Canada or our new product features like the GPR card. But we will, of course, update you as we achieve more critical mass there. So with that, I'll end by saying that we're excited to have had another great quarter and year and even more excited about our prospects for continued growth in 2019. With that, let me turn it back over to the operator to open your line for your questions.

Speaker 2

Great. Thank you. At this time, we will be conducting a question and answer Our first question is from Jason DeLeuw from Piper Jaffray. Please go ahead.

Speaker 3

Congratulations on a strong 2018 and start as a public company. The first question is just on thinking about the revenue growth for 2019 and just some of the key drivers and how you're thinking about that versus the past year? And then also just kind of the view on the growth you're expecting from the stronghold states versus the growth markets?

Speaker 0

Okay. Well, we expect continued growth in the stronghold states. In 2018, we continued to expand by the way, is Bob Lucie. In 2018, we continued to expand our market share in the stronghold states and grew faster in those states than the market did overall, probably about twice the rate of the market. Mexico, as you know, grew about 10%.

Although we believe we grew right about 36% or 3.5 times the market rate in the growth states. We think more of the same. There's still tremendous untapped opportunity for us West Of The Mississippi, but also in areas like Illinois and New York in the Northeast, states that were later states for us to enter as Intermex expanded. And as a result, the level of market penetration and thus market share is lower in those states. They continue to be some of our fastest growers with a huge amount of greenfield.

I mean, we look at our business a lot based on how many vacant ZIP codes are there that we are either underperforming down to the market share of the ZIP code or those where we're not present at all. And the abundance of those opportunities for us in places in the West like California, Texas or even in states like Illinois are still tremendous. And we think that we have many years of growth ahead of us in those areas and opportunities to, in some cases, in some of those states, quite large states, to be able to double and triple our current volume, which have a tremendous impact on the business overall. While we're doing all that, we'll see our stronghold states continue to grow faster than the market grows and continue to gain more share there of our already strong market share in the current stronghold states.

Speaker 3

That's great. And then thinking about the guidance, the revenue guidance for this year, what are some of the puts and takes as you think about the growth rates for this year versus last year? And what about the cadence? How should we be thinking about revenue growth kind of quarter to quarter? Because I think some quarters were stronger last year.

I just want to make sure we're kind of all on the same page on thinking about the quarterly cadence, too. Yes, sure.

Speaker 1

So hi, this is Tony. I'll tell you that the trends that we saw through 2018 are going to continue through 2019. And that is, while we're still having very strong transaction growth and volume growth, our expansion into countries that are not Mexico or Guatemala are going to be faster than Mexico and Guatemala just based on the relative size and the growth opportunity that we have there. And I think we've told you in the past that those states or those countries have lower margin opportunity, and that kind of depresses revenue growth just a little bit relative to transaction or volume growth. And from an EBITDA perspective, of course, we make that up through operating efficiencies.

And from cadence perspective, we see a pretty steady cadence of revenue growth through the year. But you have to keep in mind that in 2018, we had a big spike in the second quarter and the beginning of the third as the average send amount went way up coincident with the devaluation of the peso in the kind of May, June, July timeframe. So assuming that doesn't happen again, we would see perhaps a little bit slower growth this year in those months year over year, but otherwise pretty stable growth.

Speaker 3

All right, great. Very helpful. Thank you.

Speaker 2

Our next question is from David Sheriff from JMP Securities. Please go ahead.

Speaker 4

Yes, good afternoon. Thanks for taking my questions. Bob, obviously, the volume numbers, both transaction and remittance, speak for themselves. But I would be remiss if I didn't ask like I did a quarter ago whether there's anything anecdotal you may be seeing domestically in terms of, you know, the slowdown in housing construction and whether that has any impact on foot traffic into your units?

Speaker 2

I mean

Speaker 4

assume a good portion is construction.

Speaker 0

Well, we've been tracking that. And as we've talked about before, are really at least three main components of the business: the agricultural component, which is typically always going to be stable. There's not a big variance in the amount of vegetables and fruit that's picked. There's a service industry, which certainly can have some variance. And then housing construction.

We're seeing housing construction go down a bit, and we would see that typically that can have some impact on the business overall. But we're also seeing that in a backdrop of a very strong economy and very, very high employment related to minority population. And so we believe that although construction has slowed a little bit, most of that is being offset today by just a stronger economy overall. And as a result, we've been seeing all the way through December timeframe, we're seeing Mexico year over year volumes growing at more than 10%, all the way through 2018 and Guatemala growing even faster than that. So is there a bit of a slowing that could occur in 2019?

I think there could be a bit, but I think part of that will be offset by a general strong overall economy, particularly leading into an election year. So we're pretty comfortable with that. And there certainly wasn't any great push behind the business in fourth quarter, as we indicated before. And third, there was a bit related to the election in Mexico and the company volatility of the peso. But fourth quarter was a relatively stable quarter, great comparison to the previous.

And as you saw that, that enabled us to deliver more than 30% EBITDA growth with that quarter year over year.

Speaker 4

Got it. No, that's helpful color. Just switching to the margin outlook, My understanding is that Guatemala in comparison to Mexico has lower margins because there's a less liquid currency, so there's less of an FX markup opportunity. Can you speak a little I would have thought Canada, with the liquidity of its currency, potentially have, if not as much opportunity as peso, but might have something there. And maybe you can speak to the African markets that you're entering.

Sure. I mean, is it FX that's the primary reason why you would expect the geographic mix to result in lower margins?

Speaker 0

Well, yeah. I mean, for us, there's two things that are happening, right? If you look at an apples to apples comparison, our pricing in a stronghold state, our margins have not moved much. And they really move a lot. Most of the movement that happens relative to the margin in those states has a lot to do with the principal amount, because they're very stable.

So any movement usually has a lot to do with just sort of people sending either larger or smaller amounts of money. But when you go to the West in these growth states, we're typically a newer entry with less leverage. Brand is not as strongly positioned as in the East, where some of these states we have a 25%, Mexico and 40% to Guatemala. So we're not as strongly positioned. And additionally, they're much more competitive and higher velocity states where the competition has drawn down the average margin to Mexico and Guatemala.

In addition to that, though, we have some other countries that are growing, which would be a different geographical more to sort of where is the money going. And countries like Honduras and El Salvador are growing faster for us than, say, Mexico is, and they tend to have lower margins. Along with even some other countries that are smaller for us today but have lower margins like Dominican Republic and Colombia, all of those countries, because they're growing so fast, is growing at a faster rate Mexico. And there's some degradation of our overall margin because they tend to have lower margins. So you have the country mix and then also the regional mix of where the wires from where they're coming.

Now you kind of asked in that, I think, a second sort of question embedded about Canada and Africa. So for us, Canada is an outbound market. We'll certainly focus on Latin America like we do with our U. S. Business.

But in addition to that, Canada is a little bit more diverse business going to other areas of the world and will create opportunities for us to grow our business going to other corridors in addition to the corridors that we currently do to Latin America. In many cases, Canada actually has better margins because in countries like El Salvador, for instance, or Ecuador, where their receiving payout is dollarized, there's a flip at least from a Canadian dollar to a U. S. Dollar, which allows for a small FX gain, which doesn't exist in The U. S.

So we're excited about Canada. We think the opportunity there is probably about the size of a very large state for us, not like a California, but maybe fully ramped up the size of what Texas would be fully ramped up. A tremendous opportunity, very concentrated, although it's a big geographical country, most of the business is around four or five large metro areas. And so we're excited about that opportunity. In the case of Africa, Africa is a receiving destination for us.

Very concentrated business in The US, Mid Atlantic, New York, some in California, but a lot in Texas. And we're beginning to put up our agents and beginning to grow that business. We think to dimensionalize it, that business to the core countries, which a huge share of the business is Nigeria and Ghana, is probably fully sized equal to an opportunity like Guatemala. And remember, Guatemala is a $9,000,000,000 market. So that's a great market for us to tap into where we could do several million wires a year to Africa fully ramped.

Speaker 4

Understood. That's helpful. And then just a couple of quick cleanup ones. I'll get back in queue. I guess for Tony, can you tell us you obviously refinanced your bank debt in the quarter and it was included the cost of that was included in the interest line.

How much was the actual cash interest in the quarter? And to give us a sense for how we should be thinking about that going forward.

Speaker 1

Well, let me just start by it's probably easier if you just back out the one timers associated with the transition. So you know the new rate, which is L plus four and a half, so that makes it pretty straightforward going forward. But we had $5,300,000 of one time fees split between the pull forward of the costs from our previous facility that had been amortized over the life of the note, and then we brought them forward when we terminated that note. And that plus the early termination fees associated with that. So if you back out that $5,300,000 what you're left with would be our true interest expense for the quarter.

Speaker 4

Perfect. Thanks so much.

Speaker 2

Yes. Our next question is from Joseph Foerffey from Cantor Fitzgerald. Please go ahead.

Speaker 5

Hi, this

Speaker 1

is Drew Kootman on for Joe. Thanks for taking our question. I just wanted to follow-up from two questions ago regarding Canada and Africa. How long do you expect before you start seeing any impact on revenue? What kind of impact?

Just anything along those lines to the top line.

Speaker 0

Both of those will be certainly impactful. I mean, we're seeing impactful with Canada today. We're drawing revenue. In terms of it being something that you'll see moving the needle for us, I think you'll go through all of 2019 with ramping up before there's a significant dollar volume. Remember, we have to do two things.

We have to go out and add agents to Africa in specific neighborhoods, and then ramp those agents up and actually introduce consumers to a brand that they're not aware of. In Latin America, it's Alisier, one of the leading three or four brands, leading four brands all of Latin America. So a little different mission for us. In Canada, similarly. In Canada, we haven't opened business yet.

We're still really in the preparation stages of that. We've got licenses approved and banking relationships, but haven't put people on the ground yet actually adding agent locations. But I think there'll be significant contributors in 2020. But this year will be sort of the building and investment. And that's in the earlier when I presented, I talked about that although that we in our core business, it's easy to understand these economies of scale that we're going to continue to invest in future opportunities that will sustain that growth.

And you ought to think about in 2019, Canada outbound, Africa inbound as opportunities that will continue to sustain our high level of growth over time, but not necessarily be great contributors to either revenue or profitability in 'nineteen.

Speaker 1

Okay, perfect. And then just a second question. Any recent trends you're seeing that you could point out within immigration? And are there any concerns on any recent regulations or anything that's coming up?

Speaker 0

Yeah. I mean, this administration, not from a political perspective, but the facts are that we understand them, in terms of legal immigration, it's actually been increased. There were more people crossing the border in fourth quarter legally and illegally than had the previous year. There's been less people sent and back to their country of origin because of illegal in Latin America than there has been in times during previous administrations. So whereas there's been a lot of controversy and a lot of, I guess, political wrangling over the border, we don't see any great impact on the business.

As a matter of fact, it seems more vibrant than ever. And the economic factors have been so forceful relative to high levels of employment here in The US, high levels of the need for labor in various aspects where we just don't have the labor force to take care of it, that that pull has far offset any kind of tension at the border that you might hear of. And the facts of it are that actually more people have been coming in both legally and illegally than previously had been happening.

Speaker 1

Perfect. Thank you.

Speaker 2

Our next question is from Brad Berning from Craig Hallum. Please go ahead.

Speaker 6

Hey, guys. Congrats on closing out the solid 2018. I wanted to follow-up and get your thoughts a little bit more on same store sales growth versus agent growth in twenty eighteen fourth quarter and talk about what you think your agent growth in 2019 kind of looks like? And what are the main constraints and drivers of being able to drive additional agent growth? And there's obviously a lot of agents, as you talked about, from an opportunistic standpoint.

What is the main constraint to be able to get out there and win more agents?

Speaker 0

Yeah, I'm going to this is Bob Lissy. I'm going have Randy Nelson, who is our Chief Marketing and Sales Officer, address that. Question?

Speaker 7

Yeah, thank you. We anticipate this year we'll see very similar new store growth. Our constraint really is limited to manpower. As Bob has mentioned, we really do add agents by zip code where we think the opportunities are greatest. We'll continue to put our resources against the zip codes where we have the greatest opportunity in terms of foreign born.

So we anticipate we'll end the year with about the same amount of agent adds as we had last year. Regarding same store, I think we'll put some strategies in place this year that we didn't have last year that will actually help us get stronger production out of our same store sales.

Speaker 6

And to be a little more specific, what was the agent adds this year and what was the same store sales growth rate?

Speaker 0

We don't disclose the agent adds. We're very careful about our agent additions and where we put them because our agents are so different than the marketplace. I will tell you that on average, we know that our average agent is about four times as productive as the average agent in the market, and we try to keep that as tight to the best as we can. In terms of same store sales though, we continue to exceed the rate of growth in the market. So it's well into the double digits and we can and that's a combination of agents that have been with us for years and years and agents that are in their second or third year, which are ramping up at a very fast pace.

But overall, we're growing same store at a level that's, let's call it 12% to 15% or more. And then you have a component of that sales that growth of 27% that comes from our new stores would be the remainder.

Speaker 6

Yes, that's very helpful. I appreciate that thought and respect the competitive environment. And then as far as the things that you're doing to help drive production this year, would that encapsulate like the direct bill pay or is there other initiatives that you're thinking about?

Speaker 7

Sure. We are rolling out a bill pay product, if that's what you're referring to. And we'll continue to leverage our check direct processing option with our agents that is significant for us. Additionally, we've got a stronger effort on the agents that we see slowing in growth and even seeing declining growth year over year and our underperforming agents. We've been focused on agents that we've signed that we just haven't seen the productivity, that we know there's wires in their stores, and we're focused on getting more share in those stores moving forward.

Speaker 0

And just to further highlight that, what Randy is speaking of, it's an ongoing process. I mean, every year we have agents that in the mix of agents, have some that are performing better and worse than others. So this is just an ongoing of digging deeper into that because we've added some resources in our inside sales department that now we have the opportunity to dig into the niche of that really deep. And unlike a lot of our competitors, we know an agent and what their performance is year over year on a particular day of the year, the comp day. And so now with greater resources inside, we have the ability to actually respond and head that off as we see that agent's performance begin to dip.

And that's what Randy is speaking of. Additionally, we put some more people out on the road, on the street, on our outsized sales team in Randy's group. And that's always been a function of our building our new store sales is how many people do you have working at it and how many people do they do per month in terms of additions. That's always going to be guided by our ability to balance high growth with hopefully what we bring to our shareholders, which is a great return and a great EBITDA and great cash flow as a business. So if we were to put another 20 or 30 people out there, we could grow a bit faster, but you would see a degradation of EBITDA.

So we balance that in terms of our efforts, but that certainly is a factor. And that's one of the things we're doing more of this year is that because of the size of the business, we've been able to invest in more people at street level adding new locations as well.

Speaker 6

Yes, understood. Scaling the revenue source to drive more revenue. So I'll appreciate get back in the queue. And again, congrats.

Speaker 2

Thank you. Thanks. Next question is from Mike Grondahl from Northland Securities. Please go ahead.

Speaker 5

Hey, guys, and congrats on the quarter and the year. First Thank question is just can you quantify the sales ads in 2018 and what you think they'll be in 2019 approximately?

Speaker 7

Mike, it's Randy. As we talk about the agent adds in 'eighteen, I can tell you that it was very, very similar to 'seventeen. As we review what that group of agents did year over year, they were right about the same level of productivity as well. So as Bob talked about, as we put a few more heads on the street this year, we think number one, we'll add more locations. And number two, we'll be able to keep or exceed the level of productivity from those agents.

Speaker 0

And Mike, if you look at it and you want to dimensionalize it, where we don't disclose how many agents we have or how many we add specifically, in terms of the endgame transactions, growing 27%, a little more than half of that came from our same store and a little bit and a little less than half of that came from our new store. So they've been tremendously productive and the new store is adding about 12% to our year over year growth on an annualized basis. And then what we see is when those agents, which typically when we add a new agent averages about 140 transactions within their second or third month, because we vet them very carefully. We're not adding guys that aren't going to do wires. We see them typically in year two double their transactions and then continue to grow at a very high rate in year three and four.

They start to level out a bit in five and six, but they continue to grow usually at a rate that's faster than the market overall.

Speaker 5

Got it. I guess I wasn't asking agents, just IMXi salespeople serve Is that a number you'll disclose? I was more curious there.

Speaker 2

Sure. You

Speaker 0

can do that.

Speaker 4

Go ahead.

Speaker 7

Yes, sure. So last year, we averaged feet on the street right around forty, forty five Mike. And this year, fully staffed, we'll have maybe 10 heads above that fifty, fifty five.

Speaker 3

Perfect. Got it.

Speaker 5

And maybe for Bob and Randy, whoever wants to take a shot at it, what one or two items are you most excited about for 'nineteen?

Speaker 4

Yeah.

Speaker 7

Two things, Mike. We really are excited about the commercial sales, the GPR sales. We think there's some really great opportunity associated there. We've got a couple of guys selling that now and we're still kind of getting our feet under us and the learning curve under our belt. But a few of the sales calls that we've had already just lead us to believe there's going to be some great opportunity there.

Second lease where we've got more resources in some of these growth states than we've had in the past. And while we've seen tremendous growth from those states, now with even more manpower there, we think we're going to even fuel the growth stronger this year. So I'm excited about that as well.

Speaker 1

Perfect. Thanks, guys.

Speaker 2

Sure. Thank you. Thanks, Mike.

Speaker 0

You. This

Speaker 2

concludes the question and answer session. I'd like to turn the floor to management for closing comments.

Speaker 0

Well, thank you all. We're happy to have finished a great year, our first half year as a public company. We appreciate all you participating in the call, we look forward to talking to you soon. Thank you. Have a great day.

Speaker 2

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