Q1 2024 Earnings Summary
- Early positive trends in April indicate a resurgence in growth, with transactional year-over-year numbers showing significant improvement. The company is outperforming the market as they move into April, suggesting better-than-expected performance in upcoming periods.
- Significant expansion of the sales force is expected to drive substantial future growth. The company has tripled its inside sales team, adding 24 new people to reach more agents, and is adding 11 new positions to the outside sales force, focusing on strategic markets with high potential, such as Chicago. Though early in implementation, the company is already pleased with the activity and expects these efforts to yield significant results in the second half of the year.
- Strong gross profit per digital transaction provides an opportunity to drive transaction volume growth while maintaining profitability. The company is leveraging partnerships, such as with Felix Pago, to expand digital offerings through popular channels like WhatsApp, without significant customer acquisition costs. This strategy is expected to significantly increase their bottom line and demonstrates the company's ability to innovate and adapt in the digital space.
- Slowing Growth in Key Market (Mexico): The company acknowledges that the remittance market growth in Mexico has been volatile, with a negative growth of minus 3% in March after a positive 3% in February. They have reduced their growth assumptions and admit that there is no resurgence expected in the second half of the year. This slowing market could impact their revenue projections and overall growth.
- Prolonged Expansion Timeline with Potential Cost Implications: Expansion into new markets, especially the Western states, is expected to take another 5 to 7 years. Rapid expansion would require adding significantly more sales reps, which could have a sharp impact on the bottom line. This suggests that growth may be slower than anticipated and could require substantial investment.
- Dependence on Partnerships for Digital Growth: The company is relying on partnerships like Felix Pago to expand its digital footprint without the cost and challenge of acquiring new consumers. This dependence on third parties may impact profitability and suggests potential difficulties in scaling their digital platform independently.
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Mexico Growth Guidance
Q: Is 3.5% US-Mexico growth still in your 2024 guidance?
A: Management confirms that the guidance still assumes around 3.5% growth, though they've bumped it down slightly. They've offset challenges through cost controls and expect to meet EBITDA and EPS targets. They anticipate some softness in the second half but expect uplift from improved execution. -
Mexico Market and Remitter Health
Q: What's your outlook on Mexico growth and remitter health?
A: The Mexico remittance market has shown volatility, with a minus 3% dip in March after a plus 3% the previous month. Management expects the market to improve over the year but hasn't built this into projections. They highlight the resilience of their customers, who continue to send money home despite challenges, and note that their customer base is still growing. -
Sales Force Expansion
Q: How is the sales force expansion progressing?
A: The company has tripled its inside sales team's reach by adding 24 people in Guatemala. They're also adding 11 more sales reps to the outside sales team, focusing on high-opportunity areas like Texas, California, and Chicago. Early results are encouraging, and the full impact is expected in the second half as new positions are filled. -
Digital Gross Profit Expansion
Q: What's driving higher gross profit per digital transaction?
A: Through cost reduction initiatives and competitive pricing, the company has increased gross profit per digital transaction. They've improved unit economics by lowering costs and leveraging their platform, resulting in strong margins without sacrificing competitiveness. Management believes they now have a strong position to drive growth. -
Felix Pago Partnership
Q: What's the rationale behind the Felix Pago partnership?
A: The partnership enables expansion of "wires as a service" without high customer acquisition costs. The company leverages its platform and licenses, while Felix Pago invests in acquiring consumers. This collaboration is expected to significantly increase the bottom line and aligns with their omnichannel strategy, meeting consumers where they prefer—like on WhatsApp. -
Organic Growth Figures
Q: Do you have the organic growth figure excluding acquisitions?
A: Management stated that since La Nacional and I-Transfers have been in the portfolio long enough, they are moving away from breaking out those units separately. -
Agent Performance and Western Expansion
Q: How are new agents ramping up wires per month?
A: New agents are performing better than before, achieving over 150-200 wires per month within 2-3 months. There's significant opportunity in underserved areas, particularly in Western states like Texas and California. The company plans to add thousands more retailers over the next 5 to 7 years. -
Future Digital Gross Profit
Q: Can you keep increasing digital gross profit per transaction?
A: Management believes the key is leveraging strong existing margins to drive more transactions, rather than increasing gross margin further. They aim to reflect the market's shift toward digital—targeting more digital transactions without sacrificing margins. The focus is on growth through programs that encourage repeat usage.
Research analysts covering International Money Express.