International Money Express, Inc. (IMXI) Earnings Call Transcript & Summary

Hey, guys. I think we're live here in the main session. So hello, everybody. I wanted to welcome you again to the 24th Annual Credit Suisse Technology Conference. My name is Justin Forsythe, and I cover payments, processors and fintech at Crédit Suisse. We are very lucky to have the CEO of Intermex, International Money Express, Bob Lisy, with us today, and he's been with Intermex for a long time, now over 10 years, after spending time at Western Union before that. And we have Bob on stage with us today for about a 30-minute time frame. We're going to do a fireside chat format. And we're going to cover some preprepared topics and leave some time for Q&A. So if you do want to ask a question, you can hit my email. It's [email protected]. I think you can also see it on the screen here. But with no further ado, I'd like to hop in and pass it over to Bob for a quick intro to the business for those who aren't as familiar with what Intermex does. Bob?

Thank you, Justin. I appreciate it. Thanks to Crédit Suisse for having us here today. We appreciate it. And thank all of you that are either tuning in live or will look at this conference later at some point. So here we are -- at Intermex, we are a remittance company that's primarily focused on Latin America. We also service other corridors of the world like Africa and Asia these days, but our driving force behind our business is the U.S., the Latin America, which has been a very strong and growing component of the market. I came to Intermex in 2009 as the CEO, have a lot of years of experience in the industry with Western Union, but also was one of the partners in the Vigo business that we bought from the founding entrepreneur and sold to Western Union. Intermex has been a company that's had a tremendous growth trajectory for a number of years now. In 2009, we were about a $45 million revenue company. In 2021, we will be over $400 million in revenue. And not only have we grown and increased our market share dramatically over the years, but we've done that quite profitably. This year, our guidance is delivering in the upper $60 million worth of profitability, and we have great cash conversion of about 55% of our EBITDA to cash. Third quarter alone, we produced $10 million of free cash, have a great balance sheet with -- really, when you look -- take a look at it, with negative net debt based on the cash in the business versus our debt. And we continue to grow. We're the #1 company in the world to Guatemala with a 26%, 27% share of all wires into Guatemala. We're about at 18% share to Mexico. We think we're amongst the biggest. That's Western Union and us, sort of neck and neck to the largest brand in the world. If you look at the 4 largest countries receiving money from the U.S., that are about 76% of the Latin American market, Mexico, Guatemala, El Salvador and Honduras, those 4 countries together, we are now at 20% share. So a real driving force in Latin America. We also do wires, not only through the brick-and-mortar traditional format, but we have a digital solution that's growing very quickly, but we continue to be a very strong player, and I emphasize that, in retail. Whereas some of our public company competitors seem to have retreated away from retail, we think there's still a lot of runway left in the retail business and continues to drive high profitability for us as we continue to grow our digital business. So with that, I'll turn it back over to Justin for questions.

Great. Thank you so much for that intro, Bob. Super helpful. So I actually think you did a nice segue into one of the questions that we want to get into, which is IMXI versus competition. Now the main -- maybe there's 2 different, call it, segments of competition, but the main we would think of is Ria from Euronet; Western Union, as you mentioned, your former employer; as well as MoneyGram as the legacy providers. When we're comparing Intermex against those legacy providers, how should we compare and contrast the business? And what does IMXI do different, whether it's in terms of targeting certain geographies with your sales strategy or your retail focus as you just mentioned in your opening remarks?

Yes. I think it's -- when we concentrate on the 4 public companies, the 3 others other than us, I would segment it to say that if you look at Western Union, they have really 2 different strategies. One strategy with yellow and black traditional brand is really in big box stores if they're brick-and-mortar. So they're in the Publix, the Krogers, the [ Rouses ] of the world. And they're not really in the ZIP Codes where the wires occur. So you're not going to find them in the mom-and-pops, the targeted ZIP Codes. They use the business Vigo, which is their secondary brand, to really go after the mom-and-pop ZIP Codes. Their approach to that has always been ubiquity with both Vigo and Western Union, meaning that they believe being in as many locations as possible is the best solution. Our solution as would differ from them is really about productivity. We're very much a rifle shot in terms of how we pick our retails. And this would be a comparison versus MoneyGram and Ria as well, but certainly, we start with Western Union and just the leader in the market. What we do is we pick the very best retailers based on demographic information that we use related to 4 or 5 sources, understanding ZIP Code populations of foreign-borns. And with that, we set a target for the number of retailers and a target market share by the ZIP Code. And then even once we do that and we know how many retailers we need in a specific ZIP Code, we don't settle for that. We go out and we actually look and interview retailers to get the very best potential retailers we can find. As a result of that, in the end game, the average Intermex retailer is highly productive and does a lot more wires than that of the competition. Just relative to ourselves, when we started with this management team in '09, the average retailer for Intermex did about 67 wires per month. Today, we do about 400 wires per month. So the industry, we believe, does probably somewhere between 100 to 125 wires per month per a retailer. So we're operating somewhere 3 or 4x the productive level, really important to rifle shot the right retailer in the right neighborhood. Additionally, our approach to the market has always been one of value-add. We consider pricing to be one of the components of the sales process, but we also think that placement we talked about first, and secondarily, the product, the quality of the customer service, how well our technology works, how good our customer service is, all of those factors that add value to both the retail agent and the consumer that sends the money are critically important. And we feel like we excel in those areas. To give you an example, our technology it operates in is much faster on the face-to-face transaction with the consumer than the competition. As a result, on a crowded Friday or Saturday, a retailer can get through a line of 20 or 30 people much faster than they can with the competition. Our technology will take 20 seconds or less to process a wire. The competition will take a minute or more. Doesn't sound like a lot, but in a crowded, small store retailer on a weekend, it's a huge difference. So we're focused on that rifle-shot approach to targeting retailers, a value-add and, for years, we've been a company that's had very little price compression, while we've grown, in some cases, many times the rate of the market and still today faster than the market while we have very little price compression. And we do that because we don't do it by discounting, but by the rifle-shot approach to the best retailers and also by the value-add and just what that means to the retailer and the consumer in terms of high quality and reliability of our product and its customer service.

Got it. No, that's super helpful. And I think that kind of highlights the importance of the retail channel. And I think we have spoken before about how your view that digital may not comprise the majority of wires in the industry for another 5 to 10 years. Though there will be a place for it and you mentioned that you're investing in it, there's still a lot of runway for retail, but perhaps we could pivot to digital. And what is your plan there? What have you done to ramp that opportunity as well as how material is it to you at this point?

Sure. Let me start off by saying that it's becoming material. We wouldn't call it material yet today. We've had tremendous growth in this last year as everyone has had for digital as COVID has struck and more people might be interested in sending wires from their home, from their phone or from their PC as to going out to the retail. What I would say relative to the growth in digital is it's inevitable that digital is going to continue to be a faster-growing component of the overall market than brick-and-mortar in every country. The difference is there'll be certain countries like India and the Philippines, which will be mostly digital, and we'll continue to -- where brick-and-mortar will almost be strangled out of the mix. And then there's countries like Mexico, Guatemala, El Salvador, Honduras and others, where today the brick-and-mortar piece has not moved a great deal from where it was a few years ago. It's smaller as a percentage, but it's not dramatically smaller as a percentage, still probably 80% of the business. We think there's a lot of obstacles to the consumer moving from the brick-and-mortar with those countries, and we can deal with those. But first, let me talk a little bit about what we're doing with brick-and-mortar. We've always felt that the back end of our product, which is similar, regardless of it's brick-and-mortar or it's online, is the same back end. It's the same customer service, the same payers. All have the same ingredients that drive that wire being handled properly has been a state of the art. And it's not ours, but our payers tell us we have the lowest cancellation rate, which is a symptom of quality. And also, the World Bank, last survey that they did, rated us as the top company related to customer service, through both secret shopper and focused group. So we've always had a really high level of customer service that in the brick-and-mortar side extends to that front end. When we get to the online piece, the look and feel of our front end of our online needed to be improved, and we've gone back to the drawing board with that and we're spending hundreds of thousands of dollars and manpower as well on improving the look and feel of the front end so the front end of our digital business is comparable and industry standard like the front end to our brick-and-mortar and matches up well with the back end, which we think is industry standard. We'll be launching that new look and feel within first quarter of 2021, and we think that that's going to be a great way to be able to make the process easier and better for our consumers. Now when we have a front end, we have the luxury now stepping back and the process is a little bit further down the road, and we can look at 5 or 6 of the leading online digital guys and look at what attributes do they have, what seems to be the most important to the consumer and how do we really get to be best-in-class in the front end. We feel comfortable that we can be -- we're able to do that. What we then combine that with that industry knowledge we have and the quality of our backroom, the fact that Mexico is still going to be a driving force out of the U.S. in that we have a call center in Mexico, we have a call center in Guatemala, that we have Spanish-speaking, geographically well-versed customer service agents that can help if there's a problem. We think when we can put all that together that we're going to have a state-of-the-art product in both the front end look and feel and the back end, which is already there. Additionally, we have the brand and a lot of experience with our consumers, and we have millions of distinct consumers every year, and we feel like we're in the best position when those consumers want to convert to online to have them convert to a service that they're familiar with and they're comfortable with and they know delivers for them. So we like where we sit with that. The last piece is that we're putting out -- today, we already have a payroll card and a GPR card. And in both of those cards, we're arming our consumers with the ability that they don't typically have, which is being banked, and that's been the lacking component of empowerment that the consumers had, not to be able to do wires online. And when they would put that card in the hands, we can actually bridge the gap. It's our consumer that we basically have given a card to that now arms them to be digital. And we think when they're using a Mastercard, this is Intermex across the front of it, we like our odds that they've been a Intermex consumer at retail, they've got the Intermex card and now when they go to online, we feel comfortable we can guide them to the online. It's really important because if we solely are directing consumers to your site through the traditional methods that have been used in online, the customer acquisition costs are extremely high. So one of the things we know is we want to be able to empower the consumer more smoothly on a transition as they look to go from brick-and-mortar to online. We're not trying to move consumers that don't want to move. If they're happy with brick-and-mortar, we're going to be in the brick-and-mortar business. But if you're happy with digital, then we're there for you in digital, and it's the consumer's choice.

Got it. Wow, a ton to unpack in there, all valuable information. So thank you for providing that color. I wanted to pivot slightly to talking about fee structure, and I think there's a couple of different facets of this. So for one, maybe if we could just benchmark against competition, and just factually speaking, we know that Western Union -- we cover Western Union. We know that their RPT is in, call it, the $14 to $15 range. And for you guys, it looks like it's a little lower than that. Is there a way to benchmark that? Or is it simply because of the corridors that you're competing in and perhaps on a weighted average basis, there's some more lucrative corridors for them? And how could we square the difference there? Because we know that you did just mention more or less your fees are kind of industry standard, if not a little bit higher.

Yes. I mean, they have a different mix and so it would be really hard to compare. I think when you look at their Mexico business, they're typically charging $8 fee, and we're at $10 fee. Now if you think about their revenue, the second component of their revenue is their exchange profit, right? And they typically get a larger gain per transaction than we do. So I would say that their all-in -- our all-in to Mexico might be between $12 and $13, and I think their all-in to Mexico would be $12 or $13. So I think we're very similar to Mexico. Now our mix is that the rest of our countries are generally without FX components or significant FX component. We have [indiscernible] El Salvador, it's dollarized. Most of the other countries are either dollarized or controlled currencies with very low FX. I'm not sure about the rest of Western Union's countries because it's rest of the world, and it has a lot of even inter-country wires. But I think on an apples-to-apples, we're very similar in the all-in revenue per transaction to, say, Mexico or Guatemala or countries we compete against. Versus the other competition, generally, Western Union is one of the only companies that has lower fees in Mexico but has a bigger exchange game. Mostly everybody charges $10 up to $1,000, although the average wire is like $400 or less, but $10 up to $1,000. And then you'll see varying -- mostly where people discount is on the FX. So people will either gain a percentage point on their points on FX, some people as much as 60, 70 basis points. Others will actually even have a negative FX. They'll actually give the consumer more pesos per dollar than what they bought at the bank as well. And in that case, their average revenue per transaction would be less than the $10. Some people would be $11 or $12. So generally, we're at the higher end, I think, Western Union and us, although Western Union, more of it comes from FX, more of ours comes from the fee.

Got it. No, that's -- that was incredibly helpful. And to kind of piggyback on the fee conversation into another subsequent question, I think it's been well documented in terms of when you're earning FX, when you're solely earning fees because you have certain countries, as you just mentioned, Mexico being one that generates a high FX fee, whereas others are pegged to the dollar, call it, like El Salvador or Honduras are actually dollarized. So I think we can say that we kind of -- we get that, but maybe something to dig into would be pricing pressure on the send side. So when you move into places like California or perhaps other places out West, I think you're, call it, a year or so into your expansion out there, how are you seeing pricing in these newer geographies? I assume there's pressure there just due to the competition and you're still doing well in the strongholds back in East and South.

Yes. So yes, there definitely is a mix shift that happens, and there's 2 mix shifts. Other countries are growing faster than Mexico generally. That was a little bit different during the height of COVID where Mexico held up the strongest. Some of the other countries slowed down, but countries like Dominican Republic and others, where we're smaller, have been growing really fast, and they're lower margins. They don't typically have a big FX component. Although Dominican Republic has a local currency, most of the money gets sent in dollars. So that's one shift that's happening is going from the dominance of our business being Mexico to a more spread over more countries. The second one is that as countries that are newer to us, like California, Arizona, Nevada, Colorado, Texas, generally, West of the Mississippi, we're a newer entry and so our margins are not nearly as high. If you look at some of our countries who are really stronghold states for us in the East, our margins might be as high as $1.5 or $2 higher than they are in the West. We're still really profitable in the West. We're still doing, I think, more gross margin per transaction than mostly anyone else, but it is a different environment. California, for instance, today is our largest state in terms of absolute wires. We do millions of wires in California, and California today is bigger than the entire company was when I took over. But we think California could be twice as big as it is. And in terms of market share, we're about 11% or 12% share in California, whereas if you look like a state of Florida or the Southeast, we might be in the 20s in terms of our market share to Mexico. So a lot of headroom in those markets. The absolute size is really big because they're big markets. And again, the pricing is much more aggressive, but yet that's part of the strategy we had, which was to build on the best, most profitable countries outbound and some of the best geographies inbound in the U.S. And then as you bolt on, you've already taken care of fixed costs. So the relative EBITDA margin per transaction is still pretty stable because we've got -- taking care of our base costs. And these are bolt-ons, and it's growing wires a lot faster than we're growing SG&A. So at the end of the day, they're very, very profitable on the bottom line, not quite as profitable on the gross margin.

Got it. Super, super helpful detail there, really interesting stuff. Okay. I wanted to pivot a little bit to quarter-to-date trends and performance through the pandemic. We know that you guys have done very well through the pandemic, I think, flipping negative for only one month on transactions and then flipping back to positive on a year-over-year growth basis. If there's any intra-quarter update you'd like to give, I mean, for context, I think we saw 19% year-over-year in October, which was, obviously, a phenomenal number. So if there's any more meat you can put on that bone, that would be great.

Yes. I think -- I mean the more meat we put is that we continue to be really strong in the middle teens. October was a great month because, a little subtlety, every month has 4 exact weeks, right, and then it has what we call stump. And in the case of October, it has 3 extra days, the 29th, 30th and 31st. In October, those happen to be the most favorable days in comparison for us because they were all weekend days, the stump days. So that rolled up growth a little bit faster. We are seeing same relative growth in November, but we don't have the favorable 3 days at the end. The last 2 days of the month were Sunday and Monday versus last year versus a Friday and Saturday. So we don't have that windfall at the end, but I think you'll still see November coming in, in the very high middle teens in terms of transaction growth. So it's essentially stayed at the same performance level. It's just we don't have the same windfall at the end in terms of those 3 days.

Got it. No, that's super helpful. And I guess, one more thing on the quarter. In terms of your guidance for, call it, $93 million to $95 million, I think it looks like that implies RPT is down a little bit sequentially. Is that a level of conservatism and perhaps accounting for further mix shift into some of the areas that we talked a little bit earlier about in the fees portion of our conversation?

Yes. I mean there's a little bit of mix shift in what we really have to be careful about. And what I noted a little bit earlier is that we had a mix shift that was shifting to revenue a little bit lower per transaction because the other countries other than Mexico were growing faster prior to COVID. Mexico, for whatever reason, we're not really sure about it. I mean, we know a lot of our Mexican senders work in agriculture, which is certainly stable, and housing starts to remain great. And that's another big area where Mexican consumers work, but it's stayed a lot more stable during COVID. So as a result, we didn't have the same sort of shift. The average revenue per transaction stayed a little bit higher. Now as we're starting to see things come back in the other countries, the El Salvador, Honduras, Dominican Republic, Ecuador, Peru, come back stronger. Mexico sort of stayed at the same level and then these other guys are coming back up. We just have a little bit of sort of conservatism because we don't know how much it's going to swing towards those countries growing a little faster. And so we're a little conservative on revenue. We think we feel really strong on that revenue number, by the way. I mean I'll say that much now. I mean we think we're going to beat it. But we wanted -- when we quoted it, we wanted to be conservative on it because we just didn't know how much the shift would be to lower revenue-producing countries.

Sure. Sure. That's incredibly helpful color. I wanted to move into maybe a brief conversation about the longer term. So when we think about the growth algorithm, perhaps we think about, call it, the longer-term growth rate in wires in the LatAm region, so call it, high single digits. And then we layer on, on top of there. Obviously, share gains have a bit to play in that. And one thing I think I discovered is that the markets that you guys play in, if you look at the breakout by corridor, U.S. to whatever market, the ones that you're already big in those core markets are about 90% coming from the U.S. And so as you add on these incremental markets, they're admittedly lower share of U.S., but wanted to get an idea of how do we get -- how do we bridge kind of exiting the 2022, call it, '23 time frame? And is there more markets for you guys to enter to continue to propel into this low teens, mid-teens area for transaction growth? And where should we see that coming from?

Yes. I think it's a great question, and I want to start out to say we have a lot more plan, but there is so much rich opportunity still with Latin America. The Latin America itself with the right execution can drive for 3 more years the kind of growth we need. We just opened Arizona, which is going to be a big state, just a year ago. It was the last state we opened. We're still a small share in Nevada, Utah, Colorado, where, as we speak, we've been applying different solutions to those markets, because they're a little different, in the same way that we've approached North Carolina, South Carolina, Georgia, Tennessee, might not work in Colorado and Utah. California is still way underpenetrated for us from our perspective. Largest state we have, we do over 6 million wires a year there, but we still think there's a lot of runway as well as the whole West. And we think that behind Mexico and Guatemala and El Salvador and Honduras, which we still think there's a lot of growth out there, we have the next group of countries, Dominican Republic, Colombia, Ecuador, Peru, Nicaragua and others that are growing very fast. So we think the Latin American corridor by itself can continue to produce this kind of growth in '21 and '22 and possibly more. But having said that, I think there's also Africa for us, which is we continue to add new countries. We've been working in a partnership that we can't at liberty disclose who it is right now, but someone who does a lot of wires going to Africa from Europe that's going to access us to the best payer relationships in Africa. And when we have that, we'll be able to tune that up, and it's a huge opportunity for us, nothing like Latin America, but clearly, as big as the secondary. It could be the size of El Salvador or Honduras for us. Not a Mexico or Guatemala, but it could be as big size as a continent. We process today for a company -- a money transfer company online that goes to Philippines, another one that goes to Vietnam. We can add both of those countries to our online processing. Those are mostly driven by online wires, but we can do that and be able to deliver directly ourselves to those countries. Our Canada business, today, we're still just in Ontario, and this is a very tried and [ tested ] strategy that we had. We're very focused. We dominate a market, and we spread out from there. That's what we've done. We don't overextend ourselves. Today, we're in Ontario, but we'll soon be in Québec continent -- territory and then eventually out to the West. So we think Canada brings another opportunity for us. And then when you step away from our traditional brick-and-mortar, we think that our online business is going to provide a lot of growth for us. And then our card business, which we can get into whatever detail you'd like, but we think that both our commercial sale of payroll processing for folks on our card and our regular GPR retail have tremendous growth opportunities. The other thing that's understated in our businesses is that we have really negative net debt today. If you took all the cash in the business and you took our debt, we really have 0 debt. We have $60 million at the end of the year and totally free cash. We don't need as working capital. We're going to be adding to that by about $10,000 a quarter or more. We have access to more capital. And we're looking for acquisitions, bolt-ons that can work and strategically we'll look for one of a few different areas. I don't want to get ahead of myself, but I can give you as much detail as you like in what we look for, but we think that putting that cash to work that today you're just seeing in our balance sheet for either creating new verticals or enhancing verticals that we have will also be a product of growth for us that were -- really great balance sheet for a company our size. So we think that's an answer...

Definitely. No, that's great. And great color. I appreciate all of that. I would say, I think we have time to cover one more topic here, and we're coming up against it. I'd like to touch on the payroll card actually and the GPR card and what the economics are there and how many transactions does this penetrate. Like, what are we looking at in terms of customers that use the wire service that are also using the payroll through their employer? What's the crossover there? And what are the economics like? Are you earning, I assume, interchange on card usage and then sharing that with a partner? So if you could just dive into that as part of our last little bit here.

Sure. Yes. So separating in 2, there's the payroll card piece, which primarily were sort of middle market focused. I don't want to get into too much detail relative to the competition, but we're essentially going to payer -- to the check makers, who today we're processing checks for at our retailers. So as you might know, we have a product called Check Direct. And a lot of our retailers cash checks. We don't cash them. We process them for them. So when we cash a check, we process that check. We also have the technology to understand where that check is coming from. So we might see certain check makers are processing or cashing 1,000 checks in our geographies in a particular town. We have a commercial sales team that would then go out to that retail -- not retailer, but that business and tell them, hey, look, we know you're paying your people in checks because we're clearing them for you. We have this payroll card that would be great. You can load them up on payroll. It will save you money. It will be convenient. And so we're out there focused on that. And our sales guys have the ability -- we'll have a team of about 6 people next year, and they have the ability to close on 2, 3 businesses a month that would have hundreds of employees that would convert to the payroll card. And with 6 people out there, you can kind of do the math in that, and we can add the exponential [ having built on ] more people selling that. But we're always careful of delivering EBITDA along the way in its investment. The GPR card is a card that is basically your typical prepaid card that we would distribute through our retailers. Today, we've done extended pilot testing through our own retailers. As you might know, we have 30-some of our own branch locations that we own the brick-and-mortar on that we do wires through. And now we'd be in a position after the first of the year to offer that through our network of thousands of retailers. And that's a little different card. It has a little different set of rules to it. It's not a payroll card. It's a general-purpose card, but you can load it up and you could actually have your payroll load it up on it if you chose to, but it's not a payroll card. In each of those, there's different dynamics, and I don't want to get into too much detail, but we make money each month off each card, and it can be a nice business once it's built because it's sort of money why you sleep, right? You have a base of consumers you don't really do much for them or with them to be able to get clicks based on their usage, based on the usage of ATMs, based on the usage of retail and like that. But the more important component of that for our businesses is that we feel that the biggest obstacle, at least one that you can touch the biggest obstacle is just in cultural, is the fact that consumers don't have bank accounts to do digital transactions. So here we are empowering retailers -- I'm sorry, consumers who in the past did not have the ability to go online and do a digital transaction, giving them a card to be able to do that, and that card coming from someone that they're doing wires with already or coming from someone that has our name across the front of it, I think it's a great transition for consumers that want to go ahead and do online wires to empower them to do that. So I think it's the twofold for us. Now what we're seeing is in the very small segment of consumers that we have, we've only really started selling to these check makers in the last year. We're seeing that we're getting a certain percentage, not one wire per card because not everybody uses us, but we're getting a significant number of wires, 0.6, 0.7 wires per card per month. And if you start looking at that, if you had hundreds of thousands of cards out there, it could be a great boost to transactions and, clearly, a great boost to Internet-based digital transactions because of the empowerment of being able to do a digital wire. So that's how we kind of look at that business. I think it can be really profitable. If you build it to a couple million or 2 million consumers, which is not difficult to do, we don't think, over time, it could be a business that has a bottom line EBITDA of $20 million, $22 million a year, so a nice add-on business. But it's just -- it's something that has to be built over time, and then you'll get those clicks per month.

Got it. Well, super helpful, and it sounds like an interesting business. Well, Bob, I think we have to leave it there, but I wanted to thank you again for participating today in the conference. And investors, I want to thank you for tuning in and hope you enjoy the rest of your days and enjoy the rest of your meetings, Bob. Thank you so much.

Thanks, Justin. Thanks to Credit Suisse. Appreciate it. Thanks, everyone. Bye-bye.

Thank you.