International Money Express, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with the three months ended March 31, 2022, unless stated otherwise. Amounts below are in U.S. dollars. The company provides money-transfer services primarily from the U.S. and Canada to Latin America and other regions through agents, company-operated stores and digital channels. La Nacional, acquired November 1, 2022, contributed to the quarter; LAN Holdings was acquired after quarter-end, on April 5, 2023.
Financial and operating performance
| Metric | Q1 2023 | Q1 2022 | Change / context |
|---|---|---|---|
| Revenue | $145.4 million | $114.7 million | Up 26.8% |
| Operating income | $18.8 million | $17.1 million | Up 10.1% |
| Net income | $11.8 million | $11.7 million | Up 0.9% |
| Diluted EPS | $0.31 | $0.30 | Up $0.01 |
| Operating cash flow | $1.2 million | $33.3 million | Down $32.1 million |
| Capital expenditures | $2.1 million | $4.3 million | Cash used in investing activities |
- Net wire-transfer and money-order fees were $124.5 million, up 27.0%; net foreign-exchange gain was $19.2 million, up 22.3%. Management attributed growth to transaction volume, higher average amounts sent and foreign-exchange volatility. Other income rose to $1.7 million, partly reflecting La Nacional services.
- Principal amount sent increased 22.4% to $5.3 billion; remittances processed rose 28.6% to approximately 12.9 million. Management said the sending-agent network declined slightly as it closed low-volume and unproductive agents.
- Operating expenses rose 29.7% to $126.5 million. Service charges increased 24.8% to $96.1 million; salaries and benefits rose 43.0% to $16.2 million, including talent acquisition and retention costs and La Nacional employees; other selling, general and administrative expenses rose 60.4% to $11.3 million.
- Calculated operating margin was approximately 13.0%, down from 14.9%; calculated net margin was approximately 8.1%, down from 10.2%. Interest expense increased 130% to $2.2 million, largely due to higher market rates and revolving-credit borrowings.
- Adjusted EBITDA, a non-GAAP measure, was $24.1 million, up 16.4%; adjusted net income was $14.2 million, up 6.0%. Adjusted diluted EPS was $0.38 versus $0.34. These company-defined measures exclude specified items and are not substitutes for GAAP results.
Balance sheet, cash flow and liquidity
- At March 31, cash and cash equivalents were $85.5 million, compared with $149.5 million at year-end. Current assets were $304.4 million and current liabilities $156.4 million.
- Debt carrying value was approximately $99.2 million, comprising $79.8 million of term-loan borrowings and $21.0 million drawn on the revolver, before considering debt-cost presentation. The company repaid $55.0 million of revolving borrowings during the quarter. The credit agreement matures June 24, 2026.
- Operating cash flow was $1.2 million versus $33.3 million a year earlier. Management attributed the decline principally to a $34.9 million working-capital change, including the timing of money transfers, payments and payer prefunding. Financing cash outflow was $63.8 million, including revolving-credit repayments and $7.6 million of share repurchases. Cash declined by $64.0 million during the quarter.
- Management stated that cash, projected operating cash flows and revolving-credit access are expected to cover operating needs, debt service, acquisitions and capital expenditures for at least the next 12 months. At March 31, the filing reported $199.0 million of additional borrowing availability. Effective April 18, the revolving commitment increased from $150 million to $220 million; the amended facility also includes an uncommitted incremental facility of up to $70 million.
- The company reported compliance with its credit covenants at March 31. Requirements include a minimum fixed-charge coverage ratio of 1.25:1.00 and maximum consolidated leverage ratio of 3.25:1.00. Variable-rate debt exposes the company to rate increases.
Material changes, outlook, risks and contingencies
- La Nacional’s inclusion supported volume and revenue growth but also contributed to higher personnel, facilities, insurance and amortization costs. LAN Holdings closed April 5 for $8.0 million cash consideration, subject to customary adjustments, plus a $0.6 million milestone payment; its purchase accounting was incomplete at filing.
- The board expanded the stock-repurchase authorization by $100 million in March. The company repurchased 316,459 shares for $7.6 million during the quarter; $100.7 million remained available under the program at March 31, subject to credit-agreement restrictions.
- No specific numerical full-year revenue or earnings guidance is provided in the supplied filing text. Management expects regulatory compliance and cybersecurity enhancements to continue and may increase costs. It also cited competition, economic weakness and inflation, agent and banking relationships, fraud, cyber risks, foreign-exchange volatility, and restrictions or regulatory changes affecting remittances as risks.
- Management expects continued Federal Reserve rate increases through the remainder of 2023. It estimated that a 1% rate change on March 31 borrowings would alter annual cash interest expense by approximately $1.0 million in total. Sustained appreciation of the Mexican peso or Guatemalan quetzal could pressure margins.
- The company has approximately $5.2 million of deposits exposed to a Mexican financial institution in liquidation and maintains a valuation allowance of approximately $3.6 million; recovery timing and amount are uncertain. Ordinary-course legal and regulatory matters remain outstanding; management said loss probability or damages could not be estimated for certain proceedings and recorded no reserve. The company reported material compliance with applicable licensing liquidity and net-worth requirements.
- Disclosure controls were assessed as effective as of March 31, 2023, and the company reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- How much of revenue and transaction growth came from La Nacional versus organic growth, and whether the increased volumes translate into durable margins.
- Whether the low Q1 operating cash flow reflects timing effects that reverse, and how working capital and cash balances develop in subsequent quarters.
- Exposure to variable interest rates, actual revolver availability after the April amendment, and ongoing compliance with debt covenants and repurchase restrictions.
- Integration costs, purchase-accounting adjustments and financial contribution from LAN Holdings following its April 5 closing.
- Credit quality of sending agents, recovery prospects for the Mexican bank deposits, and any developments in legal, regulatory, cybersecurity or foreign-exchange risks.
- Future share repurchases and their funding relative to debt reduction, acquisitions and operating liquidity needs.