International Money Express, Inc. — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. Unaudited results; 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.
Financial performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $95.6m | $85.3m | $257.9m | $236.4m |
| Operating income | $14.6m | $8.4m | $38.1m | $26.7m |
| Net income | $9.5m | $4.0m | $24.2m | $14.3m |
| Diluted EPS | $0.25 | $0.11 | $0.63 | $0.38 |
| Operating margin | 15.2% | 9.9% | 14.8% | 11.3% |
| Net margin | 9.9% | 4.7% | 9.4% | 6.0% |
Q3 revenue grew 12.0% year over year, driven mainly by a 13% increase in transaction volume and 5% growth in the sending-agent network. Net foreign-exchange gain was essentially flat for the quarter. For the nine months, revenue increased 9.1%; transaction volume rose 10%. Management reported an August monthly sales record and described Q3 transaction and volume trends as positive.
Agent and bank service charges rose with transaction volumes and were 67% of revenue in both the quarter and nine-month periods, versus 66% in 2019. Lower other SG&A—partly reflecting the absence of 2019 TCPA settlement-related charges—and lower amortization helped improve operating margins. Lower interest expense also benefited earnings. Adjusted EBITDA, a non-GAAP measure, was $19.1m in Q3 (up 16%) and $49.7m for nine months (up 14%); adjusted net income was $12.2m and $30.6m, respectively. These measures exclude specified costs and should not be treated as substitutes for GAAP results.
Cash flow, debt and liquidity
- Cash was $109.1m at September 30, 2020, compared with $86.1m at December 31, 2019. Current assets were $180.7m and current liabilities $89.2m.
- Nine-month operating cash flow was $31.6m, down from $57.1m. Management attributed the decline primarily to a $35.5m working-capital change, including movements in receivables and remittance-related balances. Investing cash outflow was $2.8m; financing cash outflow was $5.7m, mainly scheduled term-loan repayments.
- Term-loan principal outstanding was $91.3m before $1.9m of unamortized debt costs; the balance sheet reported net debt of $89.4m. No revolving-credit borrowings were outstanding. The $35m revolver and incremental facility supported $53m of additional borrowing availability as reported by the company.
- The credit agreement matures November 2023 and carries variable interest rates. The company reported compliance with its financial covenants at quarter-end. Management believed operating cash flow and available revolver capacity would cover anticipated needs for at least 12 months.
Outlook, risks and unusual items
- No quantified revenue or earnings guidance was provided. Management said the pandemic had not materially adversely affected results through September 30, while emphasizing that future effects remained uncertain. Key sensitivities include pandemic duration and restrictions, customer employment and income, and agent and consumer ability to transact.
- Foreign-exchange volatility, particularly in the Mexican peso, affected operations; management expected continued currency volatility and noted that sustained appreciation of the Mexican peso or Guatemalan quetzal could pressure margins. A 1% interest-rate change would alter annual cash interest on term debt by approximately $0.9m.
- COVID-19-related credit and operating risks include potential agent and bank losses, service interruptions, cyber and remote-work security risks, and possible renewed shutdowns. The company reported a $1.4m bad-debt provision for nine months, with higher write-offs tied primarily to a small number of agents affected by other events.
- A $3.25m TCPA class-action settlement was accrued; approximately $2.9m remained payable at quarter-end and was paid into the settlement fund in October 2020. Other proceedings were not reserved because management said loss probability or amount could not be estimated.
- The company received and returned a $3.5m Paycheck Protection Program loan in April 2020 after subsequent SBA and Treasury guidance. A secondary offering of 4.9m shares closed October 5, followed by a 0.7m-share underwriter option completed November 4. Selling stockholders received the proceeds; the company received none and incurred approximately $0.5m in costs.
- Management performed qualitative goodwill and intangible-asset reviews and found no impairment indicators at September 30. It also reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether transaction growth and strong Q3 sales trends continue, and whether higher agent costs remain proportionate to revenue.
- Cash-flow quality: the effect of working-capital timing and remittance-related balances on operating cash generation.
- Debt-service capacity, covenant headroom, variable-rate exposure and the availability of committed liquidity.
- Subsequent effects of COVID-19, foreign-exchange movements, agent credit quality and the reported bank-closure loss.
- Completion and costs of the secondary offering, settlement payments, and any later changes in legal or regulatory exposures.
- The filing states that management expected liquidity to be adequate for at least 12 months; it provides no formal quantified operating guidance.