International Money Express, Inc. — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019. Unaudited results; amounts below are in U.S. dollars unless noted. Intermex is a money-transfer business focused mainly on U.S.-to-Latin America remittances, with a network of more than 100,000 sending and paying agents, 33 company-operated stores, and digital channels.
Financial results
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $85.3m | $72.5m | $236.4m | $198.8m |
| Operating income (loss) | $8.4m | ($2.4m) | $26.7m | $6.2m |
| Net income (loss) | $4.0m | ($13.4m) | $14.3m | ($12.1m) |
| Diluted EPS | $0.11 | ($0.43) | $0.38 | ($0.55) |
- Revenue grew 17.7% in Q3 and 18.9% for the nine-month period. Management attributed growth primarily to transaction volume, up 19% and 21%, respectively, supported by a 12% year-over-year increase in the agent network.
- Operating margin was approximately 9.9% in Q3 and 11.3% year to date, versus a Q3 loss and a 3.1% margin in the 2018 nine-month period. Net margin was approximately 4.7% in Q3 and 6.0% year to date.
- Wire-transfer and money-order fees were $72.5m in Q3 and $201.4m year to date; foreign-exchange gain was $12.3m and $33.3m, respectively. Agent and bank service charges rose with volume but declined as a share of revenue to 66% from 67% year to date.
- Adjusted net income, a non-GAAP measure, was $9.5m for Q3 and $25.0m for nine months; Adjusted EBITDA was $16.5m and $43.5m, respectively. These measures include adjustments identified by the company and should not be viewed as substitutes for GAAP results.
Cash flow, balance sheet and debt
- Nine-month operating cash flow was $57.1m, compared with $30.5m in 2018. Investing used $4.1m, mainly for property and equipment; financing used $32.0m. Cash and restricted cash ended at $94.2m, up from $73.0m at year-end 2018. Management attributed part of the operating cash increase to $11.8m of working-capital changes.
- At September 30, 2019, total assets were $240.9m and stockholders’ equity was $49.6m. Accounts receivable was $53.8m; wire transfers and money orders payable were $57.3m.
- Gross debt principal was $98.3m, all term-loan borrowings, compared with $120.0m of gross debt at December 31, 2018. The balance sheet reports debt net of issuance costs. The company reported $53.0m of additional borrowing availability and compliance with its credit covenants. The facility matures in November 2023, bears floating rates, and includes quarterly fixed-charge coverage and leverage requirements. A 1% rate change was estimated to affect annual term-loan cash interest by approximately $1.0m.
- Management expects operating cash flow and available revolving-credit borrowings to cover debt service, working capital and planned capital spending for the next 12 months. This is management’s assessment, not formal earnings guidance.
Material changes and unusual items
- Q3 2018 included $6.3m of merger transaction costs and about $4.0m of accelerated incentive-unit compensation. Their absence in 2019 contributed to the reported earnings improvement; 2018 comparisons also reflect the July 2018 merger and are not fully comparable.
- 2019 SG&A included approximately $3.3m for a TCPA class-action settlement fund and related legal fees. The October 2019 settlement term sheet is subject to a definitive agreement and court approval; the fund is $3.25m.
- In September, selling stockholders completed a 5.2m-share public offering at $12.75 per share. The company received no proceeds and recorded approximately $0.8m of offering costs. Separately, the company exchanged warrants in 2019 for approximately 1.8m shares and $10.0m cash.
- The company adopted the new revenue-recognition standard on January 1, 2019. Adoption reduced opening accumulated deficit by approximately $1.0m, net of tax, and created a deferred-revenue liability for its customer loyalty program; the September 30 liability was $2.5m.
- The company reported no material change in principal risk factors and no material change to internal control over financial reporting; management concluded disclosure controls were effective as of September 30.
Outlook, risks and contingencies
- No specific revenue, earnings or margin guidance is provided. Management expects continued investment in compliance, systems and customer and agent channels; these initiatives may increase costs.
- Key risks include competition and technology disruption; maintaining agent and banking relationships; cybersecurity, fraud and regulatory compliance; political, economic, migration and currency developments in remittance markets; and the ability to service debt and meet covenants. Management noted that sustained appreciation of the Mexican peso or Guatemalan quetzal could pressure revenue or margins.
- Other ordinary-course legal matters remain unresolved; management said loss probability or damages could not be estimated for those matters. The company reported compliance with applicable tangible-net-worth and eligible-liquid-asset requirements for outstanding transfers and money orders.
Most important facts for investors to verify
- Whether transaction growth and revenue gains persist, and how agent commissions, foreign-exchange gains and operating costs affect margins.
- Final court approval and total cost of the TCPA settlement, plus any material developments in other legal or regulatory matters.
- Debt balances, borrowing availability, floating-rate exposure and ongoing compliance with credit-facility covenants.
- Cash generation and working-capital movements, particularly receivables and transfer-related payables, and the liquidity needed to meet payment obligations.
- The assumptions and adjustments behind Adjusted Net Income and Adjusted EBITDA, and the effect of share-based compensation and share issuance on per-share results.