International Money Express, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; unaudited. Comparisons are with the three months ended March 31, 2019, unless otherwise noted. The company provides money-transfer services, primarily from the U.S. to Latin America and the Caribbean, through agents, company-operated stores and digital channels.
Financial performance
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Total revenue | $77.3 million | $68.3 million | +13.0% |
| Operating income | $9.6 million | $6.3 million | +52.8% |
| Net income | $5.7 million | $3.2 million | +80.2% |
| Diluted EPS | $0.15 | $0.09 | Up $0.06 |
| Operating cash flow | $18.8 million | $29.2 million | Down $10.4 million |
| Adjusted EBITDA (non-GAAP) | $13.2 million | $10.8 million | +22.8% |
Net revenue from wire-transfer and money-order fees was $67.1 million, up $8.6 million; net foreign-exchange gain was $9.6 million, up $0.2 million. Transaction volume grew approximately 17%, to about 7.0 million transfers. Operating expenses rose 9.0%, slower than revenue. Operating margin increased to approximately 12.5% from 9.2%, and net margin to approximately 7.4% from 4.6%. Agent and bank charges increased $6.6 million with higher transaction volume; salaries and benefits, other selling, general and administrative expenses, and depreciation and amortization declined.
Cash was $101.8 million at March 31, 2020, versus $86.1 million at year-end 2019. Total current assets were $150.8 million and current liabilities $79.4 million. Term-loan principal was $95.1 million; the balance-sheet debt carrying amount was $92.9 million after unamortized issuance costs. No revolver borrowings were outstanding, and the company reported $53.0 million of additional borrowing availability. Quarterly term-loan repayments were $1.9 million. Cash from operations declined year over year primarily because of working-capital movements, which management noted can vary with transfer timing.
Changes, outlook and risks
- Growth and earnings: Higher transaction volume and agent-network growth drove fee revenue. Lower interest expense and declining intangible amortization also supported earnings. The effective tax provision increased to $2.1 million from $1.1 million.
- COVID-19: The company said pandemic effects had only a limited impact on Q1 results, but reported a slight year-over-year transaction-volume decrease since the pandemic began and a moderate declining-volume trend in Q2. It temporarily closed its 33 company-operated stores, which accounted for 2.3% of 2019 revenue, and implemented work-from-home, safety and cost-control measures. It withdrew 2020 guidance because of uncertainty. Management could not predict the pandemic’s duration or effects, particularly on customer employment and demand.
- Foreign exchange: Mexican-peso volatility increased in March. Higher customer transfer amounts helped foreign-exchange revenue, partly offset by more cancellations. Management expected continued 2020 currency volatility and peso depreciation, but could not estimate its duration or extent. Sustained appreciation of the peso or quetzal could pressure margins.
- Liquidity and debt: Management believed operating cash flow and available revolver capacity would cover debt service, working capital and expected capital expenditures for at least 12 months. The credit agreement matures November 7, 2023 and includes a 1.25 minimum fixed-charge coverage ratio and 3.25 maximum leverage ratio; the company reported covenant compliance at quarter-end. Debt is variable-rate, creating interest-rate exposure.
- Legal and other unusual items: A TCPA class-action settlement established a $3.25 million fund, subject to court approval; approximately $2.9 million remained accrued at quarter-end. In April, the company received a $3.5 million Paycheck Protection Program loan and returned it on April 29 after subsequent SBA and Treasury eligibility guidance. No goodwill or intangible impairment indicators were identified at March 31 following qualitative assessments.
- Other risks: The filing highlights agent and bank relationships, counterparty and credit exposure, competition from digital platforms, cybersecurity, regulatory compliance, consumer fraud, migration patterns and economic conditions. Bad-debt provision rose to approximately $0.7 million from $0.4 million due to deterioration in a small number of agents’ creditworthiness, which management said was not pandemic-related.
Important facts for investors to verify
- Whether the Q2 transaction-volume decline continued, and how pandemic-related unemployment and restrictions affected demand, agent operations and cash flow.
- Whether revenue growth and margins remained durable as transaction volumes, foreign-exchange spreads and cancellation levels changed.
- Available revolver capacity, debt balances, variable interest costs and continued compliance with credit covenants.
- Final court approval and payment of the TCPA settlement, and any material changes in other legal or regulatory matters.
- Subsequent agent credit losses, receivable collectability and any impairment reassessment of goodwill or intangible assets.
- Management’s non-GAAP Adjusted EBITDA and Adjusted Net Income reconciliations; these measures supplement, and do not replace, GAAP results or cash-flow measures.