International Money Express, Inc. — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019. Unaudited results are compared with the corresponding 2018 periods. Amounts are in U.S. dollars; financial statement figures are in millions unless noted. Intermex provides money-transfer services, primarily from the United States to Latin America and the Caribbean, through agent locations and digital channels.
Financial performance and liquidity
| Metric | Q2 2019 | Q2 2018 | First half 2019 | First half 2018 |
|---|---|---|---|---|
| Revenue | $82.7 | $70.4 | $151.0 | $126.3 |
| Operating income | $12.0 | $6.1 | $18.3 | $8.6 |
| Net income | $7.1 | $1.8 | $10.2 | $1.3 |
| Diluted EPS | $0.19 | $0.11 | $0.28 | $0.08 |
| Adjusted EBITDA (non-GAAP) | $16.3 | $13.3 | $27.0 | $22.2 |
- Growth and margins: Q2 revenue increased 17% year over year; management attributed the increase chiefly to 20% transaction growth and a 17% expansion in the agent network. First-half revenue rose 20%, with transactions up 22%. Approximate operating margin improved to 14.5% in Q2 from 8.6%, and to 12.1% for the first half from 6.8%. Approximate net margin was 8.6% and 2.6% in Q2, respectively, and 6.8% and 1.0% for the first half.
- Costs: Agent and bank service charges were 66% of revenue in Q2, unchanged year over year; first-half share declined to 66% from 67%. Higher transaction-related costs, wages, compliance and public-company expenses partly offset revenue growth. Depreciation and amortization declined as certain acquired intangibles are amortized on an accelerated basis.
- Cash flow: First-half operating cash flow was $32.1 million, versus $6.9 million in 2018; management cited growth and working-capital movements. Investing cash outflow was $2.7 million, including $2.4 million of property and equipment purchases and $0.3 million for agent locations. Financing provided $4.3 million. Cash and restricted cash at period-end was $106.9 million, up from $73.0 million at year-end.
- Debt and liquidity: Gross debt was $134.6 million ($99.6 million term loan and $35.0 million revolving borrowings); $18.0 million of additional borrowing capacity was available. Balance-sheet debt, net of issuance costs, was $131.9 million. The credit facility matures in November 2023; it has variable rates and financial covenants. The company reported compliance at June 30, 2019. Current assets were $211.1 million and current liabilities $123.3 million. Management said cash generation and available revolver capacity should meet expected needs for the next 12 months.
- Other balance-sheet items: Total assets were $294.4 million and stockholders’ equity $45.0 million. Wire transfers and money orders payable were $83.8 million, reflecting the payment obligations inherent in the business.
Material changes and notable items
- Interest expense fell to $2.3 million in Q2 and $4.4 million in the first half, from $3.4 million and $6.7 million, respectively; management attributed the decrease primarily to lower rates under the credit agreement.
- The company completed an offer and conversion of substantially all outstanding warrants in April–May 2019, paying about $10.0 million cash and issuing approximately 1.8 million shares. Shares outstanding reached 38.0 million at June 30. The increase in weighted-average shares affects per-share comparisons; 2018 weighted-average shares were 17.2 million.
- Adoption of the revenue-recognition standard (ASC 606) on January 1, 2019 reduced opening accumulated deficit by $1.0 million, net of tax, and established a deferred loyalty-program revenue liability. The liability was $2.3 million at June 30. Prior-year figures were not restated.
- Q2 2018 included $2.6 million of merger transaction costs; first-half 2018 included $4.0 million. 2019 included warrant-offer professional fees of $0.4 million in Q2 and $0.9 million in the first half. Adjusted EBITDA and adjusted net income are non-GAAP measures and include management-defined adjustments.
Outlook, risks and contingencies
- The filing provides no quantified financial guidance. Management expects to fund liquidity needs with operating cash flow and revolver borrowings and believes these resources are adequate for the next 12 months.
- Management cites competition, agent and banking relationships, credit exposures, cybersecurity and fraud, regulatory compliance, economic and migration trends, foreign exchange movements, and political or currency restrictions as risks. It notes that sustained appreciation of the Mexican peso or Guatemalan quetzal against the U.S. dollar could pressure revenue and profitability. A 1% rate change was estimated to alter annual cash interest by about $1.0 million on term debt and $0.4 million on revolver borrowings.
- Legal proceedings and regulatory matters arise in the ordinary course; management does not expect them to have a material adverse effect based on information available. Subsidiaries were reported compliant with specified tangible-net-worth and liquid-asset requirements. Operating lease commitments totaled $6.4 million; debt principal and interest commitments were $134.6 million and $34.2 million, respectively.
- Management reported effective disclosure controls as of June 30, 2019 and no material changes in internal control over financial reporting during the quarter. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Reconcile cash generation and the significant receivables and wire-payable movements to underlying transfer volumes and settlement timing.
- Confirm debt availability, covenant headroom and variable-rate exposure; the filing gives differing June 30 rate figures: the debt note reports effective rates of 7.82% (term) and 8.34% (revolver), while MD&A cites 7.12% and 6.90%.
- Assess the effect of the warrant exchange and higher share count on per-share results, and distinguish GAAP results from management’s adjusted non-GAAP measures.
- Monitor the deferred loyalty-program liability and the effects of the ASC 606 adoption, along with agent-network growth, service-charge trends and foreign-exchange exposure.