International Money Express, Inc. — 2019 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2019; unaudited fourth-quarter figures are also disclosed. Intermex provides money-transfer services, primarily from the United States to Latin America and the Caribbean, through a network of more than 100,000 sending and paying agents, company-operated stores, and digital channels. It processed approximately 28.6 million remittances in 2019, up more than 18% from 2018. Results are for the post-merger Successor Company; the 2019 and 2018 annual periods are presented on the same basis, though prior acquisitions created a new accounting basis in earlier periods.
Financial performance
Amounts below are in millions of dollars unless otherwise indicated.
| Metric | FY 2019 | FY 2018 | Change |
|---|---|---|---|
| Revenue | $319.6 | $273.9 | +16.7% |
| Operating income | $36.4 | $13.1 | +178.7% |
| Operating margin | 11.4% | 4.8% | +6.6 percentage points |
| Net income (loss) | $19.6 | $(7.2) | Turned profitable |
| Basic and diluted EPS | $0.52 | $(0.28) | Turned profitable |
| Adjusted EBITDA (non-GAAP) | $57.6 | $47.1 | +22% |
| Adjusted net income (non-GAAP) | $32.6 | $18.4 | +77% |
Wire-transfer and money-order fees net of discounts were $273.1 million, up $40.7 million, while foreign-exchange gain was $44.3 million, up $4.5 million. Management attributed revenue growth principally to a 19% increase in transaction volume and a 10% expansion in the agent network. Agent and bank service charges rose $30.2 million but remained 67% of revenue. Salaries and benefits declined to $30.7 million from $32.9 million, partly because 2018 included merger-related incentive compensation. Other selling, general and administrative expense increased to $27.1 million, including TCPA settlement and legal costs, offering-related costs, insurance and IT expenses.
Fourth quarter: Revenue was $83.2 million versus $75.1 million in Q4 2018; operating income was $9.7 million versus $6.9 million; net income was $5.3 million versus $4.9 million; and EPS was $0.14 versus $0.13. Quarterly results are unaudited.
Cash flow and liquidity: Operating cash flow was $52.5 million, up from $19.8 million; management cited business growth and a $15.5 million contribution from working-capital changes. Investing cash outflow was $6.7 million, mainly for property, equipment and agent-location acquisitions. Financing cash outflow was $32.9 million, including $30.0 million of revolver repayments, $10.0 million for the warrant offer and $5.0 million of term-loan payments, partly offset by $12.0 million of incremental borrowings. Year-end cash was $86.1 million, compared with $73.0 million a year earlier.
Debt: Gross borrowings were $97.0 million at year-end, all under the term loan; the balance-sheet debt carrying amount, net of issuance costs, was $94.7 million. The company reported $53.0 million of additional borrowing availability. The secured credit agreement matures in November 2023, bears variable rates, and includes minimum fixed-charge coverage and maximum leverage covenants; the company reported compliance at year-end. A 1 percentage-point interest-rate change would affect annual term-loan cash interest by approximately $1.0 million.
Material changes, outlook and risks
- Profitability improved substantially as revenue growth, lower interest expense and the absence of 2018 merger transaction costs lifted operating and net income. Interest expense fell to $8.5 million from $18.4 million, partly because 2018 included refinancing costs and a prepayment penalty.
- The company expanded remittance services to Africa from the United States and began sending services from Canada to Latin America and Africa. New products include online payment options, prepaid debit cards and payroll cards; management cautioned that these may have different cost, demand, regulatory and risk characteristics from core remittances.
- Management said it expects operating cash flows and revolving-credit availability to fund debt service, working capital and expected capital expenditures for the next 12 months. The filing provides no specific revenue, earnings or transaction-volume guidance.
- Key exposures include competition and pricing pressure, dependence on agents and major paying agents, concentrated banking relationships, cybersecurity and operational disruptions, fraud and compliance failures, regulatory changes, migration and economic trends, foreign-exchange movements, and political or currency instability in operating markets. Elektra, the largest paying agent by volume, accounted for approximately 18% of 2019 remittance volume.
- The company identified the then-emerging coronavirus outbreak as a potential source of demand, economic and operational disruption; its effects were uncertain at the filing date. It also cited possible long-term adverse effects from sustained appreciation of the Mexican peso or Guatemalan quetzal against the U.S. dollar.
- A proposed $3.25 million settlement of a TCPA class action, plus $0.4 million of related legal expenses, was accrued at year-end and remained subject to definitive documentation and court approval. The company reported no other legal matters expected to have a material adverse effect, while noting outcomes cannot be predicted with certainty.
- The 2019 warrant exchange used approximately $10.0 million cash and issued approximately 1.8 million shares. A separate secondary offering of 5.2 million shares plus 782,608 option shares was conducted by selling stockholders; the company received no proceeds.
- Adoption of the revenue-recognition standard on January 1, 2019 reduced opening retained earnings by approximately $1.0 million, net of tax. At year-end, deferred loyalty-program revenue was $2.5 million. Management reported effective disclosure controls and internal control over financial reporting; the auditor did not attest to internal controls because the company qualified for the emerging-growth-company exemption.
Most important facts for investors to verify
- Whether transaction growth and revenue gains persist, and how margins respond to agent commissions, pricing competition and expansion into new corridors and products.
- Cash conversion and working-capital volatility: the increase in 2019 operating cash flow included a substantial working-capital contribution.
- Debt service capacity, variable-rate exposure, covenant headroom and the terms and availability of the remaining revolving credit capacity.
- Final court approval and settlement administration for the TCPA case, along with any material developments in other legal or regulatory matters.
- Concentration and continuity of key agent, paying-agent and banking relationships, especially Elektra and major U.S. banks, as well as cybersecurity and compliance performance.