International Money Express, Inc. — FY 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018. The filing also reports unaudited fourth-quarter results. Intermex completed its merger with FinTech Acquisition Corp. II on July 26, 2018; the transaction was accounted for as a reverse recapitalization. Comparisons with 2017 require care because the filing combines predecessor and successor periods following the 2017 Stella Point acquisition.
Business context and financial performance
Intermex provides money-transfer services, primarily from the United States to Latin America and the Caribbean, through an agent network, company-operated stores, and digital channels. It processed approximately 24 million remittances in 2018, with transaction volume up more than 27% year over year. Mexico and Guatemala are its largest corridors.
| FY 2018 metric | Result |
|---|---|
| Revenue | $273.9 million |
| Operating income / margin | $13.1 million / 4.8% |
| Net loss / diluted loss per share | $7.2 million / $0.28 |
| Adjusted EBITDA | $47.1 million / 17.2% of revenue |
| Cash from operating activities | $19.8 million |
| Cash and cash equivalents | $73.0 million |
| Debt | $120.0 million principal; $117.3 million net of debt costs on the balance sheet |
| Current assets / current liabilities | $138.7 million / $68.0 million |
Revenue comprised $232.4 million in wire-transfer and money-order fees, $39.8 million in foreign-exchange revenue, and $1.8 million in other income. Agent and bank service charges were $182.5 million, or 66.6% of revenue. The company generated $19.8 million of operating cash flow, used $5.5 million in investing activities, and used $1.1 million in financing activities.
Fourth-quarter results
Unaudited Q4 revenue was $75.1 million, up from $59.3 million in Q4 2017. Operating income was $6.9 million, compared with an operating loss of $0.3 million a year earlier. Q4 2018 reported net income of $4.9 million despite a pretax loss of $1.5 million, alongside an income-tax benefit of $6.3 million. The filing does not provide a clear quarter-specific explanation for this sizable tax benefit; investors should not treat the quarter’s net income as a straightforward measure of recurring profitability.
Material changes and unusual items
- FY 2018 revenue increased about 27% from the filing’s combined 2017 predecessor and successor periods, primarily reflecting 27% transaction-volume growth and a 21% increase in the agent network. Foreign-exchange revenue rose 22%.
- Operating income improved from a combined 2017 operating loss of approximately $3.1 million to $13.1 million in 2018. Net loss narrowed from approximately $13.5 million to $7.2 million. Adjusted EBITDA increased 41%, from approximately $33.4 million to $47.1 million.
- Interest expense rose to $18.4 million, including approximately $5.4 million of refinancing-related charges: a prepayment penalty and write-off of prior debt-issuance costs. The November 2018 refinancing replaced the prior facility with a $90 million term loan and a $35 million revolver, maturing in 2023; $30 million was drawn on the revolver at year-end.
- Merger-related transaction costs were $10.3 million. Share-based compensation included $4.7 million from vesting of legacy incentive units at the merger and $1.1 million under the new equity plan.
- Although cash increased year over year, working-capital balances shifted: prepaid wires rose to $26.7 million from $7.7 million, while accounts receivable fell to $35.8 million from $51.4 million.
Outlook, risks, and contingencies
Management said projected operating cash flow, together with revolver borrowings, should be sufficient for the next 12 months to fund debt service, working capital, and expected capital expenditures. The company described strategies to expand share in existing corridors, enter additional corridors, grow digital and mobile transfers, and develop business-to-business uses for its technology platform. No specific forward revenue or earnings guidance is provided.
- Debt carries variable interest rates. At year-end, the company was in compliance with its financial covenants, which include a minimum fixed-charge coverage ratio of 1.25:1.00 and maximum leverage ratio of 3.25:1.00. A 1 percentage-point rate change would affect annual cash interest by about $1.2 million on year-end borrowings.
- Key business risks include competition, retaining agents and banking relationships, regulatory and anti-money-laundering compliance, fraud and cybersecurity, and political, economic, migration, and currency conditions in Latin America. Sustained peso or quetzal devaluation could adversely affect margins.
- Paying-agent concentration is significant: Grupo Elektra handled approximately 20% of 2018 remittance volume. The filing also identifies concentration among key U.S. banking partners and notes that $61.4 million of U.S. bank deposits exceeded federal insurance limits.
- Stella Point-affiliated parties held 34.1% of common stock and, under the shareholders agreement, controlled approximately 58.7% of director-election voting power. This may affect governance and other shareholder decisions.
- The company reported no legal proceedings expected to have a material adverse effect and no material off-balance-sheet arrangements. Prior material weaknesses in financial reporting controls were reported as remediated; the 10-K excludes management’s assessment of internal control because of the merger timing.
Important facts for investors to verify
- What drove the Q4 $6.3 million income-tax benefit, and how much of Q4 earnings is repeatable?
- How much of 2018 Adjusted EBITDA growth reflects ongoing operations versus merger costs, incentive compensation, and other add-backs?
- Can the company sustain transaction growth while controlling agent commissions, compliance costs, and interest expense?
- What are the current exposure and contingency plans for the Elektra relationship, major banking partners, and uninsured cash balances?
- How much headroom remains under debt covenants, and how sensitive are liquidity and earnings to interest-rate increases?
- How might Stella Point’s voting influence, potential shareholder resales, and warrants or equity awards affect governance and dilution?