International Money Express, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; unaudited. The company provides money-transfer and related services, primarily from the U.S. to Latin America. The 2018 comparison reflects Intermex’s historical results under reverse-recapitalization accounting; the merger with FinTech closed in July 2018.
Financial results
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Revenue | $68.3 million | $56.0 million |
| Operating income | $6.3 million | $2.5 million |
| Operating margin | 9.2% | 4.5% |
| Interest expense | $2.1 million | $3.3 million |
| Net income (loss) | $3.2 million | ($0.5 million) |
| Diluted EPS | $0.09 | ($0.03) |
| Operating cash flow | $29.2 million | $18.0 million |
| Investing cash flow | ($1.4 million) | ($1.5 million) |
| Financing cash flow | ($16.1 million) | ($1.2 million) |
Revenue increased 22%, with wire-transfer and money-order fees up 22% and foreign-exchange revenue up 22%. Management attributed growth mainly to higher transaction volume: the MD&A reports 24% year-over-year volume growth and approximately 6.2 million remittances in Q1. Adjusted EBITDA, a non-GAAP measure, was $10.8 million, up 22% from $8.8 million.
Operating expenses rose 16% to $62.0 million. Agent and bank charges increased 20% but declined to 67% of revenue from 68%; salaries and benefits rose 22%, while other selling, general and administrative expenses increased 43%. Operating margin improved to 9.2% from 4.5%; net margin was 4.6%, compared with negative 1.0%.
Balance sheet, debt and liquidity
- At March 31, cash was $84.7 million and total assets were $267.1 million. Accounts receivable was $86.7 million; wire transfers and money orders payable were $87.0 million.
- Debt principal totaled $103.9 million: $88.9 million term loan and $15.0 million revolver. The balance-sheet carrying amount, net of debt costs, was approximately $101.3 million. The company reported $20.0 million of additional borrowing availability.
- The credit agreement matures in November 2023 and has variable-rate borrowing; effective rates at quarter-end were 7.72% on the term loan and 8.78% on the revolver. Financial covenants require a minimum fixed-charge coverage ratio of 1.25:1.00 and maximum consolidated leverage of 3.25:1.00. The company reported compliance at quarter-end.
- Cash increased $11.7 million during the quarter. Operating cash generation included significant working-capital movements, notably a $51.2 million use from accounts receivable offset by a $50.5 million source from wire-transfer and money-order payables. Financing outflows included $15.0 million net revolver repayments and $1.1 million term-loan repayment.
Changes, outlook and notable items
- Compared with Q1 2018, operating income improved 149% and the company moved from a net loss to net income. Lower interest expense and the absence of prior-year merger transaction costs also contributed; Q1 2018 included $1.5 million in such costs.
- On January 1, 2019, the company adopted the revenue-recognition standard using the modified retrospective method. It recorded a $1.0 million after-tax reduction to opening accumulated deficit and a corresponding deferred-revenue liability increase. Management said the adoption is not expected to materially affect ongoing revenue or net income; comparative figures were not restated.
- The company drew $12 million from an incremental credit facility in Q2 2019, primarily to fund the cash portion of its warrant tender offer. It reported $513,000 of tender-offer professional and legal expenses in Q1. The subsequent warrant amendment provides for remaining warrants to be exchanged for cash and shares; this may affect cash use and dilution.
- Management expects operating cash flow and available revolver borrowings to fund debt payments, working capital and expected capital expenditures for the next 12 months. No specific revenue or earnings guidance was provided.
- Management cited competition, agent and banking relationships, credit exposure, cyber risk, regulatory compliance and possible changes in remittance demand as risks. It noted that sustained devaluation of the Mexican peso or Guatemalan quetzal could harm revenue or margins. Compliance and technology enhancements may increase costs.
- Ordinary-course litigation and regulatory matters were not expected by management to have a material adverse effect. The company reported compliance with applicable minimum tangible-net-worth and liquid-asset requirements. It also reported no material changes to its principal risk factors, no off-balance-sheet arrangements, and effective disclosure controls.
Important facts for investors to verify
- How much of operating cash flow reflects timing-related working-capital movements, and how receivables and related payables evolve in subsequent quarters.
- Remaining revolver availability, covenant headroom, variable-rate exposure and progress in reducing debt.
- The final cost, share issuance and dilution from the warrant tender and compulsory exchange.
- Whether transaction growth and revenue gains translate into sustained margins after rising personnel, compliance, technology and selling costs.
- Effects of the new loyalty-program revenue accounting, currency movements, regulatory developments and any material changes in agent or banking relationships.