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Good day, and welcome to International Money Express Inc. Second Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask question. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Mr. Mike Gallentine. Please go ahead.

Good morning, and welcome to our quarterly earnings call. I would like to remind everyone that today's call includes forward-looking statements, including our third quarter and full year 2023 guidance, and actual results may differ materially from expectations. For additional information on International Money Express, which we refer to as Intermex or the company, please see our SEC filings, including the risk factors described therein. All forward-looking statements on this call are based on assumptions and beliefs as of today. You should not rely on our forward-looking statements as predictions of future events. Please refer to slide two of our presentation for a brief description of certain forward-looking statements. The company undertakes no obligation to update such information, except as required by applicable law. On this conference call, we discuss certain non-GAAP financial measures. Information required by Regulation G under the Securities and Exchange Act for such non-GAAP financial measures is included in the presentation slide, our earnings press release and our annual report on Form 10-K, including reconciliation of certain non-GAAP financial measures to the appropriate GAAP measures. These can be obtained in the Investors section of our website at intermexonline.com. Presenting on today's call is our Chairman, Chief Executive Officer and President, Bob Lisy; and Chief Financial Officer, Andras Bende. Also on the call today are Chris Hunt, Chief Operating Officer; Joseph Aguilar, President, Latin America; Randy Nilsen, Chief Revenue Officer; and Marcelo Theodoro, Chief Digital Officer. Let me now turn the call over to Bob.

Good morning and thank you for joining. We appreciate your interest in Intermex. We had a solid quarter of growth, as we continue to build upon the company's sustained track record, a multiyear expansion, and we continue the profitable integration of both the national and I-Transfer acquisitions. On slide three, revenue increased 23.5% to $169.2 million. Net income was $15.4 million, a decrease of 3.5%, while EPS increased 2.4% to $0.42 a share. Adjusted net income was $18.4 million, up 0.6% and adjusted EPS increased 6.4% to $0.50 per share. EBITDA increased 11.7% to $30.9 million. Our CFO, Andras Bende, will provide a more detailed analysis of these metrics during his prepared remarks. While we continue to achieve our aspirations of double-digit EBITDA growth, our results reflect the challenges of traversing some top line headwinds. We have seen a slowdown in year-over-year growth to Latin America and the Caribbean markets and this has stimulated increased price discounting in the marketplace. These challenges have emerged as we focus on the integration of a valuable acquisition that has made us a stronger company to Latin America and expanded our footprint into dozens of additional profitable corridors in Europe and Asia. After several years of overall market growing in the middle-teens and above, the year-over-year growth, although still positive has slowed. During the second quarter of 2023 through May, based on the latest available data, the top five countries in Maco [ph], Mexico, Guatemala, El Salvador, Honduras and the Dominican Republic grew at a much lower rate than they did a year ago. As a result of this market slowdown, numerous competitors have resorted to more aggressive discounting, primarily in the form of reducing FX gains to attempt to sustain their growth rates. We have experienced this phenomenon in the past. This round has been a bit deeper and longer sustained than previously experienced. As a high-quality service provider in the industry, we are evaluating and modifying our pricing position to find the optimal price point to maximize profitability. It is not our intent or strategy to align our price with the discounters, but we will be more aggressive in an efficient and strategic way that maximizes growth. Ultimately, we believe the pricing pressures will subside. In the meantime, we will execute a modified plan that enables us to capture share in the current environment. We have created a strong business that has generated double-digit revenues, earnings and cash growth to deliver long-term shareholder value for years. In the prior three years that ended 2022, the business generated $150 million in net free cash. This strong free cash performance continues in 2023, where we expect to produce more than $70 million in free cash. Today, Intermex has nearly $100 million of available cash, which enables us to invest in future growth by expanding our business in multiple areas, like our presence in Europe, the acceleration of our digital business, our card products and potential acquisitions. Our unique value-added model has attracted an increasing number of consumers from the Latin American community who rely on Intermex for their money transfer needs because of the quality of the experience and the trust we have gained. Our customer-focused omnichannel business model, utilizes superior technology and operating infrastructure that is difficult to replicate. Powered by our state-of-the-art proprietary technology, we delivered value-added services to our customers through our extensive network of highly productive retail agents. We are confident that the differentiated business model we have built will prevail and sustain itself through any short-term disruptions and Intermex will emerge as an even stronger, more successful company as we have done throughout our history. On slide 4, as we noted in the first quarter earnings call, the La Nacional acquisition has resulted in us reassessing how we discuss market share from the US to Latin America. In our market share analysis, we now include the top five countries in Latin America and the Caribbean, of which the Dominican Republic is a part. These countries collectively account for 82% of the money sent from the US to that region. With the inclusion of La Nacional, our estimated market share in the second quarter of 2023 in these key receiving countries is 21.7%. And an increase from 20.4% in the second quarter of 2022, further solidifying our position as one of the leading remittance providers in that market. A significant opportunity exists in the US markets to drive continued growth in market share. Our priority is to expand our footprint in the most populated foreign-born Hispanic SIP codes, both with Intermex as well as our La Nacional brand. Based on the foreign bond population, from the national footprint, we see a tremendous opportunity for expansion across the East Coast. Additionally, a total over 2,000

Thank you. As Bob mentioned, we had another quarter of double-digit EBITDA growth. Still, our overall results were a little short of our expectations driven by a slowdown in market growth, the pricing dynamic in the markets that Bob mentioned earlier and several unhelpful items that converged during Q2 to make our quarterly objectives just that much more difficult to achieve a large toll and safe an agent that levered up for Mother's Day and absconded and a settlement of a long-standing HR litigation in California are just a few that worked against us in Q2. On slide 5, the number of unique active customers increased by 41.1%, during the second quarter to $4.2 million. These customers generated a record 15.1 million remittance transactions 26.7% more than a year ago. This represents about 6.3% growth in transactions in our core business, plus the contribution of La Nacional's US and International businesses. On slide 6, we achieved a 63% increase in digitally originated transactions, as strong customer acceptance of our Mobile App continues. Moreover, we achieved this growth while being good stewards of the company's capital, not chasing customers with significant marketing spend that has an unproven payback. From a send and receive standpoint, 31% of our transactions are either sent or received digitally, up 480 basis points from a year ago. On slide 7, the total principal transfer grew 19.5% to $6.4 billion, driven by our core business and the addition of La Nacional's US and International businesses. The average remittance within our US core Intermex business was consistent with the prior year. It was $447 precisely the same sent amount it was in Q2 2022. In the consolidated business, the average send amount was down 5.6% for the quarter year-over-year at $422 per transaction. This is influenced by the average transaction amounts in our La Nacional US and Europe businesses, which are structurally lower. La Nacional U.S. is currently at $297 and Europe at $270 bringing the business average to $4.22 for the quarter. On slide 8, total revenues company-wide increased 23.5% year-over-year, reaching $169.2 million during the first three months, excluding acquisitions, revenue growth in our core business was 6.7% and fueled by organic customer additions to an existing AG [ph]. Our core revenue growth dipped below the double-digit level this quarter, impacted by the market slowdown and the current pricing environment. Our digital business is contributing an ever-increasing share of revenue. While still in the single digits, we continue to thoughtfully pace spending around our app and online offerings to match or stay ahead of consumer acceptance. We're successfully growing the digital business efficiently and profitably with the revenue contribution from digitally originated transactions up just under 58% year-on-year in the second quarter. We keep a tight pulse on consumer behavior which positions us to invest in digital intelligently, ensuring the unit economics supported. Net income was impacted by a few key areas: top line growth slowing, -- on our credit facility and depreciation and intangibles amortization. The latter is driven from M&A activity, but also from hardware upgrades and some accelerated depreciation as we transition to a new headquarters building at year-end, higher effective tax rate mostly acquisition-related also kept growth in check when it comes to net income. Net income was down 35% at $15.4 million though GAAP EPS was better, up 2.4% to $0.42 a share aided by our share buybacks. We'll see these same factors both during the second half as reflected in our guidance. Looking at slide 9, adjusted EBITDA increased 11.7% to $30.9 million, also impacted by the slower revenue growth in the inclusion La Nacional business where margins are structurally lower. Note that, as the top line and the core business slowed, we have and will continue to aggressively control costs, which is what allowed us to again achieve another double-digit EBITDA quarter. Adjusted net income was up 0.6% during the second quarter to $18.4 million, impacted by the same underlying drivers as GAAP net income but excluding items like share-based compensation, transaction-related expenses and amortization of certain intangibles and the tax impact related to those items. From an adjusted EPS perspective, we were up 6.4% to $0.50 a share. Turning to the balance sheet on slide 10. Intermex continues to be an efficient operator in cash generation. The company ended the quarter on a Friday peak activity for our business where you would have seen the revolver drawn on the balance sheet to the tune of $116 million from our credit line. Net free cash generated, our internal measure, which excludes working capital cyclicality dipped a bit to $13 million in Q2. However, if you exclude the $5.5 million net cash attributable to the closing of i-transfer in the second quarter, net free cash generated is closer to $18.5 million, a 7% increase from Q2 2022. During the quarter, we continue to be active in the market, purchasing 416,000 shares for $10 million at an average price of $24 per share due to board authorized repurchase program. Additionally, we repurchased 500,000 shares one of our beneficial stockholders for $25.28 per share, a 4% discount to the market price on the day of the transaction. The negotiated transaction totaled $12.6 million paid with cash on hand. We continue to see our buyback program as an excellent use of capital and anticipate remaining active. On slide 11, as a result of the slower market growth we're seeing, coupled with the price discounting in the market we're adjusting our guidance for the full year. As mentioned in the first quarter earnings call, we are transitioning from net income to EPS guidance for the remainder of the year. Additionally, as Bob mentioned, will record a restructuring charge in the third quarter for Lynas. We expect this will be approximately $600,000, which is captured within this guidance. As discussed, this restructure will generate over $1.5 million in annualized savings beginning in September. Our new guidance is as follows: for the full year, revenue of $644.9 million to $673 million, diluted GAAP EPS of $1.56 to $1.63 per share, adjusted diluted EPS of $1.87 to $1.94 per share and adjusted EBITDA of $114.8 million to $119.8 million. For the third quarter, we expect the following: revenue of $165.7 million to $176.8 million, GAAP diluted EPS of $0.40 to $0.43 a share adjusted diluted EPS of $0.49 to $0.52 a share and adjusted EBITDA of $30 million to $32 million. In summary, we continue to execute and are retooling to grow the Intermex core through the current market dynamics. At the same time, we're defining the path to 10x for Europe positioning a size of card and digital and driving efficiency to perpetuate a strong EBITDA growth trajectory for Lynas now U.S. With that, I'll turn it over to the operator for questions.

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from the line of Mike Grondahl with Northland Securities. Please go ahead.

Hey, guys. Thank you. Could you talk a little bit more about the US sales force? It sounded like you restructured it. You created a sixth region and I think you said added 10 districts. What about just the number of salespeople? Kind of how has that trended? And how do you think that's sort of feeding the agent pipeline that you mentioned?

Yes. Thank you, Mike, for that question. So we're doing a lot of things related to the sales force. I think, as we've talked about many times, we've seen over the years, challenges arise relative to the market pricing that typically happens as the market slows down a bit, as we've seen. The growth in the market has gone from last year in the second quarter at about 15% to Mexico to 8%. So when that happens, we see a greater push, from particularly people that are discounters in the marketplace with lower prices that caused a little bit more friction for our business. In response to that, we decided to add a sixth region. That region is added in sort of the Southwest so that we have more emphasis now in terms of folks focusing on the business in the Western states and then created those additional districts. In the past, we've had at times more what we call regional sales executives, which were people that were roving and had bigger geographies in which they could sell in. We didn't feel we got the return on investment for those. We feel like it's best when someone has a distinct geography, and that's why we created the additional sales districts. Now in addition to that, we're spending a lot of time looking at the markets where we have a lower market share and a huge opportunity on the upside and looking at our pricing related to those. And as I said in the opening remarks, we're not joining the force of being a discounter by any stretch of the imagination. At the same time, we will be more aggressive at retail in opportunities where we're not necessarily excelling, because there's not a lot for us to lose there, meaning there's not a big base of business we'd be discounting. There'd be a bigger base of business to acquire. So all of those things together with more salespeople, more people dedicated to specific geographies, much more strategically placed with a different approach to the marketplace, particularly related to those areas where our market share would be, let's say, less than 10%, and even there are some pockets where it might be less than 5%. There’s a lot of places where we have a market share of 30% or 40%. So, we'll focus a little different kind of energy and pricing in those areas that have great opportunity for the upside.

Got it. And then maybe just secondly, how would you describe the pricing challenges or pricing pressure? Is that a couple of percentage points of overall growth? Like is there any way you can frame that a little bit?

Yes. I mean I think anything I would be guessing at, right, to say, well, it's this percentage of growth or whatever. I think what happens is when people -- and particularly the smaller providers that general MO to start is to discount. When they see a marketplace slow down, their immediate reaction is the more exaggerated approach to what they normally do, which is to discount. And so we're seeing that in a number of areas. But in some other areas, we also see opportunities because even those discounters have markets where they need to be able to make money and we need to attack those. So it's hard to put a number on it. We think that, clearly, though, that I talked about, rather than we've always made our success by focusing on what we do best rather than just worrying about what the marketplace is doing. And from our perspective, we still have all those

Thanks for that color, Bob.

You’re welcome.

The next question comes from the line of Mayank Tandon with Needham. Please go ahead.

Thank you. Good morning, Bob and Andras. I just wanted to get a better sense of when the market began to slow down incrementally from the time you gave guidance back in May. Like what really changed? Is it more just pure macro, or is there something else going on in the market beyond just the macro pressures?

Well, at the market grew in last quarter at 12%, and it grew at 8% to Mexico, which is our core business. So that is something that happened at a greater level in the second quarter versus the first quarter. We've seen some slowing, but it's been a bit sporadic. There's -- you can -- if you look at the numbers from Mexico, you'll see that sometimes you'll have an 8% growth month and then sometimes you'll have a 13% growth month, and it's been sporadic. But the quarter as a whole in second quarter dropped about a third from 12% growth to 8% growth. And that was not fully anticipated. We thought that probably 12% was about where it was going to land. So I think that impact was what was not necessarily predicted.

Understood. And then I just wanted to go back to the model. So as we look at the rest of the year, just sort of the building blocks in terms of the numbers, what are the expectations for transaction growth and principal growth and remittance size? If you could just give us some sense of like what you have embedded in your guidance? Thank you.

Yes. I would speak from a -- this is Andras, from a transaction growth standpoint in the core, we're conservatively around 5% growth in the core business. And what are the other factors that I could dimensionalize for you.

Principal amount.

Principal amount. I think principal amount we've held in the core as well, steady year-over-year. We haven't modeled in any growth. We haven't modeled in any attrition in that amount.

And the remittance side would also be just given some of the headwinds you guys talked about, should we expect the remittent size to also come down just for the back half of the year to reflect the updated guidance?

Yeah. I think it's not much. I mean maybe a little less than 1% in terms of overall size, the part that's not impacted by the acquisition principal sizes.

Okay. That's helpful. Thank you so much.

Remember, the peso is trading at its strongest point, which we hadn't really talked about, but that many times has an effect on the principal amount. You would think when you get less pesos on the other side of the border, people would tend to spend more because they have a stable amount they need. But what happens is when the peso is usually weaker, if it's in the 20s, people send larger principal amounts because they feel like the peso is on sale and they send bigger average transaction. So we're kind of -- the whole industry is kind of those headwinds where the peso has been stronger than it's been in a number of years now.

That's great color. Thank you so much.

[Operator Instructions] The next question comes from the line of David Scharf with JMP. Please go ahead.

Hey, good morning.

Good morning, Dave.

Hi, good morning and thanks for taking my questions. Maybe just to follow-up a little more on the competitive dynamic right now. Bob, you called out a couple of private discounters. But taking a step back and maybe compared to prior cycles, like you say, the steps and flows in terms of price competition. Are the pricing moves by competitors. Would you describe them as fairly broad-based among most of the remittance providers you encounter in your stores, or is it concentrated within a couple of discounters?

So the question is not broad-based geographically, but is it broad-based within the competitors?

Exactly. Is this something…

Okay. Yeah, I would say that it is.

Okay.

I would say that it is. And one of the large publics with their second or flanker brand, however you want to describe it, that's a deep discounter as well. And one of the other public companies is pretty aggressive as well. So I think it's -- we're probably by ourselves as the guys holding the line more. Our margins have been relatively stable, which is really good news because it gives us a lot of headroom to sustain the margins where we're strong enough to sustain them, but to -- if you have an average margin to Mexico of $5 or over $5, and I'm just using that as an example, I'm not quoting that number, and you go out and aggressively go after business that's at a much lower rate, your blended gross margin is still quite attractive. So we've got a lot of headroom. And I think it's really other than us, relatively pervasive a lot of markets where we have such a strong position in the Eastern states, for instance, and I won't name the states specifically for strategic reasons. But it's harder for the competition to come in because we're so well entrenched. But where we're going and acquiring new business, and that's where I think our approach will change more because there's so much of an upside opportunity. You might look at a state in the West, Colorado. It has more foreign born than a state like Georgia, we have a fraction of the business there. So our opportunity there where we have really strong margins is to be much more aggressive because the upside is really big for us. And that's really the way that we need to be able to compete in some of those areas. And you'll see us, we'll be -- we're not going to be necessarily again, riding with the discounters. In some cases, we won't be at all. In some cases, our offering won't change at all because we don't really have an issue. But in other cases, we'll be much more aggressive. We're still going to ride on our value-added service, the fact that we pick up our customer service line in four seconds that our technology works better and faster and more reliably than anyone else in a face-to-face transaction, the banking relationships, our check direct product, the quality of our customer service. All of those things, we're still going to sell on that value-add, but we recognize that we might need to be a little closer to the discounters prices in certain areas of the market for us to compete and grow again at rates that are in the teens.

Got it. Understood. And couple of just follow-ups on more on the operational side. First, the sales additions, can you provide some just context in terms of the addition of a new sales director or a new region, new districts. Was this in the cards since the beginning of the year, or have you accelerated any expansion plans on the agent acquisition front in response to what might be a persistent…?

Yeah. I mean, I think, we're constantly evolving, but the actual decision to add another regional director, a new region happened probably in late first quarter, early second and added the person in late second quarter. As far as the sales districts, which are our folks that are on the ground, the closest to our retailers, we just recognize the increased productivity of having folks having a sound geography rather than selling on a floater basis. And when I say a floater, it doesn't mean all over the country. It just means that those -- what we call RSEs, Regional Sales Executives, they could sell maybe all over Southern California, but they didn't have accountability for a geography. So we recognized that, that was not working, and we'd rather create more districts, which we think puts us in a much better position to attack the marketplace with the geographical assignment. So that's really the move there. And it's -- I think it's been evolving, but I think it's mostly in response to the fact that we're seeing the market slow. We're seeing all the things we talked about, the discounters become more aggressive than discounting. And our response to that in an effort to really drill down better into the market and grow our business in some of those areas where we have a really big upside and not really a big base of business and our willingness to do that in a way that we'll accept gross margins that probably were less than we accepted in the past, still very profitable, but less than they've been in the past.

Got it. Just to close out, I'm assuming based on just 5% organic transaction growth in the second half that -- the guidance reduction was pretty much organic related? Was there any downward revision to the LN, La Nacional forecast is well-embedded in the second half guidance reduction, or there was pretty much all the core business?

No, it was pretty much driven by the core business, I think. We're actually now and I transfer are doing what we expected them to do. And I think that restructuring activity that we talked about is going to flow through nicely in the fourth quarter for La Nacional. So it's really driven by the core.

Okay. Got it. Thanks so much.

Thank you.

The final question comes from the line of Chris

Hi. Good morning. Thank you for taking my question. I have a question on the new Florida immigration law, so specifically the Senate Bill 1718, which was past in May and came into impact on July the 1. Have you seen any impact so far in the first month of implementation? And what are your expectations for any potential impact or any potential offset to that? Thank you.

Yes. I think what we saw initially was a response that was relative to protest, whether there'll be a long-term effect or not, what we see usually when these things kind of happen is it sort of wanes over time. And there's really not a big effect. We'll also see, I think, in some of these cases where there's been difficulty in the past of a state making it more difficult immigration is for farmers or those that need the labor to begin to work directly with the work visa folks to be able to bring people in on a more less undocumented basis and more documented basis. So there are lots of crops to pick in Florida, and we don't anticipate that in the long run that it's going to have a big impact. We've seen municipalities, not typically states, but municipalities, do different things over time. We didn't have seen states put a tax on remittances on every remittance. And it's not had an impact over time because of the need for labor and the willingness of folks to provide it. So I think some short-term kind of days of protest and stuff occurred. But I think it's too early to tell what's going on is we have a market that's snowing a bit anyway, so it's difficult to see. And we're not seeing Florida grow or slow at a rate that would be greater than the greater market, and we wouldn't expect that it would be something that would hamper the ability of people who require labor to hire it and labor who wants to provide labor to provide it.

All right. Very helpful and very comprehensive. Thank you so much.

You’re welcome. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Bob Lisy for any closing remarks.

Yes, thank you all for joining us. We look forward to talking to you all soon. Thanks again.