maybe 20 minutes of Q&A, and then see if the audience has any questions towards the end.
Sounds good.
Why don't we just start with just kind of the, the 30 second intro to, to Intermex?
Yeah, 30 second intro. You know, the, the company was founded in the 1990s, focused on remittances to Latin America. I think underwent a significant change in the current leadership in 2009, with the real focus on efficiency as a company, generating very efficient agent relationships, which it's built over time, and also leaning in as a differentiated and value-added provider, which is unique in the industry. So putting itself in a position to premium price and provide a premium service for an industry that often is- Even in periods of, of more economic unsteadiness, like 2009 - 2015, the market to Latin America didn't grow. Intermex grew two to three times over that period by capture of share.
you know, there are some, some factors that are in Intermex's favor, you know, in terms of having a, a, a consumer base that's heavily represented in agriculture, which always tends to hold up, you know, food services, things like that, that, position it well to endure even the downturns.
I, I think, you know, that's a good kind of sense of the, the true macroeconomic impact, and I think, you know, zooming in just a little bit to, to market trends, maybe update us on what you all are seeing this year so far.
Yeah, you know, I think the, the unique thing that we've seen this year, it's endured a little bit longer than we've seen in the past, is, you know, from a, a, a pricing standpoint, the competition to Latin America is, is, is pretty tight right now. When we speak about price, we're talking about the, the margin on FX that companies are, are willing to accept for, for a transaction. I think what you've seen is Mexico has been a great grow over time. It's really the bellwether for Latin America, and, you know, last year in the middle of the year, it was probably growing in the mid-teens, and it's slowly stepped down to 8% in the second quarter. I think when the industry sees that slowdown, you know, they don't know that the market's actually slowed down.
They just see that they've got fewer transactions and tend to lean in with price, and I think that's what we're seeing in the current environment, which is a little unique. We've seen kind of that, that pricing lean happen, you know, many times over the years. It's usually a, a more shorter term, but now, since you have that gradual decline in Mexico, you know, you see a little bit more of a, I guess, duration in the tightness in pricing than than we've historically seen.
Mm-hmm. In a more normalized environment, there is still some price dispersion between, say, Intermex and, and some providers that are maybe lower price, but for a reason. Maybe kind of touch on the positioning of Intermex within the market when you think...
Yeah, no.
-of peers.
Great, great question. You know, we, we, one of our core beliefs, you know, as a company, so the folks are sending money for, for rent, for medicine, for groceries, you know, it's, it's not necessarily a commodity. If you can provide a superior brand, superior assurance, you know, in, in, in that product, you know, simple, easy transaction, you know, we can be the preferred provider at a, at a higher price. We tend to be the most expensive in the, the, in, in, the jurisdictions in which we operate, and, you know, we're happy with that, and I think we get our share of, of the wires, you know, due to that, the differentiated value proposition.
Mm.
Y ou know, in, in, in any environment, you know, we're going to see discounters out there, and we're gonna maintain a price differential to them. We'll never become a discounter. You know, I think in this environment, the discounters are just discounting a bit deeper.
Mm.
T han we've seen historically.
You know, one of the things about Intermex that's I think really unique is the go-to-market strategy, the kind of hyperlocal targeting of ZIP Code s, the agent relationships. Describe that for everyone and kind of how you all.
Yeah.
the market members.
That's, that's when I say the, in 2009, the laser focus on efficiency started. You know, we started in 2009, had about 5,000 agent relationships and scaled it back to 2,000, which, was completely counter what the, you know, rest of the industry was doing.
We said, "Okay, we're gonna target the most profitable corridors, and we're gonna target the most efficient agent relationships, you know, where there are a lot of wires and where Intermex could go in and do a differentiated value proposition to the retailer." You know, even all the way back in 2009, we've gotten stronger, but even 2009, we had, you know, differentiated technology and a really well-staffed service center that, you know, was picking up the phone in a matter of seconds, which is really important to two things. You know, the, the, the agents who, you know, are trying to run a store as well, anything goes wrong, the ability to get ahold of us, you know, is a big deal.
Also, if you're running a store as well, you know, spending a long time on a clunky user interface when you're trying to do other things in your store, too, is not, not ideal. Intermex already had those in 2009. It's gotten stronger with those. Also, you know, our banking relationships over time, you know, we've gotten more and more banking partners, which makes it very easy for these retailers who have to ultimately settle with us. We provide a lot of convenient options. You know, that, that coupling of being a really good and easy partner for somebody who's trying to run a business, you know, plus the reliance on the product for the consumer, is what's allowed us to grow over time.
Really only focusing on opening agents where, you know, we're gonna be able to grow to, you know, more than 50%-60% of their wires over three years. Not focusing on getting as planting as many flags and many agents as possible 'cause.
Mm-hmm.
T hat, that contributes a lot of waste.
Yeah.
You know, there's a, we took a different tack, and, and, and it's shown in our results.
Kind of reading between the lines there, there's this theme of efficient growth. Maybe just describe those agent relationships when you think about, the sales process, onboarding, the cost to onboard, and then...
Yeah.
On an ongoing basis, what kind of margin those relationships represent?
Sure. On a, you know, on, agents come in all shapes and sizes. They, they're typically smaller Latin-owned, Latin American-owned businesses in the neighborhoods where our consumers, you know, work and live. It's worth a moment to send our, our consumers. Our consumer is typically somebody who's come to the U.S. for the economic opportunity. They wanna work for a period of years, send as much home as possible, and then several years, you know, go back to live the rest of their life in their home country. They're not necessarily the ones who are coming here permanently and taking advantage of the economic opportunity. You know, I digress a little bit.
In terms of the, the sale process, what we'll do is we'll, very metrical, we know by ZIP Code where the foreign-borns in the countries we serve reside, and then we will actually go feet on the street to those ZIP Codes and see, you know, where are the wires being sent? These retailers typically have three or four different providers within the same store. We don't care to be exclusive. Sometimes we end up being exclusive 'cause we end up being the best partner, but we'll go and see where the wires are, and we'll go and speak to the agent and say, you know, "Hey, tell us about what are some of your pain points? We know you do a lot of wires, and you have these other providers." We hear the same three things almost inevitably. "Oh, the technology is clunky.
It's not easy to use. You know, I can never get ahold of anyone on the phone when I need to, and, you know, oh, to deposit and settle with this company, they only deal with this one bank, and it's way on the other side of town. Those all play into Intermex's favor. You know, we can, you know, say we, we have relationships like KeyBank and U.S. Bank and TD Bank and Wells Fargo and others, because so we can make those agent relationships very easy. You know, we can process a wire in 20 seconds on average versus one minute for the competition. Doesn't sound like much, but if you're trying to run a store, 10 people deep in line, you know, that does make a difference.
You know, it's all those things that, you know, we can be a really good partner for the agents, and that's the, the differentiated sell. We're, you know, we're really only doing that in agents that there we see potential high volume for.
Mm-hmm.
That we'll get that payback. But once we open up an agent, you know, it's probably $2,500-$2,600 for, you know, everything, including the technology in the store, the screening, the, the open, time to open up a bank relationship, all that sort of thing, and that'll typically pay itself back in five months. Typically doing, you know, 100-150 wires when they start. That ramps up to between 400 and 500 over the course of three years. You know, the retail model is, from a payback perspective, is very attractive, and, and the margins in retail are actually stronger than the margins in digital.
That's, you know, the agent, as I think of it, is, is kind of one customer, and then you have the end customer as well, the person who's actually sending the remittance. Talk about the relationship that you have with those folks and, you know, if you can, you know, kind of qualitatively describe retention and, and how you see those folks return to Intermex over time.
Yeah, no, I mean, from a... I think one, one of the things we offer, it's a bit of advantage, is we have a loyalty card. You know, folks who transact with us, in each transaction, they can swipe their card. Not only does it make the transaction faster, 'cause you swipe the card, all the data comes up from, from the consumer, but, they'll also accumulate points as well. If they go and do a future transaction, they can use some of these points to actually get a better rate on a future transaction.
Mm.
So those like that in those factors encourage some stickiness. You know, generally, the, the reputation of the brand, the ease of the transaction, a simple 20 second or less transaction. You know, I know I've never had an issue, I've never heard of any of my, my friends have an issue, with a wire getting paid, you know, on the same day that it was sent. Those sorts of things carry the day. I think our typical consumer will transact with us, you know, eight to 10 times a year. They may, on occasion, use other providers.
Mm-hmm.
You know, I think we sit in a pole position and, and generally maintain most of their transactions.
Yeah. Just on the topic of, kind of ancillary products or offerings or services to those customers, you know, that's something that you all have alluded to in the past as, as something that's interesting. You know, remittances aren't the only financial service that these people require, so as you see it, what is kind of the next most obvious opportunity, and where are you in, in progress with those?
Yeah. What's a, a huge opportunity? We already do right now, a payroll card. So we could see through our interaction with these consumers, you know, where, where they worked, and many of them were getting paid in check. So we, we have had for quite some time, a payroll card where we could go to employers and say, "You know, hey, look, you know, you're cutting checks. That's kind of, you know, it's not ideal. It's costing you more money. You know, if we, if we, we could provide a, a payroll card for you, so cards could be loaded automatically.
You know, your, your, your workers, many of whom may not be banked, you know, can effectively be pseudo-banked on a card then." We've had that card for a year, but, years, but we're, we're working with a new provider that's gonna provide a card that's actually, you know, stronger product offering. But in addition to that, we'll be in a spot where we'll be launching it, just a general purpose reloadable card later this year. That's a $100 billion plus market. It's huge, and our advantage in it is that nobody is marketing a card that's, that's geared, you know, specifically to this community.
Yeah.
We've got thousands of agent relationships across the country, you know, who would be happy and excited to distribute this product, which is a needed product. I mean, it's a bridge for the unbanked through thousands of retail locations across the U.S., Very excited about that product. We're not baking it into kind of our, our forecast or our guide that we talk about. You know, I think give us a year or so, and you'll see meaningful contribution for, for sure.
And sticking on the, the product theme, you also have a, a digital offering.
We do.
Talk about your approach to digital. I think it's been very disciplined.
Yeah, yeah.
Talk about the approach there and how that's scaled.
You know, the digital product, and that's just the. You know, our, our, our retail product is digital as well. It's just from a terminal. So now it's the ability to send from a phone which we've had for years. We've done a lot of work in terms of upgrading that, so, you know, we have an app that I think scores about 4.7 on the App Store, so we think it's best-in-class. We're growing at about 70% year-over-year. I think the approach that we've. It's still, you know, it, it's, as a, a revenue contributor, percentage of revenue, it's still in the single digits.
Mm-hmm.
growing rapidly. The approach that we've taken different to, to digital is, you know, I talk about the typical Intermex consumer being here for a period of years, sending money home and going back home. You know, the, the payback of enormous marketing spend, to go and, and capture folks to transact with you, that payback in these corridors, U.S. to Latin America, is unproven. In other corridors it may be different.
Mm.
Y ou know, there's probably 15%-20% of the market is digital. If it costs you $75-$100 in general marketing spend on the internet to pull somebody through the transact, you're making, you know, $3 a wire in margin. They transact eight times a year, they go home in a couple of years. You know, that, that payback is not assured. For us, we're finding other ways aside from that kind of blanket marketing spend to bring on profitable consumers, whether they be through partnerships, you know, white label or wire as a service. That's the way we see the future for digital at this point.
You know, being omni-channel, as we are as a company, if, if there is a shift, then we'll be the first ones we feel to see a shift in the market that makes sense to allocate more capital to more actively chase digital, we'll do it.
On the, the theme of kind of technology investment, in the last 12 months, you've, you've talked a little bit about IMX Direct and Connect.
Mm-hmm.
Some new initiatives, both internally and for agents. Expand on those and kind of what they, what they do for the, the Intermex platform.
Intermex Direct is just the new point-of-sale interface, right? About 50% of our wires are being done under this new point-of-sale interface. That's an investment by us to make sure that we're always staying ahead with the technology, just give the best agent user experience, and that's what that is, and we're continuing to roll it out. Intermex Connect is the API that we've built. You know, when we talk about wire as a service, you know, there are many companies that sell into the Latin American community and are great conduits for us to go and capture more wires. They have a captive audience that's interested in sending remittances home. You know, with this API, we're able to plug into their website, for instance.
Mm-hmm.
You know, it would be whatever their company is, powered by Intermex.
Mm.
T heir consumers could actually send wires through Intermex. We avoid that enormous marketing spend, and we're able to channel customers through or have partners that bring customers to us. We're making, we're making several dollars each click. The company that's bringing them to them is also sharing the economics of it. You know, it's a win-win. We're in a position where we've got a nice pipeline of... we call that wire as a service, a nice pipeline of wire as a service deals with companies that have strong ties in the Latin American community. We're excited about that. Right now, we're growing, you know, digital 70% year-over-year with very little marketing spend. I think we've, we hit on a couple of these wire as a service deals.
We're up in the triple digits year-over-year, for sure.
Mm-hmm. Just kind of looking forward, thinking about organic and inorganic growth opportunities, maybe let's start with inorganic, because I think you have some good proof points around La Nacional.
Mm-hmm.
I n the last 12 months. Talk about, I guess maybe talk about La Nacional first.
Yep.
What excites you about that deal? Then on top of that, you see additional opportunities for, for M&A to kind of, further entry into certain corridors or regions.
Sure. When, when we saw that, that acquisition, we saw a company that we thought we could run with a much higher level of efficiency. We were mostly focused on the U.S. business. They did have an international element. When we looked at it, we said: "Okay, you know, that's a business that's 3% or 4% EBITDA margin, and we know if we put our pen to it, we can make it to 9%-11%.
Mm.
EBITDA margin. It was a perfect fit in terms of, you know, going to the Dominican Republic, which is in the top five, and we were underrepresented in the Dominican Republic, so now we're about 20% share to the Dominican Republic. A business that we thought from a revenue perspective would grow some, but, you know, it would grow a lot more from an EBITDA perspective with what, what we could do with it. I think you fast-forward, you know, just about a year after the deal closed, and I'd say two things: you know, one, now we look at the U.S. business and, and how they go to market, understanding it much better, and we are gonna be able to grow that U.S. business at better margins.
We look at a lot of opportunity on the Eastern Seaboard, a lot of opportunity in terms of how they sell versus how we sell. We'll be able to, in addition to having a more profitable business, we'll be able to grow it in the U.S., The real thing that kind of really gets me excited is the European business, which is called i-transfer. A smaller business, only $15 million-$20 million annual in revenue. You know, when we diligenced this business, it was part of the package with La Nacional. When we diligenced this business, you know, we hit compliance very, very hard because, you know, wouldn't inherit a liability, and they checked out, and they're doing the right things.
From a growth standpoint, we weren't kind of sure, and most of the, the value that we saw was in the branches of the U.S. business. Well, the closer we get to this European business, now owning it, there's no reason that we can't make that business tenfold what it is today. You know, we have they, they did very well kind of on their own without a lot of support of an, an active shareholder. There's a lot that we can bring to the table. They're only 3% of the outbound market in Spain, only 2% of the outbound market in Italy. You know, one store in Germany. You know, they've been kind of in the cage with the big gorillas.
Mm-hmm.
The Ria and the Western Union, they're holding their own. You know, now we're in a position to help them a lot in terms of strategy, capital, technology, all those things, and, and, you know, that's a business we're super excited about.
Beyond that, just additional opportunities for M&A as, as you see it, or are you focused on one deal at a time? How, how do you think about that?
Yeah, no, I think we're always, we're always active. I mean, you, you, you look at us as a business, and we, we, we're a tremendous cash generator.
Mm-hmm.
Yeah, our first priority in terms of cash generation is, is accretive acquisitions. You know, in the money transfer space, it's not as easy to acquire in the U.S. because you always run into the, you may have overlap in the same store. In the remittance space, Europe is always an attractive opportunity for acquisition because, you know, we're only a small portion of the market right now. In addition to that, we're always looking at adjacencies as well. You know, we move, you know, information and, and, and, and money, you know, faster and more securely than anyone. That's a broad net. We look at a lot of things, you know?
Yeah.
You know, of course, things that are not part of our core competency, we will, as we look at them with an eye, put the appropriate, you know, operational risk discount to that type of business. Yeah, we're always active, always looking, and we've got the, the, the cash and the backing to acquire.
Yeah. On the organic side of the equation, maybe tie this back to some of the market trends, trends you've observed this year, you know, as you look out through the end of the year, maybe just kind of help us understand where you're positioned and how you're looking at organic growth for the rest of the year, maybe we can dive into some of the, the reorientation that's gone on to, to help kind of re-accelerate.
Sure, sure. I think organic, you know, in our, in our guide, we put in the third quarter and the fourth quarter 5% organic. We talked about that, talked about that a lot lately. You know, we were 11% plus in the first quarter, and then that stepped down to 6% plus in the second quarter. What we saw is that the dynamic of pricing and us holding the line on pricing, you know, got us to a point in the quarter, the second quarter, where we said, "Okay, we have actually grown slower than the market." Never something Intermex does. We said, "Okay, if this pricing thing is enduring, you know, longer, you know, we're gonna reorientate, we're gonna retool," and there the opportunity is tremendous.
I mean, we have 700 ZIP Code s in the U.S. with 4 million foreignborns that we're not in at all.
Mm-hmm.
I nto a single wire from. The ability to send our sales team in there at a lower price point with all the other differentiators that bring with Intermex, just tremendous white space for us to grow. If you want to scale it up from that 700, there's actually 2,000 ZIP Code s where we're either not represented at all, that's 700 or 1,300, where we're underrepresented. Our organic runway is huge. Now that we're equipping our sales team with more flexibility from a price perspective, these will be incremental transactions, it'll be incremental EBITDA. It's gonna put us in a position to be able to turn back. Where we aspire to is much higher than market growth.
When you think about that reorientation of the sales team, it happened pretty quickly. You guys moved pretty nimbly. Why is that possible to kind of shuffle folks around and refocus growth on those, you know, maybe what were once maybe non-core opportunities?
Yeah, well, what's, what's great about it is there's, there's no reinvention of the wheel here, and it, it is the same value proposition that, you know, to, to highly productive agents that we're selling. We're just giving more flexibility from a pricing standpoint, so we've given our sales folks an additional tool in the geographies that it makes sense we're gonna capture additional wires. We're not talking about at all degrading our profitability in the parts of the countries that we, we remain strong. Just getting into these markets or being more penetrated in these markets, by arming our sales team with more pricing flexibility and a great product to sell to begin with.
I think I heard the answer to, to my next question in, in that answer, but just talk about some of the confidence you have in, in this new sales strategy, refocus, and, and kind of re-accelerating growth.
Yeah, no, I'd say highly confident. I mean, again, it is the same strategy that's built the business. It's focusing on highly efficient agents selling a differentiated product. You're just allowing it to be sold at a pricing point that's a bit lower. It's gonna allow you to be more competitive in terms of gaining incremental transactions and incremental shares. The reason I say our confidence is high is because, again, it is not a rewiring, retool, and there's some things that we did, like add an additional sales district.
Mm-hmm.
O r add an additional regional region, then we went from 43 sales districts to 53. That's other kind of blocking and tackling that we do regularly, but there's nothing that's innovative that we're doing here that our team doesn't know how to do.
Sure.
We've just equipped the sales team with more flexibility to capture that incremental EBITDA that's out there.
Any audience questions? Well, maybe on the topic of, of capital allocation, you talked a little bit about M&A and just kind of the willingness to be active as appropriate, which obviously obviously some organic investment to be made, you've been active in, in buying back shares. Stack rank priorities for us and how we should think about cash use?
Yeah, you know.
Second half of the year.
... I think accretive M&A is, is, you know, is top of the list.
Mm-hmm.
That, that, that is, you know, M&A is a contact sport. You gotta see a lot, you know, we're in a position where we still have nice organic growth trajectory. We don't need M&A to grow, so we're gonna be selective. That hasn't changed at all. M&A and the right deals are at the top. You know, shortly after that is, you know, we have an active buyback program. You know, we're buying probably about $10 million-ish a quarter with an underlying program, when we see block opportunities come up, you know, we've partaken in those as well. I'd put the M&A first, you know, we have an underlying buyback that we can be even more opportunistic with.
Sure
if there are large blocks to take out of the market.
Maybe to, to wrap it up, we have about 30 seconds left. In the past, you've given kind of a, a rough framework to think about margins of the business over the long term. Since then, I think we've seen some, you know, surprising, surprisingly good progress with on SNL, on the margin side of things. Obviously, obviously some kind of short-term disruptions in the market. How do you think about that long-term kind of margin framework that you had presented previously? Any change, any kind of signals of confidence in that as you look at where we are today?
Yeah, you know, I think you're referring to in 2022, we did Investor Day.
Yeah.
We said by 2024, you know, we'd expect our margins to be about 17.5%. Since then we've said to the market: I think we can do better than that. The reason being is, you know, I think squeezing efficiencies out of acquisitions that we've done, you know, I think we do even better than we thought we could. I think we're actually proving to do nicely in terms of, in terms of margin in the digital space as well. Even though, you know, we'll lean a little bit more into price in our incremental business, you know, that, that, that could be us going from a $4 as a business aggregate transaction to maybe $3.75 over the course of a long period, so it's not eroding the underlying profitability of the business.
I think, I think all in, we think we can do better than that, than that 17.5 over time.
Okay. I think it's a good place to, to wrap it up. Andras, thank you for being here with us.
Thank you.
Thanks, everyone.
Pleasure. Thank you.