International Money Express (IMXI) just reported their Q1 2024 earnings, and on the surface, things look…well, a bit soft. Market growth in Mexico, their core market, fell short of expectations, clocking in at a meager 3.5%. This has some analysts worried, especially as other players in the remittance space are touting their gains in Mexican market share. But is this the whole story? A deeper dive into Intermex's transcript reveals a "quiet" transformation, a strategic shift that suggests this seemingly soft market could be playing directly into Intermex's hands.

Here's the conventional wisdom: When a market slows, companies need to fight tooth and nail for every customer, often sacrificing margins to stay competitive. But Intermex, known for its meticulous, metric-driven approach, is doing the opposite. They're doubling down on profitability, sharpening their focus on specific customer segments, and strategically deploying their resources in a way that maximizes returns. They're not just weathering the storm; they're building a fortress while others are scrambling for cover.

The key to this strategy lies in Intermex's "rifle-shot" approach to customer acquisition, particularly in their dominant retail channel. Instead of chasing growth at all costs, they're meticulously targeting underserved or unserved zip codes, primarily in the Western US, where their presence is minimal but the potential is massive. They're offering tailored pricing and incentives to both agents and consumers in these areas, capturing incremental transactions that wouldn't exist otherwise. This allows them to grow their footprint without cannibalizing their existing, high-margin customer base.

Simultaneously, Intermex is quietly building out a digital engine that promises explosive growth. While digital remittances are growing faster than the overall market, Intermex's digital revenue currently accounts for a mere 5% of their Mexico business. This is a staggering opportunity. They've already achieved impressive unit economics in digital, with gross profit per transaction exceeding their retail channel.

"Now, armed with a strategic partnership with Visa Direct, they're poised to expand into lucrative global markets like India and the Philippines, further diversifying their revenue streams."

Intermex's strategic pivot is evident in their aggressive expansion of their sales force. They've tripled their inside sales team, strategically positioning these roles offshore for cost efficiency, and added six new district sales manager positions to their already robust team of 40. This significant investment in their sales infrastructure is a clear signal of their commitment to capturing market share precisely where it makes the most sense.

Here's the hypothesis: Intermex is using this period of market softness to solidify its already dominant position in the remittance landscape. They're leveraging their operational expertise and financial discipline to build a more efficient, more profitable, and ultimately more valuable company.

Supporting Data

Q1 2024 adjusted EBITDA margin improved to 16.9%, up 30 basis points year-over-year. This was achieved despite consolidating i-Transfer, a lower-margin business.

Digital revenue surged by almost 60% year-over-year, reflecting their focused investment in this channel.

Intermex generated a record $62 million in free cash in 2023. This gives them ample firepower for continued share buybacks, strategic acquisitions, and technology investments.

But what about those competitors claiming to gain market share in Mexico? Remember, Intermex is playing a different game. They're not sacrificing margins to chase every last customer. They're meticulously selecting their targets and deploying resources in a way that maximizes returns. This may mean they're not growing as fast as the overall market in the short term, but it also means they're building a more sustainable, more profitable business for the long term.

Analyzing Intermex's Digital Growth

Intermex's digital growth is a key highlight. The chart below, based on data from the Q1 2024 earnings call, compares digital revenue growth to overall revenue growth, showcasing the outperformance of their digital segment.

Visa Direct: Expanding Global Reach

Intermex's partnership with Visa Direct is a major catalyst for their digital expansion. It enables them to:

Tap into new markets: Visa Direct provides access to a vast global network, including high-growth regions like India and the Philippines.

Enhance payment options: Customers can receive remittances directly to their Visa cards, offering greater convenience and accessibility.

Improve speed and efficiency: Visa Direct facilitates faster and more efficient cross-border payments, enhancing customer experience.

References

International Money Express (IMXI) Q1 2024 Earnings Conference Call Transcript - May 8, 2024.

Fun Fact

"Intermex processes over 30 million remittances annually, enough to circle the globe almost 2.5 times if laid end-to-end."

It's a quiet transformation, one that may not be making headlines, but it's one that shrewd investors should be paying close attention to. Intermex is using this period of market softness to build a company that's not just resilient, but antifragile, one that emerges from this period stronger and more valuable than ever before.