Breach Inlet Capital Sends Public Letter to Board of International Money Express
Believes International Money Express is Materially Undervalued with Significant Growth Opportunities
Recommends the Board Immediately Announce Strategic Alternatives to Maximize Shareholder Value
Breach Inlet Capital, LP, an investment firm focused on underfollowed and misunderstood small cap equities, delivered a letter to the Board of Directors of International Money Express (NASDAQ:IMXI) today. In its letter, Breach Inlet Capital outlines the reasons that the company is undervalued and should pursue a sale to maximize shareholder value.
The full text of the letter follows:
September 4, 2024
Members of the Board of Directors
International Money Express, Inc.
9100 South Dadeland Blvd, Suite 1100
Miami, FL 33156
Dear Members of the Board:
Breach Inlet Capital, LP has been a patient and supportive shareholder of International Money Express, Inc. ("IMXI") for three years. We first invested and remain invested because we believe that IMXI has significant growth opportunities and its shares are deeply undervalued by the public market. We have concluded that IMXI's best opportunity to capitalize on its growth potential and maximize value to shareholders is simple, yet urgent: IMXI must publicly announce and pursue a review of strategic alternatives that includes a potential sale of the company.
We are a large shareholder with ownership of ~700k shares, representing ~2% of the shares outstanding. Said differently, we beneficially own more shares than all of IMXI's outside Directors combined and a similar number of shares as IMXI's CEO.1 We also have a history of constructively engaging public company boards to create value for all shareholders.
Since becoming a shareholder in IMXI, we have had numerous constructive conversations with CEO Bob Lisy and CFO Andras Bende, both of whom we highly respect. We have deliberately kept our dialogue private in hopes that IMXI's Board of Directors (the "Board") would constructively engage and act boldly to maximize shareholder value. However, due to the Board's failure to substantively respond to our concerns, we believe it is now necessary for us to express our views publicly.
IMXI is Undervalued by the Public Markets and Could Accelerate Growth as a Private Company
Since going public six years ago, IMXI has tripled Adjusted EBITDA or increased at a 20% CAGR through Bob's disciplined pursuit of market share expansion. Despite this substantial profit growth, the public market has consistently refused to award IMXI with an appropriate valuation multiple. As evidence, IMXI currently trades for only ~5x LTM Adjusted EBITDA while its peer MoneyGram ("MGI") was acquired by private equity firm Madison Dearborn for ~8x Adjusted EBITDA last June.2 In contrast to IMXI's rapid growth in Adjusted EBITDA, MGI's Adjusted EBITDA had been eroding each year and the company had been forced to pay numerous regulatory penalties.3 In light of this, we believe IMXI deserves to be valued at a premium to MGI—not a material discount.
In addition to being severely undervalued by the public market, we believe IMXI could better execute its long-term growth strategy as a private company. IMXI has two significant growth opportunities: Digital4 and Europe. Though Digital represented 34% of IMXI's transactions and Digital revenue grew 67% in 2Q24,5 IMXI is still in the early stages of capitalizing on the Digital market. IMXI has a captive base of 4.2mm customers who can be efficiently converted from remitting in-person today to Digital customers in the future. Through the I-Transfer acquisition, IMXI also entered Europe and doubled its total addressable market so Europe represents another large growth opportunity.
To fully-capitalize on these opportunities and accelerate IMXI's expansion into the Digital and Europe markets, the company likely needs to invest more aggressively in people and resources. In the short-term, this investment could temporarily suppress IMXI's profit margins and free cash flow. The company's current shareholder base seems unwilling to accept this path. As a privately-held company, IMXI can confidently invest for the long-term while avoiding constant and distracting criticism by myopic investors and analysts.
IMXI Should Publicly Announce Review of Strategic Alternatives, Including a Private Equity Takeout
We are confident that IMXI would draw significant interest from private equity buyers given the company's growth prospects, low capital intensity, and underleveraged balance sheet. There is an undeniable historical precedent for private equity's interest, as a private equity firm acquired IMXI in 2007 and another private equity firm bought IMXI in 2017. Also as referenced above, a private equity firm recently acquired peer MGI for ~8x EBITDA. IMXI is a much better business than MGI, but conservatively applying 8x to IMXI's LTM EBITDA then implies a takeout price of ~$30 per share and ~65% upside from the current trading price.6
Meanwhile, Remitly Global ("RELY") is an unprofitable Digital remittance company trading for ~2.4x LTM Revenue.7 At this multiple, IMXI would be worth ~$50 per share.8 We do not expect IMXI to receive RELY's valuation in a takeout today. However, RELY's valuation highlights the potential future upside for a private equity buyer if: 1) they acquire IMXI and 2) in the future, they take IMXI public after successfully executing its growth strategy.
In summary, we believe IMXI's Board should immediately publicly announce a review of strategic alternatives. The Board must promptly act by retaining legal and financial advisors to commence this review. If the Board does not make this process public, then IMXI's share price may continue to languish and private equity bids may be anchored to IMXI's currently depressed trading price (leading to less attractive acquisition offers). We believe there are numerous potential private equity buyers willing to pay a substantial premium to IMXI's current share price. We also believe that shareholders would be widely supportive of such a transaction.
We are happy to discuss our recommendation in more detail with the Board and look forward to the Board's prompt response. In the absence of Board action, we plan to continue to make our voice heard to ensure that the Board quickly acts to maximize value for all shareholders.
Best Regards,
Chris Colvin, CFA
Founder and Portfolio Manager
Breach Inlet Capital, LP
Disclaimer
Breach Inlet Capital, LP and its affiliates ("Breach Inlet" or "we") make no representation as to the accuracy or completeness of any information contained herein, and the recipient accepts all risk in relying on this information for any purpose whatsoever. The views expressed herein are the opinions of Breach Inlet as of the date of this press release and are subject to change at any time without notice. This release contains a number of forward-looking statements, which reflect current expectations, are not guarantees of future performance, and are subject to a number of material business, economic, competitive and other risks and uncertainties, many of which are difficult to predict and beyond Breach Inlet's control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. Nothing in this letter should be relied upon as a promise or representation as to the future. Breach Inlet disclaims and does not undertake any obligation to update, revise, or withdraw any forward-looking statement or other opinion expressed herein, except as required by applicable law or regulation.
1 Based on IMXI's April 2024 proxy statement.
2 Sources: FactSet (as of September 4, 2024); IMXI and MGI SEC filings.
3 Sources: MGI SEC filings, LINK, LINK.
4 Digital: remittance transactions that occur online.
5 Sources: IMXI SEC filings.
6 ~$970mm EV / $121mm LTM EBITDA. EV = $30/share x 33mm shares + $212mm debt - $233mm cash.
7 Sources: FactSet (as of September 4, 2024); RELY SEC filings.
8 ~$1.6b EV / $666mm LTM Revenue. EV = $50/share x 33mm shares + $212mm debt - $233mm cash.
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