MoneyGram International (NYSE:MGI) reported a net loss of $3.3 million in the second quarter of 2009.
The net loss included a pre-tax $12.0 million legal accrual and a pre-tax increase in the provision for loss of $9.0 million. The loss compares with net income of $15.2 million in the second quarter of 2008. Revenue totaled $291.2 million in the second quarter 2009 as compared with revenue of $286.1 million a year earlier. Year-to-date total revenue in 2009 was $571.1 million compared with $303.2 million in the first half of 2008. Revenue in the first half of 2008 was adversely impacted by net securities losses of $337.6 million.
"We continue to execute our strategy and, despite the loss in the second quarter of 2009, we demonstrated meaningful progress in positioning MoneyGram for accelerated long-term growth. We remain focused on aggressively managing our balance sheet, becoming more efficient, and making disciplined investments in our global network," said Pamela H. Patsley, MoneyGram International executive chairman. "During the quarter, we expanded our distribution in all corners of the world, increased our global agent network by 15 percent over the prior year, and we ended the quarter with unrestricted assets of $386.9 million at June 30, 2009."
During the quarter the Company signed National Commercial Bank in Saudi Arabia, the largest bank in the Middle East. In South Korea, the Company recently launched Shinhan Bank, providing the MoneyGram service in 850 of its locations. In Canada, MoneyGram completed the successful rollout of 2,000 additional Canada Post locations and received commitment to roll out several thousand more locations over the next year, significantly expanding MoneyGram's agent network from coast to coast. In the very important Latin America region, the Company added more than 1,300 locations, reaching the significant milestone of 25,000 agent locations.
Total fee and other revenue in the quarter was $278.5 million down from $281.9 million in the second quarter of 2008. Money transfer fee and other revenue was $249.7 million in the second quarter of 2009, versus $254.7 million in the second quarter of 2008. The current quarter results were impacted by a lower euro rate, and a decline in money transfer average principal, partially offset by an increase in money transfer transaction volume.
EBITDA (earnings before interest, taxes, depreciation and amortization, and amortization of agent signing bonuses) was $46.6 million and Adjusted EBITDA (EBITDA adjusted for net securities gains and severance-related costs) was $43.4 million in the second quarter of 2009 compared with Adjusted EBITDA of $58.2 million in the comparable period last year. The second quarter of 2009 Adjusted EBITDA was impacted by the $12.0 million legal accrual and the $9.0 million increase in the provision for loss.
"Our steadfast focus is on delivering a compelling value to our consumers and creating long-term value for our shareholders," said Anthony P. Ryan, MoneyGram International president and chief executive officer. "In the quarter, we entered the mobile money transfer business through an agreement with Affinity Global Services, and we expanded our MoneyGram Rewards loyalty program in France, Germany and Spain. We are optimistic about the opportunities to further grow our core business, introduce new products and services, and generate greater operating efficiencies."
Global Funds Transfer Results
Total revenue for the Global Funds Transfer segment decreased to $269.7 million in the second quarter of 2009 from $272.3 million in the comparable period last year. Segment results were impacted by a lower euro rate and a decline in money transfer average principal, partially offset by a 4 percent increase in money transfer transaction volume excluding bill payment. The segment reported operating income of $10.9 million, and an operating margin of 4.0 percent in the second quarter, after giving affect to the legal accrual and provision for loss.
Money transfer fee and other revenue including bill payment declined 2 percent, or when adjusted for the change in the value of the euro, increased 1 percent. Total money transfer transaction volume was up 1 percent, as a result of a year-over-year decline in bill payment transactions, which continue to be adversely affected by the slowdown in the U.S. economy.
Money transfer transactions excluding bill payment originating in the United States and Canada, increased 8 percent in the second quarter of 2009. Including bill payment, transactions increased 2 percent in the quarter from the prior year. Transactions originating outside of North America increased 2 percent from the prior year. Spain's severe economic downturn continues to have a significant impact on our international transaction growth. Excluding Spain, international transactions increased 11 percent from the prior year.
In the second quarter, MoneyGram's transaction volume to Mexico decreased 9.4 percent, consistent with the industry-wide remittance volume decline into Mexico as measured by Banco de Mexico.
Payment Systems Results
Total Payment Systems net revenue for the quarter increased to $19.5 million from $18.5 million in the second quarter of 2008. Net revenue in 2009 reflects net investment revenue of $6.0 million and a net securities gain of $3.2 million, while 2008 net revenue reflects $34.5 million of net investment revenue and $25.7 million in net securities losses. The segment reported operating income of $9.4 million in the second quarter of 2009, up from $3.9 million in the second quarter of 2008.
Legal Accrual / Provision for Loss
In the second quarter, the Company recorded an accrual of $12.0 million related to the potential resolution of ongoing discussions with the staff of the Federal Trade Commission regarding customer complaints that third parties have inappropriately used MoneyGram's money transfer services in conjunction with consumer fraud activities. There can be no assurance that the Company will reach an agreement with the staff of the Federal Trade Commission or that this matter will not result in future litigation. MoneyGram continues to implement additional systems and processes to further safeguard consumers against fraud.
Also in the second quarter, the Company increased its provision for loss by $9.0 million as a result of the closure of an international agent. The receivable from this international agent is fully reserved at June 30, 2009 and there is no additional exposure.
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