MoneyGram International (NYSE:MGI), a leading global payment services company, today reported financial results for the second quarter of 2011.
Money transfer transaction volume increased 15 percent with strong performance in both U.S.-to-U.S. sends of 18 percent and non-U.S. originated sends of 16 percent in the second quarter of 2011 versus prior year.
Money transfer fee and other revenue continued to accelerate, increasing 11 percent on a constant currency basis and 15 percent on a reported basis in the second quarter of 2011 versus prior year.
Global agent locations increased 20 percent over the prior year second quarter to 244,000.
Total revenue in the second quarter increased 9 percent to $310.0 million, compared with $283.9 million in the second quarter of 2010. Total fee and other revenue increased 10 percent to $304.1 million, from $277.6 million in the second quarter of 2010.
Net income for the quarter was $26.4 million, up from $6.8 million in the prior year quarter, and EBITDA was $72.2 million, up from $55.4 million in the second quarter of last year.
Both net income and EBITDA were negatively impacted in the second quarter of 2011 by:
- $7.9 million of restructuring and reorganization costs;
- $5.2 million of debt extinguishment loss in connection with the modification of the senior facility related to the 2011 recapitalization;
- $4.0 million in costs associated with the recapitalization;
- $3.2 million of stock-based compensation;
- $2.6 million for certain legal accruals; and
- $1.8 million of asset impairment charges.
Both net income and EBITDA benefited in the second quarter of 2011 from:
- $32.8 million of net securities gains related to the receipt of a $19.2 million and a $13.6 million settlement equal to all of the outstanding principal from two securities classified in "other asset-backed securities." These securities had previously been written down to a nominal fair value, resulting in net securities gains in the quarter.
Adjusted EBITDA for the second quarter was $64.2 million versus $65.0 million in the prior year. Adjusted EBITDA margin was 20.7 percent in the second quarter of 2011, compared with 22.9 percent in the same period last year. Adjusted EBITDA and Adjusted EBITDA margin were negatively impacted by increased marketing spend over prior year of $5.3 million.
MoneyGram prepaid $50.0 million on its Term Loan under its new Senior Facility.
"With the recapitalization behind us, the highlight for the second quarter is clearly our double-digit growth in money transfer revenue, transactions and locations, all of which accelerated from the first quarter. I've said that our focus needed to be on improving top-line growth and we are achieving our expectations in this area," said Pamela H. Patsley, MoneyGram chairman and chief executive officer. "Yet, to more competitively position us for future growth we've also been re-investing in our core business. These investments are focused on increasing the strength of our global brand and enhancing our core infrastructure and global operations. While we are far from finished, the investments we are making in our business are beginning to take hold and we are heading in the right direction."
During the quarter, MoneyGram completed its 2011 recapitalization transaction under which affiliates and co-investors of Thomas H. Lee Partners, L.P. and Goldman, Sachs & Co. converted MoneyGram's Series B and Series B-1 preferred shares into common stock or Series D preferred stock (a common stock equivalent) and received additional shares of common stock or Series D preferred stock and a cash payment.
At the close of the quarter, MoneyGram now has 571.8 million shares of common stock and common stock equivalents outstanding.
Also in the quarter, MoneyGram closed on its new senior secured credit facility. The new $540 million senior secured credit facility consists of a $150 million, 5-year revolving credit facility and a $390 million, 6.5-year term loan. The new term loan bears interest at LIBOR plus 3.25% (with a LIBOR floor of 1.25%) and extends the senior debt maturities to 2017 from 2013.
Balance Sheet Items
In June, MoneyGram prepaid $50.0 million on its Term Loan under its new Senior Facility and ended the quarter with $840.0 million in outstanding debt principal. MoneyGram ended the quarter with assets in excess of payment service obligations of $233.1 million, which reflects $32.8 million of securities settlements and the debt prepayment of $50.0 million.
The Company continued its focus on enhancing its product offerings and expanding its agent network. MoneyGram recently:
- Launched service with Bharti Walmart and Bharti Retail in India making MoneyGram the first money transfer brand introduced in chain retail locations in the country, adding 138 locations with convenient hours and frequent shoppers;
- Successfully renewed its agreement with Canada Post, the largest retail network in the country, and added bill payment services to its suite of product offerings. MoneyGram will continue to provide money transfer services at over 6,200 post office and postal outlet locations throughout Canada;
- Re-opened nearly 350 network locations in Ivory Coast following temporary closures due to the political issues within the country. Business has resumed with strong transaction volume from France leading the way;
- Announced the addition of Al Barid Bank in Morocco, now MoneyGram's largest agent in the country with 1,800 locations;
- Opened offices in Casablanca and Manila to support the growth in these important remittance markets;
- Announced new strategic U.S. expansions with the addition of two premier financial service center agents - Friendly Check Cashing and RiteCheck. These agents added key locations in New York City, Virginia and North Carolina;
- Added four new agents in France - Ingenico Group, Logicartes, Panini and Suncard Group - bringing the total number of locations to 1,000, which is up from 102 locations in the second quarter of last year;
- Continued its network expansion in China with Bank of China adding services in provinces in Northeast China. Bank of China now has more than 7,000 active locations and MoneyGram's country network now reaches 25 provinces.
Global Funds Transfer Segment Results
Total revenue for the Global Funds Transfer segment increased 12 percent to $283.8 million in the second quarter of 2011 compared with $253.7 million in the second quarter of 2010. The segment reported operating income of $25.9 million and an operating margin of 9.1 percent in the second quarter of 2011. Adjusted operating margin was 11.9 percent in the quarter, down from 14.2 percent in the prior year quarter. Consistent with the first quarter, segment margin was negatively impacted by increased marketing spend, lower operating income from the bill payment business and increased commission expense, which resulted from revenue growth, changes in corridor mix and a contractual increase in commissions at a significant agent.
During the second quarter of 2011, money transfer transaction volume increased 15 percent, with fee and other revenue also increasing 15 percent to $256.2 million compared with $222.6 million in the second quarter of 2010. On a constant currency basis, money transfer fee and other revenue improved a very strong 11 percent. The difference between transaction growth and constant currency revenue growth is primarily due to corridor mix.
In the U.S., the money transfer business continued to deliver solid results driven by 18 percent growth in U.S.-to-U.S. transaction volume. U.S. outbound transaction volume increased 10 percent over prior year. U.S. to Mexico transaction volume increased a strong 12 percent. U.S. to Mexico continues to be an important corridor within the U.S. outbound business.
Non-U.S.-originated money transfer transactions had a very strong quarter. Transaction volume increased 16 percent over the prior year as MoneyGram's focus on agent expansion, corridor alignment and re-investments in marketing more than offset the many geo-political issues across Africa and the Middle East which impacted various corridors during the quarter.
Bill payment transaction volume decreased 8 percent, while fee and other revenue decreased 11 percent to $27.6 million in the second quarter of 2011 from $31.0 million in the second quarter of 2010. The decline in both transaction volume and revenue continues to be related to transaction mix where secular and economic declines in the traditional consumer credit verticals is occurring at a faster rate than business in new emerging verticals is being added.
Financial Paper Products Segment Results
Total revenue in the Financial Paper Products segment was $25.6 million in the second quarter, down from $29.2 million in the second quarter of 2010. Operating income was $9.3 million in the second quarter of 2011 down from $11.6 million in the second quarter of 2010. Operating margin in the second quarter of 2011 was 36.4 percent. Adjusted operating margin was 40.8 percent in the quarter down from 42.7 percent in the same period last year. Segment margin continues to be negatively impacted by declining investment revenue.
During the quarter, the company benefited from $32.8 million of net securities gains related to the receipt of a $19.2 million and a $13.6 million settlement equal to all of the outstanding principal from two securities classified in "other asset-backed securities." These securities had previously been written down to a nominal fair value, and the receipt of the cash resulted in net securities gains in the quarter. Importantly, MoneyGram has been and continues to pursue every possible effort to recover principal from other securities.
As previously disclosed, MoneyGram was served with subpoenas to produce documents and testify before a federal grand jury in the U.S. District Court for the Middle District of Pennsylvania. MoneyGram has provided information requested pursuant to the subpoenas and, in November 2010, met with representatives from the U.S. Department of Justice (US DOJ) to discuss the investigation. MoneyGram has since participated in discussions with various representatives of the federal government, including the Asset Forfeiture and Money Laundering Section of the U.S. Department of Justice (US DOJ), relating to, among other things, certain activities occurring between 2004 and early 2009 involving its U.S. and Canadian agents and its consumer anti-fraud program. During these discussions, MoneyGram was informed that it is being investigated by the federal grand jury in connection with these matters as well as MoneyGram's anti-money laundering program during that period. MoneyGram is cooperating with the US DOJ in connection with this investigation. The investigation is continuing and no conclusions can be drawn at this time as to its outcome.
"As a key objective of our turn-around plan for MoneyGram, we have taken concrete action in recent years to step-up our regulatory compliance programs and bolster the anti-fraud protection we provide to our agents and customers," Patsley added. "These actions include significant enhancements to staffing, processes and technology geared toward preventing consumer fraud and ensuring that we meet the highest standards of regulatory compliance. We are committed to utilizing all necessary resources to resolve the Company's remaining legacy issues and drive the new MoneyGram to continued success."