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MoneyGram International Reports Third Quarter 2012 Financial Results

Description of Tables

Table One – Consolidated Statements of (Loss) IncomeTable Two – Segment ResultsTable Three – Segment ReconciliationsTable Four – EBITDA, Adjusted EBITDA and Adjusted EBITDA MarginTable Five – Consolidated Balance SheetsTable Six – Assets in Excess of Payment Service ObligationsTable Seven – Free Cash Flow

Conference Call

MoneyGram International will host a conference call today at 9 a.m. ET, 8 a.m. CT, to discuss its third quarter results. Pamela H. Patsley, chairman and chief executive officer, will host the call. The conference call can be accessed by calling 1-888-339-3504 (U.S.) and +1-719-325-4937 (International). The participant code is 6426555. Slides are available on MoneyGram’s website at moneygram.com. A replay of the conference call will be available at noon ET on November 9, 2012, through 11:59 p.m. ET on November 16, 2012. The replay of the call is available at 1-877-870-5176 (U.S.) or +1-858-384-5517 (International). The replay participant code is 6246555.

About MoneyGram International, Inc.

MoneyGram International, Inc. is a leading global payment services company. The Company's major products and services include global money transfers, money orders and payment processing solutions for financial institutions and retail customers. MoneyGram is a New York Stock Exchange listed company with 293,000 global money transfer agent locations in 197 countries and territories. For more information, visit the Company's website at moneygram.com.

Forward Looking Statements

This Form 8-K may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements with respect to, among other things, the financial condition, results of operations, plans, objectives, future performance and business of MoneyGram and its subsidiaries. Forward-looking statements can be identified by words such as “believes,” “estimates,” “expects,” “projects,” “plans,” “will,” “should,” “could,” “would” and other similar expressions. These forward-looking statements speak only as of the date they are made, and MoneyGram undertakes no obligation to publicly update or revise any forward-looking statement, except as required by federal securities law. These forward-looking statements are based on management’s current expectations and are subject to certain risks, uncertainties and changes in circumstances due to a number of factors. These factors include, but are not limited to: the impact of the $100 million forfeiture on our financial condition and results of operations, the Company’s compliance with the terms of the deferred prosecution agreement, the effect of the settlement and compliance with the deferred prosecution agreement on the Company’s reputation and business; the outcome of ongoing investigations by several state governments; our ability to maintain key agent or biller relationships, or a reduction in transaction volume from these relationships; our substantial debt service obligations, significant debt covenant requirements and credit rating; our capital structure and the special voting rights provided to designees of Thomas H. Lee Partners, L.P. on our Board of Directors; sustained financial market illiquidity, or illiquidity at our clearing, cash management and custodial financial institutions; continued weakness in economic conditions, in both the United States and global markets; a material slow down or complete disruption of international migration patterns; litigation involving MoneyGram or its agents, which could result in material settlements, fines or penalties; fluctuations in interest rates; our ability to manage credit risks from our retail agents and official check financial institution customers; our ability to manage fraud risks from consumers or agents; the ability of MoneyGram and its agents to maintain adequate banking relationships; our ability to retain partners to operate our official check and money order businesses; our ability to maintain sufficient capital; our ability to attract and retain key employees; our ability to successfully develop and timely introduce new and enhanced products and services; investments in new products, services or infrastructure changes; our ability to adequately protect our brand and intellectual property rights and to avoid infringing on the rights of others; our ability to compete effectively; the ability of us and our agents to comply with U.S. and international laws and regulations, including the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010; changes in tax laws or an unfavorable outcome with respect to the audit of our tax returns or tax positions, or a failure by us to establish adequate reserves for tax events; our offering of money transfer services through agents in regions that are politically volatile or, in a limited number of cases, are subject to certain restrictions by the Office of Foreign Assets Control; a security or privacy breach in our facilities, networks or databases; disruptions to our computer network systems and data centers; our ability to effectively operate and adapt our technology to match our business growth; our ability to manage risks related to the operation of retail locations and the acquisition or start-up of businesses; our ability to manage risks associated with our international sales and operations; our ability to maintain effective internal controls; and the risks and uncertainties described in the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of MoneyGram’s public reports filed with the SEC, including MoneyGram’s Form 10-K for the year ended December 31, 2011 and its Form 10-Q for the quarter ended September 30, 2012.

           
TABLE ONE
MONEYGRAM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF (LOSS) INCOME
(Unaudited)
 
 
(Amounts in thousands, except per share data) Three Months Ended Nine Months Ended
September 30, 2012 vs September 30, 2012 vs
2012 2011 2011 2012 2011 2011
 
REVENUE
Fee and other revenue $ 335,630 $ 318,022 $ 17,608 $ 977,254 $ 912,105 $ 65,149
Investment revenue   2,920     3,925   (1,005 )   9,533     13,819     (4,286 )
Total revenue   338,550     321,947   16,603     986,787     925,924     60,863  
EXPENSES
Fee and other commissions expense 152,372 141,010 11,362 440,960 405,631 35,329
Investment commissions expense   94     99   (5 )   274     350     (76 )
Total commissions expense 152,466 141,109 11,357 441,234 405,981 35,253
Compensation and benefits 54,744 60,635 (5,891 ) 172,838 177,843 (5,005 )
Transaction and operations support 135,604 57,375 78,229 291,826 166,378 125,448
Occupancy, equipment and supplies 12,270 11,090 1,180 36,623 34,480 2,143
Depreciation and amortization   10,840     11,413   (573 )   32,576     34,958     (2,382 )
Total operating expenses   365,924     281,622   84,302     975,097     819,640     155,457  
OPERATING (LOSS) INCOME   (27,374 )   40,325   (67,699 )   11,690     106,284     (94,594 )
Other (income) expense
Net securities gains - - - - (32,816 ) 32,816
Interest expense 17,710 22,234 (4,524 ) 53,230 65,720 (12,490 )
Other   50     770   (720 )   397     15,626     (15,229 )
Total other expense, net   17,760     23,004   (5,244 )   53,627     48,530     5,097  
(Loss) income before income taxes (45,134 ) 17,321 (62,455 ) (41,937 ) 57,754 (99,691 )
Income tax expense   9,626     1,487   8,139     27,610     1,471     26,139  
NET (LOSS) INCOME $ (54,760 ) $ 15,834 $ (70,594 ) $ (69,547 ) $ 56,283   $ (125,830 )
 
(Loss) earnings per common share:
Basic $ (0.77 ) $ 0.22 $ (0.99 ) $ (0.97 ) $ (10.82 ) $ 9.85
Diluted $ (0.77 ) $ 0.22 $ (0.99 ) $ (0.97 ) $ (10.82 ) $ 9.85
 
Net (loss) income available to common stockholders:
Net (loss) income as reported $ (54,760 ) $ 15,834 $ (70,594 ) $ (69,547 ) $ 56,283 $ (125,830 )
Accrued dividends on mezzanine equity - - - - (30,934 ) 30,934
Accretion on mezzanine equity - - - - (80,023 ) 80,023

Additional consideration issued in connection with conversion of mezzanine equity

- - - - (366,797 ) 366,797
Cash dividends paid on mezzanine equity   -     -   -     -     (20,477 )   20,477  
Net (loss) income available to common stockholders $ (54,760 ) $ 15,834 $ (70,594 ) $ (69,547 ) $ (441,948 ) $ 372,401  
 
Shares used in computing (loss) earnings per share: (1)
Basic 71,512 71,478 34 71,501 40,854 30,647
Diluted 71,512 72,176 (664 ) 71,501 40,854 30,647
 
 

(1) Includes common stock equivalents of 13.7 million for the three and nine months ended September 30, 2012, respectively. The following weighted-average potential common shares are excluded from diluted income (loss) per common share as their effect is anti-dilutive. All potential common shares are anti-dilutive in periods of net loss available to common stockholders.

 
 
Shares related to stock options 4,593 2,950 4,996 5,108
Shares related to restricted stock and restricted stock units 541 - 462 26
Shares related to preferred stock - - - 28,062
 

           
TABLE TWO
MONEYGRAM INTERNATIONAL, INC.
SEGMENT RESULTS
(Unaudited)
 
Global Funds Transfer
Three Months Ended Nine Months Ended
September 30, 2012 vs September 30, 2012 vs
(Amounts in thousands) 2012 2011 2011 2012 2011 2011
 
Money transfer revenue:
Fee and other revenue $ 291,305 $ 270,407 $ 20,898 $ 841,628 $ 766,198 $ 75,430
Investment revenue 138 207 (69 ) 568 405 163
Bill payment revenue:
Fee and other revenue 26,439 28,278 (1,839 ) 80,091 85,905 (5,814 )
Investment revenue   -     -     -     -     4     (4 )
Total revenue   317,882     298,892     18,990     922,287     852,512     69,775  
 
Commissions expense   151,996     140,857     11,139     439,799     404,149     35,650  
 
Operating income $ 39,279   $ 39,083   $ 196   $ 111,187   $ 91,441   $ 19,746  
 
Operating margin 12.4 % 13.1 % 12.1 % 10.7 %
 
 
Financial Paper Products
Three Months Ended Nine Months Ended
September 30, 2012 vs September 30, 2012 vs
(Amounts in thousands) 2012 2011 2011 2012 2011 2011
 
Money order revenue:
Fee and other revenue $ 13,450 $ 14,181 $ (731 ) $ 41,761 $ 43,568 $ (1,807 )
Investment revenue 468 639 (171 ) 1,565 2,605 (1,040 )
Official check revenue:
Fee and other revenue 4,382 4,947 (565 ) 13,724 16,162 (2,438 )
Investment revenue   1,991     2,716     (725 )   6,428     9,683     (3,255 )
Total revenue   20,291     22,483     (2,192 )   63,478     72,018     (8,540 )
 
Commissions expense   470     332     138     1,436     1,912     (476 )
 
Operating income $ 7,564   $ 5,533   $ 2,031   $ 24,634   $ 23,257   $ 1,377  
 
Operating margin 37.3 % 24.6 % 38.8 % 32.3 %
 

           
TABLE THREE
MONEYGRAM INTERNATIONAL, INC.
SEGMENT RECONCILIATIONS
(Unaudited)
 
Global Funds Transfer
Three Months Ended Nine Months Ended
September 30, 2012 vs September 30, 2012 vs
(Amounts in thousands) 2012 2011 2011 2012 2011 2011
 
Revenue (as reported) $ 317,882   $ 298,892   $ 18,990   $ 922,287   $ 852,512   $ 69,775  
 
Adjusted operating income $ 45,070 $ 48,978 $ (3,908 ) $ 130,904 $ 115,890 $ 15,014
 
Restructuring and reorganization costs (3,620 ) (6,160 ) 2,540 (12,917 ) (14,050 ) 1,133
Stock-based compensation expense   (2,171 )   (3,735 )   1,564     (6,800 )   (10,399 )   3,599  
Total adjustments (5,791 ) (9,895 ) 4,104 (19,717 ) (24,449 ) 4,732
                                     
Operating income (as reported) $ 39,279   $ 39,083   $ 196   $ 111,187   $ 91,441   $ 19,746  
 
Adjusted operating margin 14.2 % 16.4 % 14.2 % 13.6 %
Total adjustments (1.8 %) (3.3 %) (2.1 %) (2.9 %)
Operating margin (as reported) 12.4 % 13.1 % 12.1 % 10.7 %
 
 
Financial Paper Products
Three Months Ended Nine Months Ended
September 30, 2012 vs September 30, 2012 vs
(Amounts in thousands) 2012 2011 2011 2012 2011 2011
 
Revenue (as reported) $ 20,291   $ 22,483   $ (2,192 ) $ 63,478   $ 72,018   $ (8,540 )
 
Adjusted operating income $ 8,052 $ 6,859 $ 1,193 $ 26,477 $ 26,663 $ (186 )
 
Restructuring and reorganization costs (241 ) (671 ) 430 (1,066 ) (1,673 ) 607
Stock-based compensation expense   (247 )   (655 )   408     (777 )   (1,733 )   956  
Total adjustments (488 ) (1,326 ) 838 (1,843 ) (3,406 ) 1,563
                                     
Operating income (as reported) $ 7,564   $ 5,533   $ 2,031   $ 24,634   $ 23,257   $ 1,377  
 
Adjusted operating margin 39.7 % 30.5 % 41.7 % 37.0 %
Total adjustments (2.4 %) (5.9 %) (2.9 %) (4.7 %)
Operating margin (as reported) 37.3 % 24.6 % 38.8 % 32.3 %
 

       
TABLE FOUR
MONEYGRAM INTERNATIONAL, INC.
EBITDA, ADJUSTED EBITDA AND ADJUSTED EBITDA MARGIN
(Unaudited)
 
 
Three Months Ended Nine Months Ended
September 30, September 30,
(Amounts in thousands) 2012 2011 2012 2011
 
(Loss) income before income taxes $ (45,134 ) $ 17,321 $ (41,937 ) $ 57,754
Interest expense 17,710 22,234 53,230 65,720
Depreciation and amortization 10,840 11,413 32,576 34,958
Amortization of agent signing bonuses   8,377     8,115     24,761     24,182  
EBITDA (8,207 ) 59,083 68,630 182,614
 
Significant items impacting EBITDA:
Net securities gains - - - (32,816 )
Severance and related costs (1) - - 1,029 (31 )
Restructuring and reorganization costs 3,949 6,375 14,163 17,259
Capital transaction costs (2) - (114 ) - 5,407

Asset impairment charges (3)

- 884 - 2,686
Contribution from investors (4) - - 347 -

Debt extinguishment (5)

- - - 5,220
Stock-based compensation expense 2,419 4,403 7,579 12,166
Legal accruals and fees (6)   72,215     1,341     115,463     3,954  
Adjusted EBITDA $ 70,376   $ 71,972   $ 207,211   $ 196,459  
 
Adjusted EBITDA margin (7) 20.8 % 22.4 % 21.0 % 21.2 %
 
 
(1) Severance and related costs from executive terminations.
(2) Represents professional and legal fees related to the 2011 Recapitalization.
(3) Impairments of assets in 2011 relate to disposition activity.

(4) Expense resulting from payment by an investor to Wal-Mart upon liquidation of their investment and as required by the Participation Agreement.

(5) Debt extinguishment loss upon the termination of the senior facility in connection with the 2011 Recapitalization.

(6) Legal expenses for 2012 primarily include accruals in connection with the settlement related to the U.S. Attorney's Office for the Middle District of Pennsylvania investigation and the shareholder derivative litigation, and legal fees and expenses related to these matters. Legal expenses for 2011 related primarily to the shareholder derivative litigation.

(7) Adjusted EBITDA margin is calculated as Adjusted EBITDA divided by Total Revenue.
 

   
TABLE FIVE
MONEYGRAM INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
 
September 30, December 31,
(Amounts in thousands, except share and per share data) 2012 2011
ASSETS
Cash and cash equivalents $ - $ -
Cash and cash equivalents (substantially restricted) 2,539,844 2,572,174
Receivables, net (substantially restricted) 1,330,018 1,220,065
Short-term investments (substantially restricted) 524,428 522,024
Available-for-sale investments (substantially restricted) 79,907 102,771
Property and equipment 119,906 116,341
Goodwill 428,691 428,691
Other assets   224,201     213,512  

Total assets

$ 5,246,995   $ 5,175,578  
 
LIABILITIES
Payment service obligations $ 4,208,052 $ 4,205,375
Debt 810,112 810,888
Pension and other postretirement benefits 110,931 120,252
Accounts payable and other liabilities   281,513     149,261  

Total liabilities

  5,410,608     5,285,776  
 
STOCKHOLDERS' DEFICIT

Participating Convertible Preferred Stock - Series D, $0.01 par value, 200,000 shares authorized, 109,239 issued at September 30, 2012, and December 31, 2011, respectively

281,898 281,898

Common Stock, $0.01 par value, 162,500,000 shares authorized, 62,263,963 shares issued at September 30, 2012, and December 31, 2011, respectively

623 623
Additional paid-in capital 999,464 989,188
Retained loss (1,286,065 ) (1,216,543 )
Accumulated other comprehensive loss (32,794 ) (38,028 )

Treasury stock: 4,407,038 and 4,429,184 shares at September 30, 2012, and December 31, 2011, respectively

  (126,739 )   (127,336 )

Total stockholders' deficit

  (163,613 )   (110,198 )

Total liabilities and stockholders' deficit

$ 5,246,995   $ 5,175,578  
 

       
TABLE SIX
MONEYGRAM INTERNATIONAL, INC.
ASSETS IN EXCESS OF PAYMENT SERVICE OBLIGATIONS
(Unaudited)
 
 
September 30, June 30, March 31, December 31,
(Amounts in thousands) 2012 2012 2012 2011
 
Cash and cash equivalents $ 2,539,844 $ 2,548,257 $ 2,547,250 $ 2,572,174
Receivables, net 1,330,018 1,266,882 1,210,506 1,220,065
Short-term investments 524,428 524,055 525,356 522,024
Available-for-sale investments   79,907     85,281     93,127     102,771  
4,474,197 4,424,475 4,376,239 4,417,034
Payment service obligations   (4,208,052 )   (4,155,880 )   (4,152,604 )   (4,205,375 )
Assets in excess of payment service obligations $ 266,145   $ 268,595   $ 223,635   $ 211,659  
 

       
TABLE SEVEN
MONEYGRAM INTERNATIONAL, INC.
FREE CASH FLOW
(Unaudited)
 
 
Three Months Ended Nine Months Ended
September 30, September 30,
(Amounts in thousands) 2012 2011 2012 2011
 
Adjusted EBITDA $ 70,376 $ 71,972 $ 207,211 $ 196,459
 
Cash payments for interest (16,454 ) (21,107 ) (48,903 ) (60,109 )
Cash payments for tax (115 ) (102 ) (913 ) (611 )
Cash payments for capital expenditures (12,918 ) (6,761 ) (43,213 ) (30,606 )
Cash payments for agent signing bonuses (16,297 ) (7,568 ) (22,637 ) (20,371 )
                         
Free Cash Flow $ 24,592   $ 36,434   $ 91,545   $ 84,762  
 




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