MoneyGram International Reports Third Quarter 2011 Financial Results

MoneyGram International, Inc. (NYSE:MGI), a leading global payment services company, today reported financial results for the third quarter of 2011.

• On a constant currency basis, money transfer fee and other revenue continued to accelerate, increasing 12 percent in the third quarter of 2011 over the third quarter of 2010. On a reported basis money transfer fee and other revenue increased 15 percent versus prior year.
• Money transfer transaction volume increased 13 percent in the third quarter of 2011, led by 16 percent volume growth from money transfer transactions originated outside of the U.S., U.S.-to-U.S. transaction volume growth of 16 percent and U.S. outbound transaction volume growth of 9 percent.
• Global agent locations increased a strong 24 percent to 256,000, over the third quarter of 2010.
• Total revenue in the third quarter increased 10 percent to $321.9 million, compared with $292.9 million in the third quarter of 2010. Total fee and other revenue increased 10 percent to $318.0 million, from $288.5 million, in the third quarter of 2010.
• Net income for the quarter increased to $15.8 million from $10.0 million in the prior year’s quarter. EBITDA was $59.1 million, up from $57.3 million, in the third quarter of last year. Both net income and EBITDA were impacted in the third quarter of 2011 by:
  • $6.4 million of restructuring and reorganization costs;
  • $4.4 million of stock-based compensation;
  • $1.3 million for certain legal accruals; and
  • $0.9 million of asset impairment charges.
• Adjusted EBITDA for the third quarter increased 6 percent to $72.0 million from $68.0 million in the prior year. Adjusted EBITDA margin was 22.4 percent in the third quarter of 2011, compared with 23.2 percent in the same period last year. Adjusted EBITDA and Adjusted EBITDA margin were negatively impacted by increased marketing spend of $1.1 million, lower net investment revenue and lower operating income from the bill payment business as compared to the same period last year.
• Diluted income per common share was $0.03.

"Across the board, we had a great third quarter. In spite of continued global economic challenges we delivered market-leading transaction and revenue growth,” said Pamela H. Patsley, MoneyGram chairman and chief executive officer. "MoneyGram is a powerful brand, and through our focus on consumers, agents and partners we are intent on creating better value for our shareholders. The turn-around of MoneyGram is well on its way.”

Balance Sheet Items

MoneyGram ended the third quarter of 2011 with assets in excess of payment service obligations of $249.4 million, and outstanding debt principal of $840.0 million. Interest expense for the quarter decreased $2.5 million from prior year as result of continued delevering activities and the refinancing in May of 2011. Diluted weighted-average outstanding common shares, including common stock equivalents, for the quarter was 577.4 million.

Market Developments

Throughout the quarter MoneyGram expanded its base of revenue opportunities. A few key accomplishments include:

• Increasing the convenience to consumers by adding five national postal networks:
  • India Post, the world’s largest distribution postal network in the world’s largest remittance receive market;
  • Liban Post in Lebanon, the company’s first postal service agent in the Middle East;
  • Post NL in the Netherlands and Iceland Post, establishing MoneyGram as the largest money transfer network in these countries; and
  • Togo Post Office, a key agent for serving this rural West African nation.
• Developing new relationships enhancing its services and offerings with:
  • SWIFT, an industry-owned co-operative that supplies secure messaging services and interface software to financial institutions. MoneyGram is the first global money transfer company to receive worker’s remittance member status;
  • CashEdge Inc., the leading provider of Intelligent Money Movement™ services. This relationship adds MoneyGram’s money transfer services to CashEdge’s menu of options it provides to banks and other financial service companies.
  • Cumberland Farms, the first agent to launch the MoneyGram® Xpress service and allow customers to purchase pre-packaged money transfers and redeem online or by telephone to complete the transaction; and
  • AccountNow, becoming the first U.S.-based prepaid card program to provide MoneyGram’s money transfer products as an online agent beginning November 2011.

• Adding several new banks and retail locations, including:
  • Three large banks in Uzbekistan --National Bank of Uzbekistan, Halq Bank (Peoples Bank of Uzbekistan) and Alokabank – adding 200 locations
  • Oschad Bank in the Ukraine, adding 1,700 locations through a five-year agreement.
  • Tameer Bank in Pakistan, increasing our agents in Pakistan to over 2,100
  • CI Banco in Mexico expanding MoneyGram’s presence in Mexico City and key resort and port areas; and
  • QC Holdings, a Kansas City-based payday loan company will offer MoneyGram money transfer, bill payments and money orders in over 300 locations

Global Funds Transfer Segment Results

Total revenue for the Global Funds Transfer segment increased 12 percent to $298.9 million in the third quarter of 2011 from $266.2 million in the third quarter of 2010. The segment reported operating income of $39.1 million and an operating margin of 13.1 percent in the third quarter of 2011. Adjusted operating margin was 16.4 percent in the quarter, up from 16.0 percent in the prior year’s quarter. Segment margin was negatively impacted by increased marketing spend and lower operating income from the bill payment business.

During the third quarter of 2011, money transfer transaction volume increased 13 percent. Money transfer fee and other revenue increased 15 percent to $270.4 million compared with $235.0 million in the third quarter of 2010. On a constant currency basis, money transfer fee and other revenue improved a very strong 12 percent. The difference between transaction growth and constant currency revenue growth is primarily due to corridor mix.

Money transfer transactions originating outside of the U.S. increased an impressive 16 percent over the prior year. U.S.-to-U.S money transfer transaction volume continued its strong growth, increasing 16 percent. U.S. outbound transaction volume growth was 9 percent for the quarter. U.S. to Mexico transaction volume increased an impressive 13 percent.

Bill payment transaction volume decreased 5 percent, while fee and other revenue decreased 9 percent to $28.3 million in the third quarter of 2011 from $31.2 million in the third quarter of 2010. While down from prior year, MoneyGram’s bill payment business improved compared to the second quarter of 2011.

Financial Paper Products Segment Results

Total revenue in the Financial Paper Products segment declined 13 percent to $22.5 million in the third quarter of 2011, from $26.0 million in the third quarter of 2010. Operating income was $5.5 million in the third quarter of 2011 down from $7.5 million in the third quarter of 2010. Operating margin in the third quarter of 2011 was 24.6 percent. Adjusted operating margin was 30.5 percent in the quarter down from 32.8 percent in the same period last year. Segment margin continues to be negatively impacted by declining investment revenue.

Non-GAAP Measures

In addition to results presented in accordance with GAAP, this press release and related tables include certain non-GAAP financial measures, including a presentation of EBITDA (earnings before interest, taxes, depreciation and amortization, including agent signing bonus amortization), Adjusted EBITDA (EBITDA adjusted for significant items) and Adjusted EBITDA margin. In addition, we also present Adjusted operating income and Adjusted operating margin for our two reporting segments. The following tables include a full reconciliation of these non-GAAP financial measures to the related GAAP financial measures.

We believe that these non-GAAP financial measures provide useful information to investors because they are an indicator of the strength and performance of ongoing business operations, including our ability to service debt and fund capital expenditures, acquisitions and operations. These calculations are commonly used as a basis for investors, analysts and credit rating agencies to evaluate and compare the operating performance and value of companies within our industry. In addition, the Company’s debt agreements require compliance with financial measures based on EBITDA and Adjusted EBITDA. Finally, EBITDA, Adjusted EBITDA and Adjusted EBITDA margin are financial measures used by management in reviewing results of operations, forecasting, assessing cash flow and capital, allocating resources and establishing employee incentive programs. Although MoneyGram believes the above non-GAAP financial measures enhance investors’ understanding of its business and performance, these non-GAAP financial measures should not be considered an exclusive alternative to accompanying GAAP financial measures.

Description of Tables

Table One – Consolidated Statements of Income (Loss)

Table Two – Segment Results

Table Three – Segment Reconciliations

Table Four – EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin

Table Five – Consolidated Balance Sheets

Table Six – Assets in Excess of Payment Service Obligations

Conference Call

MoneyGram International will host a conference call today at 9 a.m. EDT, 8 a.m. CDT, to discuss its third quarter 2011 results. Pamela H. Patsley, chairman and chief executive officer, will host the call. The conference call can be accessed by calling 1-888-587-0615 in the U.S. and +1-719-325-2244 internationally. The participant confirmation number is 7413618. Slides are available on MoneyGram’s website at www.moneygram.com. A replay of the conference call will be available at 12 p.m. EDT on October 27 through 11:59 p.m. EDT on November 3, 2011. The replay of the call is available at 1-877-870-5176 (U.S.) or 1-858-384-5517 (outside the U.S.). The replay confirmation code is 7413618.

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 256,000 global money transfer agent locations in 192 countries and territories. For more information, visit the Company's website at www.moneygram.com.

Forward Looking Statements

The statements contained in this press release regarding MoneyGram International, Inc. (the "Company”) that are not historical and factual information contained herein, particularly those statements pertaining to the Company’s expectations, guidance or future operating results, may contain forward-looking statements with respect to the financial condition, results of operations, plans, objectives legal proceedings, future performance and business of the Company and its subsidiaries. Statements preceded by, followed by or that include words such as "estimates,” "expects,” "projects,” believes,” "intends,” "plans” and other similar expressions or future or conditional verbs such as "may,” "will,” "should,” "could,” and "would” are intended to identify some of the forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are included, along with this statement, for purposes of complying with the safe harbor provisions of that Act. These forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update or revise publicly any forward-looking statement for any reason, whether as a result of new information, future events or otherwise, except as required by federal securities law. These forward-looking statements are based on management's current expectations and are subject to uncertainty and changes in circumstances due to a number of factors, including, but not limited to the risks and uncertainties described in Part I, Item 1A under the caption "Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2010 and in Part II, Item 1A under the caption "Risk Factors” of our Quarterly Report on Form 10-Q for the quarters ended March 31, 2011 and June 30, 2011 as well as the following: (a) our substantial debt service obligations and our covenant requirements, which may impact our ability to obtain additional financing and to operate and grow our business and may make us more vulnerable to negative economic conditions; (b) in connection with the shareholder litigation concerning our recapitalization in 2011, the plaintiffs are seeking rescission of the recapitalization; (c) the special voting rights provided to THL’s designees on the Company’s Board of Directors give certain investors, including THL, control of the Company; (d) disruption in the financial markets or at financial institutions, which may adversely affect our liquidity, our agents’ liquidity, our access to credit and capital, our agents’ access to credit and capital and our earnings on our investment portfolio; (e) negative economic conditions generally and in geographic areas or industries that are important to our business, which may cause a decline in our transaction volume, and our ability to timely and effectively reduce our operating costs or take other actions in response to a significant decline in transaction volume; (f) a material slow down or complete disruption of international migration patterns, which could adversely affect our money transfer volume and growth rate; (g) a loss of material retail agent or biller relationships or a reduction in transaction volume from these relationships; (h) our ability to operate our official check and money order business profitably as a result of our revised pricing strategies; (i) litigation initiated by stockholders or government investigations of the Company or its agents, which could result in material settlements, fines, penalties or legal fees and could result in adverse publicity or regulatory sanctions for the Company; (j) our ability to maintain existing or establish new banking relationships, including the Company’s domestic and international clearing bank relationships, which could adversely affect our business, results of operations and our financial condition; (k) fluctuations in interest rates, which may negatively affect the net investment margin of our official check and money order business; (l) our ability to attract and retain key employees; (m) our ability to maintain capital sufficient to pursue our growth strategy, fund key strategic initiatives and meet evolving regulatory requirements; (n) our ability to successfully and timely implement new or enhanced technology and infrastructure, delivery methods and product and service offerings and to invest in products or services and infrastructure; (o) our ability to adequately protect our brand and our other intellectual property rights and to avoid infringing on third-party intellectual property rights, which could harm our business; (p) competition from large competitors, niche competitors or new competitors that may enter the markets in which we operate; (q) failure by us or our agents to comply with the laws and regulatory requirements in the United States and abroad, including the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Dodd-Frank Act”) and the regulations developed thereunder, or changes in laws, regulations or other industry practices and standards, which could have an adverse effect on our results of operations, or change our relationships with our customers, investors and other stakeholders; (r) the Dodd-Frank Act, as well as regulations required thereby, and other laws or regulations that may be adopted in the future, which could adversely affect us; (s) increased regulation under the Dodd-Frank Act of financial services companies generally, including non-bank financial companies supervised by the Federal Reserve; (t) various provisions of the Consumer Financial Protection Act of 2010, which will result in a new regulator with new and expanded compliance requirements, which is likely to increase our costs; (u) 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, which could result in contravention of U.S. law or regulations by us or our agents, subject us to fines and penalties and cause us reputational harm; (v) a significant security or privacy breach in our facilities, networks or databases, which could harm our business; (w) a breakdown, catastrophic event, security breach, improper operation or other event impacting our systems or processes or the systems or processes of our vendors, agents and financial institution customers, which could result in financial loss, loss of customers, regulatory sanctions and damage to our brand and reputation; (x) our ability to scale our technology to match our business and transactional growth; (y) our ability to manage credit risks from our retail agents and official check financial institution customers, which risks may increase during negative economic conditions, which could harm our business; (z) our ability to manage fraud risks from consumers or certain agents, which risks may increase during negative economic conditions, which could harm our business; (aa) our ability to successfully manage risks associated with running Company-owned retail locations and acquiring new businesses, which could harm our business; (bb) our business and results of operations may be adversely affected by political, economic or other instability in countries that are important to our business; (cc) as a deemed subsidiary of a bank holding company regulated under the Bank Holding Act of 1956, as amended, we are subject to supervision, regulation and regular examination by the Federal Reserve; (dd) our compliance with the internal control provisions of Section 404 of the Sarbanes-Oxley Act of 2002, which could have a material adverse effect on our business; (ee) sales of a substantial number of shares of our common stock and common stock equivalents or the perception that significant sales could occur, which may depress the trading price of our common stock; (ff) if the Company issues a large amount of debt, it may be more difficult for the Company to obtain future financing and our cash flow may not be sufficient to make required payments or repay our indebtedness when it matures; (gg) our charter documents and Delaware law, which contain provisions that may have the effect of delaying, deterring or preventing a merger or change of control of our Company; (hh) our ability to continue to satisfy the NYSE criteria for listing on the exchange; (ii) 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, which could adversely affect our results of operations and financial condition; (jj) our proposed reverse stock split, which, if consummated, may not realize the anticipated benefits, may decrease the liquidity of our common stock, and may increase the number of stockholders who own "odd lots;” and (kk) additional risk factors described in our other filings with the Securities and Exchange Commission from time to time.