MGI

Moneygram International, Inc. (MGI)

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MoneyGram International, Inc. (MGI)

Q4 2012 Earnings Call

February 06, 2013 09:00 am ET

Executives

Eric Dutcher – VP, Investor Relations

Pam Patsley – Chairman, Chief Executive Officer

Alex Holmes – Chief Financial Officer

Analysts

David Chu – Bank of America Merrill Lynch

Tim Willi – Wells Fargo

Tien-tsin Huang – JP Morgan

Julio Quinteros – Goldman Sachs

David Scharf – JMP Securities

Bob Napoli – William Blair

Mike Grondahl – Piper Jaffray

Glenn Fodor – Autonomous Research

George Mihalos – Credit Suisse

Brett Horn – Morningstar

Presentation

Operator

Please standby, we are about to begin. Good morning, and welcome to the MoneyGram International Fourth Quarter 2012 Earnings Conference Call. Today’s conference is being recorded. At this time, all participants have been placed in a listen-only mode and the floor will be opened for your questions following the presentation.

It is now my pleasure to turn the floor over to your host, Eric Dutcher, Vice President of Investor Relations. Please go ahead, sir.

Eric Dutcher

Thank you, Jessica. Good morning, everyone, and welcome to our fourth quarter and fiscal year 2012 earnings call. With me today are Pam Patsley, Chairman and Chief Executive Officer; and Alex Holmes, Executive Vice President and Chief Financial Officer. Our earnings release and accompanying slides are available on our website at moneygram.com.

I must remind you today that today’s call is being recorded and that the various remarks we make about future expectations, plans and prospects constitute forward-looking statements for the purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from expectations, plans and prospects contemplated in any forward-looking statements as a result of various factors, including those discussed in our filings with the SEC. I encourage everyone on this call to read our SEC filings, including our 10-K for the year ended December 2011, and our 10-Q for the quarter ended September 2012. Our 10-K for the year ended December 2012 will be filed prior to March 18.

Additionally, please note that today’s remarks include certain non-GAAP financial measures, including EBITDA, adjusted EBITDA, adjusted EBITDA margin and free cash flow. Our earnings release includes a full reconciliation of these non-GAAP financial measures to the related GAAP financial measures.

Now I’ll turn the call over to Pam.

Pam Patsley

Great. Thanks, Eric. Good morning, everyone. We are extremely pleased with our accomplishments in 2012. In spite of a weak global economy and a highly competitive environment, we continue to excel, achieving double-digit growth in money transfer transaction volume, constant currency revenue and agent locations. MoneyGram is well positioned in a dynamic growing industry, one that provides a valuable service to billions of unbanked and underbanked consumers each year.

As the populations in the largest global economies continue to age and the birth rates remain low, the demand for guest workers to grow GDP will continue to increase. Our business is resilient and we have a talented team committed to ensuring that MoneyGram remains a leader in the global financial services industry.

We are the company for anyone to send funds from almost anywhere by means of cash, bank account, online or mobile. We bring people closer by providing them the flexibility to choose how they want to move money. Our extensive global network has more than doubled since 2007 and we have now surpassed 310,000 agent locations around the world. Our agents are retailers, banks, financial institutions and post offices.

In the quarter we had particular success worldwide in the retail sector. As I think everyone knows by now, we extended our contract with Walmart into 2016, securing this valuable relationship for three more years. And since this will be asked Walmart represented 27% of our revenue in the quarter. We then added to our retail agent strength by signing a five-year exclusive contract with Tesco Bank to provide money transfer services in up to 800 Tesco store locations across the UK and the Republic of Ireland. Finally, in the U.S. we signed Dollar General to provide our in-line services in their more than 10,000 plus locations across the country. This brings our U.S. network to approximately 50,000 locations.

Further, we’re broadening our service offerings by increasing the ability to top up international phone plans and load prepaid cards or mobile wallets. The breadth of our network is attracting leading companies to partner with us, such as Pfizer, PayPal, Gemalto, Qtel and Telefonica.

For the year in the quarter, our money transfer transaction growth of 14% was well above the mid-single-digit industry growth, and this is our ninth consecutive quarter of double-digit money transfer transaction growth. We are pleased that constant currency revenue growth was 13%. This was especially impressive when one considers the amount of competitive discount pricing, which was implemented mid-2012 in online space and the price discounting made through a competitor later in November.

We adjusted our online prices in August, and then matched competitor prices only through our Walmart channel just after Thanksgiving. We have not implemented price reductions at our other agents. We have a close relationship with our agents and at this point, we are comfortable with our position. However, as you saw in our outlook and Alex will speak more to this later, we are prepared to adjust prices if necessary.

We’re proud that our brand continues to attract a loyal customer base. In 2012 we rolled out a new loyalty program and have grown our active Rewards customers. In fact about a third of our U.S. originated transactions are sent by MoneyGram Rewards members. These loyalty members send on average seven transactions per year, more than double the number of our non-loyalty senders.

Beyond just our loyalty members MoneyGram consumers are recognizing the value of our services. In 2012 over 80% of our sent transactions globally came from customers who did more than one transaction in the year.

On the bottom line we delivered strong free cash flow of $115 million, a 9% increase over last year, and ended the year with assets in excess of payments service obligations of $227.9 million. Given the challenges of the past year, we are especially pleased with these results.

Our goal is to continue to generate superior free cash flow that can be reinvested in the business or used to pay down debt, all toward maximizing shareholder value. And with that as a backdrop, let’s discuss some of the detail behind our great fourth quarter money transfer results.

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