MoneyGram International, Inc. (MGI)
Q3 2008 Earnings Call Transcript
November 6, 2008 5:00 pm ET

Executives

David J. Parrin – Chief Financial Officer & Executive Vice President
Anthony P. Ryan – Chief Executive Officer & Executive Vice President

Analysts

Craig Maurer – Calyon Securities
Anurag Rana – KeyBanc Capital Markets
David Parker – Merrill Lynch
Robert Dodd – Morgan Keegan & Co
Michael Cohen – Sunova Capital

Presentation

Operator

Good afternoon and welcome to the MoneyGram International third quarter 2008 earnings conference call. As a reminder today’s conference is being recorded. At this time all participants have been placed in a listen-only mode and the floor will be open for your questions following the presentation. It is now my pleasure to turn the floor over to your host, Mr. Dave Parrin, Chief Financial Officer. Please go ahead sir.

David J. Parrin -- Chief Financial Officer & Executive Vice President

Thanks operator and good afternoon to everybody. Welcome to our third quarter 2008 conference call. With me on the call today is Tony Ryan, our Executive Vice President and Chief Operating Officer. If you’ve not yet seen our earnings release, you can find it on our website at www.moneygram.com. We have also posted a brief slide presentation regarding today’s results on our website. I must remind you that the various remarks we make about future expectations, plans and prospects constitute forward-looking statements for purposes of the Safe Harbor Provisions in the Private Securities Litigation Reform Act of 1985. 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 everybody to read our SEC filings, including our 10-Q for the period ended September 30, 2008 which is expected to be filed to the SEC on November 10th, 2008. Additionally I want to note that this presentation includes certain non-GAAP financial measures including a presentation of EBITDA and adjusted EBITDA. The slides in our earnings release include a full reconciliation of these non-GAAP financial measures to the related GAAP financial measures.

With that out of the way I’ll now hand the call over to Tony to discuss our business results, Tony.

Anthony P. Ryan – Executive Vice President and Chief Operating Officer

Thanks David, and thanks to all of you for joining us on our third quarter 2008 conference call. I’ll start with the highlights from the quarter and offer an update on our business and the opportunity that we continue to see in money transfer. Dave will cover the financials including segment information and then I will wrap up with a summary before we go into the Q&A portion of our call. We invite you to follow along our presentation which is posted on our website at www.moneygram.com.

Before we begin let me take a moment to thank our employees for their continued efforts to drive growth and profitability during the third quarter and to deliver on our purpose, to help people and businesses by providing affordable, reliable and convenient payment services. Starting with slide 4, MoneyGram delivered another strong financial performance despite the turbulence in the financial markets and the economy in general. We continue to maintain a strong balance sheet. Our unrestricted assets were $369 million as of September 30th, 2008. As we committed to do, we maintained the conservative composition of our portfolio, which is comprised of 90% cash and cash equivalents and 8% agency securities as of September 30th, 2008. Our results in the third quarter were driven by solid increases in money transfer agent locations which increased by 17% over the third quarter of last year.

This led to growth in money transfer including bill payment transactions of 14% while fee revenue from money transfer and bill payment transactions increased by 19%. Our official check product is now profitable as we benefited from the full effects of the re-pricing efforts in the quarter. We generated adjusted EBITDA of $74.5 million while reported EBITDA was $14 million for the quarter. While we are pleased with our strong performance we are not complacent. We have seen some deterioration in corridors such as Mexico and Spain due to construction related employment issues in the immigration debate. On a relative basis our performance has been strong in these countries. We are capitalizing on additional opportunities where we have less market penetration such as France, Germany, Asia and Eastern Europe and as you would expect in an uncertain time we are also diligently managing our expense base and carefully scrutinizing our capital expenditures.

Moving on to slide 5 I will cover some key highlights. We delivered a solid quarter in our money transfer business with transaction growth of 14% year-over-year. The global diversification of our biggest segment, global funds transfer, is enabling us to deliver consistent results in a challenging economy. Transactions originating internationally or outside North America grew 15% and now account for 21% of our volume. Domestically originated money transfers including bill payment grew 16% driven by continued expansion of our agent network and our MoneyGram Rewards Loyalty program.

Overall domestic growth was impacted by softness in our urgent bill payment product while economic conditions and immigration concerns have dampened the growth in the US to Mexico corridor. MoneyGram transactions to Mexico decreased only 1% and we outperformed the market which according to Banco de Mexico was down 2.8% in the third quarter of 2008. We increased our fee revenue in our core money transfer and bill payment business by 19% to $260 million in Q3 2008 from $219.1 million in Q3 2007. This was driven primarily by transaction growth, pricing stability, product mix and a benefit from the stronger Euro. Our adjusted EBITDA was $74.5 million for the third quarter providing substantial cash flow for continued investment in the core money transfer and bill payment products as well as to service our debt. On a reported basis EBITDA was $14 million. We have a reconciliation to GAAP, on slide 16. With the repositioning of our smaller official check business we have seen markedly improved profitability as a result of our re-pricing initiative.

Moving to slide 6 as I mentioned during our last quarter call, we are focused on five key corporate priorities and they are pursue profitable global growth, focus on operating efficiencies to drive margin expansion, invest capital only when meeting appropriate ROI thresholds, emphasize cash flow generation and maintain an investment portfolio strategy with minimal risk and volatility. During our review of the financials Dave will illustrate how we are driving margin expansion and free cash flow, prudently investing capital and maintaining a low risk stable investment portfolio strategy. But before we get into that I wanted to take a few moments to demonstrate how we have been able to drive profitable global growth. As you may recall in our second quarter call we had four key strategies which support this corporate goal. The first strategy is to expand our distribution. We continue to grow the money transfer business by maximizing existing agent relationships within our premier global agent network. Wal-Mart continues to roll out its dedicated money centers which are currently in 700 of its retail locations.

We are excited to be a part of this continued expansion as it brings Wal-Mart’s dedicated financial services offerings to more locations over time. In the US we have been preparing for the roll out of the CVS Pharmacy chain. Before roll out began in mid-October we now have nearly 1,400 installed locations and it is our expectation to have more than 6,000 locations live by year end. This is a big win for us as CVS has the largest footprint of any pharmacy chain in the US. Last quarter we announced that we renewed that we renewed our multi-year agreement with Canada Post. We are rolling out 220 new locations in the fourth quarter and expect to bring our money transfer services to 2,000 additional Canada Post locations by mid-year 2009.