MONEYGRAM INTERNATIONAL, INC.
The purpose of this Management's Discussion and Analysis of Financial Condition
and Results of Operations ("MD&A") is to provide an understanding of MoneyGram
International, Inc.'s ("MoneyGram ," the "Company," "we," "us" and "our")
financial condition, results of operations and cash flows by focusing on changes
in certain key measures. This MD&A is provided as a supplement to and should be
read in conjunction with, our unaudited Condensed Consolidated Financial
Statements and related Notes included in this Quarterly Report on Form 10-Q and
the Consolidated Financial Statements and Notes included in our Annual Report on
Form 10-K for the year ended December 31, 2022 . This discussion contains
forward-looking statements that involve risks and uncertainties. MoneyGram's
actual results could differ materially from those anticipated due to various
risks and factors discussed above under Cautionary Statements Regarding
Forward-Looking Statements and elsewhere in this Quarterly Report on Form 10-Q
and in our 2022 Form 10-K, as well as any additional risk factors that may be
described in our other periodic filings with the SEC from time to time.
The comparisons presented in this MD&A refer to the same period in the prior year, unless otherwise noted. This MD&A is organized in the following sections:
• Overview • Results of Operations • Liquidity and Capital Resources • Critical Accounting Policies and Estimates
OVERVIEW
MoneyGram is a global leader in cross-border P2P payments and money transfers. Our consumer-centric capabilities enable the quick and affordable transfer of money to family and friends around the world. Whether through online and mobile platforms, integration with mobile wallets, kiosks, or any one of the hundreds of thousands of agent locations in over 200 countries and territories, with over 100 now digitally enabled, the innovativeMoneyGram platform connects consumers in ways designed to be convenient for them. In theU.S. and in select countries and territories, we also provide bill payment services, issue money orders and process official checks. We primarily offer our services and products through our Digital Channel and third-party agents. The Digital Channel includes MGO (our direct-to-consumer business), digital partners, direct transfers to bank accounts, mobile wallets and debit card solutions such as Visa Direct. Third-party agents include retail chains, independent retailers, post offices and financial institutions.MoneyGram also has a limited number of Company-operated retail locations. We manage our revenue and related commissions expense through two reporting segments: GFT and FPP. The GFT segment provides global money transfer services in more than 440,000 agent locations. Our global money transfer services are our primary revenue driver, accounting for 87% of total revenue for the three months endedMarch 31, 2023 . The GFT segment also provides bill payment services to consumers through substantially all of our money transfer agent locations in theU.S. , at certain agent locations in selectCaribbean countries and through our Digital Channel. The FPP segment provides money order services to consumers through retail locations and financial institutions located in theU.S. andPuerto Rico and provides official check services to financial institutions in theU.S. Business Environment The competitive environment continues to change as both established players and new, digital-only entrants work to innovate and deliver an affordable and convenient customer experience to win market share. Our competitors include a small number of large money transfer and bill payment providers, financial institutions, banks and a number of small niche money transfer service providers that serve select regions. We generally compete on the basis of customer experience, price, agent commissions, brand awareness and convenience. We continue to invest in innovative products and services, such as our leading mobile app and integrations with mobile wallets and account deposit services, to position the Company to meet consumer needs. Furthermore, our partnership with Visa Direct provides consumers with additional choices on how to receive funds across a broader number of countries. We believe that combining our cash and digital capabilities enables us to differentiate against digital-only competitors who are not able to serve a significant portion of the remittance market that relies on cash. As a leader in the evolution of digital P2P payments, we were the first company to utilize blockchain technology at scale for cross-border payments. Given our extensive global network, strong culture of fintech innovation, expertise in compliance and API-driven infrastructure, we are well-positioned to lead cross-border payment innovation. 20
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Recent Developments
OnFebruary 14, 2022 , we entered into a Merger Agreement by and among the Company, Parent and an affiliate of MDP, and Merger Sub. The Merger Agreement provides that, subject to the terms and conditions set forth in the Merger Agreement, Merger Sub will merge with and into the Company. Following the Merger, the Company will become a subsidiary of Parent. At the effective time of the Merger, each outstanding share of common stock will be automatically canceled and converted into the right to receive$11.00 in cash. OnMay 23, 2022 , the Company held a virtual-only special meeting of stockholders related to the Merger Agreement and stockholders approved and adopted the Merger Agreement. To date, money transmission regulators in all applicableU.S. states and territories have provided their approval or non-objection of the transaction. In addition, the parties have obtained all but one approval from international money transmission regulators and have received approval from theFinancial Conduct Authority ("FCA") in theUnited Kingdom and theNational Bank of Belgium whereMoneyGram holds its European license. The parties refiled the application under the Hart-Scott-Rodino ("HSR") Antitrust Improvements Act of 1976, and the new HSR waiting period expired onMarch 13, 2023 . The final regulatory approval is to be issued by theReserve Bank of India ("RBI"). The RBI is the issuer ofMoneyGram's Money Transfer Service Scheme ("MTSS") license inIndia . Since the Company and MDP signed the Merger Agreement, the RBI issued a new Circular covering approval requirements related to Payment System Operators ("PSO") such as the Company. The Merger will be one of the first PSOs undergoing a sale since the Circular was issued. As a result, the process has been taking longer than originally anticipated.MoneyGram continues to engage in active dialogue with the RBI and the Central Government ofIndia regarding its review of the Merger. Prior to closing, the parties will engage in a financing marketing period which, pursuant to the merger agreement, may last for as long as fifteen consecutive business days. Closing would occur within a matter of days after completing the marketing period. The parties have agreed to extend the end date beyondFebruary 14, 2023 , in accordance with the Merger Agreement, toMay 14, 2023 . In light of the timing and factors discussed above, the parties now expect to close the Merger late in the second quarter of 2023. Anticipated Trends This discussion of trends expected to impact our business in 2023 is based on information presently available and reflects certain assumptions, including assumptions regarding future economic conditions. Differences in actual economic conditions compared with our assumptions could have a material impact on our results. See Cautionary Statements Regarding Forward-Looking Statements, Part II, Item 1A, Risk Factors of this Quarterly Report on Form 10-Q and Part I, Item 1A, Risks Factors of our 2022 Form 10-K for additional factors that could cause results to differ materially from those contemplated by the following forward-looking statements. Through 2023, we believe the industry will continue to see a number of trends, including the growth of digital transactions, a competitive pricing environment, continuing focus on customer experience and a broader trend towards potential diversification of product and service offerings. To position the Company to respond to these trends, our digital-first strategy is creating tremendous value for consumers. To address this new and evolving digital consumer, we expect to continue to invest in product innovation as we look to go deeper and wider in our consumer-direct digital offerings. We also plan to expand MGO to new countries, add new digital send partners and add more wallets and account deposit offerings. As we grow our digital business, we will also focus on maintaining our global cash network.MoneyGram's cash receive network is essential to millions of receivers around the world who rely on cash to support the urgent needs of their families. Additionally, the cash network continues to provide benefit for those consumers who need to send cash in many markets. In 2023, we began executing on our strategy to lead cross-border payment innovation and blockchain-enabled settlement through growing our partnership with theStellar Development Foundation as well as through other initiatives and partnerships. We continue monitoring the social, political, regulatory and economic environment around the world. Changes in these factors could cause us to alter our approach in certain markets. There could be adverse impacts to our revenues, earnings and cash flows should economic and political conditions deteriorate beyond the current state, including, among other potential impacts, economic recessions, inflationary pressures, war and political instability. 21
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We expect a high level of competition for agents and customers, along with competitive pricing to be a continuous challenge in 2023. Currency volatility, inflation, liquidity pressure on certain central banks, immigration restrictions and continuing immobility of labor throughout the world may also continue to impact our business. We also anticipate continuing prioritization of our operating cost structure as well as our transaction related expenses and expect to remain price competitive across our product line. For our FPP segment, we expect the gradual decline in overall paper-based transactions to continue primarily due to continued gradual migration by customers to other payment methods. Our investment revenue, which consists primarily of interest income generated through the investment of cash balances received from the sale of our FPP, is dependent on the prevailing short-term interest rate environment inthe United States . The Company will see a positive impact on its investment revenue as compared to 2022, due to higherU.S. money market rates rise driven byFederal Reserve actions in 2022 and year-to-date in 2023.
Financial Measures and Key Metrics
This Quarterly Report on Form 10-Q includes financial information prepared in accordance withU.S. GAAP as well as certain non-GAAP financial measures that we use to assess our overall performance.U.S. GAAP Measures - We utilize certain financial measures prepared in accordance withU.S. GAAP to assess the Company's overall performance. These measures include fee and other revenue, commissions and other fee expense, fee and other revenue less commissions, gross profit, operating income and operating margin. Non-GAAP Measures - Generally, a non-GAAP financial measure is a numerical measure of financial performance, financial position or cash flows that excludes (or includes) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance withU.S. GAAP. The non-GAAP financial measures should be viewed as a supplement to and not a substitute for, financial measures presented in accordance withU.S. GAAP and are not necessarily comparable with similarly named metrics of other companies. We strongly encourage investors and stockholders to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure. We believe that the non-GAAP financial measures enhance investors' understanding of our business and performance because they are an indicator of the strength and performance of ongoing business operations. The non-GAAP measures are commonly used as a basis for investors, analysts and other interested parties to evaluate and compare the operating performance and value of companies within our industry. They are also used by management in reviewing results of operations, forecasting, allocating resources or establishing employee incentive programs. The following are non-GAAP financial measures we use to assess our overall performance:
EBITDA (Earnings before interest, taxes, depreciation and amortization, including agent signing bonus amortization).
Adjusted EBITDA - (EBITDA excluding restructuring and reorganization costs,
legal and contingent matter costs, stock-based, contingent and incentive
compensation costs, merger-related costs, severance and related costs) -
Adjusted EBITDA does not reflect cash requirements necessary to service interest
or principal payments on our indebtedness or tax payments that may result in a
reduction in cash available.
Adjusted Free Cash Flow (Adjusted EBITDA less cash interest, cash taxes, cash
payments for capital expenditures and cash payments for agent signing bonuses) -
Adjusted Free Cash Flow does not reflect cash payments related to the adjustment
of certain significant items in Adjusted EBITDA.
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RESULTS OF OPERATIONS
The following table is a summary of the results of operations:
Three Months Ended March 31,
(Amounts in millions) 2023 2022
Revenue
Fee and other revenue $ 314.7 $ 305.5
Investment revenue 22.8 2.1
Total revenue 337.5 307.6
Cost of revenue
Commissions and other fee expense 149.6 148.7
Investment commissions expense 13.7 0.4
Direct transaction expense 14.6 12.3
Total cost of revenue 177.9 161.4
Gross profit 159.6 146.2
Operating expenses
Compensation and benefits 61.0 56.5
Transaction and operations support 50.5 45.1
Occupancy, equipment and supplies 15.9 14.5
Depreciation and amortization 12.5 12.2
Total operating expenses 139.9 128.3
Operating income 19.7 17.9
Other expenses
Interest expense 15.0 10.9
Other non-operating expense 1.0 0.9
Total other expenses 16.0 11.8
Income before income taxes 3.7 6.1
Income tax (benefit) expense (1.3) 1.0
Net income $ 5.0 $ 5.1
Revenue
For the three months ended March 31, 2023 , revenue increased by $29.9 million
due to an increase in FPP revenue of $19.4 million and an increase in GFT
revenue of $10.5 million . See the "Segments Results" section below for further
discussions.
Cost of Revenue
For the three months ended March 31, 2023 , cost of revenue increased by $16.5
million , primarily due to an increase in FPP investment commissions expense of
$13.3 million and in GFT cost of revenue of $3.2 million . See the "Segments
Results" section below for further discussions.
Compensation and Benefits
For the three months ended
Transaction and Operations Support
Transaction and operations support primarily includes marketing, professional fees, customer care and other outside services, telecommunications, agent support costs, including forms related to our products, non-compensation employee costs, including training, travel and relocation costs, non-employee director stock-based compensation expense, bank charges and the impact of non-U.S. dollar exchange rate movements on our monetary transactions, assets and liabilities denominated in a currency other than theU.S. dollar. 23
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Transaction and operations support increased by$5.4 million for the three months endedMarch 31, 2023 . The increase is primarily due to an increase in marketing campaign activities, including our recent sponsorship of Haas F1 Team, partially offset by a decrease in legal expenses associated with Merger-related costs.
Occupancy, Equipment and Supplies
Occupancy, equipment and supplies expense includes facilities rent and maintenance costs, software and equipment maintenance costs, freight and delivery costs and supplies. Occupancy, equipment and supplies expense increased by$1.4 million for the three months endedMarch 31, 2023 , due to an increase in software expense including the implementation of a new enterprise resource planning ("ERP") system as we migrate to cloud computing.
Depreciation and Amortization
Depreciation and amortization expense includes depreciation on computer hardware and software, agent signage, point of sale equipment, capitalized software development costs, office furniture, equipment and leasehold improvements and amortization of intangible assets. Depreciation and amortization remained relatively flat for the three months endedMarch 31, 2023 .
Other Expenses
Interest expense increased by
Other non-operating expense remained relatively flat for the three months ended
Income Tax Expense For the three months endedMarch 31, 2023 , the Company recognized an income tax benefit of$1.3 million on pre-tax income of$3.7 million primarily due to a decrease in unrecognized tax benefits, a decrease in valuation allowance, recognition of excess tax benefits on share-based compensation, andU.S. general business credits, all of which were partially offset by non-deductible expenses and foreign taxes net of federal income tax benefits. For the three months endedMarch 31, 2022 , the Company recognized an income tax expense of$1.0 million on pre-tax income of$6.1 million primarily due to a decrease in valuation allowance, recognition of excess tax benefits on share-based compensation,U.S. general business credits and a recovery of state taxes, all of which were partially offset by foreign taxes net of federal income tax benefits, non-deductible expenses and an increase in unrecognized tax benefits. Segments Results GFT
The following table sets forth our GFT segment results of operations for the
three months ended
Three Months Ended March 31,
(Amounts in millions) 2023 2022
Money transfer revenue $ 294.8 $ 284.5
Bill payment revenue 9.3 9.1
Total revenue 304.1 293.6
Cost of revenue 164.2 161.0
Gross profit $ 139.9 $ 132.6
Money Transfer Revenue
Money transfer revenue increased by $10.3 million for the three months ended
March 31, 2023 , primarily due to the continued strength of our digital business
where digital revenue increased by $23.9 million or an increase of 30% for the
three months ended March 31, 2023 . Digital revenue now accounts for 35% of our
total money transfer revenue and as of March 31, 2023 , digital transactions now
account for 50% of our money transfer transactions.
Bill Payment Revenue
Bill payment revenue remained relatively flat for the three months ended
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Table of Contents Cost of Revenue Cost of revenue increased by$3.2 million for the three months endedMarch 31, 2023 , primarily due to an increase in commissions and other fee expense driven by higher transactions associated with our digital partners.
FPP
The following table sets forth our FPP segment results of operations:
Three Months Ended March 31,
(Amounts in millions) 2023 2022
Money order revenue $ 12.1 $ 10.5
Official check revenue 21.3 3.5
Total revenue 33.4 14.0
Investment commissions expense 13.7 0.4
Gross profit $ 19.7 $ 13.6
Money Order Revenue
Money order revenue increased by
Official check revenue
Official check revenue increased by$17.8 million for the three months endedMarch 31, 2023 , primarily due to an increase in investment revenue as a result of higher prevailing interest rates driven by an increase in the federal funds rate.
Investment Commissions Expense
Investment commissions expense consists of amounts paid to financial institution customers based on short-term interest rate indices times the average outstanding cash balances of official checks sold by the financial institution. Investment commissions are recognized each month based on the average outstanding balances of each financial institution customer and their contractual variable rate for that month. In periods of extremely low interest rates, it is possible for commissions to be at or close to zero, resulting in abnormally high gross margin. Investment commissions expense increased by$13.3 million for the three months endedMarch 31, 2023 , primarily due to higher prevailing interest rates driven by an increase in the federal funds rate. 25
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EBITDA, Adjusted EBITDA and Adjusted Free Cash Flow (Non-GAAP Measures)
The following table is a reconciliation of our non-GAAP financial measures to
the related
Three Months Ended
March 31,
(Amounts in millions, except percentages) 2023 2022
Income before income taxes $ 3.7 $ 6.1
Interest expense 15.0 10.9
Depreciation and amortization 12.5 12.2
Signing bonus amortization 9.8 13.9
EBITDA 41.0 43.1
Significant items impacting EBITDA:
Stock-based, contingent, incentive compensation and other 4.8 2.8
Merger-related costs 1.6 3.7
Legal and contingent matters 0.1 0.6
Restructuring and reorganization costs - (1.3)
Direct monitor costs - 0.1
Adjusted EBITDA 47.5 49.0
Cash payments for interest (19.8) (16.6)
Cash payments for taxes, net (2.7) (3.3)
Cash payments for capital expenditures (19.9) (10.3)
Cash payments for agent signing bonuses (15.0) (14.7)
Adjusted Free Cash Flow $ (9.9) $ 4.1 See "Results of Operations" and "Analysis of Cash Flows" sections for additional information regarding these changes.
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LIQUIDITY AND CAPITAL RESOURCES
We have various resources available for purposes of managing liquidity and capital needs, including our investment portfolio, credit facilities and letters of credit. We refer to our cash and cash equivalents, settlement cash and cash equivalents, interest-bearing deposits and available-for-sale interest-bearing investments collectively as our "investment portfolio." The Company utilizes cash and cash equivalents in various liquidity and capital assessments.
Cash and Cash Equivalents, Settlement Assets and Payment Service Obligations
The following table shows the components of the Company's cash and cash equivalents and settlement assets:
(Amounts in millions) March 31, 2023 December 31, 2022 Cash and cash equivalents $ 136.9 $ 172.1 Settlement assets: Settlement cash$ 1,369.5 $ 1,499.1 Receivables, net 942.1 1,107.0 Interest-bearing investments 937.7 998.1 Available-for-sale investments 2.7 3.0 Total settlement assets$ 3,252.0 $ 3,607.2 Payment service obligations$ (3,252.0) $ (3,607.2) Our primary sources of liquidity include cash flows generated by the sale of our payment instruments, our cash and cash equivalents and interest-bearing deposit balances and proceeds from our investment portfolio. Our primary operating liquidity needs are related to the settlement of payment service obligations to our agents and financial institution customers, general operating expenses and debt service. To meet our payment service obligations at all times, we must have sufficient highly-liquid assets and be able to move funds globally on a timely basis. On average, we receive in and pay out a similar amount of funds on a daily basis to collect and settle the principal amount of our payment instruments sold and related fees and commissions with our end-consumers and agents. This pattern of cash flows allows us to settle our payment service obligations through existing cash balances and ongoing cash generation rather than liquidating investments or utilizing our Revolving Credit Facility. We have historically generated and expect to continue generating, sufficient cash flows from daily operations to fund ongoing operational needs. We preposition cash in various countries and currencies to facilitate settlement of transactions. We also maintain funding capacity beyond our daily operating needs to provide a cushion through the normal fluctuations in our payment service obligations, as well as to provide working capital for the operational and growth requirements of our business. We believe we have sufficient liquid assets and funding capacity to operate and grow our business for the next 12 months. Should our liquidity needs exceed our operating cash flows, we believe that external financing sources, including availability under our Revolving Credit Facility, will be sufficient to meet our anticipated funding requirements.
Cash and Cash Equivalents and Interest-bearing Investments
To ensure we maintain adequate liquidity to meet our payment service obligations at all times, we keep a significant portion of our investment portfolio in cash and cash equivalents and interest-bearing investments at financial institutions rated A- or better by two of the following three rating agencies: Moody's, S&P and Fitch; and in AAA ratedU.S. government money market funds. If the rating agencies have split ratings, the Company uses the lower of the highest two out of three ratings across the agencies for disclosure purposes. If the institution has only two ratings, the Company uses the lower of the two ratings for disclosure purposes. As ofMarch 31, 2023 , cash and cash equivalents (including unrestricted and settlement cash and cash equivalents) and interest-bearing investments totaled$2.4 billion . Cash and cash equivalents consist of interest-bearing deposit accounts, non-interest-bearing transaction accounts and money market securities; interest-bearing investments consist of time deposits and certificates of deposit with maturities of up to 24 months.
Available-for-sale Investments
Our investment portfolio includes$2.7 million of available-for-sale investments as ofMarch 31, 2023 .U.S. government agency residential mortgage-backed securities comprise$1.4 million of our available-for-sale investments, while asset-backed and other securities compose the remaining$1.3 million . 27
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Clearing and Cash Management Banks
We collect and disburse money through a network of clearing and cash management banks. The relationships with these banks are a critical component of our ability to maintain our global active funding requirements on a timely basis. In theU.S. , we have agreements with four active clearing banks that provide clearing and processing functions for official checks, money orders and other draft instruments. We believe that this network of banks provides sufficient capacity to handle the current and projected volumes of items for these services. We also maintain relationships with a variety of domestic and international cash management banks for electronic funds transfer and wire transfer services used in the movement of consumer funds and agent settlements.
Term Loan and Notes
The following is a summary of the Company's outstanding debt:
December 31,
(Amounts in millions, except percentages) March 31, 2023 2022
9.34% Term Loan due 2026 $ 379.0 $ 380.0
5.38% Senior Secured Notes due 2026 415.0 415.0
Total debt at face value 794.0 795.0
Unamortized debt issuance costs and debt discounts (9.0) (9.6)
Total debt, net $ 785.0 $ 785.4
As of March 31, 2023 , the Company had no borrowings and no outstanding letters
of credit under its Revolving Credit Facility and had $40.0 million of
availability. See Note 6 - Debt of the Notes to the Unaudited Condensed
Consolidated Financial Statements for additional disclosure related to the
credit facilities.
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