MoneyGram International Inc. (MGI) reported a second quarter loss per share of $1.37, substantially lower than the Zacks Consensus Estimate of earnings of 2 cents and loss of 31 cents in the year-ago quarter.
Results included stock-based compensation costs of $3.2 million, $7.9 million of restructuring and reorganization costs, $5.2 million in loss on debt extinguishment, $2.6 million in legal accruals, $1.8 million in asset impairment charges and $4.0 million in costs associated with the recapitalization.
Reported net loss surged to $438.3 million from net loss of $25.8 million in the year-ago quarter. However, net income before preferred dividends and accretion on mezzanine equity came in at $26.4 million, modestly up from $6.8 million.
Total operating expenses climbed 11.6% year over year to $275.7 million. Lower investment income, higher operating expenses and net securities losses were partially offset by higher money transfer transaction volumes that drove the top line.
MoneyGram’s total revenue for the quarter was $310 million, up 9.2% from the year-ago period, also exceeding the Zacks Consensus Estimate of $295 million. While fee and other revenue climbed 9.5% year over year to $304.1 million, investment revenue decreased 4.8% year over year to $5.9 million.
Segment Results
In the Global Funds Transfer segment, MoneyGram’s revenue rose 12% year over year to $283.8 million. Money transfer transaction volume increased 15%, while money transfer fee and other revenue also grew 15% to $256.2 million from the prior-year period.
On a constant currency basis, money transfer fee and other revenue increased 11% on a year-over-year basis. However, bill payment transaction volume dropped 8% year over year, whereas, fee and other revenue declined 11% to $27.6 million from the prior-year quarter.
Operating margin plummeted to 9.1% from 12.2% in the year-ago quarter. Global agent locations reached 244,000, an increase of 20% over the prior-year quarter.
Total money transfer transactions originating outside the U.S. escalated 16% from the prior-year quarter. Transaction volume to Mexico increased 12% year over year, significantly improving from a negative growth in the prior-year quarter.
MoneyGram’s transactions originating in the U.S. increased 18% year over year. U.S. outbound transaction growth increased 10% over the prior-year period.
In the Financial Paper Products segment, MoneyGram’s total revenue declined 12.3% year over year to $25.6 million. However, operating margin plunged to 36.4% from 39.7% in the year-ago quarter, reflecting reduced money order and official check revenues.
Liquidity
As of June 30, 2011, MoneyGram had cash and cash equivalents of $2.69 billion, net receivables of $1.04 billion and available-for-sale investments of $134.3 million. MoneyGram ended the quarter with $839.2 million of outstanding debt and assets in excess of payment service obligations of $233.1 million. The company also prepaid $50.0 million on its Term Loan under its new senior facility.
Recapitalization Update
During the reported quarter, MoneyGram successfully completed its 2011 recapitalization transaction, under which investors of private equity firm Thomas H. Lee Partners (THL) and investment bank Goldman Sachs Group Inc. (GS) converted MoneyGram's Series B and Series B-1 preferred shares into common stock or Series D preferred stock (a common stock equivalent) and received additional shares of common stock or Series D preferred stock and a cash payment.
Previously, an investment conglomerate led by THL and Goldman bought a 63% equity stake in MoneyGram for $710 million, in order to bail out the latter during the peak of financial crisis in March 2008. This stake was held in the form of preferred share interest.
Hence, on March 7, 2011, MoneyGram had entered into a recapitalization program with the related parties to improve its dangling capital position through the conversion of the previously held preferred shares into common shares of MoneyGram. As a result, THL will now own 55.1% in MoneyGram while Goldman will enjoy a stake of about 30.3% in the company.
The recapitalization program further offered about 28.2 million shares and $140.8 million in cash to THL, while Goldman received about 0.016 million shares along with a cash payment of $77.5 million as considerations from MoneyGram.
Moreover, a healthy capital constitution also paves way for acquiring a new senior credit facility, which is projected to be utilized for refinancing the existing debt as well as for funding the recapitalization program. Furthermore, the proceeds were also used to refinance the issuer’s existing A and B term loans and fund the cash portion of the conversion premium on the issuer’s preferred stock.
On the successful closure of the recapitalization, MoneyGram also closed its new senior secured credit facility during the quarter. The new senior secured credit facility is worth $540 million and consists of a $150 million five-year revolver and a $390 million, 6.5-year term loan B. The new term loan bears interest at LIBOR plus 3.25% (with a LIBOR floor of 1.25%) and extends the senior debt maturities to 2017 from 2013.
Peer Take
On Tuesday, MoneyGram’s peer Western Union Co. (WU) posted second quarter 2011 earnings of 42 cents per share, a nickel higher than the Zacks Consensus Estimate and exceeding 36 cents recorded in the prior-year period. Results benefited from a modest margin improvement led by its Consumer-to-Consumer segment that also drove the top line and operating margin.
MoneyGram carries a Zacks #3 Rank, which translates into a ‘Hold’ recommendation over the short term. Additionally, over the medium-to-long term, we suggest the investors to maintain a Neutral position.
GOLDMAN SACHS (GS): Free Stock Analysis Report
MONEYGRAM INTL (MGI): Free Stock Analysis Report
WESTERN UNION (WU): Free Stock Analysis Report
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment