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Executives

Alex Holmes – SVP, IR and Strategic Development

Pam Patsley – Chairman and CEO

Jim Shields – EVP and CFO

Analysts

Bob Napoli – Piper Jaffray

Kartik Mehta – Northcoast Research

Jim Kissane – Bank of America

Mike Grondahl – Northland Capital Markets

Robert Dodd – Morgan Keegan

MoneyGram International, Inc. (MGI) Q1 2011 Earnings Call April 28, 2011 9:00 AM ET

Operator

Good morning and welcome to the MoneyGram International first quarter 2011 earnings conference call. Today’s conference is being recorded. At this time, all participants are placed in a listen only mode, and the floor will be open for questions following the presentation. It is now my pleasure to turn the floor over to your host, Alex Holmes, Senior Vice President of Investor Relations and Strategic Development. Please go ahead sir.

Alex Holmes

Thank you very much. Good morning everyone. I like to welcome you all to our first quarter 2011 conference call. With me today are Pam Patsley, Chairman and Chief Executive Officer; and Jim Shields, Executive Vice President and Chief Financial Officer. If you have not yet seen our earnings release, you can find it on our website at MoneyGram.com.

I must remind you 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 purposes of the Safe Harbor provision 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-Q for the quarter ended March 31, 2011, which is expected to be filed with the SEC by May 13.

Additionally, I'd like to note that today's remarks include certain non-GAAP financial measures including EBITDA, adjusted EBITDA and adjusted EBITDA margin. Our earnings release includes a full reconciliation of these non-GAAP financial measures to the related GAAP financial measures.

Finally, I'd like to mention that we will be presenting at two investor conferences during the month of May. First we will be presenting at the JP Morgan Technology Conference on May 17 in Boston, and then we will be presenting at the Bank of America Merrill Lynch Conference in New York City on May 25. We certainly hope that some of you may be come out and see us.

And with that, I'll the turn the call over to Pam.

Pam Patsley

Thanks Alex. Good morning everyone. It has certainly been an extremely busy and exciting first quarter. Clearly the highlight for the quarter was the announcement of a recapitalization agreement, which was further enhanced by the subsequent completion of the syndication process to secure a new senior credit facility. The recapitalization agreed to by THL and Goldman Sachs, is recognition of the tremendous progress we have made since THL’s and Goldman Sachs’s initial investments in 2008.

This transaction simplifies our capital structure, ends the dilution from the continuing dividend payments required by the preferred stock terms, and quite honestly increases the attractiveness of our common stock. In conjunction with the recapitalization transaction early this month we announced that a syndication has been completed for a new $540 million senior secured credit facility consisting of $150 million five-year revolving credit facility and a $390 million six year term loan.

The proposed term loan is expected to bear interest of LIBOR plus 2.25% with a LIBOR floor of 1.25%. The net proceeds from the term loan under the new credit facility will be used to consummate the recapitalization and to refinance our existing credit facility. The new senior secured credit facility allows MoneyGram to benefit from favorable credit market terms and extend our current senior secured credit maturity to 2017.

As you can imagine, we are extremely excited about what the recapitalization means for MoneyGram and for all of you. The proxy has been sent and we are scheduled for a shareholder vote on May 18. While the recapitalization helps to move the company forward through clarification of the capital structure, it goes without saying that above all else operating the company extremely well and executing on our objectives will be imperative in creating long-term shareholder value.

We carried the momentum of improving money transfer transaction and revenue growth from the fourth quarter of 2010 into 2011. For the quarter just ended money transfer transaction volume increased a very healthy 14%, and global locations increased 18% to 233,000. Transaction growth in the quarter was driven by 17% growth in non-US transactions, 17% growth in our US intra business and continued improvement in our US outbound quarters.

On a constant currency basis, money transfer fee and other revenue increased 8%. Revenue during the quarter was helped by strong transaction growth offset by lower revenue from the $5 to $50 price band. Both revenue and transaction volume was further affected by events in the Ivory Coast and Libya where geopolitical conflict continues to impact our ability to send and receive transfers.

Adjusted EBITDA for the quarter was $60.3 million and adjusted EBITDA margin was 20.5%. Both the quarter and full year adjusted EBITDA margins were impacted by increased marketing expense, as well as lower net investment revenue in the quarter as compared with 2010.

Turning first to the Americas, overall I am very pleased with the performance of the Americas business. Dan O'Malley has repositioned this business to move closer to our customers with an eye towards better alignment of geographies, quarters and channels. Dan has removed layers in management to increase responsiveness to our current and prospective agents. Adding key talent to the company is a strategic imperative and we are excited to have George Zelinski as a key addition to the Americas team, providing more focus than we have had before on Central and South America and the Caribbean.

Many of you are aware that George was previously CEO and COO of DolEx. George and the team will be responsible for expanding our growth objectives across this newly defined region with increased focus on South America. You saw on our press release the addition of our super agent in Brazil, we expect to add at least 200 sub agent locations this year, and many more in the future.

We also called out the significance of (inaudible) in the quarter as Robert Burford now is a direct report to Dan recognizing the strength and importance of the country within the Americas region. In the first quarter we saw outstanding transaction growth in the US to Mexico business. Mexico revenue growth improved to 6% on 10% transaction growth. This is a significant improvement from last year’s first quarter, where transactions declined 11%.

During the quarter, we also expanded our agreement with Uniteller Banorte in order to bring our service to nearly 1200 locations across Uniteller Banorte’s network with additional expansion opportunities planned. We continue to outperform in this market, particularly if we compare results to competition and the market as reported through February for Banorte [ph] Mexico.

With this data we believe we are taking market share in this mature, but still very, very important market. Our US outbound business, excluding Mexico, continued its accelerating transaction and revenue trends with strengthening growth in quarters, where we have focused marketing initiatives. Accelerating growth in the Americas business was also led by US to US transaction growth of 17%. Growth continued to be spurred by $5 to $50 spend, but solid growth is being achieved in the above $50 band.

As a reminder, we are just now beginning to anniversary the implementation of the $5 to $50 pricing as the largest proportion of the pricing was implemented in mid-April last year. However, it will be a ramp up on the grow over as we rolled out this new price band in a more phased approach last year to minimize revenue impact. We are pleased with the accelerating growth and vitality in this important category of the business, and we anticipate that we will show improvements in revenue growth as we lapse the impact of these reductions.

Of note, in the US just this week we launched right check cashing [ph] in New York City. We are happy to have this business now displaying the MoneyGram brand as our agent in one of the most important remittance cities in the world. All of these changes and additions are helping us to deliver robust growth in all categories of our US business. So that is US to US, US to Mexico, and US outbound businesses.

Now before I review the results in our EMEAAP region, that is Europe, Middle East, to Africa and Asia Pacific, I want to update you on a very recent development. And 8-K was filed this morning announcing that on Tuesday Nigel Lee, EVP for the EMEAAP region agreed to resign from MoneyGram at our request. This is effective immediately. No severance package is being provided an all stock options have terminated. It was a very clear path we had to take. I want you to know that this change is in no way a reflection of the health or the direction of MoneyGram.

While these things are less than pleasant, I assure you that the business will not miss a beat. We have a great leadership team around the world, and all things under way will continue, nothing stops because of this. For now the EMEAAP will report to me. The business is in great shape. We had a good quarter, strong transaction, and revenue growth across the business, despite the impact of geopolitical situations in the Middle East and Africa.

Beginning with Europe, we had a solid quarter. We celebrated our 10 millionth transaction with the UK Post and I was pleased to participate in that event as it was a celebration with a very long-term partner. In Ukraine we surpassed 10,000 locations and we added key locations through Volksbank in Romania. In France, despite trains [ph] not being able to send to Ivory Coast, still delivered strong transaction growth of 43%.

Italy delivered improved transaction growth of more than 25% on the strength of its top quarter. Spain also continued its impressive turnaround, reporting transaction growth of 3% and revenue growth of 6%. Considering that only a year ago this quarter was declining at 10%, we are certainly more than pleased with this performance. In Russia, the rollout of our marketing and consumer outreach campaign with Sberbank accelerated, and we added Energomash Bank to our network.

In Moldova we launched Energobank [ph], and continue to see good growth from the Moldova Post. As you might guess again, Africa and Middle East experienced a mixed quarter as geopolitical unrest impacted sent and received in several countries. As of today, both Libya and the Ivory Coast remain closed, but we are optimistic that the Ivory Coast will reopen shortly. We will be ready to reopen in Libya when Libya is ready.

All in all, however, our Africa and Middle East business performed well with good growth from many other countries and quarters. In Africa received transactions improved with strong growth in sends to Kenya, Morocco and Cameroon. In the Middle East, Saudi Arabia again outperformed our expectations and that region was supported by improved outbound growth from the UAE and that was really nice to see.

The key receive markets of China, India and Philippines again reported strong growth. China benefited from the ramp up of Bank of China locations and also good growth at ICBT [ph]. The Philippines reported 34% transaction growth, and India reported improved transaction performance from the fourth quarter with 36% transaction volume growth over last year. SPI was limited in Japan, which was rolled out in December had a very good first quarter of service.

While we are happy to begin establishing our brand presence in Japan, at the same time we are also very saddened by the tragic effects of the tsunami. It was a little bit with mixed emotions that we talk about the great news in entering Japan and our anticipated continued growth in expansion in an under penetrated send country. And anyway, you know we launched our kiosk service with 7-Eleven in Australia last year, and I’m happy to report that this service has been quite successful. 7-Eleven Australia is pleased with our progress as well, and has recently committed to rolling out the MoneyGram service to 250 more stores this year.

This will bring our total network size to approximately 600 7-Eleven stores by the end of the year. In India, we signed a new agent, AB Bank Limited, and our super agent UAE Exchange signed subagent agreements with Lakshmi Vilas Bank, together adding more than 375 locations in this key receive market. In Vietnam, we launched MoneyGram’s first money transfer kiosk in the country with agent partner DongA Bank, expanding our service delivery from bank branch locations and home delivery to also now include the convenience of kiosk locations.

In Indonesia we continued the roll-out of Bank of Central Asia, which now includes more than 850 locations across the important country. Finally, in Philippines, we announced the launch of our cash-to-account program with Banco de Oro, enabling consumers to transfer money from select MoneyGram locations in the United States, Malaysia, Greece and Hong Kong directly into the bank accounts of recipients in Philippines.

We anticipate this service will be opened later in May. It is a good example of our ability to expand our service with long-term agent partners, as market and consumer demand evolve. BDO has been a MoneyGram agent since 1992 and has over 1100 locations offering MoneyGram service in every major city in most communities in the Philippines. Other activity in the region included the hosting of three very successful agent and media conferences in the important markets of Vietnam, Malaysia and South Africa.

These meetings are valuable opportunities to spend time with our agents and discuss ways to grow our business together. I am pleased to have been able to attend each of them and to sharing our success with our agents, and importantly also with our employees.

During the first quarter of 2011, we continued our efforts to increase brand awareness through increased marketing and advertising spend. As discussed, a key component of this is our continued sponsorship of the International Cricket Council. As the official money transfer partner of the ICC MoneyGram put in place a comprehensive marketing activation plan to support the World Cup, which took place in the first quarter in India, Bangladesh and Sri Lanka. Results were outstanding, not only from the sport perspective, where India as we all know became the new world champion, but from a marketing perspective where consumer engagement was record-setting with TV viewer ship north of 1 billion, for both the semi-final and final matches.

Just contrast that with the Superbowl that only achieved global viewer ship of 135 million. We are very happy with our partnership with the ICC. Cricket generates a lot of passion in many countries in the world, and this is where MoneyGram does business, huge market potential in this sponsorship serves our objectives of getting closer to our consumers and raising our brand awareness and affinity.

In targeting the US and Philippines markets we took advantage of the graduation season in March and promoted cash to cash multi currency payout with TV and print advertising along with converting two US locations into a MoneyGram branded storefront, one in Texas, one in California. To drive US to China sends we promoted the lunar New Year, a peak send season for China, and we supported it with print advertising and point of purchase materials, promoting value and the MoneyGram network. Additionally the promotion was supported by a very successful community event in Los Angeles and a subsequent promotion in New York.

Turning now to our bill payment business, during the quarter, transaction volume decreased 8%, and revenue decreased 11%. The decline in transaction and revenue was due to continued softness in the traditional consumer credit payment categories. Bill payments segments those such as auto, credit card and collections, they continued to struggle. While mobile top-up, corrections, and prepaid currently represent a smaller proportion of transaction volume and revenue, we continue to see growth opportunities indeed in other emerging industry segments.

With the strong quarter for new biller launches, we added over 75 new billers including Globe telecom, Smart communications, Sun Cellular for mobile top ups in the Philippines, as well as Cox Communications and PlatinumTel. We have a full pipeline of new billers in the traditional and new vertical segments of the business, and we continue to expand distribution for our services.

Our bill payment business though continues to underperform our expectations, and we are taking the necessary steps to improve the results.

Now Alex will touch on some exciting activities in our new channel and product areas.

Alex Holmes

Thanks Pam. During the quarter, our MoneyGram online business continued its very impressive growth. First-quarter transaction volume increased 36% over prior year and revenue increased 32%. Both of these growth rates are the highest in more than 5 quarters and are of course growing off of an ever larger denominator. MoneyGram online growth is highlighted by US intravolume as well as sends to the Philippines and other parts of the EMEAAP region.

In addition to MoneyGram online, our focus on expanding our core money transfer service through new products, channels and partnerships also continues to strengthen in other areas. Yesterday, we announced our agreement with InComm relating to our MoneyGram Xpress service. This is our new in-lane money transfer product which will be available to consumers in the United States. Per our agreement, InComm will assist MoneyGram in the distribution and activation of MoneyGram Xpress packages, which will be available to US consumers and select outlets in InComm’s network of more than

225,000 retail locations.

Prepaid money transfers allow consumers to pay for the transfer amount and the fees at the same time as they make other retail purchases at the point of sale. And then actually make the transfer when convenient for them online or by phone. MoneyGram’s partners InComm and SPS will enable us to you eventually offer this product in up to 40 different countries including Canada, Hong Kong, Russia, the United Kingdom, the United States of course, and in many other countries in the European Union.

Funds sent using MoneyGram Xpress can be received anywhere in the world. Earlier this week as Pam just mentioned, we announced that we will introduce a new money transfer service in the Philippines, cash-to-account, or known locally as credit to account. This service will be launched on May 31. The service will enable consumers to transfer money from MoneyGram locations and/or MoneyGram’s website MoneyGram.com directly into the bank accounts of recipients in the Philippines. At launch, the program will enable funds to be received by bank account holders at Banco de Oro Unibank, the largest bank in the Philippines, and also receive by customers at 19 other major banks supported by BDO.

In addition, 36 banks are expected to begin offering this service later this year. According to the World Bank over $21 billion in remittances were sent to the Philippines in 2010 making it the fourth largest remittance received country in the world. And while this will be a global service it is estimated that more than 40% of all remittances to the Philippines are sent from the United States.

As Pam also mentioned, during the quarter we announced the launch of our first money transfer kiosks in Vietnam with our agent partner DongA Bank. These new kiosks expand our service delivery in the country from bank branch locations and home delivery service to now also include the convenience of kiosk locations. Vietnam is an increasingly important market in the $400 billion global money transfer industry with more than $7 billion in remittances received in the country in 2010.

We remain diligently focused on the opportunity to expand our money transfer service through new products and services. We are watching the changing needs of our consumers and our agents and responding to their ever-changing demands. MoneyGram now provides consumers the options to send or receive money through channels and partnerships in more than 17 markets, and the transaction and revenue growth in those markets has been excellent.

In total, new channels represent 3% of our total revenue, and 3.5% of money transfer revenue.

And with that I will turn it over to Jim.

Jim Shields

Thanks Alex. Looking first at revenue, total revenue in the first quarter increased 3% to $294 million compared with $286.5 million in the first quarter of last year.

Total fee and other revenue increased 3% to $290 million from $280.9 million in the first quarter of 2011. Total revenue in the first quarter reflects investment revenue that was $1.6 million less than last year’s first quarter. In our core money transfer business, fee and other revenue in the first quarter increased by $17 million or 8% versus prior year.

On a constant currency basis, money transfer fee and other revenue also increased 8% versus prior year. while our core money transfer business continues to see fee and other revenue grow at an accelerated pace, our bill payment revenue continued to decline as the shift in mix and economy and demographic trends continued to impact revenue.

Financial paper products all saw lower revenue as lower interest rates and lower balances continued to negatively affect investment revenue.

Turning now to operating expenses, total commission expense for the quarter was $129.2 million, up $6.6 million or 5% from $122.6 million in the first quarter of last year. This growth was driven by increased money transfer volumes, changes in corridor mix in higher biller incentive rates. On a percentage basis, money transfer commissions have essentially been flat for the past 5 quarters. Compensation and benefits was up $1.6 million, transactions and op support was up $2.8 million, and occupancy, equipment and supplies was up $600,000, or a total increase of $5.1 million.

It is important to note that approximately $2.2 million of this increase is derived from the cumulative net change in the following line items. Severance and other restructuring and reorganization costs, stock based compensation expense, and recapitalization costs. The remaining increase of $2.9 million in these expenses was driven by higher marketing spend of $2.6 million during the quarter and an increase in revenue generating headcount.

Taking all this into account, we have reduced our advertising overhead and operating costs as we continue to focus diligently on operating efficiencies. We will continue to invest dollars in revenue generating initiatives as we expand our network, increase our brand awareness, and expand our sales efforts in under penetrated areas.

With regard to other expense items, depreciation and amortization was favorable by 845,000 in the quarter reflecting disciplined capital spend. Interest expense was favorable at 15.5%, reflecting lower outstanding debt balances as compared to last year’s first quarter. While we’re investing in additional revenue generating initiatives, we continue to focus on taking out costs from administrative overhead and streamlining operations. To that end, our restructuring efforts remain on track.

To date, we have incurred $8.8 million, which is mostly attributable to buy out of excess office space and severance. We are on track to achieve our stated goal of realizing savings of $25 million to $30 million when fully implemented in 2012. Our efforts at the end of the first quarter have resulted in savings of approximately $10 million on an annual run rate basis. We are extremely happy with these efforts.

Net income for the quarter was $14 million up, $10.8 million in the prior year quarter. EBITDA was $51.3 million. Both net income and EBITDA was impacted by $4.6 million of stock based compensation, $2.9 million of restructuring and reorganization costs, and $1.5 million of costs associated with the recapitalization. Net income benefited from lower income tax rate and a $3.5 million discrete tax benefit from the release of valuation allowances.

Adjusted EBITDA for the quarter was $60.3 million versus $61.7 million in the prior year. Adjusted EBITDA margin was 20.5% in the first quarter of 2011, compared with 21.5% in the same period last year. However, first-quarter 2011 adjusted EBITDA reflects lower net investment revenue of $1.6 million, and increased marketing spend of $2.6 million as compared to the same period in 2010.

Now turning to the segments, total revenue for the Global Funds Transfer segment increased by 5% or $269.8 million as recorded in the first quarter of 2011. The revenue was driven by 14% growth in money transfer transaction volume, partially offset by the $50 price band and the decline in bill payment revenues. This segment reported operating income of $26.4 million and an operating margin of 9.8% in the first quarter of 2011. Adjusted operating margin was 11.3%, down compared to 13.1% in the prior year quarter. Segment margin was impacted by increased marketing spend of $2.6 million and the other items previously discussed in the expense section, which I just mentioned.

With regards to our financial paper product segment, total revenue for this segment was $23.9 million in the first quarter, a 16% decline from $28.4 million in the first quarter of 2010. Operating income increased to $8.4 million in the first quarter of 2011 from $8.9 million in the first quarter of 2010. Reported operating margin in the first quarter of 2011 was 35.1%, and adjusted operating margin was 37.7%.

Looking at the balance sheet, we started the quarter with assets in excess of payment service obligations of $230 million. During the quarter, we recorded adjusted EBITDA of $60 million. We made $90 million of debt interest payments, funded $9 million of capital expenditures, $6.8 million of signing bonus payments, and $4.6 million of restructuring. This along with $7 million of balance sheet and working capital items lead to our ending the quarter with excess payment service obligations of $244 million.

We remain focused on sound cash management and are taking every effort to optimize our working capital. The company continues to generate good cash flow while still funding its growth initiatives and deleveraging the balance sheet.

Now I would like to turn it back to Pam.

Pam Patsley

Great. Thanks Jim. We are pleased with our first quarter results and excited about the potential closing of our recapitalization transaction following the shareholder vote on May 10. There is still much to be done, much work to be done, namely market opportunities to seize and operating efficiencies to capture. The company and our core money transfer business continue to strengthen and we remain diligently focused in investing in our brands and being good stewards of our capital.

We continue to refine what is working well, and we are taking the necessary steps to improve those areas that are underperforming. We look forward to the rest of 2011 with great enthusiasm. So I thank you for your time and your interest this morning, and operator you may please open the line for questions.

Question-and-Answer Session

Operator

Thank you. (Operator instructions) We will take our first question from Bob Napoli, Piper Jaffray.

Bob Napoli - Piper Jaffray

Thank you. Good morning. Congratulations on a solid quarter. Question on pricing in the US and pricing broadly I guess, I mean it seems like this quarter there was on a sequential basis more pressure on pricing, and I know the comps have gotten tougher with 5 to 50 from a year ago, but are you continuing to and bring down prices, and what is your – where do you expect prices to be down across the globe if you want to give, obviously you know that Western Union is talking 2% to 3% reduction in pricing?

Pam Patsley

There was a lot there Bob. I think basically you are right, it is the continued pressure from the $5 to $50 is primarily the driver and what you are discerning there and on reported numbers, and particularly this first quarter we have it fully rolled out over the US, and I would not – I would say we do not see any other extreme pockets of pricing pressure to call out. So there is some quarters going up, some quarters going down.

Bob Napoli - Piper Jaffray

Okay, and just some confusion I guess, I mean your Western Union has been talking about their relationship and their joint ventures with InComm and so are you, what are the differences and how are you guys, what are you doing different with InComm than what Western Union is?

Pam Patsley

Well, I will start by saying ours is new, and we just announced it yesterday, and we are very, very excited about it. And it will initially be as it relates to MoneyGram Xpress. Since Alex and his team led that effort I might ask him to add any other commentary he wants.

Alex Holmes

Well, I think first off Bob I would say in many respects it is very similar. InComm is probably the largest, if not one of the largest prepaid card distributors in the United States. And so certainly when you are going to put a card on a rack to sell to consumers they are certainly one of the first choices out there. So, in many ways it will be the same.

It is effectively $50, $100, $200 increments, you buy the card in lane, take it home and you can then use our online service. You can call the 800 number and kind of do it through an IVR service if you want. You know, our processor for the service is SPS. SPS allows us to offer this service in 40 countries. So we think that is a bit – at least for us it is a bit unique. It will allow us to expand that product into other areas. And I think the colors on the card are a little bit nicer too.

Bob Napoli - Piper Jaffray

Any adjustments in timing on the recap?

Pam Patsley

Not at this point.

Bob Napoli - Piper Jaffray

The change in structure, anything new in that contract?

Pam Patsley

Nope. The proxy was mailed. So that is out there and no changes at this point.

Bob Napoli - Piper Jaffray

Thank you.

Pam Patsley

Thank you Bob.

Alex Holmes

Thanks Bob.

Operator

We will take our next question from Kartik Mehta, Northcoast Research.

Kartik Mehta - Northcoast Research

Good morning.

Alex Holmes

Hi Kartik, how are you?

Kartik Mehta - Northcoast Research

I am well. Thank you. I wanted to ask you about the domestic business, obviously you are going to have tougher comps as we go throughout the year, and I wanted to get your thoughts on the growth of that business, is this a business now with a new pricing structure that can grow mid-single digits, or is it a business that has a different growth characteristics now that we are going to be having similar comparisons?

Pam Patsley

Okay. So, there is going to be a little bit of a differential as we go through the year and ramp up our grow over between transaction growth and revenue growth. So while you will see slower transaction growth, but possibly and improving revenue growth as we grow over. We like our US to US business. We think there is a lot of potential in it. We think it builds a need, and I think we’re seeing importantly, and you have probably heard us from other new entrants to the category, which is quite exciting. And as we continue to broaden our product offering, a lot of that again aimed at US to US. It is a category that is getting still a lot of focus from us.

Kartik Mehta - Northcoast Research

Yes, so that is what I was wondering Pam, you are seeing new entrants into the market place, so is this a business again that you think can grow mid single digits at this point in time?

Pam Patsley

Let me be clear, my new entrants were new consumers and new people using the service. The way you said that I’m not sure if you meant new competitors.

Kartik Mehta - Northcoast Research

No, I meant new users, I apologize.

Pam Patsley

Yes, yes, yes. Okay, okay. I just want to be clear. So your question was, is this a service we…

Kartik Mehta - Northcoast Research

Yes, so is this something that can grow mid-single digits. Is this a business that where you would expect the growth trends now – I understand they will be lower than they are – they have been, but is it a business now that can grow mid-single digits?

Pam Patsley

Yes. Jim you want to add to that.

Jim Shields

Yes, we feel very confident. You know what we have seen is obviously, we have seen good transaction growth this quarter, and we think as we go into the latter half of this year we believe that we are going to make at least consistent in terms of seeing nice growth in our business both on the US to US side and also from our US to outbound side, and particularly our emphasis from US to outbound side and our efforts in that area to grow that area, we have a lot of confidence basically in that segment of the business growing for the rest of the year.

Alex Holmes

And I will just add Kartik, I think we have had something like 28 consecutive quarters of positive growth in our intra US business and obviously comps will be a little tougher, but I think we anticipate pretty good continued growth in intra US business.

Kartik Mehta - Northcoast Research

And Alex you talked about the online business and that business put up some great transaction growth numbers and revenue numbers, and I’m wondering if you could talk about maybe the colors that drove that, and if you anticipate that trend to continue?

Alex Holmes

You know, I don’t know if there is anything one particular thing we can point to this quarter. I would say that you know our focus on improving our online business has been there for the past couple of years.

Pam Patsley

15 months at least.

Alex Holmes

Yes. You know, we have been doing a lot. Internally the team has done an incredible job making sure that transactions are processed efficiently, fraud reduction is incredibly weighed out when you launch those types of services, and you know that improved certainly, interchange rates and those sorts of things on charge backs and all that.

And so it is tremendously helpful. You will have to streamline that service you can get consumers through much quicker. I think the online usability of it, we have rolled out a lot of enhancements and improvements to that service and I think we’re finding that consumers are grabbing on to that [ph].

Jim Shields

Yes, I think one thing on the online business also is that we have seen a faster growth with regards to US outbound on our online business with the Philippines being a particular area where we have seen significant growth there.

Kartik Mehta - Northcoast Research

And then just one last question Pam on the bill payment business, obviously that business is being impacted by what has happened in the economy over the last couple of years, and I’m wondering if there is anything MoneyGram can do in particular to help improve that business, or is this a business that just now needs the economy to continue improving and that is what will make it really get back to growth?

Pam Patsley

Well, we’re certainly all waiting for the economy to improve and that will be just a fundamental help. And in the meantime, you know I mentioned from our expectations we think we can do better. We underperformed when we would have liked to have been in that, and so it is getting a lot of attention and focus, but I have to give a lot of credit to the teams. Some of these new channels and categories of payment to use that service are showing some really nice growth, some nice potential.

That was just huge ramp up in April here now of adding new billers. That is really positive. We are looking at some marketing or brand initiatives around it. So, it is getting a lot of management focus because we would like to see numbers better, and transactions and revenue down 8% and 11%.

And I think in our business today, let me just be clear, fair comparison is that is only a US business for us today.

Kartik Mehta - Northcoast Research

Does that statement indicate that you would like it to be an international business Pam?

Pam Patsley

It is a statement that indicates I think there is, it is not a 190 country kind of business. But it is a statement that says perhaps there is just some core competency and some easy things we could do to expand that service to a few appropriate markets to leverage the core.

Kartik Mehta - Northcoast Research

Thank you very much. I appreciate it.

Pam Patsley

Yes. Thank you.

Operator

We will move to our next question. The question comes from Jim Kissane, Bank of America.

Jim Kissane - Bank of America

Thanks and congratulations guys, great job.

Pam Patsley

Yes, thanks Jim.

Jim Kissane - Bank of America

Obviously Mexico accelerated sharply in the quarter, what is driving that, and I guess similar question around Spain, is it more macro factors or is it specific actions that MoneyGram has been taking?

Pam Patsley

Well, we will take macro factors all day long, and I would like to think it is just you know great management team in place on the ground, (inaudible), great partnership with our agents, agents that are interested in working aggressively in partnership with us for growing. We have continued to expand our receive network in Mexico.

Jim Kissane - Bank of America

It is a pretty sharp contrast to the biggest wire transfer companies, I am just trying to, are you gaining significant share there, is there any pricing actions?

Pam Patsley

No, I mean I think you saw when you look at revenue and transaction growth for US to Mexico, I don’t think that message comes through. Just here and there, and we have only our MoneyGram Brand service, so that is the difference from others that participate in this market. We focus, and we said this is a huge market, we need to turn this around.

So whether it is the focus in things that Robert Burford and his team are doing in Mexico, things that our team that deals with our large chain [ph], things that Pete Ohser and his team are doing, and targeting the proper quarter sends on the retail side of our business here in the US. That has been great.

You also asked about Spain, Pedro Saro and team in Spain working with our folks, primarily those that are in South America for us with (inaudible), and now under George Zelinski’s leadership. I think we have brought the teams together more. I know that sounds kind of just pedestrian perhaps, but you know from a culture perspective, I can’t go back to that, those were just some things that were missing, and we have made great strides here and so they are saying, okay, I need you to help me grow my sends, or I need you to help me grow my receives, and they are tackling it together because they both win.

Jim Kissane - Bank of America

Okay, great. And can you give us a sense of what portion of your revenue is actually coming from the – or historically has come from Ivory Coast, Libya and Egypt, maybe quantify the impact?

Pam Patsley

Yes, in Egypt, you know it was kind of on and off, on and off, but it has been back on now for at least a month I think solidly without interruption. So I didn’t call that out other than disruption throughout the quarter. It would be a small percent, does anyone know, clearly we haven’t disclosed those before, but it is not huge. But it is big for certain quarters.

Ivory Coast and France is big. Libya is primarily a send. it is going to be interesting to see when Libya opens up, what element of receipt will be more relevant given a little bit of recovery through the turmoil. So we are going to be ready. So we have great agents, we have great relationship. Our Middle East team and our folks in Europe are well stationed and positioned and staying in close contact with our agents.

Alex Holmes

Hi, Jim, it is not going to be in the top 20 of our send countries in terms of the Ivory Coast, so it is not a huge percentage of our overall business.

Jim Kissane - Bank of America

Okay, got you. And I totally appreciate the focus on revenue growth and the investments in revenue growth, but Pam or Jim can you kind of take a stab at maybe some of your intermediate term, longer term goals are for operating margins?

Jim Shields

Sure. We don’t give any guidance Jim out with regards to operating margin, and we can say that we basically if you take a look at – let me frame it this way, if you take a look at our transaction growth rate over the last 5 quarters it has basically increased by – it has gone from 6, 7, 9, 12 and now 14 this quarter. So we are growing very rapidly in our money transfer business.

In order to do that, we have to put investment out there. That investment is in the form of basically marketing dollars, and it is also in the form of some headcount we have relative to both our core business, our retail business and other areas to basically begin to put people in those areas where we’re under penetrated. So we’re making that investment overall in order to do that. So we are investing ahead of growth. So, some of those margin numbers are going to be reflected in that investment.

So I’m not going to give you any specific numbers and guidance relative to margins, what I will tell you is that it is a delicate trade-off between the two. We are constantly monitoring our investments in these particular regions and measuring that versus our how we’re basically taking cost out of our administrative overheads and streamlining operations overall, which we still have ways to go with. We have been very successful there.

Through our restructuring activities, we have taken out approximately $10 million on an annualized run rate basis as of the end of the first quarter. So, I know I didn’t answer directly, but I think this is as far as I can go.

Pam Patsley

Yes, (inaudible). If you think the margin we are operating at now is where we are happy, comfortable, or think we are done that would be incorrect.

Jim Kissane - Bank of America

That was great color. Thank you very much.

Pam Patsley

Sure.

Jim Kissane - Bank of America

I got it.

Pam Patsley

Okay. We will see you in a few weeks.

Jim Kissane - Bank of America

Perfect. I’m looking forward to it. Thank you.

Operator

We will now move to our next question from Mike Grondahl, Northland Capital Markets.

Mike Grondahl - Northland Capital Markets

Yes, thanks for taking my questions. Just as a little bit of a follow-up to the last question about margins, were you then surprised Pam about the decrease year-over-year in margin in the first quarter, I think the EBITDA margin fell 1% to 20.5%?

Pam Patsley

I was not surprised. I mean, I have been saying I hope we can run this company more efficiently, so we can find some money to reinvest in brand awareness, in signage, and some quarter campaign, building out some of our retail business, so there is nothing that I feel I guess we are on our heels and need to be defensive about at all. So no.

Jim Shields

I think there is a couple of things there. One is to Pam’s point, the investment, if you just take a look at what we have said was $2.6 million increase in marketing spend plus if you take into account investment revenue that would actually indicate – if you took those two things into account, our operating margins would actually improve approximately by 1.4%.

Pam Patsley

At another 1.4%.

Jim Shields

At another 1.4%.

Alex Holmes

So, investment revenue is what it is…

Jim Shields

Slight better.

Mike Grondahl - Northland Capital Markets

On the 8-K announcement this morning, do you expect any financial fallout or any charges coming through the P&L because of that?

Pam Patsley

No.

Mike Grondahl - Northland Capital Markets

Okay, and then just related to the recap, any estimation of what those fees or that charge will be in the second quarter when it is completed?

Pam Patsley

Well, let me first say just the way it is no. I don’t have any estimation.

Mike Grondahl - Northland Capital Markets

Is it fair to say the majority will come through in the second quarter.

Pam Patsley

That is correct.

Jim Shields

Yes. There is a couple of things relative to the recapitalization in terms of targets, some of those targets are going to be related to the refinancing that we have. And some of it is going to be related obviously to the actual convergence of the preferred stock. The ones that are basically associated with the refinancing will be capitalized and flow through the interest expense line-item, whereas the ones with expenses associated with the convergence of the preferred is going to be flowing through the income statement.

Mike Grondahl - Northland Capital Markets

Got you.

Pam Patsley

We will definitely be calling them out.

Mike Grondahl - Northland Capital Markets

Got you. Thank you.

Pam Patsley

Yes. Thanks Mike.

Operator

(Operator instructions) And we will take our next question from Robert Dodd, Morgan Keegan.

Robert Dodd - Morgan Keegan

Hi, just – follow up on the 8-K just quickly, do you expect or is there a risk of a regulatory or other investigation as a result of the course as you previously mentioned?

Pam Patsley

No.

Robert Dodd - Morgan Keegan

Okay. on the marketing spend, just obviously 2.6 million some of that related to the World Cup, the cricket World Cup obviously, is this a permanent step up, I mean are you going to, are we going to see increased rates of investment in marketing spend given the number of new corridors you are going into, obviously you are very large now in Ukraine, Sberbank in Russia, you are getting into a lot of large regions that are relatively new? Are we going to see incremental investments on top of that to establish a blade of brand awareness in those markets?

Pam Patsley

Yes, we said you know I feel like I have been saying fairly consistently, but for a while we didn’t have really the infrastructure to even spend wisely [ph], so that is another real happy point about the marketing team, the organization, the alignment with the business, the regional sales people, the channel sales people here in the US. All that is working really well, and we expect to spend more on marketing in 2011 than we did in 2010.

We also expect that the quarterly distribution of that is going to be different, and perhaps less so back end loaded as it was in our history, and it will be a little more throughout the year, some of it driven, and some just you know we are ready to let go, let us [ph] the growth, let us get out there now.

Jim Shields

Just echoing Pam’s thoughts, if you just take a look at our marketing spend as a percentage of revenue also, we’re really just getting back to numbers that are sort of what we call normalized overall. So we’re getting to levels where we think it is sustainable for the business, and also one that where we can continue to fund the transaction growth that we have seen over the last 5 quarters.

Robert Dodd - Morgan Keegan

Okay. Thank you. Last one from me, have you got any incremental data now from put in 20,000 in the fourth quarter, you are now several months into those being open, any data about how those are ramping?

Pam Patsley

You know, I think a better way to think about it is we are seeing improved agent productivity, and that is becoming again, as we’re kind of saying, okay, what moves the needle, building out our team, running the company, there are some metrics we are focused on, and we are trying to hold people accountable to. So, I will just broadly say we are seeing improved agent productivity.

Jim Shields

Overall, in terms of same store sales we continue to see an improvement in the growth rates year-over-year. We have been hurt [ph] slightly relative to that just in terms of what has occurred in the Ivory Coast and in Libya, and some of the effects of those with regards to those receive countries on agent productivity within specifically France is one area that I would call out. But overall even with that we are still seeing growth rates continue to accelerate on a same-store basis.

Robert Dodd - Morgan Keegan

Okay. Got it. Thank you.

Jim Shields

Thanks Robert. I look forward to seeing your team on Wednesday for our marketing trip.

Robert Dodd - Morgan Keegan

Thanks.

Pam Patsley

Absolutely. Anything else operator?

Operator

And we have no other questions at this time. I would like to turn the call back over to Pam Patsley for any final closing comments.

Pam Patsley

I will just say I hope everyone has a wonderful day, and again as always great to visit with you, and we will all stay in touch, you know where to find us. Thanks so much.

Operator

That concludes our conference for today, and we thank you for your attendance.

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