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Executives

Pamela H. Patsley – Chairman and Chief Executive Officer

Analysts

Jim Francis Kissane – Credit Suisse (United States)

MoneyGram International Inc. (MGI) Credit Suisse Global Services Conference Call March 12, 2012 ET

Jim Francis Kissane

Okay, times running. So I think we'll get going. My name is Jim Kissane. I cover services stocks for Credit Suisse and it's my pleasure to introduce Pam Patsley, the Chairman and CEO of MoneyGram and with Pam is Alex Holmes who runs Corporate Strategy and Investor Relations. After the formal presentation, we'll probably have few minutes for Q&A here. And then there'll be a breakout session in salon G.

So, let me hand it over to Pam. Thank you, Pam.

Pamela H. Patsley

Thanks, Jim. It's great to be here and good afternoon. So, we will start with a quick overview of MoneyGram and a little bit first about who we are and MoneyGram is the second-largest money transfer company and we have market-leading growth. Our vision is to be the preferred provider or network of how consumers and businesses want to send money and receive money around the world.

We have a compelling suite of products and service offerings. We operate through 267,000 points of location around the world and our strong brand is present in a 192 countries. Today we are headquartered in Dallas. We had about $1.25 billion in revenue last year for full year 2011, 2,350 employees or thereabout located around the world. And today 71% of our stock is owned by private equity, 52% THL, 19% Goldman Sachs.

You can see in the chart on the right a breakdown of our revenue by product. And so Global Funds Transfer segment is the value creating engine of MoneyGram and it's 92% of our total revenue, 83% money transfer and 9% bill pay and financial services, excuse me, Financial Paper Products just 8% of our revenue.

For those of you who know MoneyGram from the past, you certainly know the quality of our revenue has changed quite dramatically.

2011 was a great year for MoneyGram. And you see here some numbers for Q4 and full-year 2011. And if I think about our business of what drives growth, as a funnel if you will, and we start with our agent network or points of presence. We grew 18% and closed the year at 267,000 points of presence.

Our transaction volume growth thus grew to 13% for the quarter, 14% for the year. And really, we target double-digit transaction growth. That's kind of what we align the internal folks many of you have heard me talk about. It's about double-digit growth, network growth and transactions.

We have three primary buckets; U.S.-to-U.S., U.S. outbound and sends originating outside the U.S., all solidly hit double-digit growth, both for the quarter and for the year. And we have market-leading growth there as a subset of that U.S. outbound in sends to Mexico at a very strong 15% for the fourth quarter.

All this yielded really strong revenue growth. On a constant currency basis we were there for the year at 10% and for the quarter at 11%. And we're really excited about the market in which we participate. This is a great industry; it has seen continual growth except for 2009, but at the bottom of this chart you can see MoneyGram's revenue growth and even when the industry shrank in 2009 MoneyGram saw growth.

This is going to continue, and we see very exciting industry because of – more than 200 million immigrants migrate for work for a better way of life, for education annually. We continue to see in the developed countries an aging population and a very low birth rate. So guest workers are very, very important to just maintain let alone grow GDP. So MoneyGram continues to outgrow a growth market.

As I said, we are the number two player in this industry, and steadily gaining share 2% in 2005, 5% in 2011 and we hope that continues to grow at hopefully and even accelerating rate. It's a highly fragmented industry and you can see in that pie chart on the right there is a lot of white space for us to capture share. And there is – really only two players that are present in kind of the 190 plus countries around the world, tremendous amount of niche players, some regional players, banks as I like to say kind of episodically are in this business or maybe just oriented around a quarter or two.

And then of course, you have the informal channel. And we're seeing and here’s where government is a help, we’re seeing that they continue to be interested in driving these transactions to a formal channel.

So the network is expanding and driving growth, again these three categories, the pie chart at the top there, these two pie charts on the left are based on fourth quarter data. So on a transaction basis, our business is divided about a third, a third, a third, U.S.-to-U.S., U.S.-outbound and sends originating outside the U.S.

However if you look at revenue for that same period you’ll see due to a higher RPT or revenue per transaction are sends originating outside the U.S. are a much larger part of our revenue pie. And that’s very exciting because this is the area where we have really some tremendous growth opportunities.

The right side of this chart shows the key remittance countries. The top four are the four largest for the industry in terms of received, and the bottom four are the four largest for the industry in terms of sent. And I would just like to say, if we think about our businesses, the transaction originates on the send side, our U.S. business, whether it’s U.S.-to-U.S. or U.S. outbound, had solid double digit growth throughout 2011. In Saudi and Russia, our business in both of those countries more than doubled in the fourth quarter.

Germany had growth something less than 50% and more than 30%, 35%, so we’ll let you kind of figure out where Germany was. So we’re really excited about where we’re hitting it, and we’re hitting it at the high-volume markets for the industry. This a little bit different look, but to say, as that network has continued to expand the past few years, where that growth is coming from? Again, on the right-hand side of this chart you can see by country where we had some very tremendous growth in our network. And if you think of those four largest received countries, India, China, Philippines, and Mexico, you see we had some really great growth last year.

Now, I would say Mexico, it looks like a small number there with 600. We’ve been in Mexico though for well over a decade with really strong business. However, just last week we grew our network there by 1,800 locations when we launched with Electra. And so that’s again very, very positive when you think about Mexico being one of the top four received countries.

So capitalizing on this global network, again, what is the strength of 267 plus points of presence around the globe? We execute our strategy with such a strong agent base; it's large banks, large, ranging from some of the very largest like ICBC, or Bank of China, or National Commercial Bank in Saudi, or Sberbank in Russia through some very, very large retailers, again the largest, Wal-Mart in the U.S., CVS, Supervalu, lots of different retailers. Retailers are also check cashers, in particular in the U.S.

And across the world, we have over 25 posts that are now our agents, and those range from the U.K. Post, Canada Post, Italian Post to the Icelandic Post, the Moldova Post and so on, I won't name all 25 and spare you that. But needless to say that's a great, great avenue of growth and a great point of presence for us to interact with our consumer.

So speaking of retailers, we have a very robust relationship with the world’s largest retailer and that's Wal-Mart. We have been the exclusive provider of money transfer; money order and emergency bill pay services in the U.S. and Puerto Rico for over 10 years.

We have been the provider in Mexico on the receive side with Wal-Mex or Wal-Mart Mexico for probably closer to 12 years, possibly a little more. And within the last year we have expanded that relationship with Wal-Mart to include their new business in India, Wal-Mart Bharti India, and we rolled out just this fall in October walmart.com for U.S.-to-U.S. money transfer business. And we are – they are thrilled with that service, where we're really knocking the ball out of the park with them and I think surprised them.

So we do have our contract for the U.S. and Puerto Rico. Each of these are really separate contracts, but the big contract is up January 31, 2013 and we work diligently as I like to say not just in this year when it's coming up on renewal, but every day we deal with Wal-Mart for the past years to continue to earn their business each and every day.

There is also a participation agreement in place that I think many of you are familiar with. And when the private equity investors came in, in March of 2008 and the Wal-Mart contract was last extended then, they entered into an agreement with Wal-Mart where Wal-Mart participates in the upside alongside of THL and Goldman as they recouped their monies from their investment in MoneyGram. So we think that is a very good alignment of interest.

Products expansion and self-service, very interesting and very exciting from a MoneyGram perspective. We've really centered our thinking around the self-service model, and if you think about that self-service model there is three primary categories; it's accessibility for both the consumer and how we utilize an agent network; it's virtual, and then it's using consumer-directed spends and receives.

We have some examples in each of these categories. I won't go through all of them, but if you look at accessibility, it ranges from form free, which is the solution we having at CVS to a J hook so it's – it looks like a prepaid card on a J-hook at a convenience store or a gas station and it's in set increments, then the consumer can go home and execute that transaction at their convenience. And then it's kiosk and ATM business.

I will tell you, our Saudi Arabia business, remember Saudi the second-largest send country in the world, our whole business is through an online registration model and a kiosk and ATM business today with National Commercial Bank.

On the virtual side, moneygram.com continues to grow, over 30% growth in the fourth quarter. And again that's been augmented now with rolling out in the fourth quarter walmart.com. And within the last month, I’m very pleased to announce, we now have moneygram.com launched for the U.K.

We’ve really industrialized this, commercialized it and we hope to chunk out about the next four to five countries in Europe throughout 2012. We’ve also signed up virtual agents. So, this is where AccountNow or other Internet banks are really hooked into moneygram.com or utilize our network for sending money. And the growth there with SBI in Japan has been phenomenal.

And then of course our direct-to-send with ICBC or Banco Rendimento or Banco De Oro in the Philippines. I think at the bottom left, I just want to call your attention this business is now 4.2% of money transfer revenue. And just four years ago it was 0.5% and on a smaller denominator. So we're very excited about the growth we’re seeing here.

Bill payment: I think 2012 should be a good year for our bill pay business. If we think about the bill pay business in three primary categories, we have the consequence payments, pictured here by the red bar, then you have convenience by the dark black and the slightly lighter or gray are the load. The higher RPT are the consequence payments; these are auto, mortgage, credit card payments.

That market had a downward slide the last few years as the global economy, the sub-prime business kind of dried up, and it was as I said our highest RPT. We were very aggressive in continuing to add billers even in these consequence categories. And at the same time continue to build out these lower RPT businesses of convenience, which is like telcos, utilities, cable, satellite businesses and then our load businesses.

There is over a 100 prepaid card products that can be topped up, loaded, reloaded at MoneyGram locations and so you continue to see tremendous growth. We connect to over 6,500 billers today or products bills that you can pay at any MoneyGram location in the U.S.

And again, like moneygram.com we just rolled out in 2011, bill pay to Canada. Now, this product isn’t, universal because of consumer behavior patterns, bill payment, but we think the core engine has some legs to outside the U.S. So, we’re very excited about that.

Strong technology and compliance, we think this creates a competitive advantage, and we think MoneyGram is leading the way in many of these categories. On the technology side, I would say what I really want to convey here is that, we are focused on making our platform more product ready, easier to roll out new products, easier to roll them out seamlessly across the world. So, we don’t end up and say, what Italy has this, I need this in France. When can France have it? Or I need this in the U.S. or likewise, so U.S. has it, when can I have it in Malaysia, the sixth largest send country. So, a lot of work is going into that. It’s how we communicate and interface with our agents and ultimately keeping the consumer at the forefront and enhancing our consumer experience.

And we have been very robust and proactive I should say, to building a robust compliance platform. And that’s really both in the transaction monitoring, reporting and importantly in our anti-fraud measures, which we’ve heard many parts of the government and other regulators say its best-in-class now on our consumer anti-fraud. And yet we had to pay kind of a dear price in the past and some issues with the FTC, but it's made MoneyGram a better company and we’ve kind of leapfrogged over the competition in that regard.

We have delivered strong money transfer growth. So here again you see just the last three years of growth since 2009. And importantly at the bottom of that page where you see the comments that new and existing customers are using MoneyGram more often and for more products. We love that, we love that metric and we hope to continue to see that expand.

Kind of a corollary to that is when we talk about our agent network growth is the fact that we have a very young agent network, and it takes 12 to 18 months generally for an agent network to be fully productive. So with the kind of growth we've been seeing there is really inherent growth and just the agents that we’ve signed and announced and onboarded that haven't really fully activated. And there again you can see then what that’s yielded in revenue growth.

So on this slide; I think the main takeaway is twofold. One, it’s about the quality of our revenue, the quality of our earnings continuing to improve. And again as I said it's a few minutes ago at the beginning, if you're familiar with MoneyGram from years past, you know it's a very different story. And we're really focused on creating value through a recurring revenue model, not an interest spread model business, and a recurring revenue per transaction per account kind of model.

At our fourth quarter earnings call I think February 3 or thereabout for the first time in the recent past we gave some annual guidance and you see that pictured here. Total revenue growth, 7% to 9% as reported, and that includes kind of the grow over we have there in our investment revenue component, pictured by the blue slice on the slide and then adjusted EBITDA growth of 9% to 11% and again, focusing on the red bar and the quality of that earnings and the growth there. So, and our margins are continuing to go up.

Again, a quick look here at our capital structure, can't really talk about MoneyGram without looking at our capital structure, at least for now. We had assets in excess of payment service obligations of a little over $200 million at year-end undrawn on our revolver, total liquidity there of just under $400 million.

We had in our first lien notes, our bank debt $486 million outstanding. For the first time I'm thrilled to report we don't have $500 million in our Goldman 13.25% notes, but $325 million. We were able to call back $175 million in November as part of doing that secondary offering. So, that was a tremendous benefit to the company and just a $16 million interest savings on an annual basis from that initiative alone, and we delivered $25 million at that same time.

So that's a little bit of a look at kind of our capital structure and our debt stack. You see free cash flow continuing to improve. We should easily be north of $125 million for 2012, again just by taking 2011 and the $16 million. So if we achieve our EBITDA targets, free cash flow it's going to improve very nicely for 2012 over 2011.

And it's all about finding that right balance of continuing to deliver and finding the right time. As I have said to some of you, it's a mass problem now on when we pay back the Goldman notes.

So the first call date is exactly a year from now, March of 2013, and it's a full make call and then there is a prepayment penalty, and sometime in the next 12 months those lines will cross where it's much more beneficial to just be done with it and refinance that debt.

And in summary, I would just like to say, for the first quarter, it's a good first quarter so far. A lot of great things have happened. Most importantly, as I mentioned on our fourth quarter call, Italy implemented a tax on money transfer in the fourth quarter or really very late in the third quarter. With a lot of aggressive work by our regulatory folks and our geo-leader, that tax has now been repealed and we are very anxious to begin to see the growth come back in our Italy business.

We launched, as I mentioned MoneyGram Online for sends from the U.K. The Electra, I already mentioned, that’s up and live. We did the press release last week and everything is transacting. We continue to roll out the India Post. We had a little celebration and a tour around the U.S. and Canada last week with our Indian folks, and we're up to 650 locations there.

I'm really pleased to state that in our proxy, if you saw that and we did a press release last week that Ambassador Tony Garza is now standing for election and will be increasing our independent directors from four to five.

So the same four is standing for election in our, at our annual meeting in April this year with the addition of a fifth independent director. So I love the diversity aspect, I love the fact that it comes from a government and regulatory background and continuing what I think is a path of great governance for MoneyGram.

On the first lien debt we crossed because of our leverage ratio that we got our first step down so kind of starting from here forward we're nicked down to LIBOR plus 300. So a little bit lower than what you saw in the previous slide. So, that's 4.25 for the next year. And we continue to see strong money transfer transaction growth through February.

So, I think we’re off to a good start. And our investment thesis I think summarizes everything. We operate and execute our strategy in an interesting market and we’re outgrowing a growth market. We're capitalizing on 192 countries and 267,000 growing points of presence, accelerating our growth through new channels, new geographies continuing to be very aggressive and embracing all these new technologies and saying how can we leverage MoneyGram core competencies of compliance being active and registered in a 192 countries going forward, differentiating along that compliance and technology leadership and most of all delivering on the bottom line.

So, with that, maybe not as much time for questions as I thought. Maybe one, before they kick me out.

Question-and-Answer Session

Unidentified Analyst

(Question Inaudible)

Pamela H. Patsley

Okay. You cannot get me in trouble. It is what it’s that, it’s a strong money transfer transaction growth through February.

Unidentified Analyst

(Question Inaudible)

Pamela H. Patsley

And we put the bullet on there though. So…

Unidentified Analyst

(Question Inaudible)

Pamela H. Patsley

Why would not I always hope for that? That's our plan. Yep.

Unidentified Analyst

(Question Inaudible)

Pamela H. Patsley

Salon G. Okay, thank you all very much.

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