Wednesday, 21 Nov 2018

MoneyGram Shares Slammed On Revenue Slide Amid Compliance Efforts

MoneyGram shares sank as much as 25 percent during intraday trading on Friday (November 9), as the company reported results that reflected the impact of new compliance rules to stop fraudulent transactions, which has hurt top line momentum — and which will continue.

And, as previously reported, the company has disclosed that it has agreed to pay $125 million as part of settlements with the Federal Trade Commission and the Justice Department tied to fraud allegations.

Taken together, the announcements hint at a regulatory landscape that is already resulting in headwinds, though management stated on the earnings call with analysts that longer term the company is undergoing a restructuring that should help stabilize and normalize results.

In terms of results, MoneyGram posted total revenues of $347 million, down almost 13 percent year on year and missing the Street by $31.4 million.

Money transfer revenues were $304 million, a figure the company said in its earnings release was down 14 percent on a constant currency basis. Bill payment revenues were $17.4 million in the quarter, down from $20.3 million last year.

Digital efforts, said management, continue to gain steam, and were a relative bright spot in the quarter, with MoneyGram.com gaining 3 percent to account for 16 percent of money-transfer revenue.

In reference to digital transformation initiatives previously announced, the company incurred $1.2 million of expenses in the third quarter and has incurred $14 million for the year. The company expects to spend an additional $2.5 million to $5.5 million over the life of the program. “This program reflects the alignment of the organization with the delivery of new digital touch-points for customers and agents, and the optimization of the company’s global network,” said MoneyGram in its statement. The company expects efficiencies that will result in $30 million of expense reductions in 2018 and, upon completion, $45 million on an annualized basis.

Compliance Efforts, Continued

The compliance efforts have led to significant volume reductions, said the company, as certain corridors were affected and where in some parts of Asia, business declined by 79 percent, while in Africa, that impact was 51 percent. CEO Alexander Holmes told conference call participants that the impact to the top line came amid “deliberate decisions to stop doing business with certain customers in certain corridors.” New revenue streams, said the firm, were not enough to offset the volume disruptions seen elsewhere and thus the end result was “a net negative.”

And amid those decisions, said management, MoneyGram is viewing those actions as “kind of a reset” — and the deferred prosecution agreement disclosed on Thursday (November 8) means that additional oversight and compliance enhancements will be underway.

To get a sense of those new efforts, MoneyGram said in separate SEC filings that there will be “enhanced due diligence” where agents deemed high risk or operating in a high-risk area will be subject to higher level scrutiny. As noted in the filing, “If the total combined monetary value of [monthly values tied to actual or alleged fraud] exceeded five percent of the total monetary value of money transfers paid by that agent location for each of the three preceding months, MoneyGram will suspend the agent location’s ability to conduct further money transfers pending a review to determine whether the agent location can continue operating.”

In additional detail, in response to questions about “dormant” agents, management stated on the call that examination of certain locations is leading to an examination of how to rationalize those operations.

Holmes and CFO Larry Angelilli said on the call that the competitive landscape is also changing a bit as peers in the industry are taking down their pricing in regions such as Asia and Africa. Those competitors are paying agents relatively higher commissions to lure business — and so the combination of lower prices and higher commissions is compressing margins across the industry, they said.