MoneyGram largely missed Wall Street estimates — at least in terms of headline numbers, amid results that showed continued headwinds of compliance efforts. Management had pointed to such impact in its last conference call and, this time around, gave the nod to continued traction in digital efforts and restructuring activities that set the stage for growth in the longer term.
In terms of headline numbers, the top line of $345.8 million missed the consensus of $359.1 million, while adjusted earnings of a penny were off by about $.12. The top line was down 14 percent on a constant currency basis, which continues a trend seen in previous periods, where sales were down mid-teen percentage rates.
Drilling into the details, money transfer revenues were $302.9 million, down 17 percent — a bit accelerated from the 14 percent slide seen as measured year over year in the third quarter. Management noted that the decline came amid “de-risking” efforts that tie into corridor-specific — such as identifying customers at the point of sale (POS) — and transaction-specific compliance controls that took root throughout the year. MoneyGram CEO Alex Holmes noted that such company efforts had an impact on corridors in Africa, for example, especially on transaction activity in countries such as Nigeria, part of a conscious effort to reduce exposure to high-risk corridors.
Complaints as a percentage of transactions declined by 64 percent from 2015 to 2018, the company pointed out in supplemental materials. The company had closed more than 61,000 “unproductive or higher-risk” locations last year. During the call, management pointed out that online transactions grew by 37 percent.
The company said that digital efforts were relatively stable at 16 percent of money transfer revenues, which matched the percentage seen in the third quarter. This came despite details on Monday (Feb. 11) night’s results that showed the U.S. contributed to a 7 percent decrease in online revenue.
Still, international activity, excluding the U.S., showed that online transaction growth was up 25 percent year on year. As had been reported, MoneyGram said that operational efficiencies, through digital and compliance efforts, will save roughly $55 million in annualized expenses.
Holmes said that, in 2019, the company will focus on “new capabilities … to return to growth,” and that technology-focused initiatives include moving to the cloud (the firm has said it is becoming fully API-driven) and upgrading POS systems. He said the new MoneyGram money transfer app “rivals that of any FinTech” firm, and has seen a fivefold increase in users since launch. Added functionality includes the ability to track money transfers; transaction growth for new countries entered in recent months stands at 54 percent. In addition, management stated on the call, loyalty programs have shown traction, where customers transact 20 percent more often than non-members.
Holmes said 2019 will be “the year of the consumer,” and pointed to functionality that includes text and email notifications, and promotions. Notification is now in 65 countries, and MoneyGram is targeting an additional 100 in the current year.
The U.S. remains a challenge, said management, and Asia-Pacific a strategic focus. Holmes said that even as domestic activity remains a “challenge,” with MoneyGram contending with the likes of Zelle and Venmo, the U.S. outbound growth is stabilizing.
When asked about strategic focus, Holmes maintained that cash transfers remain a key part of the business, “and is not going away soon,” even as MoneyGram seeks to diversify its businesses.
In November, MoneyGram entered an agreement with the U. S. Department of Justice (DOJ) to extend a deferred prosecution agreement. That agreement helps clear the way for MoneyGram to restructure its debt. The agreement has to do with failures on the part of MoneyGram to fight financial fraud, reports noted. Looking ahead, the company expects revenues to decline 2 percent to 4 percent.
According to Reuters, on the news that MoneyGram might be exploring a sale (where, roughly a year ago, the U.S. government gave the thumbs down to a potential $1.2 billion sale to Ant Financial), Holmes said the company is focused on “moving the business forward,” but is “always looking to maximize shareholder value.”