The following discussion should be read in conjunction with our Consolidated Financial Statements and related Notes contained in Part II, Item 8 of this report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated due to various factors discussed above under Cautionary Statements Regarding Forward-Looking Statements and under the caption Risk Factors in Part I, Item 1A of this 2021 Form 10-K. The comparisons presented in this discussion refer to the prior year, unless otherwise noted. For a discussion on the comparison between fiscal year 2020 and fiscal year 2019 results, see Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations included in MoneyGram's Annual Report on Form 10-K for the fiscal year ended
December 31, 2020, as filed with the SEC. This discussion is organized in the following sections:
• Operating results
• Cash and capital resources
• Critical accounting policies and estimates
MoneyGramis a global leader in cross-border P2P payments and money transfers. Our consumer-centric capabilities enable the quick and affordable transfer of money to family and friends around the world. Whether through online and mobile platforms, integration with mobile wallets, kiosks, or any one of the hundreds of thousands of agent locations in over 200 countries and territories, with over 100 now digitally enabled, the innovative MoneyGramplatform connects consumers in ways designed to be convenient for them. In the U.S.and in select countries and territories, we also provide bill payment services, issue money orders and process official checks. We primarily offer our services and products through our Digital Channel and third-party agents. The Digital Channel includes MGO (our direct-to-consumer business), digital partners, direct transfers to bank accounts, mobile wallets and debit card solutions such as Visa Direct. Third-party agents include retail chains, independent retailers, post offices and financial institutions. MoneyGramalso has a limited number of Company-operated retail locations. Launched in April 2021, MoneyGram'semerging embedded finance business for enterprise customers, MaaS, enables other companies to access MoneyGram'sglobal money transfer network and leverage the Company's core capabilities as productized service offerings to meet their various business needs and quickly add services and scale. We manage our revenue and related commissions expense through two reporting segments: GFT and FPP. The GFT segment provides global money transfer services in more than 430,000 agent locations. Our global money transfer services are our primary revenue driver, accounting for 93% of total revenue for the year ended December 31, 2021. The GFT segment also provides bill payment services to consumers through substantially all of our money transfer agent locations in the U.S., at certain agent locations in select Caribbeanand European countries and through our Digital Channel. The FPP segment provides money order services to consumers through retail locations and financial institutions located in the U.S.and Puerto Ricoand provides official check services to financial institutions in the U.S.
The global spread and unprecedented impact of COVID-19 and its variants, is complex and ever-evolving. In
March 2020, the World Health Organizationdeclared COVID-19 a global pandemic and recommended extensive containment and mitigation measures worldwide. The outbreak is global and has impacted all the countries in which we do business. Since the outbreak, we have seen the profound effect it is having on human health, the global economy and society at large. Public and private sector policies aimed at reducing the transmission of COVID-19 have varied significantly in different regions of the world, but have resulted in shelter-in-place orders and the mandatory closing of various businesses across many of the countries in which we operate. Variants of COVID-19 combined with a lack of vaccinations in many countries have resulted in new waves of infections and new restrictions. These restrictions often have an impact on the ability of consumers to transact at agent locations, which can cause temporary reductions in remittance activity. Several countries and municipalities mandated closures of their borders and incorporated shelter-in-place orders in 2021. It is impossible to predict the scope and duration of the impact of the COVID-19 pandemic as the situation has been different on a country by country basis. The impact of COVID-19 in 2021 and beyond will depend on the duration and severity of economic 25
conditions resulting from the crisis, its impact on public health, immigration, public policy actions, vaccination rates and expansion and duration of returns to lockdowns and shelter-in-place orders by governments, as well as changes in consumer behavior over the long term. We continue to place a priority on business continuity and contingency planning, including for potential extended closures of any key agents or disruptions related to our contractual counterparties that might arise as a result of COVID-19. While disruptions in our service offerings have occurred from time to time from temporary agent location closures, the inability of labor markets to return to normal mobility can represent a longer impact on the Company. We cannot reasonably estimate the potential impact or timing of those events, and we may not be able to mitigate such impact.
The competitive environment continues to change as both established players and new, digital-only entrants work to innovate and deliver an affordable and convenient customer experience to win market share. Our competitors include a small number of large money transfer and bill payment providers, financial institutions, banks and a number of small niche money transfer service providers that serve select regions. We generally compete on the basis of customer experience, price, agent commissions, brand awareness and convenience. We continue to invest in innovative products and services, such as our leading mobile app and integrations with mobile wallets and account deposit services, to position the Company to meet consumer needs. Furthermore, our partnership with Visa Direct provides consumers with additional choices on how to receive funds across a broader number of countries. We believe that combining our cash and digital capabilities enables us to differentiate against digital-only competitors
whoare not able to serve a significant portion of the remittance market that relies on cash. 26
The Merger Agreement provides that, subject to the terms and conditions set forth in the Merger Agreement, Merger Sub will merge with and into the Company. Following the Merger the Company will become a subsidiary of Parent. At the effective time of the Merger, each outstanding share of common stock will be automatically canceled and converted into the right to receive
$11.00in cash. Consummation of the Merger is subject to the satisfaction or, if permitted by law, waiver by Parent, the Company or both of a number of conditions, including, among other things, (a) approval of the Merger Agreement by the affirmative vote of the holders of a majority of the Company's outstanding shares of common stock, (b) expiration or termination of applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (c) the receipt of required approvals with respect to money transmitter licenses and applicable foreign investment and competition laws, (d) the absence of any material adverse effect on the Company's business and (e) other customary closing conditions. The Merger Agreement contains certain termination rights for the parties, including the right of the parties, subject to specified limitations, to terminate the Merger Agreement is the Merger is not consummated by February 13, 2023, although the End Date may be extended to May 14, 2023in certain circumstances to obtain required money transfer approvals. The terms of the Merger Agreement did not impact the Company's Consolidated Financial Statements as of and for the year ended December 31, 2021. On January 5, 2022, we announced that we had completed a strategic minority investment in Coinme, a cryptocurrency cash exchange in the U.S.This venture, which gives us an approximate 2% ownership stake in Coinme, closed out Coinme's Series A financing round and provided MoneyGramwith a direct ownership position. On October 6, 2021, MoneyGramannounced a partnership with the Stellar Development Foundation, a non-profit organization that supports the development and growth of the Stellar blockchain network and Circle Internet Financial Limited, a global financial technology firm that is the principal operator of USD Coin ("USDC"). MoneyGram'snetwork, integrated with the Stellar blockchain and facilitated through Circle's USDC, will enable cash funding and payout in local currency for consumers using USDC. This offering provides consumers the ability to seamlessly convert USDC to cash, or cash to USDC and increases the utility and liquidity of digital assets while also enabling more consumers to participate in the digital economy. The impact of this partnership is expected to grow as more wallets and companies join the Stellar network. On July 21, 2021, we entered into a New Credit Agreement with the lenders from time to time party thereto and Bank of America, N.A., as administrative agent and completed our previously announced private offering of $415.0 millionaggregate principal amount of 5.375% senior secured notes due 2026 (the "Senior Secured Notes" or "notes") and related guarantees. The New Credit Agreement provides for (i) a senior secured five-year Term Loan in an aggregate principal amount of $400.0 millionand (ii) a senior secured four-year Revolving Credit Facility that may be used for revolving credit loans, swingline loans and letters of credit up to an initial aggregate principal amount of $32.5 millionwhich was subsequently increased to $40.0 millionin December 2021. The proceeds from the notes offering, together with borrowings under the Term Loan, were used to prepay the full amount of outstanding indebtedness under the Prior Credit Facilities and to pay related accrued interest, fees and expenses. Simultaneous with the prepayment, the Prior Credit Facilities were terminated. As a result of the implementation of this new long-term financing, we expect our interest expense to decline by approximately $47.0 millionon an annualized basis and cash payments for interest to decline by approximately $36.0 millionon an annualized basis. In May 2021, MoneyGramlaunched a partnership with Coinme to enable the cash funding and payout of digital currency purchases and sales. The partnership, which utilizes MoneyGram'smodern, mobile and API-driven payments platform and Coinme's proprietary cryptocurrency exchange and custody technology, was launched to bring bitcoin to thousands of new point-of-sale locations in the U.S.In April 2021, the Company launched MoneyGramas a Service ("MaaS") to enable other companies to access MoneyGram'sleading global money transfer network through our powerful API-driven infrastructure and best-in-class technology. Enterprise customers can leverage the Company's core capabilities as productized service offerings to meet their various business needs and quickly add services and scale. The launch began with the successful integration of a partnership with Emergent Technology Ltd, the owner and operator of the G-Coin digital token, to enable quick and easy cash funding and payout of the purchase and sale of digital gold.
operations and structure the Company in a way that will be more agile and aligned with its plan for executing market-specific strategies. For the year ended
Note 3 – Reorganization costs Notes to the consolidated financial statements contained in Part II, point 8 of this report for additional information relating to our 2021 organizational realignment.
This discussion of trends expected to impact our business in 2022 is based on information presently available and reflects certain assumptions, including assumptions regarding future economic conditions. Differences in actual economic conditions compared with our assumptions could have a material impact on our results. See Cautionary Statements Regarding Forward-Looking Statements and Part I, Item 1A, Risks Factors of our 2021 Form 10-K for additional factors that could cause results to differ materially from those contemplated by the following forward-looking statements. In 2021,
MoneyGramfocused on positioning the Company to better compete by delivering a differentiated customer experience, scaling our digital growth, being the preferred partner for cross-border transactions, capturing new revenue by monetizing our capabilities and continuing to improve the cost structure of the Company. Throughout 2021, we entered into a number of partnerships across a variety of areas such as blockchain and cryptocurrency. Through 2022, we believe the industry will continue to see a number of trends: the growth of digital transactions, a competitive pricing environment, continuing focus on customer experience and a broader trend towards potential diversification of product and service offerings. To position the Company to respond to these trends, our digital-first strategy is creating tremendous value for consumers and the Company's strategy will continue to focus on growing our digital business. To address this new and evolving digital consumer, we expect to continue to invest in product innovation as we look to go deeper and wider in our consumer-direct digital offerings. We also plan to expand MGO to new countries, add new digital send partners and add more wallets and account deposit offerings. As we grow our digital business, we will also focus on maintaining our global cash network. The cash receive network is important to millions of receivers around the world whorely on cash to support the urgent needs of their families; additionally, in many markets the cash network continues to provide benefit for those consumers that need to send cash.
Additionally, in 2022, we plan to continue executing our strategy to lead innovation in cross-border payments and blockchain-based settlement by expanding our partnership with the
We expect a high level of competition for agents and customers, along with competitive pricing to be a continuous challenge through 2022. Currency volatility, liquidity pressure on certain central banks, immigration restrictions and continuing immobility of labor throughout the world may also continue to impact our business. We anticipate continuing prioritization of our cost structure related to transactions and expect to remain price competitive across our product line. For our FPP segment, we expect the decline in overall paper-based transactions to continue primarily due to continued gradual migration by customers to other payment methods. Our investment revenue, which consists primarily of interest income generated through the investment of cash balances received from the sale of our FPP, is dependent on the prevailing short-term interest rate environment in
the United States. The Company would see a positive impact on its investment revenue if U.S.money market rates rise and conversely, a negative impact if interest rates decline.
Financial measures and key indicators
This 2021 Form 10-K includes financial information prepared in accordance with
U.S.GAAP as well as certain non-GAAP financial measures that we use to assess our overall performance. U.S.GAAP Measures - We utilize certain financial measures prepared in accordance with U.S.GAAP to assess the Company's overall performance. These measures include fee and other revenue, commissions and other fee expense, fee and other revenue less commissions, gross profit, operating income and operating margin. Non-GAAP Measures - Generally, a non-GAAP financial measure is a numerical measure of financial performance, financial position or cash flows that excludes (or includes) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with U.S.GAAP. The non-GAAP financial measures should be viewed as a supplement to and not a substitute for, financial measures presented in accordance with U.S.GAAP and are not necessarily comparable with similarly named metrics of other companies. We strongly encourage investors and stockholders to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure. We believe that the non-GAAP financial measures enhance investors' understanding of our business and performance because they are an 28
indicator of the strength and performance of ongoing business operations. The non-GAAP measures are commonly used as a basis for investors, analysts and other interested parties to evaluate and compare the operating performance and value of companies within our industry. They are also used by management in reviewing results of operations, forecasting, allocating resources or establishing employee incentive programs. The following are non-GAAP financial measures we use to assess our overall performance:
EBITDA (earnings before interest, taxes, depreciation and amortization, including amortization of agent signing bonuses).
Adjusted EBITDA (Adjusted EBITDA for certain significant items) – Adjusted EBITDA does not reflect cash requirements to service interest or principal payments on our debt or tax payments which may result in a reduction in available cash.
Adjusted Free Cash Flow (Adjusted EBITDA less cash interest, cash taxes, cash payments for capital expenditures and cash payments for agent signing bonuses) - Adjusted Free Cash Flow does not reflect cash payments related to the adjustment of certain significant items in Adjusted EBITDA.
Constant currency – Constant currency metrics assume that amounts denominated in
RESULTS OF OPERATIONS
The following table is a summary of the results of operations for the years ended
December 31: (Amounts in millions) 2021 2020 Revenue Fee and other revenue $ 1,275.8 $ 1,197.2Investment revenue 7.8 20.0 Total revenue 1,283.6 1,217.2 Cost of revenue Commissions and other fee expense 622.7 603.6 Investment commissions expense 0.9 3.6 Direct transaction expense 60.5 45.8 Total cost of revenue 684.1 653.0 Gross profit 599.5 564.2 Operating expenses Compensation and benefits 227.8 223.8 Transaction and operations support 179.1 111.6 Occupancy, equipment and supplies 61.9 61.4 Depreciation and amortization 57.0 64.4 Total operating expenses 525.8 461.2 Operating income 73.7 103.0 Other expenses Interest expense 69.5 92.4 Loss on early extinguishment of debt 44.1 - Other non-operating expense 3.7 4.5 Total other expenses 117.3 96.9 (Loss) income before income taxes (43.6) 6.1 Income tax (benefit) expense (5.7) 14.0 Net loss $ (37.9) $ (7.9)Revenue Revenue increased by $66.4 millionfor the year ended December 31, 2021, due to an increase in GFT revenue of $77.9 million, partially offset by a decrease in FPP revenue of $11.5 million. See the "Segments Results" section below for a detailed discussion of revenues by segment. 29
Cost of revenue increased by
$31.1 millionfor the year ended December 31, 2021, due to an increase in GFT cost of revenue of $33.9 million, partially offset by a decrease in FPP cost of revenue of $2.8 million. See the "Segments Results" section below for further discussions.
Benefits and Compensation
Compensation and benefits increased by
$4.0 millionfor the year ended December 31, 2021, primarily driven by severance costs associated with the 2021 Organizational Realignment, partially offset by higher employee related expenses in the prior year.
Transaction and Operations Support
Transaction and operations support primarily includes marketing, professional fees and other outside services, telecommunications, agent support costs, including forms related to our products, non-compensation employee costs, including training, travel and relocation costs, non-employee director stock-based compensation expense, bank charges, the impact of non-
U.S.dollar exchange rate movements on our monetary transactions and assets and liabilities denominated in a currency other than the U.S.dollar and Ripple market development fees and related transaction and trading expenses.
Support for transactions and operations increased by
•The absence of
$38.3 millionin net benefit from Ripple market development fees following the termination of the commercial agreement in the first quarter of 2021
•The absence of foreign exchange gains of
• Restoration of expenses such as marketing in 2021
• An augmentation of
• Partially offset by lower compliance costs following the exit of the DPA in
Occupation, equipment and supplies
Occupancy, equipment and supplies expenses include facility rental and maintenance costs, software and equipment maintenance costs, transportation and delivery costs and supplies. Occupancy, material and supply costs remained relatively stable for the year ended
Depreciation and amortization
Depreciation and amortization includes depreciation on computer hardware and software, agent signage, point of sale equipment, capitalized software development costs, office furniture, equipment and leasehold improvements and amortization of intangible assets. Depreciation and amortization decreased by
$7.4 millionfor the year ended December 31, 2021, primarily due to a decrease in purchases of hardware and software as a result of our migration to cloud computing.
Interest expense decreased by
Loss on early extinguishment of the debt of
Other non-operating expenses remained relatively stable.
income tax expense
For the year ended
December 31, 2021, the Company recognized an income tax benefit of $5.7 millionon a pre-tax loss of $43.6 million. Our income tax rate was lower than the statutory rate primarily due to non-deductible expenses, an increase in valuation allowance and foreign taxes net of federal income tax benefits, all of which were partially offset by U.S.general business credits and a net decrease in unrecognized tax benefits. See Note 14 - Income Taxes of the Notes to the Consolidated Financial Statements contained in Part II, Item 8 of this report for additional information related to our unrecognized tax benefits. 30
Table of Contents Segments Results GFT The following table sets forth our GFT segment results of operations for the years ended
December 31: (Amounts in millions) 2021 2020 Money transfer revenue $ 1,188.3 $ 1,104.7Bill payment revenue 40.5 46.2 Total revenue 1,228.8 1,150.9 Cost of revenue 683.2 649.3 Gross profit $ 545.6 $ 501.6Money Transfer Revenue Money transfer revenue increased by $83.6 millionfor the year ended December 31, 2021, driven by transaction growth and continued stabilization in the Company's traditional Retail Channel, coupled with the continued strength of the Company's direct-to-consumer business MGO.
Bill payment receipts
Bill payment revenue decreased by
Cost of sales increased by
The following table shows the operating results of our FPP segment for the years ended
(Amounts in millions) 2021 2020 Money order revenue
$ 40.9 $ 43.4Official check revenue 13.9 22.9 Total revenue 54.8 66.3 Investment commissions expense 0.9 3.7 Gross profit $ 53.9 $ 62.6
Income from mandates
Money order revenue decreased by
$2.5 millionfor the year ended December 31, 2021, primarily due to a decline in investment revenue as a result of lower prevailing interest rates driven by a reduction in the federal funds rate in response to the COVID-19 pandemic.
Receipts from official checks
Official check revenue decreased by
$9.0 millionfor the year ended December 31, 2021, primarily due to a decline in investment revenue as a result of lower prevailing interest rates driven by a reduction in the federal funds rate in response to the COVID-19 pandemic.
Investment commission costs
Investment commissions expense is calculated as a percentage of our outstanding cash balances of official checks. See Note 2 - Summary of Significant Accounting Policies of the Notes to the Consolidated Financial Statements contained in Part II, Item 8 of this report for further details. In periods of extremely low interest rates, it is possible for commissions to be at or close to zero, resulting in abnormally high gross margin.
Commission expenses decreased by
EBITDA, Adjusted EBITDA, Adjusted Free Cash Flow and Constant Currency (non-GAAP measures)
The following table is a reconciliation of our non-GAAP financial measures to the
(Amounts in millions, except percentages) 2021
(Loss) income before income taxes
$ (43.6) $ 6.1Interest expense 69.5 92.4 Depreciation and amortization 57.0 64.4 Signing bonus amortization 56.4 54.5 EBITDA 139.3 217.4 Significant items impacting EBITDA: Legal and contingent matters 14.1
Stock-based, contingent and incentive compensation 7.3
Restructuring and reorganization costs 9.4
Compliance enhancement program 2.9
Loss on early extinguishment of debt 44.1 - Severance and related costs 0.2 0.3 Direct monitor costs 4.9 11.0 Adjusted EBITDA
$ 222.2 $ 241.3Adjusted EBITDA change, as reported (8) % Adjusted EBITDA change, constant currency adjusted (12) % Adjusted EBITDA $ 222.2 $ 241.3Cash payments for interest (51.8)
Cash (payments) refunds for taxes, net (5.7)
Cash payments for capital expenditures (41.4)
Cash payments for agent signing bonuses (36.0) (58.7) Adjusted Free Cash Flow
$ 87.3 $ 66.1
See the “Results of Operations” and “Cash Flow Analysis” sections for more information on these changes.
CASH AND CAPITAL RESOURCES
We have various resources available for purposes of managing liquidity and capital needs, including our investment portfolio, credit facilities and letters of credit. We refer to our cash and cash equivalents, settlement cash and cash equivalents, interest-bearing investments and available-for-sale investments collectively as our "investment portfolio." The Company utilizes cash and cash equivalents in various liquidity and capital assessments. 32
Cash and cash equivalents, settlement assets and payment service obligations
The following table presents the components of the Company’s cash and cash equivalents and settlement assets as at
(Amounts in millions) 2021 2020 Cash and cash equivalents
$ 155.2 $ 196.1
Settlement assets: Settlement cash and cash equivalents
700.4 825.0 Interest-bearing investments 992.3 991.2 Available-for-sale investments 3.0 3.5
$ 3,591.4 $ 3,702.9Payment service obligations $ (3,591.4) $ (3,702.9)Our primary sources of liquidity include cash flows generated by the sale of our payment instruments, our cash and cash equivalents and interest-bearing deposit balances and proceeds from our investment portfolio. Our primary operating liquidity needs are related to the settlement of payment service obligations to our agents and financial institution customers, general operating expenses and debt service. To meet our payment service obligations at all times, we must have sufficient highly-liquid assets and be able to move funds globally on a timely basis. On average, we receive in and pay out a similar amount of funds on a daily basis to collect and settle the principal amount of our payment instruments sold and related fees and commissions with our end-consumers and agents. This pattern of cash flows allows us to settle our payment service obligations through existing cash balances and ongoing cash generation rather than liquidating investments or utilizing our Revolving Credit Facility. We have historically generated and expect to continue generating, sufficient cash flows from daily operations to fund ongoing operational needs. We preposition cash in various countries and currencies to facilitate settlement of transactions. We also maintain funding capacity beyond our daily operating needs to provide a cushion through the normal fluctuations in our payment service obligations, as well as to provide working capital for the operational and growth requirements of our business. We believe we have sufficient liquid assets and funding capacity to operate and grow our business for the next 12 months. Should our liquidity needs exceed our operating cash flows, we believe that external financing sources, including availability under our Revolving Credit Facility, will be sufficient to meet our anticipated funding requirements.
Cash and cash equivalents and interest-bearing investments
To ensure we maintain adequate liquidity to meet our payment service obligations at all times, we keep a significant portion of our investment portfolio in cash and cash equivalents and interest-bearing investments at financial institutions rated A- or better by two of the following three rating agencies: Moody's, S&P and Fitch; and in AAA rated
U.S.government money market funds. If the rating agencies have split ratings, the Company uses the lower of the highest two out of three ratings across the agencies for disclosure purposes. If the institution has only two ratings, the Company uses the lower of the two ratings for disclosure purposes. As of December 31, 2021, cash and cash equivalents (including unrestricted and settlement cash and cash equivalents) and interest-bearing investments totaled $3.0 billion. Cash and cash equivalents consist of interest-bearing deposit accounts, non-interest-bearing transaction accounts and money market securities; interest-bearing investments consist of time deposits and certificates of deposit with maturities of up to 24 months.
Investments available for sale
Our investment portfolio includes
$3.0 millionof available-for-sale investments as of December 31, 2021. U.S.government agency residential mortgage-backed securities comprise $2.3 millionof our available-for-sale investments, while asset-backed and other securities compose the remaining $0.7 million. 33
Clearing and Cash Management Banks
We collect and disburse money through a network of clearing and cash management banks. The relationships with these banks are a critical component of our ability to maintain our global active funding requirements on a timely basis. In the
U.S., we have agreements with four active clearing banks that provide clearing and processing functions for official checks, money orders and other draft instruments. We believe that this network of banks provides sufficient capacity to handle the current and projected volumes of items for these services. We also maintain relationships with a variety of domestic and international cash management banks for electronic funds transfer and wire transfer services used in the movement of consumer funds and agent settlements.
Credit facilities and notes
The following is a summary of the Company’s outstanding debt as of
5.00% Term Loan due 2026
5.38% Senior Secured Notes due 2026 415.0
7.00% First Lien Credit Facility due 2023 -
13.00% Second Lien Credit Facility due 2024 -
Total debt at face value 799.0
Unamortized debt issuance costs and debt discount (12.3) (32.1) Total debt, net
$ 786.7 $ 857.8As of December 31, 2021, the Company had no borrowings and no outstanding letters of credit under its Revolving Credit Facility and had $40.0 millionof availability. See Note 10 - Debt of the Notes to the Consolidated Financial Statements contained in Part II, Item 8 of this report for additional disclosure related to the credit facilities. During the first half of 2021, the First Lien Credit Agreement and Second Lien Credit Agreement were in effect. The First Lien Credit Agreement provided for (a) a senior secured three-year revolving credit facility available for revolving credit loans, swingline loans and letters of credit up to an aggregate principal amount of $35.0 million, and was scheduled to mature on September 30, 2022, (the "First Lien Revolving Credit Facility") and (b) a senior secured four-year term loan facility in an aggregate principal amount of $645.0 million(the "First Lien Term Credit Facility" and together with the First Lien Revolving Credit Facility, the "First Lien Credit Facility"). The Second Lien Credit Agreement provided for a second lien secured five-year term loan facility in an aggregate principal amount of $245.0 million(the "Second Lien Term Credit Facility" and together with the First Lien Credit Facility, the " Prior CreditFacilities"). On June 28, 2021, the Company prepaid $100.0 millionof principal balance under its Second Lien Credit Agreement utilizing the proceeds under the ATM Program plus cash on hand as defined and further discussed in Note 12 -
Shareholders’ deficit of the notes to the consolidated financial statements contained in part II, point 8 of this report.
July 21, 2021, we (i) completed the notes offering of $415.0 millionaggregate principal amount of 5.375% senior secured notes due 2026 and related guarantees and (ii) entered into a New Credit Agreement with the lenders from time to time party thereto and Bank of America, N.A. as administrative agent. The New Credit Agreement provides for (i) a senior secured five-year Term Loan in an aggregate principal amount of $400.0 millionand (ii) a senior secured four-year Revolving Credit Facility that may be used for revolving credit loans, swingline loans and letters of credit up to an initial aggregate principal amount of $32.5 million. In December 2021, we added additional $7.5 millioncapacity to our Revolving Credit Facility bringing the total Revolving Credit Facility to $40.0 million. On July 21, 2021, the proceeds from the notes offering, together with borrowings under the Term Loan, were used to prepay the full amount of outstanding indebtedness under the Prior Credit Facilities and to pay related accrued interest, fees and expenses. Simultaneous with the prepayment, the Prior Credit Facilities were terminated. In the fourth quarter of 2021, the Company prepaid $16.0 millionof principal balance under its New Credit Agreement to deleverage its balance sheet. 34
As a result of the implementation of this new long-term financing, we expect our interest expense to decline by approximately
$47.0 millionon an annualized basis and cash payments for interest to decline by approximately $36.0 millionon an annualized basis. The Indenture governing the terms of the notes contains covenants limiting our ability to, among other things, incur or guarantee additional debt or issue disqualified stock or certain preferred stock; create or incur liens; pay dividends, redeem stock or make other distributions; make certain investments; create restrictions on the ability to pay dividends or make certain other intercompany transfers; transfer or sell assets; merge or consolidate, and; enter into certain transactions with affiliates. These covenants are subject to a number of exceptions and qualifications as set forth in the Indenture. Most of these covenants will be suspended in the event and for as long as the notes have investment grade ratings. The New Credit Agreement also contains certain representations and warranties, certain financial covenants and events of default and certain negative covenants, including without limitation, limitations on liens, asset sales, consolidations and mergers, acquisitions, investments, indebtedness, transactions with affiliates and payment of dividends. The New Credit Agreement, requires the Company and its consolidated subsidiaries to, (i) solely with respect to the Revolving Credit Facility, (A) maintain a minimum interest coverage ratio of not less than 2.150 to 1.000, (B) not permit their settlement assets to be less than their payment service obligations at any time and (C) maintain a total net leverage ratio that does not exceed 4.750 to 1.000, and (ii) solely with respect to the Term Loan, maintain a total net leverage ratio that does not exceed 5.000 to 1.000. The Company recorded a loss on early extinguishment of debt of $44.1 millionwhich included $16.5 millionof prepayment call premium and $27.6 millionassociated with the write-off of debt issuance costs and debt discounts. The Company also paid accrued interest of $7.0 million.
December 31, 2021, our credit ratings from Moody's and S&P were B2 with a stable outlook and B with a stable outlook, respectively. The Company does not have rating triggers associated with its credit agreements or its regulatory capital requirements.
Regulatory capital requirements
We have capital requirements relating to government regulations in the
U.S.and other countries where we operate. Such regulations typically require us to maintain certain assets in a defined ratio to our payment service obligations. Through our wholly-owned subsidiary and licensed entity, MPSI, we are regulated in the U.S.by various state agencies that generally require us to maintain a pool of liquid assets and investments in an amount generally equal to the regulatory payment service obligation measure, as defined by each state, for our regulated payment instruments, namely teller checks, agent checks, money orders and money transfers. The regulatory requirements do not require us to specify individual assets held to meet our payment service obligations, nor are we required to deposit specific assets into a trust, escrow or other special account. Rather, we must maintain a pool of liquid assets. Provided we maintain a total pool of liquid assets sufficient to meet the regulatory and contractual requirements, we are able to withdraw, deposit or sell our individual liquid assets at will, without prior notice, penalty or limitations. We were in compliance with all state and regulatory capital requirements as of December 31, 2021. We believe that our liquidity and capital resources will remain sufficient to ensure ongoing compliance with all regulatory capital requirements.
Material cash requirements related to contractual obligations
The following table includes aggregated information about the Company's contractual obligations that impact our liquidity and capital needs. The table includes information about payments due under specified contractual obligations, aggregated by type of contractual obligation as of
December 31, 2021:
Payments due by period
Less than More than (Amounts in millions) Total 1 year 1-3 years 3-5 years 5 years Debt, including interest payments (1)
$ 988.7 $ 46.0 $ 91.5 $ 851.2$ - Non-cancellable leases (2) 68.7 11.2 19.4 16.9 21.2 Signing bonuses (3) 63.5 40.9 18.7 - - Marketing (4) 17.8 13.9 3.9 - - Unrecognized tax benefits (5) 14.7 3.0 - - - Total contractual cash obligations $ 1,153.4$
(1) Our Consolidated Balance Sheet at
December 31, 2021includes $786.7 millionof debt, netted with unamortized debt issuance costs and debt discount of $12.3 million. The above table reflects the principal and interest that will be paid through the maturity of the debt using the rates in effect on December 31, 2021and assuming no prepayments of principal. 35
(2) Noncancellable leases include operating leases for buildings, vehicles and equipment and other leases. For more detail see Note 19 - Leases of the Notes to the Consolidated Financial Statements contained in Part II, Item 8 of this report. (3) Signing bonuses are payments to certain agents and financial institution customers as an incentive to enter into long-term contracts. Signing bonuses include
$3.9 millionof transaction volume-related obligations for which it is not possible to reasonably estimate the timing of payments.
(4) Marketing represents contractual marketing obligations with certain agents, billers and corporate sponsorships.
(5) Unrecognized tax benefits include
We have other commitments, as described below, which are not included in this table because the timing and/or amount of payments are difficult to estimate.
We have a Pension Plan that is frozen to both future benefit accruals and new participants. It is our policy to fund at least the minimum required contribution each year plus additional discretionary amounts as available and necessary to minimize expenses of the plan. We made contributions of
$1.0 millionto the Pension Plan during 2021. Although, the Company has no minimum contribution requirement for the Pension Plan in 2022, we expect to contribute at least $1.0 millionto the Pension Plan in 2022. The Company has certain unfunded defined benefit plans: supplemental executive retirement plans ("SERPs"), which are unfunded non-qualified defined benefit pension plans providing postretirement income to their participants and a postretirement plan ("Postretirement Benefits") that provides medical and life insurance for its participants. These plans require payments over extended periods of time. The Company will continue to make contributions to the SERPs and the Postretirement Benefits to the extent benefits are paid. Aggregate benefits paid for the unfunded plans are expected to be $5.5 millionin 2022. As discussed in Note 15 - Commitments and Contingencies of the Notes to the Consolidated Financial Statements contained in Part II, Item 8 of this report, the IRScompleted its examination of the Company's consolidated income tax returns through 2013 and issued Notices of Deficiency for 2005-2007 and 2009 and an Examination Report for 2008. The Notices of Deficiency and Examination Report disallow, among other items, approximately $900.0 millionof ordinary deductions on securities losses in the 2007, 2008 and 2009 tax returns. In May 2012and December 2012, the Company filed petitions in the U.S.Tax Court challenging the 2005-2007 and 2009 Notices of Deficiency, respectively. In 2013, the Company reached a partial settlement with the IRSallowing ordinary loss treatment on $186.9 millionof deductions in dispute. In January 2015, the U.S.Tax Court granted the IRS'smotion for summary judgment upholding the remaining adjustments in the Notices of Deficiency. During 2015, the Company made payments to the IRSof $61.0 millionfor federal tax payments and associated interest related to the matter. The Company believes that it has substantive tax law arguments in favor of its position. The Company filed a notice of appeal with the U.S.Tax Court on July 27, 2015for an appeal to the U.S. Court of Appeals for the Fifth Circuit. Oral arguments were held before the Fifth Circuit on June 7, 2016, and on November 15, 2016, the Fifth Circuit vacated the Tax Court's decision and remanded the case to the Tax Court for further proceedings. The Company filed a motion for summary judgment in the Tax Court on May 31, 2017. On August 23, 2017, the IRSfiled a motion for summary judgment and its response to the Company's motions for summary judgment. The Tax Court directed the parties to agree to a joint stipulation of facts, which the parties have filed with the court. Each party has filed a revised memorandum in support of its motion for summary judgment in the Tax Court. The Tax Court held oral arguments on this matter on September 9, 2019and the Tax Court issued an opinion on December 3, 2019denying the Company's motion for summary judgment and granting summary judgment to the IRS. MoneyGramthen filed a Notice of Appeal to the Fifth Circuit on February 21, 2020. Oral arguments were held before a Fifth Circuit panel of judges on March 1, 2021, and the panel affirmed the Tax Court findings on June 1, 2021. As a result of the Fifth Circuit decision, the Company has decided to no longer pursue a remedy for the tax litigation and has determined that it is appropriate to file amended state returns. As of December 31, 2021, the Company has timely reported the adjustments to over half of the states and paid out $4.2 millionin tax and interest. The remaining balance to be settled with the state tax authorities is $13.5 million, inclusive of interest, of which $6.8 millionis expected to be paid in 2022. The timing of settlement on the remaining balance of $6.7 millioncannot be determined with certainty.
Until the Merger closes, or the Merger Agreement is terminated, our liquidity requirements will primarily be funded by our cash flow from operations, borrowings under our existing credit facility and certain other capital activities allowed under the Merger Agreement. In particular, we are subject to various restrictions under the Merger Agreement on assuming additional debt, issuing additional equity or debt, repurchasing equity, making certain capital expenditures, and entering into certain acquisition, disposition and leasing transactions, among other restrictions, subject to the restrictions under the Merger Agreement. 36
Table of Contents Analysis of Cash Flows (Amounts in millions) 2021 2020 (1) Net cash provided by operating activities
$ 37.1 $ 96.8Net cash (used in) provided by investing activities (44.5) (44.6) Net cash (used in) provided by financing activities (21.0) 349.2
Net change in cash and cash equivalents and settlement cash and cash equivalents
(1) The Company revised its Consolidated Statements of Cash Flows presentation to include settlement cash and cash equivalents as a component of total cash and cash equivalents and such amounts have been restated for the year ended
December 31, 2020.
Cash flow from operating activities
In 2021, cash flow from operating activities decreased by
mainly due to the
Cash flow from investing activities
Cash flows from available-for-sale investments and interest-bearing investments are included within investing activities following the restatement of our Consolidated Statements of Cash Flows for the prior years. In 2021, cash used in investing activities remained flat.
Cash flow from financing activities
Changes in receivables, net and in payment service obligations are included within financing activities following the restatement of our Consolidated Statements of Cash Flows for the prior years. In 2021, cash used in financing activities increased by
$370.2 million, which was primarily attributable to a decrease in payment service obligations of $111.5 millioncompared to an increase of $465.9 millionin the prior year, the prepayment of $16.0 millionon our Term Loan and a decrease in receivables included in settlement assets of $124.6 millioncompared to an increase of $109.5 millionin the prior year. Also, the net impact of the ATM Program and transactions related to the recent refinancing of our Prior Credit Facilities contributed to the increase. The changes in receivables, net and payment service obligations are due to the timing of the remittance of funds by our agents and financial institution customers.
Stockholders' Deficit - Under the terms of our outstanding New Credit Facilities, we are restricted in our ability to pay dividends on and repurchase shares of, our common stock. No dividends were paid on our common stock in 2021 and we do not anticipate declaring any dividends on our common stock. Further, we are also restricted in our ability to pay dividends under the Merger Agreement.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with
U.S.GAAP requires estimates and assumptions that affect the reported amounts and related disclosures in the Consolidated Financial Statements. Actual results could differ from those estimates. On a regular basis, management reviews its accounting policies, assumptions and estimates to ensure that our financial statements are presented fairly and in accordance with U.S.GAAP. Our significant accounting policies are discussed in Note 2 - Summary of Significant Accounting Policies of the Notes to the Consolidated Financial Statements contained in Part II, Item 8 of this report. Critical accounting policies are those policies that management believes are very important to the portrayal of our financial position and results of operations and that require management to make estimates that are difficult, subjective or complex. Based on these criteria, management has identified and discussed with the Audit Committee the following critical accounting policies and estimates, including the methodology and disclosures related to those estimates. Goodwill- We have two reporting units: GFT and FPP. Our GFT reporting unit is the only reporting unit that carries goodwill. We evaluate goodwill for impairment annually as of October 1, or more frequently upon occurrence of certain events. When testing goodwill for impairment, we may elect to perform either a qualitative test or a quantitative test to determine if it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value. During a qualitative analysis, we consider the impact of any changes to the following factors: macroeconomic, industry and market factors, cost factors and changes in overall financial performance, as well as any other relevant events and uncertainties impacting a reporting unit. If our qualitative assessment does not conclude that it is more likely than not that the estimated fair value of the reporting unit is greater than the carrying value, we perform a quantitative analysis. In a quantitative test, the fair value of a reporting unit is determined based on a discounted cash flow analysis and further analyzed using other methods of valuation. A discounted cash flow analysis requires us to make various assumptions, including assumptions about future cash flows, growth rates and discount rates. The assumptions about future cash flows and growth rates are based on our long-term projections by reporting 37
unit. In addition, an assumed terminal value is used to project future cash flows beyond base years. Assumptions used in our impairment testing are consistent with our internal forecasts and operating plans. Our discount rate is based on our debt and equity balances, adjusted for current market conditions and investor expectations of return on our equity. If the fair value of a reporting unit exceeds its carrying amount, there is no impairment. If not, we compare the fair value of the reporting unit with its carrying amount. To the extent the carrying amount of the reporting unit exceeds its fair value, a write-down of the reporting unit's goodwill would be necessary.
We have not recognized any goodwill impairment for 2021, 2020 or 2019. The carrying amount of goodwill allocated to the GFT reporting unit as of
Pension - Through the Company's Pension, we provide defined benefit Pension plan coverage to certain of our employees and certain employees of Viad Corporation, our former parent. Our Pension obligations under these plans are measured as of
December 31, the measurement date. Pension benefit obligations and the related expense are based upon actuarial projections using assumptions regarding mortality, discount rates, expected long-term return on assets and other factors. Our assumptions reflect our historical experience and management's best judgment regarding future expectations. Certain of the assumptions, particularly the discount rate and expected return on plan assets, require significant judgment and could have a material impact on the measurement of our Pension obligation. In order to estimate the interest cost components of net periodic benefit expense for its Pension and Postretirement Benefits, the Company utilizes a full yield curve approach by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to their underlying projected cash flows.
At each valuation date, the discount rate used to value the total pension and post-employment benefit obligation is based on the interest rate yield curves then prevailing for the long-term corporate debt securities with AA-rated maturities comparable to our bonds.
Our Pension Plan assets are primarily invested in commingled trust funds. Our investments are periodically realigned in accordance with the investment guidelines. The expected return on Pension Plan assets is based on our historical market experience, asset allocations and expectations for long-term rates of return. We also consider peer data and historical returns to assess the reasonableness and appropriateness of our assumption. Our Pension Plan asset allocations are reviewed periodically and are based upon plan funded ratio, an evaluation of market conditions, tolerance for risk and cash requirements for benefit payments. Lower discount rates increase the Pension and Postretirement Benefits obligation and subsequent year Pension expense, while higher discount rates decrease the Pension and Postretirement Benefits obligation and subsequent year Pension expense. Decreasing or increasing the discount rate by 50 basis points would have had an immaterial impact on the 2021 Pension and Postretirement Benefits net periodic benefit expense. Decreasing the expected rate of return by 50 basis points would have increased the 2021 Pension Plan net periodic benefit expense by
$0.2 millionand increasing the expected rate of return by 50 basis points would have decreased the 2021 Pension Plan net periodic benefit expense by $0.2 million. Income Taxes, Tax Contingencies - We are subject to income taxes in the U.S.and various foreign jurisdictions. In determining taxable income, income or loss before income taxes is adjusted for differences between local tax laws and U.S.GAAP. We file tax returns in all U.S.states and various countries. Generally, our tax filings are subject to audit by tax authorities for three to five years following submission of a return. With a few exceptions, the Company is no longer subject to foreign or U.S.state and local income tax examinations for years prior to 2016. The U.S.federal income tax filings are subject to audit for fiscal years 2017 through 2020. The benefits of tax positions are recorded in the Consolidated Statements of Operations if we determine it is more likely than not, based on the technical merits of the position, that the tax position will be sustained upon examination, including any related appeals or litigation. The one exception to the more-likely-than-not recognition threshold is the reliance on past administrative practices and precedents, where a taxing authority with full knowledge of all relevant facts will accept a position as filed. In these limited situations, the Company will recognize the associated tax benefit. Changes in tax laws, regulations, agreements and treaties, non- U.S.dollar exchange restrictions or our level of operations or profitability in each taxing jurisdiction could have an impact on the amount of income taxes that we provide during any given year. The determination of taxable income in any jurisdiction requires the interpretation of the related tax laws and regulations and the use of estimates and assumptions regarding significant future events, such as the amount, timing and character of deductions and the sources and character of income and tax credits.
These assumptions and probabilities are periodically reviewed and revised based on new information.
Changes in our current estimates due to unanticipated events, or other factors, could have a material effect on our financial condition and results of operations. Actual tax amounts may be materially different from amounts accrued based upon the results of audits due to different interpretations by the tax authorities than those of the Company. While we believe that our reserves are adequate to cover reasonably expected tax risks, an unfavorable tax settlement generally requires the use of cash and an increase in the amount of income tax expense that we recognize. A favorable tax settlement generally requires a decrease in the amount of income taxes that we recognize. Income Taxes, Valuation of Deferred Tax Assets - Deferred tax assets and liabilities are recorded based on the future tax consequences attributable to temporary differences that exist between the financial statement carrying value of assets and liabilities and their respective tax basis and operating loss and tax credit carry-forwards on a taxing jurisdiction basis. We measure deferred tax assets and liabilities using enacted statutory tax rates that will apply in the years in which we expect the temporary differences to be recovered or paid. The carrying amount of deferred tax assets must be reduced through valuation allowances if it is more likely than not that the deferred tax asset will not be realized. In the period in which a valuation allowance is recorded, we would record tax expense, whereas a tax benefit would be recorded in the period a valuation allowance is released. In assessing the need for valuation allowances, we consider both positive and negative evidence related to the likelihood that the deferred tax assets will be realized. Our assessment of whether a valuation allowance is required or should be adjusted requires judgment and is completed on a taxing jurisdiction basis. We consider, among other matters: the nature, frequency and severity of any cumulative financial reporting losses; the ability to carry back losses to prior years; future reversals of existing taxable temporary differences; tax planning strategies and projections of future taxable income. We also consider our best estimate of the outcome of any on-going examinations based on the technical merits of the position, historical procedures and case law, among other items. As of
December 31, 2021, we have recorded valuation allowances of $82.0 millionagainst deferred tax assets of $142.5 million. The valuation allowances primarily relate to basis differences in revalued investments, capital loss carryover, U.S.tax credit carryovers and certain state and foreign tax loss carryovers. While we believe that the basis for estimating our valuation allowances is appropriate, changes in our current estimates due to unanticipated events, or other factors, could have a material effect on our financial condition and results of operations.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 2 – Summary of significant accounting policies in the notes to the consolidated financial statements contained in Part II, point 8 of this report for information on recent accounting pronouncements.
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