MONEYGRAM INTERNATIONAL, INC. 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 2022 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 2021 and fiscal year 2020 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 endedDecember 31, 2021 , as filed with theSEC . This discussion is organized in the following sections:
• Overview
• Results of Operations
• Liquidity and Capital Resources
• Critical Accounting Policies and Estimates
OVERVIEW
MoneyGram is 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 innovativeMoneyGram platform connects consumers in ways designed to be convenient for them. In theU.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.MoneyGram also has a limited number of Company-operated retail locations. 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 440,000 agent locations. Our global money transfer services are our primary revenue driver, accounting for 91% of total revenue for the year endedDecember 31, 2022 . The GFT segment also provides bill payment services to consumers through substantially all of our money transfer agent locations in theU.S. , at certain agent locations in selectCaribbean and European countries and through our Digital Channel. The FPP segment provides money order services to consumers through retail locations and financial institutions located in theU.S. andPuerto Rico and provides official check services to financial institutions in theU.S.
Business Environment
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 competitorswho are not able to serve a significant portion of the remittance market that relies on cash. As a leader in the evolution of digital P2P payments, we were the first company to utilize blockchain technology at scale for cross-border payments. Given our extensive global network, strong culture of fintech innovation, expertise in compliance and API-driven infrastructure, we are well-positioned to lead cross-border payment innovation. 25
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Recent Developments
OnFebruary 14, 2022 , we entered into a Merger Agreement by and among the Company, Parent and an affiliate of MDP, and Merger Sub. 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$11.00 in cash. OnMay 23, 2022 , the Company held a virtual-only special meeting of stockholders related to the Merger Agreement and stockholders approved and adopted the Merger Agreement. To date, money transmission regulators in all applicableU.S. states and territories have provided their approval or non-objection of the transaction. In addition, the parties have obtained all but one approval from international money transmission regulators and have received approval from theFCA in theUnited Kingdom and theNational Bank of Belgium whereMoneyGram holds its European license. While the waiting period under the Hart-Scott-Rodino ("HSR") Antitrust Improvements Act of 1976 had previously expired, the parties recently refiled the application as the existing approval was set to expire. The new HSR waiting period is set to expire onMarch 13, 2023 . The parties previously received all required international antitrust and foreign direct investment approvals. The final regulatory approval is to be issued by theReserve Bank of India ("RBI"). The RBI is the issuer ofMoneyGram's Money Transfer Service Scheme ("MTSS") license inIndia . Since the Company and MDP signed the Merger Agreement, the RBI issued a new Circular covering approval requirements related to Payment System Operators ("PSO") such as the Company. The Merger will be one of the first PSOs undergoing a sale since the Circular was issued. As a result, the process has been taking longer than originally anticipated.MoneyGram has been in active dialogue with the RBI and the Central Government ofIndia regarding its review of the Merger. Prior to closing, the parties will engage in a financing marketing period which, pursuant to the merger agreement, may last for as long as fifteen consecutive business days. Closing would occur within a matter of days after completing the marketing period. The parties have agreed to extend the end date beyondFebruary 14, 2023 , in accordance with the Merger Agreement, toMay 14, 2023 . In light of the timing and factors discussed above, the parties now expect to close the Merger either late in the first quarter or early in the second quarter of 2023. OnMarch 16, 2022 , we announced that a final agreement had been reached to settle its previously disclosed legacy enforcement matter with NYDFS through a consent order. The Company paid a civil monetary penalty of$8.3 million to the NYDFS and will undertake various reporting obligations. This payment is consistent with the estimated amount thatMoneyGram previously accrued in the fourth quarter of 2021. OnMarch 11, 2022 ,MoneyGram andStellar Development Foundation announced a new partnership withTechstars , a global investment business that provides access to capital, one-on-one mentorship and customized programming for entrepreneurs. The program will recruit founders across the worldwho are focused on driving technological innovation in areas such as blockchain and digital payments to further streamline cross-border payments and support financial inclusion.
During 2022, the
Anticipated Trends
This discussion of trends expected to impact our business in 2023 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 2022 Form 10-K for additional factors that could cause results to differ materially from those contemplated by the following forward-looking statements. In 2022,MoneyGram focused 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. Through 2023, we believe the industry will continue to see a number of trends, including 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.
We also anticipate a
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To position the Company to respond to these trends, our digital-first strategy is creating tremendous value for consumers. 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.MoneyGram's cash receive network is essential to millions of receivers around the worldwho rely on cash to support the urgent needs of their families. Additionally, the cash network continues to provide benefit for those consumerswho need to send cash in many markets. During 2022, we began executing on our strategy to lead cross-border payment innovation and blockchain-enabled settlement through growing our partnership with theStellar Development Foundation as well as through other initiatives and partnerships. We continue monitoring the social, political, regulatory and economic environment around the world. Changes in these factors could cause us to alter our approach in certain markets. There could be adverse impacts to our revenues, earnings and cash flows should economic and political conditions deteriorate beyond the current state, including, among other potential impacts, economic recessions, inflationary pressures, war and political instability. We expect a high level of competition for agents and customers, along with competitive pricing to be a continuous challenge in 2023. Currency volatility, inflation, liquidity pressure on certain central banks, immigration restrictions and continuing immobility of labor throughout the world may also continue to impact our business. We also anticipate continuing prioritization of our operating cost structure as well as our transaction related expenses and expect to remain price competitive across our product line. For our FPP segment, we expect the gradual 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 inthe United States . The Company will see a positive impact on its investment revenue asU.S. money market rates rise in conjunction with actions by theFederal Reserve .
COVID-19 Update
General Economic Conditions and MoneyGram Impact
The global spread and unprecedented impact of COVID-19 and its variants is complex and ever-evolving. InMarch 2020 , theWorld Health Organization declared 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 travel restrictions as well as certain business closures across many of the countries in which we operate. Multiple 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, combined with limitations on labor mobility, often have an impact on the ability of consumers to transact at agent locations, which can cause temporary reductions in remittance activity. 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 and its variants in 2022 and beyond will depend on the duration and severity of economic 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.
Financial Measures and Key Metrics
This 2022 Form 10-K includes financial information prepared in accordance withU.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 withU.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 27
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measure calculated and presented in accordance withU.S. GAAP. The non-GAAP financial measures should be viewed as a supplement to and not a substitute for, financial measures presented in accordance withU.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 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 agent signing bonus amortization).
Adjusted EBITDA (EBITDA adjusted for certain significant items) - Adjusted EBITDA does not reflect cash requirements necessary to service interest or principal payments on our indebtedness or tax payments that may result in a reduction in cash available.
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.
RESULTS OF OPERATIONS
The following table is a summary of the results of operations for the years endedDecember 31 : (Amounts in millions) 2022 2021 Revenue Fee and other revenue$ 1,272.2 $ 1,275.8 Investment revenue 37.9 7.8 Total revenue 1,310.1 1,283.6 Cost of revenue Commissions and other fee expense 610.7 622.7 Investment commissions expense 21.9 0.9 Direct transaction expense 57.6 60.5 Total cost of revenue 690.2 684.1 Gross profit 619.9 599.5 Operating expenses Compensation and benefits 228.0 227.8 Transaction and operations support 187.2 179.1 Occupancy, equipment and supplies 59.8 61.9 Depreciation and amortization 51.7 57.0 Total operating expenses 526.7 525.8 Operating income 93.2 73.7 Other expenses Interest expense 49.4 69.5 Loss on early extinguishment of debt - 44.1 Other non-operating expense 4.0 3.7 Total other expenses 53.4 117.3 Income (loss) before income taxes 39.8 (43.6) Income tax expense (benefit) 5.6 (5.7) Net income (loss)$ 34.2 $ (37.9) 28
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Revenue
Revenue increased by$26.5 million for the year endedDecember 31, 2022 , due to an increase in FPP revenue of$29.4 million , partially offset by a decrease in GFT revenue of$2.9 million . See the "Segments Results" section below for a detailed discussion of revenues by segment.
Cost of Revenue
Cost of revenue increased by$6.1 million for the year endedDecember 31, 2022 , due to an increase in FPP cost of revenue of$21.1 million , partially offset by a decrease in GFT cost of revenue of$15.0 million . See the "Segments Results" section below for further discussions.
Compensation and Benefits
Compensation and benefits remained relatively flat for the year ended
Transaction and Operations Support
Transaction and operations support primarily includes marketing, professional fees, customer care 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, assets and liabilities denominated in a currency other than theU.S. dollar. Transaction and operations support increased by$8.1 million for the year endedDecember 31, 2022 . The increase is primarily due to a return to pre-pandemic levels of activities such as marketing campaigns and business travel, higher transaction costs associated with the pending merger, partially offset by a decrease in legal expenses related to the NYDFS andCFPB matters.
Occupancy, Equipment and Supplies
Occupancy, equipment and supplies expense includes facilities rent and maintenance costs, software and equipment maintenance costs, freight and delivery costs and supplies. Occupancy, equipment and supplies expense decreased by$2.1 million for the year endedDecember 31, 2022 , primarily due to a decrease in facilities costs as a result of a reduction of our global footprint since providing our employees with the option of a work-from-home policy in the second quarter of 2021.
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$5.3 million for the year endedDecember 31, 2022 , primarily due to a continued decrease in purchases of hardware and software as a result of our migration to cloud computing and a decrease in office furniture and equipment.
Other Expenses
Interest Expense decreased by
Loss on Early Extinguishment of Debt of
Other non-operating expense remained relatively flat.
Income Tax Expense
For the year endedDecember 31, 2022 , the Company recognized an income tax expense of$5.6 million on a pre-tax income of$39.8 million . Our income tax rate was lower than the statutory rate primarily due toU.S. general business credits, a net decrease in valuation allowance, a net decrease in unrecognized tax benefits, recognition of excess tax benefits on share-based compensation, all of which were partially offset by non-deductible expenses and foreign taxes net of federal income tax benefits. See Note 1 3 - Income Taxes of the Notes to the Consolidated Financial Statements contained in Part II, Item 8 of this report for additional information related to our unrecognized tax benefits. 29
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Table of Contents Segments Results GFT
The following table sets forth our GFT segment results of operations for the
years ended
(Amounts in millions) 2022 2021 Money transfer revenue$ 1,190.3 $ 1,189.2 Bill payment revenue 35.6 39.6 Total revenue 1,225.9 1,228.8 Cost of revenue 668.2 683.2 Gross profit$ 557.7 $ 545.6
Money Transfer Revenue
Money transfer revenue for the year endedDecember 31, 2022 , was relatively flat when compared to the same period in 2021. Money transfer revenue was negatively impacted by a strengtheningU.S. Dollar relative to most other major currencies. Offsetting the currency headwinds were continued strong results for our digital business. Digital revenue increased to$98.6 million or an increase of 37% during the year endedDecember 31, 2022 . Digital revenue now accounts for 31% of our total money transfer revenues.
Bill Payment Revenue
Bill payment revenue decreased by
Cost of Revenue
Cost of revenue decreased by$15.0 million for the year endedDecember 31, 2022 , primarily due to a decrease in commissions and other fee expense driven by lower rates in commissions associated with both MGO and walk-in business and the dollar strengthening against most major currencies.
FPP
The following table sets forth our FPP segment results of operations for the
years ended
(Amounts in millions) 2022 2021
Money order revenue $ 44.1 $ 40.9
Official check revenue 40.1 13.9
Total revenue 84.2 54.8
Investment commissions expense 22.0 0.9
Gross profit $ 62.2 $ 53.9 Money Order Revenue
Money order revenue increased by$3.2 million for the year endedDecember 31, 2022 , primarily due to an increase in investment revenue as a result of higher prevailing interest rates driven by an increase in the federal funds rate.
Official check revenue
Official check revenue increased by
Investment Commissions Expense
Investment commissions expense consists of amounts paid to financial institution customers based on short-term interest rate indices times the average outstanding cash balances of official checks sold by the financial institution. Investment commissions are recognized each month based on the average outstanding balances of each financial institution customer and their contractual variable rate for that month. 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. Commissions expense increased by$21.1 million for the year endedDecember 31, 2022 , due to higher interest rates as a result of recent actions taken by theFederal Reserve . 30
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EBITDA, Adjusted EBITDA, Adjusted Free Cash Flow and Constant Currency (Non-GAAP Measures)
The following table is a reconciliation of our non-GAAP financial measures to
the related
(Amounts in millions, except percentages) 2022
2021
Income (loss) before income taxes$ 39.8 $ (43.6) Interest expense 49.4 69.5 Depreciation and amortization 51.7 57.0 Signing bonus amortization 50.1 56.4 EBITDA 191.0 139.3 Significant items impacting EBITDA: Stock-based, contingent, incentive compensation and other 15.8 7.3 Merger-related costs 7.7 - Severance and related costs 1.9 0.2 Legal and contingent matters 1.9 14.1 Restructuring and reorganization costs
(0.9) 9.4
Loss on early extinguishment of debt - 44.1 Compliance enhancement program - 2.9 Direct monitor costs - 4.9 Adjusted EBITDA$ 217.4 $ 222.2 Adjusted EBITDA$ 217.4 $ 222.2 Cash payments for interest (47.5) (51.8) Cash (payments) refunds for taxes, net (13.7) (5.7) Cash payments for capital expenditures (53.8) (41.4) Cash payments for agent signing bonuses (36.9) (36.0) Adjusted Free Cash Flow$ 65.5 $ 87.3
See "Results of Operations" and "Analysis of Cash Flows" sections for additional information regarding these changes.
LIQUIDITY 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.
Cash and Cash Equivalents, Settlement Assets and Payment Service Obligations
The following table shows the components of the Company's cash and cash
equivalents and settlement assets as of
(Amounts in millions) 2022 2021 Cash and cash equivalents$ 172.1 $ 155.2
Settlement assets:
Settlement cash and cash equivalents
1,107.0 700.4
Interest-bearing investments 998.1 992.3
Available-for-sale investments 3.0 3.0
Total settlement assets $ 3,607.2 $ 3,591.4
Payment service obligations $ (3,607.2) $ (3,591.4)
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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 ratedU.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 ofDecember 31, 2022 , cash and cash equivalents (including unrestricted and settlement cash and cash equivalents) and interest-bearing investments totaled$2.7 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.
Available-for-sale Investments
Our investment portfolio includes$3.0 million of available-for-sale investments as ofDecember 31, 2022 .U.S. government agency residential mortgage-backed securities comprise$1.5 million of our available-for-sale investments, while asset-backed and other securities compose the remaining$1.5 million .
Clearing and Cash Management Banks
We collect and disburse money through a network of clearing and cash management banks. The relationships with these banks are a critical component of our ability to maintain our global active funding requirements on a timely basis. In theU.S. , we have agreements with four active clearing banks that provide clearing and processing functions for official checks, money orders and other draft instruments. We believe that this network of banks provides sufficient capacity to handle the current and projected volumes of items for these services. We also maintain relationships with a variety of domestic and international cash management banks for electronic funds transfer and wire transfer services used in the movement of consumer funds and agent settlements.
Credit Facilities and Notes
The following is a summary of the Company's outstanding debt as of
2022 2021
8.571% Term Loan due 2026$ 380.0 $
384.0
5.375% Senior Secured Notes due 2026 415.0
415.0
Total debt at face value 795.0
799.0
Unamortized debt issuance costs and debt discounts (9.6) (12.3) Total debt, net
$ 785.4 $ 786.7 As ofDecember 31, 2022 , the Company had no borrowings and no outstanding letters of credit under its Revolving Credit Facility and had$40.0 million of availability. See Note 9 - 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. 32
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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 onSeptember 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 Credit Facilities"). OnJune 28, 2021 , the Company prepaid$100.0 million of 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 1 1 -
Stockholders' Deficit of the Notes to the Consolidated Financial Statements contained in Part II, Item 8 of this report.
OnJuly 21, 2021 , we (i) completed the notes offering of$415.0 million aggregate 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 andBank 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 million and (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 . InDecember 2021 , we added additional$7.5 million capacity to our Revolving Credit Facility bringing the total Revolving Credit Facility to$40.0 million . OnJuly 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 million of principal balance under its New Credit Agreement to deleverage its balance sheet. As a result of the implementation of this new long-term financing, we expect our interest expense to decline by approximately$47.0 million on an annualized basis and cash payments for interest to decline by approximately$36.0 million on 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 million which included$16.5 million of prepayment call premium and$27.6 million associated with the write-off of debt issuance costs and debt discounts. The Company also paid accrued interest of$7.0 million .
Credit Ratings
As ofDecember 31, 2022 , 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. 33
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Regulatory Capital Requirements
We have capital requirements relating to government regulations in theU.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 theU.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 ofDecember 31, 2022 . We believe that our liquidity and capital resources will remain sufficient to ensure ongoing compliance with all regulatory capital requirements.
Material Cash Requirements from 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 ofDecember 31, 2022 :
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) $ 955.7 $ 49.3 $ 99.9 $ 806.5 $ -
Non-cancellable leases (2) 55.3 9.1 17.4 13.8 15.0
Signing bonuses (3) 35.9 19.5 14.1 - -
Marketing (4) 102.5 37.5 65.0 - -
Unrecognized tax benefits (5) 9.1 2.9 - - -
Total contractual cash obligations $ 1,158.5 $
118.3
(1) Our Consolidated Balance Sheet atDecember 31, 2022 includes$785.4 million of debt, netted with unamortized debt issuance costs and debt discount of$9.6 million . The above table reflects the principal and interest that will be paid through the maturity of the debt using the rates in effect onDecember 31, 2022 and assuming no prepayments of principal.
(2) Noncancellable leases include operating leases for buildings, vehicles and equipment and other leases. For more detail see Note 1 8 -
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$2.3 million of 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 further below that are not included in this table as 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$2.0 million to the Pension Plan during 2022. The Company has no minimum contribution requirement for the Pension Plan in 2023. 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$5.5 million in 2023.
Merger Agreement
Up to the completion of the Merger, our liquidity requirements will remain funded by our cash flow from operations, borrowings under our existing credit facility and certain other capital activities allowed under the Merger Agreement. In particular, we are subject to restrictions under the Merger Agreement on assuming additional debt, issuing additional equity or
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debt, repurchasing equity, making certain capital expenditures, and entering into certain acquisition, disposition and leasing transactions, among other restrictions, subject to the restrictions under the Merger Agreement.
Analysis of Cash Flows
(Amounts in millions) 2022 2021 Net cash provided by operating activities$ 85.7 $ 37.1 Net cash used in investing activities (62.6) (44.5) Net cash used in financing activities (402.8) (21.0)
Net change in cash and cash equivalents and settlement cash and cash equivalents
Cash Flows from Operating Activities
In 2022, net cash provided by operating activities increased by$48.6 million primarily due to interest savings as a result of our refinancing activities in the third quarter of 2021.
Cash Flows from Investing Activities
In 2022, net cash used in investing activities increased by
Cash Flows from Financing Activities
In 2022, net cash used in financing activities increased by
Settlement Assets and Payment Service Obligations of the Notes to the Consolidated Financial Statements. 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
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 2022 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 withU.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 withU.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 ofOctober 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 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 35
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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 did not recognize a goodwill impairment loss for 2022, 2021 or 2020. The
carrying value of goodwill assigned to the GFT reporting unit at
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 ofDecember 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 measurement date, the discount rate used to measure total benefit obligation for the Pension and Postretirement Benefits is based on the then current interest rate yield curves for long-term corporate debt securities with maturities rated AA comparable to our obligations.
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 2022 Pension and Postretirement Benefits net periodic benefit expense. Decreasing the expected rate of return by 50 basis points would have increased the 2022 Pension Plan net periodic benefit expense by$0.2 million and increasing the expected rate of return by 50 basis points would have decreased the 2022 Pension Plan net periodic benefit expense by$0.2 million . Income Taxes, Tax Contingencies - We are subject to income taxes in theU.S. and various foreign jurisdictions. In determining taxable income, income or loss before income taxes is adjusted for differences between local tax laws andU.S. GAAP. We file tax returns in allU.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 orU.S. state and local income tax examinations for years prior to 2017. TheU.S. federal income tax filings are subject to audit for fiscal years 2017 through 2021. 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 upon 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
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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 ofDecember 31, 2022 , we have recorded valuation allowances of$76.8 million against deferred tax assets of$131.3 million . The valuation allowances primarily relate to basis differences in revalued investments, capital loss carryover,U.S. tax credit carryovers,U.S. interest expense 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 of the Notes to the Consolidated Financial Statements contained in Part II, Item 8 of this report for information regarding recent accounting pronouncements.
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