MoneyGram International, Inc.
Q1 2013 Earnings Call Transcript

Published: 2 May 2013

[Operator:]

Good morning, and welcome to the MoneyGram International First Quarter 2013 Earnings Release Conference Call. Today’s conference is being recorded. At this time, all participants have been placed in a listen-only mode and the floor will be opened for your questions following the presentation. It is now my pleasure to turn the floor over to your host, Eric Dutcher, Vice President of Investor Relations. Please go ahead, sir.

[Eric Dutcher:]

Thank you. Good morning, everyone, and welcome to our first quarter fiscal year 2013 earnings call. With me today are Pam Patsley, Chairman and Chief Executive Officer and Alex Holmes, Executive Vice President and Chief Financial Officer. Our earnings release and accompanying slides are on our website at moneygram.com. I must remind you today that today’s call is being recorded and that the various remarks we make about future expectations, plans and prospects constitute forward-looking statements for the purpose of the Safe Harbor provision under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from expectations, plans and prospects contemplated in any forward-looking statements as a result of various factors, including those discussed in our filings with the SEC. I encourage everyone on this call to read our SEC filings, including our 10-K for the year ended December, 31, 2012, and our soon to be filed 10-Q for the quarter. Please note that today’s remarks include certain non-GAAP financial measures, including EBITDA, adjusted EBITDA, adjusted EBITDA margin, free cash flow and constant currency. Our earnings release includes a full reconciliation of these non-GAAP financial measures to the related GAAP financial measures. Before I turn the call over to Pam I would like to inform everyone of the upcoming Investor Conferences that we will attend in May. We will be at the JMP Securities Conference in San Francisco on May 13th. The JPMorgan TMT Conference in Boston on May 14th. The Macquarie Extreme Services Conference in New York on May 15th and the Bank of America-Merrill Lynch Services Conference in New York on May 21st. The presentations will be available via webcast for these events on our website at moneygram.com. Now I'll turn the call over to Pam.

[Pam Patsley:]

Thanks, Eric. Good morning, everyone. We are very proud that we achieved our 10th consecutive quarter of double digit money transfer transaction growth and our 8th consecutive quarter of double digit constant currency revenue growth. I am also pleased to announce that our global agent locations increased to 321,000, a 17% increase over the prior year. Over the last 12 months, we've added more than 45,000 locations and MoneyGram services now are available in 198 countries and territories with our addition of Liechtenstein this past quarter. We are executing well on our strategy and our results reflect that. We will discuss our success in growing the business in a few minutes. I first want to update you on several key initiatives. During the quarter, we successfully purchased and retired all $325 million of our 13.25% Goldman Sachs second lien notes. We also repaid our $488 million of first lien notes at par. We now have a new $850 million seven-year covenant light note along with an undrawn $125 million revolving credit facility. This action generates annual cash interest savings of $28 million. I can’t over emphasize how pleased we all are at this result and finally ridding MoneyGram of its high cost debt. Also in the first quarter, our compliance monitor was selected. Aaron Marcu is the litigation partner with Freshfields Bruckhaus Deringer LLP in New York and head’s their Global Financial Institutions Litigation Group. Aaron Marcu was among the original list of potential monitors that we submitted to the government. We’ve held our first set of meetings with Aaron and his team. We're pleased to get this relationship started. Recently, we announced we will join the world’s most innovative companies by listing on the NASDAQ effective May, 13th. NASDAQ is a global leader in advanced trading technologies providing our shareholders with cost efficient trading opportunities and improved services to the company. We are focused on tight expense management and to that end we will benefit from reduced listing fees, marketing incentives and corporate service fee savings. We are excited to be part of the NASDAQ and on May 22nd, we will celebrate the news by leading the Opening Bell ceremony. Finally, a few comments on pricing, which has certainly been a hot industry topic. As you all know, our largest competitor had deeply discounted prices in the U.S. to Latin America and the Caribbean, France to Africa, transfers to and from certain countries in Southeast Asia and in various online quarters. As mentioned last quarter, we changed prices at Wal-Mart U.S. in late November to match the competitor cuts. Broadly speaking, we have performed very well and are keeping with our strategy of responding in a smart and measured manner. Our goal is to maximize revenue while continuing to gain market share, while we did feel some impact from these price cuts in various quarters around the world, in total the effect had a relatively minor impact on our overall business. As a result, during the quarter, we made no other pricing changes that were in response to this competitor. Separately, we continued an initiative we began late last year by making price adjustments on quarters and bands where we repriced at two grade discount to the market. As a result, we were generally able to mitigate the impact of the competitive price action. We estimate that the net impact of our matched pricing at Wal-Mart and lower volumes in affected quarters was about one point to revenue growth. Considering the breadth of the changes we are very pleased with our constant currency money transfer revenue growth of 10% which more importantly was very tied to our transaction growth of 11%. Looking ahead, we look ahead to reduced prices in certain bands and quarters to maintain our competitive position. We will continue with our global marketing promotions like our Mothers Day Campaign which are often tied to price reductions and as we did in the first quarter, we will continue to look for opportunity to mitigate price reductions with targeted price increases. Again, we are focused on maximizing revenue growth while ensuring we remain competitive and never to get price out of any market. What is interesting if the World Bank just issued a report that there has not been a decline in the industry average fee charge for cross-border remittances. We stand by our financial outlook and the flexibility it offers us to continue to gain market share. We are also using tight expense management to minimize the impact of price cuts to the bottomline. Now let's take a look our performance across the regions. U.S. to U.S. sends represented 30% of money transfer transactions and 27% of revenue in the quarter. Our U.S. to U.S. business generated strong results as transactions and revenue grew 7%. This growth was solid against the backdrop of several economic trends. U.S. to U.S. sends in general are more discretionary than international sends. As you’ve heard from many retailers, the expiration of certain extended federal unemployment benefits, return of the payroll tax and delayed tax refunds reduced discretionary and domestic spending this quarter. We continue to have strong growth in U.S. to U.S. through MoneyGram Online which provides convenient transfers to our extensive cash payout locations around the country. We remain focused on growth in this important quarter by reaching new consumers through new agent relationship like Dollar General which just went live with our in-lane convenience product in late 2012. One trend that bodes well for us as we look to our US outbound business is that the foreign born unemployment rate is actually improving faster than native unemployment rate. Also H1VB visa quotas in 2013 were filled in the fewest number of days since 2007. For comparative purposes, H1VB visas were filled in 300 days in 2010 while they were filled in five days in 2013 thus far. This is all a good backdrop for our outbound business. US outbound transfers in the quarter represented 36% of total money transfer transactions and 29% of money transfer revenue. It’s great to see that this is becoming a larger portion of our business. Both transaction and revenue growth were strong at 13% and 10% respectively. The difference between transaction growth and revenue growth was primarily related to a few specific items related to Mexico and higher transaction growth in lower priced quarters. US to Mexico continued its fast pace with 23% year-over-year transaction growth. Revenue growth while still in double digit was lower than transaction growth due to three things. One, price reductions at Wal-Mart US. Two, proactive compliance limits. And three average face values send. Beginning late last year, we publicly slowed the quarter for a period of time to certain actions we chose to take from a compliance perspective. Finally, the latest Banco de Mexico report showed average pace in sends to Mexico decreased by mid-single digits for the industry and our average pace neared that decline. We are very pleased with the quarter results of 23% growth particularly given that remittance flows fell in the quarter as the peso appreciated against the dollar. We also expanded our agreement with Northgate Gonzalez Markets, a Hispanic market chain in Southern California where we were able to displace a niche money transfer company in April. This will continue to bolster MoneyGram’s market share in the US to Mexico and Latin America quarters. Speaking of US to Latin America, we have robust sends again this quarter. The industry grew slightly with MoneyGram growing much faster than the industry. Our new agent signings last year continued to fuel broad-based growth across the region. During the quarter, we signed Banco Leon in the Dominican Republic which previously did not offer remittances; adding more than 60 locations in this predominantly receive country. While industry remittances to many African countries slowed, our US to Africa sends were strong. Our brand awareness, our market focus, and network gains across the continent are generating strong send volumes from the US. Our US to Asia business performed well, but slowed after a particularly strong fourth quarter last year. Sends to key regions such as the Indian subcontinent, Korea and Vietnam all performed well. We had another great quarter in US outbound and we continue to build upon our expanding network for future growth. Transactions originating outside the US grew 13% while the associated revenue grew 11%. This category represents 44% of total revenue and 34% of transactions during the quarter. Revenue growth was lower than transaction growth primarily due to lower face values, pricing and quarter mix. Sends from Latin America have grown significantly over the past year. We've been focusing on countries that have historically been strong recipient countries to now better position ourselves to also capture send opportunities. In fact in a couple of Latin American countries, we doubled our revenue from last year. In Chile, we signed the National Post Office, Correos Chile, a significant competitive takeaway. The post office has more than 250 owned locations with great distribution around the country. The agreement allows for us to expand to another 260 stated locations as well. We also signed Autotrans Andesmar, one of the leading bus companies in Argentina with over 2 million passengers a year. Andesmar will offer our services at a 120 high traffic bus stations with extended hours. These locations fit well with MoneyGram’s commitment to convenient services for consumers. Across Europe, where general economic conditions improved somewhat, we continue to build our network. In France, we added over 200 small retail shops. In Italy, we signed an agreement with CIS, the central government entity for social services. This gives us multi-functional government locations around the country in regional service centers. We built on our relationship with Intesa Sanpaolo, the largest bank in Italy to expand to their 50 international branches in Bosnia. In Spain, we offered new products in our owned stores and signed two bus carriers adding a 100 service locations targeted at the immigrant community. We also continue to perform well in Germany. In Russia and the CIS, we activated about 6,000 retail locations, which we had previously announced the signing up in the third quarter of last year. At that time, we announced we would activate 10,000 locations over the next two years. We're on track. We're pleased with the tremendous progress we’ve already made on this important initiative. We're growing quickly in Russia and the CIS but there is still a long runway for growth. This is one of the largest regions for migration. Now moving around the world, in the Gulf region, we signed a new agreement with International Trust Group in Kuwait, a well established exchange house. During the quarter, we re-signed the India Post and announced additional locations were coming. This important agreement continues to drive growth from the Gulf region. Speaking of the Indian sub-continent, we are sponsor of ICC Cricket and we are approaching the Champion’s Trophy event as well. Our MoneyGram Cricket Facebook page has over 200,000 fans, with over 30,000 engaged in active conversation. These are extremely positive metrics given that only about one-tenth of 1% of all Facebook pages have more than 200,000 fans. Across Southeast Asia, we continue to develop our network. In China, we focused on expanding into world regions with the signing of two world focus financial institutions. In Indonesia, we also increased our reach by signing doctorate to a new agent agreement. We continued our success in the Philippines during the quarter. As a result of our growing brand presence, we also expanded our SM Supermall relationship to enable sends from the Philippines; while Philippines again is typically a receive country there is now also a market for send to U.S., Africa and other parts of Southeast Asia. Turning now to self-service money transfer. In the first quarter, self-service in new channel money transfer revenue increased 31% driven by transaction growth of 51%. Self-service in new channel revenue now represents 6% of our total money transfer revenue. This is a one point increase on a sequential quarter basis. During the quarter, we enhanced our customer’s access to this channel by adding Ukash and FNB; with Ukash MoneyGram services will be available online in consumers’ Ukash e-Money account. Our agreement will focus initially on the UK, that Ukash is available in 55 countries worldwide giving the partnership lots of room for growth. FNB is one of the largest banks in South Africa; our money transfer services are available to their consumers through their ATM or as an option in their mobile wallet. Also for smartphone based sending, we signed an agreement with Lebara Mobile in the UK; MoneyGram’s services will be an option in their iPhone and android based apps as well as online. Services will initially begin in the UK, but also have the opportunity to grow to several other European countries and Australia. The largest component of our self-service revenue comes from MoneyGram Online business; a multi faceted asset that uniquely positions the company for growth. Through our online services, consumers have the convenience of utilizing credit cards, debit cards and ACH not only to send money fast and to it’s loved ones around the world or in the U.S. all in minutes, but also to manage their bills through our expedited bill payment service in the U.S. Our MoneyGram Online website can be accessed directly by consumers in three countries and also through 19 affiliate agent website where consumers can click a link and be directly routed to our service. In addition, our online services extend to agent websites like walmart.com where consumers can send the transfers to almost anywhere in the world. In the first quarter our Global MGO money transfer business delivered 19% revenue growth and 51% transaction growth. Now when we include our online bill payment business, which is a new statistics for you and one that I believe speaks to the robustness of our online business, our MoneyGram Online revenue increased 23%, with 50% transaction growth. MoneyGram Online continues to be a wonderful channel for us with over 80% of our transactions coming from peak customers. Our future growth looks promising as we had 220,000 new customer profiles created in the quarter. We are nearing the launch of our PayPal partnership as we announced MoneyGram will be a cash-in and cash-out network for PayPal users. We are on track to begin these services during this quarter and we are excited about the potential of this great partnership. Now let's take a look at the bill pay business quickly and that represented 8% of our revenue. For the first quarter, transactions declined 3%, with the 6% revenue decline. During 2012, we refocused the portfolio and are growing rapidly in convenience payments, top-up transaction for prepaid cards and international phone plans. In the quarter, we signed an exclusive agreement with the Florida Department of Corrections for cash payment through our partnership with JPay. We also expanded further into new verticals to leverage our platform to handle new sets of payments in corrections, government and healthcare. Our express paid bill payment solution is a very complimentary service to money transfers and we continue to see good crossover between the two offerings. Self-service will be an important part of this business in the future as consumers look for simple, fast ways to pay their bills. Through MoneyGram Online and kiosks and partnerships we've enhanced our self-service bill payment solutions and that now represents 4% of our total bill pay revenue. Now I'll turn it over to Alex who will walk you through the financials.

[Alex Holmes:]

Great, thanks Pam. Revenue was strong in the quarter. Total revenue increased a healthy 7% to $340.5 million on the strength of our core money transfer business, which grew to $294.4 million, an increase of 10% on both the reported and constant currency basis. Investment revenue was $2.8 million, down from $3.2 million in the prior year period. Reported EBITDA for the quarter was $19.6 million. Reported EBITDA was impacted by $3.2 million of reorganization and restructuring costs, $3.1 million of stock-based and continued performance compensation, and $1.1 million of legal expenses related to certain ongoing matters. Adjusted EBITDA was $72.3 million in the quarter, up a solid 6% on a year-over-year basis and adjusted EBITDA margin of 21.2% down slightly. Our adjusted EBITDA margin was primarily impacted by lower investment revenue and declines in the financial PayPal products business. Looking at expenses, during the quarter total reported operating expenses increased 5% over the prior year, primarily driven by increased commission expense offset by reductions in non-commission expenses. Total commission expense was $154.4 million or 45.3% of revenue compared to 44.6% in the prior year. In the quarter, money transfer as a percentage of total revenue increased to 86% from 84% in last year’s first quarter. Money transfer commission expense as a percent of revenue was up slightly year-over-year due to changes in [Condor] and agent mix. A quick note here and that is that in our second quarter results for 2013, we will again see money transfer commission expense as a percentage of revenue increase slightly as we implement a step-up in commission rate for a large agent. On a reported basis, compensation and benefits increased $6.4 million as a result of increased headcount and increased cost for legacy pension obligations. Transaction operation support decreased $6.7 million compared to prior year due to reduced cost for reorganization, restructuring, legal expenses and marketing expenses. Marketing as a percentage of total revenue was 3.1%, compared to 3.8% in the prior year period as we shifted about $2 million of expenses from the first quarter to the second quarter of this year. Historically, the second quarter has had higher marketing spend and this year will not be an exception as we kick off our Mother’s Day campaign, ICC cricket events, and other local and global initiatives. Reorganization and restructuring expenses during the quarter were $3.2 million, composed of $1.6 million of severance, $1.3 million of occupancy, equipment and supplies costs and about $300,000 of transaction and operation support costs. As a reminder, there is a slide in our quarter summary on the website that breaks out reorganization and restructuring costs in to these categories. On our last call, we anticipated that our full year restructuring costs would be around $3 million. To ensure that we wrap up these activities efficiently, we now anticipate incurring an additional $2 million to bring them to completion. On March 28, we were extremely excited to complete a private placement of our new $975 million senior secured credit facility, consisting of $125 million multi-bank five-year revolving credit facility and $850 million seven-year covenant-lite term loan. The new term loan initially bears interest at LIBOR plus 3.25% subject to a floor of 1%, with a step down to LIBOR plus 3% upon achievement of a specified leverage ratio. The successful placement of this new credit facility reflects the tremendous progress the company has made since the recapitalization in 2008 and greatly improves our flexibility going forward. Our new term loan expands our first lien facility under favourable terms, extends our maturities into 2020 and substantially reduces our interest expense. In fact, as Pam mentioned, (inaudible) we expect to realize annual cash interest savings of approximately $28 million as a result of the refinancing. The net proceeds from the new term loan were used to repay all $488 million of our first lien notes and to also purchase and retire all $325 million of our 13.25% senior secured second lien notes. The purchase price for the second lien notes was a 106.65% of the outstanding principal cost accrued and unpaid interest. During the quarter we took a pre-tax debt extinguishing charge of $45.3 million to complete the refinancing. As a result of the refinancing and associated expenses, we were able to recognize a book income tax benefit in the quarter of $5.8 million. Cash taxes in the quarter were about $100,000. Diluted loss per share in the quarter was negative $0.18 on diluted shares of 71.5 million. This included a negative $0.39 per share impact from recent debt refinancing, a negative $0.03 per share impact from reorganization, restructuring costs and a negative $0.03 per share impact from stock-based and continued performance compensation. In the quarter, free cash flow was $32.8 million or 9.6% of revenue. Last year’s free cash flow was $28.3 million or 8.9% of revenue. Free cash flow was up from the prior year due to revenue growth, lower interest payments and lower capital expenditures partially offset by higher agent signing bonuses. Capital expenditures in the quarter were $15.2 million, down from $18.6 million in the prior year due to lower software and licensing cost. Signing bonus payments in the quarter were about $9 million. As you know, signing bonuses tend to be lumpy, but so far we are in line with the $50 million that we anticipate spending in the full year. However, we will be opportunistic should quality prospects or renewals arise. We entered the first quarter with assets in excess of payment service obligations at $220 million, which is down slightly from the fourth quarter of last year. However, I am extremely pleased with this number given that we made our final payment of $35 million to the Department of Justice, made increase signing bonus payments can incurred debt extinguishment fee to affect our refinancing. Supported by strong earning and improved cash flow, we are optimistic about our cash position going forward. Looking ahead, we anticipate utilizing our excess cash to reinvest in the business, reduce our outstanding debt principal and makes small targeted acquisitions. As a reminder, we currently have arbitration and mitigations outstanding to recoup losses from our past CDO and RMBS investments. To the extent that we are successful in these endeavors, we could have upside to our cash position. Turning to the segments, total revenue for the Global Funds Transfer segment increased 8% led by strong money transfer constant currency revenue growth of 10%. From a trend perspective, in the month of January, it was quite strong which was followed by a particularly weak February which was then somewhat offset by good March results. In speaking with agents and others in the industry around the world, this trend seems largely consistent industry-wide. In the quarter, the Global Funds Transfer segment reported operating income of $41.4 million and an operating margin of 12.9%, which was up from the 11.2% in the first quarter of last year. On an adjusted basis, operating margin improved to 14.5% in the quarter, up from 14.1% in the prior year as a result of tight expense management and continued revenue growth. Total revenue in the Financial Paper Product segment during the quarter declined 8% to 19.9 million with operating income of $6.9 million. Reported operating margin was 34.7% or 37.7% on an adjusted basis. Segment margins were impacted by lower revenue due to fewer items processed and flat investment revenue. Financial paper products revenue represented 6% of total revenue in the quarter compared to 7% last year. Now before turning it back to Pam, I would like to make a few comments on our outlook for the remainder of 2013. First and this is I think a continued repeat from what we did in January, but we wanted to go ahead and share some good news with you and that is that we are very encouraged to see a strong April for the money transfer business. April money transfer transactions increased 15% and we are off to a great start in the second quarter. Now with that said while our money transfer performance has been robust, it is still too early in the year to change our full year projections. Therefore for the full year 2013 we continue to estimate constant currency revenue growth to be in the range of 6% to 9% and constant currency adjusted EBITDA growth to be in the range of 3% to 6%. However as a reminder due to the previously mentioned increased marketing costs and increased costs for commission expense that we anticipate in the second quarter, we anticipate EBITDA growth in the second quarter to be somewhat muted. Now let me turn it back to Pam.

[Pam Patsley:]

Thanks Alex that's great. The World Bank is estimating 6% growth in cross border remittances for 2013. We continue to gain market share as our growth outpaced both the market and our largest competitor in transactions, revenue and total principal cents which for us total principal cent grew 9%. I'm very proud of the MoneyGram team’s accomplishment in the first quarter. The year is off to a great start and we are well positioned in the growing global remittance industry. And with that I will turn it back to the operator.

[Operator:]

(Operator Instructions) We will take our first question from Sarah Gubins from Merrill Lynch.

[Unidentified Analyst:]

(Inaudible) Pam you mentioned that you were testing I guess reduced pricing in certain corridors. Can you provide us a little bit more details maybe just percentage of corridors and also the size of price reductions.

[Pam Patsley:]

Yeah, when you think about our businesses, I don't know I think its somewhere around 15 to 16 plus thousand corridors, it’s a very, very minute number of corridors and I'm not really interested in giving a roadmap here for anyone so it’s a very, very small number of corridors and we are going to test a few things.

[Unidentified Analyst:]

Have you seen any pricing changes by like regional or smaller players in say the regions that Western Union has made changes?

[Pam Patsley:]

We have not seen significant changes; anything out of what the norm would have been last year to year before, the year before, it’s really then you know pattern of same behavior.

[Unidentified Analyst:]

Okay and just last question from me, in terms of trends in the US, what was the transaction growth rate for Wal-Mart versus non-Wal-Mart agents.

[Pam Patsley:]

We don't disclose that, but I will tell you that Wal-Mart for the first quarter was 28% of our total revenue.

[Alex Holmes:]

Yeah, I think in the US I don't think there was a lot of inconsistencies amongst our agent groups. I think in the end, I think the US to US business felt a little bit of the impact, most of the impact, I would think from the payroll tax increases and the delays in getting the tax refunds back out. I think you can see that consistently across the board from retailers and others. It’s obviously very important for many people to get the money in their hands as quickly as possible and for whatever reason this year, it seemed to be quite delayed and then when it came, it came in sort of choppy blocks and that certainly impacts the check cashing business in other areas around the US but obviously very important for what we do.

[Unidentified Analyst:]

Okay, so would you expect that to kind of kick back up in 2Q and beyond as now the refunds are in consumers’ hand?

[Pam Patsley:]

We certainly look to what we saw in March and certainly the strong April results.

[Operator:]

We will move on to Julio Quinteros with Goldman Sachs.

[Unidentified Analyst:]

It's actually [Roman Alan] for Julio. First, a follow up to your last point; so when you gave the color on April, which was very helpful, was that broad based or was the major call out there kind of a snap back in US to US transfers?

[Pam Patsley:]

It was broad-based and it was total money transfer transaction.

[Unidentified Analyst:]

That’s helpful.

[Alex Holmes:]

You know, keep in mind, the US to US historically has been and always was a single-digit kind of growth quarter. I think with the activities of the past, three or four years, the 5 for 50 and some of the other price changes that had occurred, I mean we saw a lot of acceleration in those lower bands. I think when you look in the upper bands, when you look at the consistency of that business, you look at the online segment and some of the other places interact with that. I think it is kind of a mid single-digit growth business and so from our perspective, if we can outpace that that’s great, but it's not where the bulk of the growth of the company is going to be in the future.

[Pam Patsley:]

It’s also not the highest [RPT]?

[Alex Holmes:]

No, for sure, not.

[Unidentified Analyst:]

Sure, that’s good color. And in terms of the pricing dynamics you also mentioned that there are some quarters out there, where you are probably too much of a discount relatively to the peers; is that still a lever going forward? I mean there were some quarters where you feel you could probably take price up modestly and if so is there a risk there of those transactions going the other way. You already implemented some price increases, how did you see the transfers actually trending in those markets?

[Pam Patsley:]

Yeah. I would say it is more all about kind of the evolution of MoneyGram and our fine tuning of how we run our business. And this will just be a more embedded in grained part of our discipline in continually looking at our pricing in a more aggressive and robust way. It's going both ways and again when you come back to about 16,000 corridors and then you layer on top of that all the different price band, I would say there is to the first part of your question, yes, there will be continued movement. Some upward and much of the bulk of some of that upward movement we took was actually back at the tail-end of the third quarter and very early in the fourth quarter. So I would say our strong growth says we are managing this well and making good decisions.

[Operator:]

We move on to Tien-tsin Huang with JPMorgan.

[Unidentified Analyst:]

Hey, this is [Punit] filling in for Tien-tsin. Could you talk about the impact of this recently released immigration ballooning your business?

[Pam Patsley:]

Yes, I think, I have mentioned some statistic about the H1B visas and other things. We really without getting into policy or politics, we really believe that the US like many of the other, most of the other G6, G8 countries need a robust guest worker program and that’s at both ends of the spectrum, the (inaudible) educated and the workforce to continue to grow our GDP, and so we think all those things when it’s good for the US, that’s good for our business.

[Unidentified Analyst:]

And also given that the bill provides is like a legal pathway for illegals to stay in the country legally does that also impact the business maybe more competition from banks or anything there?

[Pam Patsley:]

You know I would say, I think there are lot of statistics out there that say absent any of these moves even, what I guess you would call Native American citizens and I don’t mean Native Americans, but US citizens even among that group the trend continues to be that they feel underserved and the formal financial institution channel. So I think that positions MoneyGram well, I think as we continue to broaden our product offerings, our product set that continues to offer us more opportunities to address an expanding group of consumers.

[Unidentified Analyst:]

And last one, I guess Dodd-Frank rules for wire transfer were revised recently. So how would they impact your business?

[Pam Patsley:]

Yes, now the final rule, the second final rule which got published just yesterday afternoon. As with the first one we do believe its final; there is a six months implementation window. It needs to be implemented by October 28 this year, and so we are very appreciative of that. There were some minor changes on some disclosure. We are ready, we are you know to have it well in hand. MoneyGram actually made most all of those disclosures already; perhaps in a little different form I think I have shared this before with you all. It’s been a little bit about more taking what we already disclose at our strong disclosure statement and confirming them now to the order of the [CSTB]. So we will be working on rolling that out with our agents and ready to go October 28.

[Operator:]

We will move no to Bob Napoli with William Blair.

[Bob Napoli:]

This is actually Bob Napoli filling in for Bob Napoli. A few questions here. First of all just Alex on the charge, the $45 million charge, how much of that was, was that all cash or was there some of that write off of capitalized prior to capitalized debt cost.

[Alex Holmes:]

Most of it was right off of capitalized debt cost. I mean there was certainly some of the interest expense, the prepayment or the early payment penalty on the Goldman Sachs side, but most of that got factored into the financing itself. I think our cash is about $8 million or so, I think the total payment penalty to Goldman Sachs was right around $22 million.

[Bob Napoli:]

Okay. So the total charge about $30 million including the prepayment penalty to Goldman Sachs was cash.

[Alex Holmes:]

Right, plus then we had banker fee and some other stuff associated with it, yeah.

[Bob Napoli:]

Okay.

[Alex Holmes:]

That might have been a little higher than maybe 35 all in.

[Bob Napoli:]

Okay and then Pam the slowdown in international sense, 18% last quarter, 13% this quarter. I think you had a little tougher comp and you had leap year. But what else was going on in there, was it Western Union price cuts that were affecting international sense and the slowdown there or what else happened.

[Pam Patsley:]

Yeah, I think you called out a couple of those. It’s hard to think you know and we all laughed about it here but leap year does make a difference, where Easter falls also makes the difference particularly for Europe and we had a little bit tough comp and Q4 was unusually high. So there was really nothing too specific. I think it remained soft in Europe, but we were encouraged how we exited Q1 and going forward.

[Bob Napoli:]

Okay. And then the strong April I guess. I know I guess you had a very strong January and a weak February. Would the earlier Easter have any effect on that and what else could have affected? I mean 15% is a big number. Were there price cuts that helped drive that or and should we just not read much into it because it’s something (inaudible).

[Alex Holmes:]

No relatively speaking, if you aggregate the bulk of the pricing cuts that occurred, at least we're looking at, I mean I think the bulk of those are or were in the US and US to Latin America, US to Mexico and these types of corridors. I think we’ve talked about; we changed the prices at Wal-Mart. Wal-Mart performed well this quarter as we said, not out of line by any means, from any of the other segments or businesses within that portfolio. I think as you look at, broadly speaking the bulk of those cuts were there, we performed extremely well. U.S. and Latin America did extremely well; US to Mexico, I mean, I think our 23% was extremely consistent with where we've been. And if that pace continue, that’s been extremely well. And you look around the rest of the world where the price cuts have been, you know, they are much more targeted, they are much more focused. I think you heard on their call the other day, they were talking about some of their Europe to Africa and a little bit here and there and Asia and broadly speaking, I think those have been fine and well absorbed by the business. I think there is a few areas where, in particular in a couple of cities here and there from one country and other and for a variety of reason, where we felt a larger impact in other places and I think in those area, we're looking at testing and I think you got to look at testing based on a couple of criteria. One is we just simply cut our prices to match or to under cut that. You're going to loose more revenue if you don’t get the volume back to offset that loss and that’s just kind of a bad business decision. So it's not about trying to get your transaction volume up, it’s about maximizing your revenue now and in the future and gaining market share, and I think broadly speaking, we've done that. I will say in Europe and a few other places, leading up to Easter, we saw a fairly quick deceleration of the business and it didn’t really reaccelerate coming out of Easter. For a couple of days may be a week and then some of that I think moved into April a little bit, but March was broadly speaking pretty good, but it picked back-up. So I think we feel really good about where we are, and I think the April business and results just kind of show that trend over the four months that the business is doing well.

[Bob Napoli:]

Thanks and the last question is just a quick expense question. I think you said that there was like $5 million or $6 million of additional pension expense in the comp, is that a one-time catch-up and run rate lower.

[Alex Holmes:]

No, sorry if it came across that way. Increase in the comp and benefits in total was six and that included increased cost for headcount, salaries, increases going on an annual basis in the March-April timeframe, and then the pension increased as well and that’s something that we continue to deal with it. It's obviously legacy pension inherited from [buyers] and really not related to our business and so we continue to fight with that but obviously our obligation on that continues to exist and so that’s a step up that we face every year, and this year a little bit more severe than in prior.

[Bob Napoli:]

In the flip side was the transaction, operating expenses were lower is that a run rate to 51 million relative to revenue, is that a clean number without restructuring?

[Alex Holmes:]

Yeah, with the restructuring volume down, with the amount of legal expenses that we have been incurring, I think its much more inline with where we are going to be. I think if you look at some of the other pieces that move around just from running the business, obviously that will have some impact to it, but marketing of sort of things.

[Operator:]

Our next question will come from George Mihalos with Credit Suisse.

[George Mihalos:]

Just may be to start off with just to go back on some of those corridors that you are selectively looking at adjusting pricing, I know you don't want to give specifics but is there a way to kind of ballpark the percentage of revenue or total revenue that is coming from those specific corridors?

[Alex Holmes:]

I mean, I guess what I could tell you is, it’s pretty small.

[George Mihalos:]

Okay, just in terms of the pricing adjustment, you mentioned again exploring some of these cuts partially offset by some price increases. Is there a way that we should, how should we be thinking about kind of that spread between transaction growth and revenue growth going forward. Do you expect it to kind of stay in that 100 to 300 basis point bend?

[Alex Holmes:]

Yeah, I mean, and I think if you look historically where we’ve been as a business, I think its about right, we have been trending kind of closure to one or two. I think all our bets are off given the competitor markets that’s out there and we had a really good first quarter, we are hoping that trend continues and that we continue to not feel broad impacts. We did feel about 1% of revenue growth from the pricing that Western Union put in and they were doing everything we can offset that through targeted increases here and there through actually even more importantly just driving growth in new markets and new places that we just don't have a share and the volume today that we want to have and I think we broadly have gained tremendous share. Pam mentioned we increased our total principal center on the world at 9% and that certainly is a very, very strong number. So it’s managing the business, so and Pam obviously would want to add to that.

[Pam Patsley:]

Yeah, I just want to make sure everybody understands the way, I think Alex again tried to emphasize what we best said in the call trying to maximize revenue with and balance transaction growth, market share gains, principal send growth, with maximizing revenue growth fall through to bottom line. Those remain our goals and we do not believe our only lever to achieve that is price. That is only one and it’s one that we actually haven't used aggressively in a price you know decrease but for around Thanksgiving having the Walmart pricing in the US match the price cuts that competitor made and through April we've really you know not taken any other actions, I think we were -- we tried to be very clear that match that. So that is but one. It is about quarter alignment. It is about productivity. It is the robustness in our business, gaining new customers, getting each customer to do one more transaction so and we don't plan to heavily use price to grow or achieve our revenue or market share gains in the future. So I hope that was clear.

[Operator:]

We will move on to our next question from Mike Grondahl with Piper Jaffray.

[Mike Grondahl:]

The US to Mexico transaction growth was 23%, but I didn't here exactly what the revenue growth was?

[Pam Patsley:]

I didn't say specifically. I said it was lower than 23%, but yet still double-digit.

[Mike Grondahl:]

Okay. And then, could you talk about exactly your partnership with PayPal and kind of what you are doing for them and how you are working together?

[Pam Patsley:]

Sure. We are very excited. We have a couple locations out that just you know PayPal and MoneyGram are using to as test, but in there's kind of about two or three, four phase rollout of this relationship. So first will be cash-in and then it will be cash-out and then it will be even more robust around sending and establishing PayPal accounts as well. So I think it’s all about there are you know points of presence around the world, 321,000 and growing. Our convenience particularly here in the US where we are going to launch this and our points of presence here are very important to provide PayPal customers a way to get funds into their account where they are not holding to link to bank account or card based or anything like that and important you know for cash payout. So we are really excited and it is truly one of those that is a complimentary relationship on both sides. The strength that we bring are very additive to the strengths that they bring. So a very like mindset about where we are going and we are excited that we will be able to give you a lot more color on that next quarter because we are on track for two launches this quarter.

[Mike Grondahl:]

Then maybe just lastly, the ACH ability that your network has or kind of linked to bank account, could you just explain that for me just so I can understand how easy that is to use at MoneyGram or how widespread it is?

[Pam Patsley:]

Well, I will take the latter part first and I would say where we offer an ACH solution in our online business, it is actually chosen the least often to the other options we offer, credit or debit card. So that probably gives you a little insight into how consumer thinks about it and the ease in use of using a credit and debit card is preferable to them. I guess how it works, you know you register putting your bank account information, there is a validation process and it runs through the ACH network which is a debit to an individual bank account. This is very similar to you know a big settlement just like you would settle and use the ACH to settle on a business account.

[Mike Grondahl:]

Is it kind of available across your network and online?

[Pam Patsley:]

No, it's just an online.

[Mike Grondahl:]

Okay.

[Alex Holmes:]

Within the shops, Mike, I mean it's really all cash, I mean people are walking in with cash, sending with cash and that continues to be the predominant form by far at the walk-in locations.

[Operator:]

Thank you. We will now take our next question from David Scharf with JMP Securities.

[David Scharf:]

Just a couple since most have been addressed already. First, good to see a compliance monitor was finally named. Is there anything additional Pam to comment there, I mean based on any initial discussions you may have had with them, do you expect the process and just the administrative burden to be any different than what you have been expecting all along?

[Pam Patsley:]

I would say so far everything is consistent with our expectations. I would say I think we all on the -- I don't know, does it provide a lot of clarity, but we are all comfortable that we don't have previous monitor experience to draw upon I guess, but our obligation under the DPA are first and foremost in our minds and what we are going to do to comply. And so our reporting obligations have been underway prior to Aaron Marcu being named, those continued, the next quarterly report, I think it's going to be filed next week, and so that is just you know that is systematized, all that is just working. We had a series of great meetings. I participated in a small portion of them. But Aaron and his team were down here for close to a week and there then you know the obligations felt out in a DPA what his obligations in terms of reporting in timings, so there is kind of a specific, if you will timeline, if when different reports are due. Our quarterly reporting is certainly track different than what he is reporting it. And at the heart of it, our desire is to be the best and to over achieve; I think I used those words when we announced this and all that we do in this area. And I think there are number of things that we are doing that are outside the DPA and that just as you know that related to consumer product issues. And so it is very important for us to continue our initiative on consumer education whether that at the point of sale and other creative things that we are working on to continue to promote consumer education because you are either going to have to get the bad guys or disrupt their business model such that they go somewhere else and find something else to do rather than money transfers, and so consumer education is at the hard of that. And then of course agent training, teller training is at the top of the list as well, and those things weren't specifically called out, but other things that we continue to, I think invest in because we value it for our business.

[David Scharf:]

Got it, and I appreciate the color. Wanted to switch to commission trends, and I think to recall, I think following the onset of the financial crisis, global recession, I know Western Union seem to go through a phase where they were renegotiating a lot of the contracts with lower rates that is since reverse course and now they are signaling commission hikes. You have highlighted to step up commission rates as well. Are we entering the phase where there is arguably more competition with the remaining real estate of agents out there, I mean should we focus so much on consumer pricing, but on the commission side, should we generally be thinking about rates securely increasing modestly each year?

[Pam Patsley:]

I'm going to let Alex take that part, but I want to comment on one thing you said about is there increased competition for kind of who the international money transfer provider would be, and I would say we take all competition very seriously. We think competition makes us sharper. We like strong and healthy competition, healthy competitors are better than not. But I would say for large quality agents for international money transfer there are still really just a couple of providers so that is really still the same.

[Alex Holmes:]

Yeah, I think David as we look at the plan for 2013, looked at the events of 2012 and I'd really say any place that we've kind of increased our commissions has been relatively restricted to some large agents and some really unique opportunities for us. I think the broad base of our agents continue, the trend on commissions continues to tick down a little bit. I think that's particularly consistent in markets that we've been in for long period of time. Any new market that you go into, particularly for new providers can tend to have a commission rate that's on the higher end of that. But I think globally if you take the basket of agents that we have, you would say that that commission rate is probably either trending slightly down or its relatively flat. So broadly speaking I'm very comfortable with where we are. I don't think that commissions are on a big increase around the world in anyway at all. I think we've looked at kind of this year in terms of getting a little bit of a step up and that was related to a couple of new receipt agents that we've added and then obviously some legacy partners that are of largest importance to us and so you look at that and you look going forward I think its going to stabilize and we feel good about the trend. I know the comments from the other side were slightly different, but I think they are commission philosophy and focus and pressure on the agent side has been very different than ours has been.

[David Scharf:]

That's helpful. Just two other quick ones for you Alex; first on the restructuring side, sounds like you are accelerating a couple of million dollars of restructuring expenses this year to take it to $5 million. Can you elaborate on just what that $2 million relates to?

[Alex Holmes:]

Yeah, certainly can, I would say that we have, you know I won't go into the nitty-gritty detail of it. There's a couple of projects that we are working on, one I think I’ve talked about in the past is been kind of our European or we call our European retail integration where we are integrating a variety of platforms. That's always a fun process, every country in Europe is very different, how we approach them is very different. I'd say we hit a couple of bumps along the road, I don't think anything outsized or anything to be overly concerned about but some frustrating things just to take a little bit longer and are costing a little bit longer, excuse me costing a bit more, than we had initially anticipated. And then we have another project related to, I would say broadly related to our call centers and some global routing and some of pieces that I think has been a lot bumpier than we anticipated working with our outsourced provider and some other to get more of a uniform connectivity there and that's had a few hiccups along the way and its taking a bit longer and there's some frustration on that as well. So we felt that it was sort of important to make sure that we allocated the right amount of money to get those completed profitably.

[Eric Dutcher:]

And David we probably need to move on to next analyst we’ve a couple of them.

[Operator:]

Moving on to Kevin McVeigh with Macquarie.

[Kevin McVeigh:]

I wonder if you could just give us a sense of a free cash flow for the full-year and just how the incremental 28 million from the debt refinance factors in to that as we think about modeling for the full year?

[Alex Holmes:]

Well, the first thing, generally we've been generating over 100 million in free cash flow [every year] and the 28 million would be an annualized number. So if you just kind of portion it out, it will be pretty much effective for three of the four quarters and you can layer it in that way.

[Kevin McVeigh:]

And then looks like there was an acceleration in terms of agent location. Should we think about kind of 17% throughout all the 2013 at that kind of run rate or is there just any thought on agent locations as well expansion.

[Alex Holmes:]

I think agent location expansion has in double-digit; there's really been our focus obviously. As you get bigger, the sustainability of that tends to be more lumpy. I think we feel good about the horizon. I think 17 was a great number. It seemed to have dropped lower or fluctuate within that range is probably likely. Just given timing of boarding agents and signing them within given quarters. So we don’t necessarily give projections on agent location growth, but we have been targeting internally kind of that double-digit number.

[Pam Patsley:]

Absolutely.

[Kevin McVeigh:]

And I was going to say, adding the 45,000 agent location over the last 12 months was great.

[Operator:]

Glenn Fodor with Autonomous Research is next.

[Glenn Fodor:]

Just continuing that point between agent signings; the relationship between signings and productivity. You have been growing agent base in the high teens now since around 2010 I think. Overall transactions are not at that level yet, it’s obviously seasoning involved. But is it logical to expect that perhaps transaction volume could get to that high teens level to match where agent location growth has been as they come up and hit their stride or is that really too much of stretch here? And what are the limiting factors; just attrition or market share gains?

[Pam Patsley:]

It is possible, and I would just say I don't want to over emphasize that we are always clear to say one month doesn’t make a quarter, but we were very encouraged with the transaction growth of 15% for April for money transfer; so it is definitely possible. I think as some keys end parts of the world come out of the doldrums, economic doldrums that’s going to be very helpful to us. We are focused on agent productivity and we have no limits on our growth in our mind.

[Alex Holmes:]

And keep in mind, we have talked about a lot, in the industry, not all agent locations are accredited equal. We’ve talked about the postal affect before. The post office is a beautiful thing, gets you in every small town and multiple locations, but that doesn’t mean that’s going to be really a hub for money transfers. It’s great for marketing, great to be in those and get the off transaction, but they are not going to be nearly as productive as others, and so I think you have to look at productivity in a targeted manner and so I know from a modelling perspective it’s not a very straight forward, but you are never going to get that same bank for your buck on every single location that you sign. So there probably is in nature of kind of that network effect a little bit of dilutive concept in that.

[Pam Patsley:]

I would also point you to, if you look at the world’s largest send countries and we talk about U.S. So of course on a cross border prospective U.S. outbound, we had very, very good double-digit growth there. We think about Saudi Arabia or broadly the GCC. We continue to grow very strong there double-digits, and Russia is the third largest sends country. So you follow that. As I said, we are focused on agent productivity, aligning the quarters and having the right value proposition for the consumer and the agent, and there are no limits in our mind and how we are kind of managing the group as to what is possible.

[Glenn Fodor:]

That is great color. And just final question, could you push now for us what percent of your money transfer customers you believe use your service across multiple channels like in-store versus online and do you have any metrics you can share on the level of productivity of say an in-store customer versus an online, does an online use it more or less than in-store or vice versa? Thanks.

[Alex Holmes:]

I think broadly speaking we can track the royalty programs, people that are walking in and then doing online. There is still not a lot of overlap between those consumers. You will see a lot more online being a unique or different consumer than the consumer that uses our in-store product.

[Pam Patsley:]

But there is a relapse and this is of course only relevant in the U.S. bill pay and money transfer, there is a lot of crossover there and so you can get a customer first perhaps by bill pay, then you get a money transfer transaction, vice versa. We love the fact that customers repeat with MoneyGram and I think that's very positive for us.

[Operator:]

Moving on to Wayne Johnson from Raymond James.

[Wayne Johnson:]

Could you share any statistics you have on customers that are gained and maintained within the system a year after price cuts in certain corridors and if there's anyway to kind of to separate and to highlight like the efficacy if you will, the effectiveness, any kind of corridor programs you have, like what's the long lasting effect outside of just that particular period of time?

[Alex Holmes:]

Well, I think broadly one of the things you need to think about is someone moving for prices, moving because of a specific action and so building customer royalty on price is not exactly the most effective strategy. That's why we are much more focused on building customer royalty through other methods, building the convenience of our service, connecting with our consumer and that's really where we are focused on building that brand royalty.

[Wayne Johnson:]

Okay. So just and I appreciate that, but again I mean there's a reason when these price concessions take place to be competitive. And so you know should I just think about that as a transitory effect matching competition to keep the number of consumers constant for that particular corridor, like that's not something that you guys expect to add more consumers on to your system. Is that right?

[Alex Holmes:]

(Inaudible) following your question completely and we can follow up with you and go into some more detail on some of the different metrics, but I think you know we are looking at expanding the number of consumers we have every month and I think we have internally metrics that we track you know across our walk-in network, across our loyalty programs, across our online network in terms of number of new consumers coming into MoneyGram and then obviously looking at those statistics on retention of those consumers and repeatability. I'm not sure that we've ever run you know large enough price cuts or done so in a way because we've lost a lot of volume in a certain corridor and a certain area of the business that we've then had the measure, though the retention of those consumers and we've cut those prices, I mean I think anytime we've reduced prices we've done it from in a measured manner and in an effort to maintain market share but also maximize revenue again currently and further down the road. I mean I have no doubt in my mind that if we moved all of our prices to zero, we do a lot of transactions, but it’s not really going to get me anywhere. So you know in the end, you have to balance that all together and you got to look at where your growth opportunities are, you've got to look at your current markets, you've got to look at maturity of different markets, you have to look at migration flows within that, etcetera, etcetera. So I think we are targeting our consumers. I think brand awareness is something tracking those studies, measuring repeatability customers, brand awareness in various countries, corridors etcetera is extremely important to us and something we spend a lot of time on.

[Wayne Johnson:]

I appreciate that response. I look forward to following up on that. And as a separate topic on the online strategy for MoneyGram, I think PayPal sounds very intriguing, very interesting, Ukash also very interesting. Can you talk a little bit about if MoneyGram has, what the plans are for their owned online services or are guys more focused on being an aggregator of off-the-shelf services?

[Pam Patsley:]

No, we very much have our own online product offering. We have MoneyGram Online available for consumers in the U.S., the UK and Germany. We are certainly not stopping with three countries. We think it is additive to our MoneyGram Online program to also allow our consumers to get to that site via other ways and then to leverage mobile operators, mobile apps, others that are experts in those field where we can partner with them. So we actually think it [might on track] but one plus one is certainly more than two in this regard. But absolutely, we have had MoneyGram Online in the U.S. for over a decade and you can pay bills online too. So it's a robust product offering, more than just money transfer.

[Operator:]

And ladies and gentlemen, that is all the time that we have for questions at this time. I turn it back over to our speakers for any additional closing remarks.

[Pam Patsley:]

I think that’s it. Thank you all very much. We appreciate your interest as always in MoneyGram and good talking with you today.

[Operator:]

Ladies and gentlemen, that does conclude today’s conference. We thank you for your participation. Have a great day.