Moneygram International Management Discusses Q3 2013 Results - Earnings Call Transcript

Oct.24.13 | About: MoneyGram International, (MGI)

Moneygram International (NASDAQ:MGI)

Q3 2013 Earnings Call

October 24, 2013 9:00 am ET

Executives

Eric Dutcher

Pamela H. Patsley - Executive Chairman, Chief Executive Officer, Chairman of Special Committee and Member of Special Sub-Committee

W. Alexander Holmes - Chief Financial Officer and Executive Vice President

Analysts

Kevin D. McVeigh - Macquarie Research

Sara Gubins - BofA Merrill Lynch, Research Division

Rayna Kumar - Evercore Partners Inc., Research Division

Jason Nacca - Sidoti & Company, LLC

Robert P. Napoli - William Blair & Company L.L.C., Research Division

Georgios Mihalos - Crédit Suisse AG, Research Division

Smittipon Srethapramote - Morgan Stanley, Research Division

Tien-tsin Huang - JP Morgan Chase & Co, Research Division

Michael J. Grondahl - Piper Jaffray Companies, Research Division

Timothy W. Willi - Wells Fargo Securities, LLC, Research Division

Glenn T. Fodor - Autonomous Research LLP

Operator

Good morning, and welcome to the MoneyGram International Third Quarter 2013 Earnings Release Conference Call. Today's conference is being recorded. [Operator Instructions]

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, Michael. Good morning, everyone, and welcome to our Third 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 that today's call is being recorded and that various remarks we make about future expectations, plans and prospects constitute forward-looking statements for the purposes 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 latest 10-Q. 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.

Now I'll turn the call over to Pam.

Pamela H. Patsley

Thank you, Eric. Good morning, everyone. We had another solid quarter, once again, posting increased revenue growth and strong earnings. During the quarter, money transfer transaction volume increased a robust 14% and money transfer constant currency revenue growth accelerated to 14%, significantly outpacing the industry. This was our 10th consecutive quarter of double-digit constant currency money transfer revenue growth. Our global agent network also grew at a strong 14% to 334,000 global locations. Consolidated revenue increased to $383 million, up 13% and adjusted EBITDA grew to $76.5 million.

Our solid top line growth, paired with tight expense management, enabled us to deliver accelerated free cash flow, which strengthened this quarter to $47.3 million, an increase 92% over the prior year. With this cash flow, we are focused on investing in product enhancements and acquisitions that enrich the consumer's experience and drive efficiency, all positioning the company for future growth.

I'm proud to announce that during the quarter, we moved forward with 3 acquisitions. We acquired Nexxo Financial's full-service money transfer kiosk business and signed an agreement to become the preferred money transfer and bill payment partner for Nexxo Financial. These kiosks provide consumers with convenient and flexible options to send funds to MoneyGram's expansive receive network. The acquisition closed October 1, and we also acquired Advanced ChronoCash Services, our long-standing superagent in Greece. While the transactional revenue is not new to MoneyGram, the acquisition reduces our commission expense and establishes a direct retail network, bringing us closer to our consumers in Greece. We have also signed an agreement to acquire MoneyGlobe, a provider of cash-to-account money transfers from Greece to Bangladesh. This company has targeted a niche quarter that has a high demand for cash-to-account services. While MoneyGlobe is a small acquisition, the transactions will be new to MoneyGram and the service capability will enable us to grow other quarters to Bangladesh. We hope to close this acquisition before year end.

And during the quarter, we also created and launched a consumer education initiative, the Scam Awareness Alliance, focused on informing consumers of the fraud scams perpetrated through financial service offerings. The alliance is an unbranded effort that will use a broad marketing campaign, including television, public service announcements, social media, point-of-sale materials and brochures to educate consumers. MoneyGram is spearheading this initiative and seeking support from other financial service providers, government agencies and nonprofit organizations. Millions of consumers rely on financial services for their daily needs, and raising awareness of common fraud scams helps protect consumers and creates a safer and stronger industry as a whole. We are pleased with the early reactions to this proactive, self-initiated effort and look forward to its success in thwarting fraud. Another initiative I am equally excited about is our MoneyGram Foundation. During the quarter, the foundation issued its inaugural grant to charitable organizations in 6 countries. The mission of the foundation is to help children around the world gain access to educational facilities and learning resources. Educating the world's children provides hope and opportunity that can be a sustainable and life-changing investment and, hands down, is something our consumers believe in. As we head into the homestretch of 2013, it's important to reflect on the headwinds we were facing as we began the year. There were concerns about pricing and its impact on revenue growth or transaction growth. There was growing over the Elektra addition of 2012, and some of you were concerned about the growth of online competitors. However, this year, our money transfer business has performed very well. Even after considering a few quarters where we have made a conscious decision to choose maximizing revenue over matching price cuts, we're extremely pleased with the 9 months. You should know, however, that we continually look to evaluate these quarters to get the right balance of revenue growth, transaction growth and market position. We've lapsed the Elektra anniversary, but our growth has not slowed, and we now have 12% market share in the U.S.-to-Mexico quarter. Our self-service and new channel business have 35% revenue growth as we focused on being the partner of choice for new technology money transfers. With our robust network and growing brand, our future is bright. Therefore, for the full year 2013, we now estimate that the company will be at the high end of both constant currency revenue growth of 7% to 10% and constant currency adjusted EBITDA growth of 3% to 6%.

So now, let's take a look at the regional performance. U.S.-to-U.S. sends represented 30% of money transfer transactions and 27% of revenue in the quarter. Transactions grew a solid 8%, continuing the good pace from the second quarter. Revenue growth accelerated for the second consecutive quarter to 12%, due to targeted positive price adjustments in very specific brands and at select agents. MoneyGram Online drives strong growth for the U.S.-to-U.S. market as it is our largest online quarter. We are encouraged by the stability of growth, especially considering that many states showed an increase in unemployment rates during the quarter. Our U.S.-to-U.S. business is built on a diverse base of large and small retailers, key strategic partners and online services. This multichannel network generated strong performance, again, this quarter.

Our U.S. outbound transfers in the quarter represented 36% of total money transfer transactions and 28% of money transfer revenue. Last quarter, we announced that our 19% transaction growth was a 5-year high, and we actually accelerated again this quarter to 20%, and revenue growth was a very impressive 17%. U.S.-to-Mexico increased to 34% growth on year-over-year transactions. These results are simply fantastic, especially taken in context with the latest World Bank report that shows the U.S.-to-Mexico market declining due to slow economic recovery in the U.S. Our Mother's Day promotion from last quarter, followed by our soccer sponsorships this quarter, have attracted repeat customers to our expansive and diverse network on both the send and receive side. Important to this quarter, we signed an agreement with Farmacias Guadalajara. This agent with 1,000 locations had previously been one of our competitor's largest exclusive agents in Mexico. This agent added MoneyGram and other providers to their locations, breaking exclusivity as Elektra did in early 2012. U.S. outbound to Anglophone Africa continued to build on its great performance in previous quarters. Our increasing brand awareness and expanding network in Africa is yielding excellent results. As we mentioned last quarter, we are extremely pleased with our U.S.-to-Mexico transaction growth, and it's a great headline, 34%, especially considering this growth came from all parts of the U.S. and through multiple channels. U.S. to Latin America and the Caribbean, excluding Mexico, had strong growth again with 15% transaction growth. Looking at our total U.S. outbound transaction growth without Mexico, we posted 14%, and we are gaining share. This is a good indication of the broad base or the breadth, if you will, of our business. Looking at sends originating outside of the U.S., transactions grew 14% and revenue grew 15%. This category represented 34% of total money transfer transactions and 45% of revenue during the quarter. Sends growth came from Canada, Australia, Saudi Arabia and several countries in Europe and Africa. These are outstanding results, so let me tell you about regional activity in our business beginning in Europe.

We've said for several quarters now that Southern Europe has been mostly weak due to economic or political conditions in Spain, Italy and Greece. I'm pleased to announce that we saw growth across Southern Europe. In Spain, we saw broad improvement as the Spanish Minister of Finance is also predicting modest growth in GDP for the quarter. Despite the unemployment rate of 26%, we saw transaction growth in our top 5 quarters from Spain. We, again, saw growth in Spain receives from the U.S., Europe and intra-Spain as well. In Italy, we performed well, taking share from a regional competitor. However, we've also taken some proactive steps to enhance compliance for certain quarters from Italy that could somewhat mute growth in future quarters. We are also, however, extremely pleased to extend our new multiyear agreement with Poste Italiane during the quarter. This new agreement ensures consumers will continue to have convenient access to MoneyGram at over 9,000 locations in Italy. As mentioned, we're moving forward with 2 acquisitions in Greece, which are already having a positive impact on our network in the country. Greece still has the highest unemployment in the eurozone. But as the economy improves, we will be well-positioned to capitalize on the opportunity. Across the rest of Europe, strong growth from Germany and the U.K. offsets slower growth in France. In the U.K., we signed a new agent agreement with MoneyCorp, a leading foreign exchange broker. This was a competitive takeaway, providing MoneyGram a new exclusive agent in the region. We also opened corporate stores in strategic locations in Germany, Austria and Norway. We're sponsoring relevant local sports teams and events. We signed a new sponsorship agreement for Paris Saint-Germain club. It's a leading French football club, yet with many international players and a large following outside of France and, certainly, as well as in France. And we believe targeted sponsorships drive brand awareness and consumer loyalty in key markets. In Eastern Europe and Russia, we continue to perform well as we build out our agent network. We are executing on our retail plan in Russia with our partner CFT-Bank. This last quarter, we added additional locations with the major mobile provider, Euroset and MTS, providing convenient outlets for consumers. Growth in the Middle East was strong, driven by sends to the Philippines and the Indian subcontinent. Exchange houses are important agents in this region, and we signed several during the quarter. In the UAE, we signed GCC and Deniba. While in Yemen, we signed Al Noaman Exchange with 95 locations. We continue to be very excited by the growth in this region and its long-term prospects. Sends to India in the quarter were strong from areas all over the world. While our consumer is normally sending for life's essentials, the weakness of the rupee against multiple currencies worldwide led to really strong growth in the quarter. While the rupee devaluation began in the second quarter, we saw more of an impact in the third quarter. The rest of the Indian subcontinent performed well also, bolstered by our brand awareness gains from our Ramadan campaign. In Bangladesh, we signed agreements with Southeast Bank and Janata Bank, which is one of the largest remittance recipients in the country. Our businesses in Asia is growing strong. We're broadening our base of send agents by converting receive agents to senders as well. We expanded into Myanmar through alliances with 3 banks. We added Merchantrade as an agent in Malaysia, which is one of the largest nonbank remittance networks in the country with over 70 locations. In the traditional receive country of the Philippines, our efforts to enable send capabilities and our Moneygrado campaign are paying off with spectacular growth. Sends all over the world to China were robust, as our strategic agent expansion in the country has built a strong receive network that is convenient for consumers. Last quarter, we announced the signing of 3 African national posts. This quarter, we signed Zampost, the Zambian post office with 180 locations. MoneyGram is the money transfer provider for over 30 national posts around the world. Once again, our network in Africa performed well. Both send and receive transactions generated double-digit revenue growth in the quarter. This is especially impressive against the backdrop of change in several of the African countries. A trend is emerging where the countries are trying to create an exchange for their local currency by forcing remittances to be transacted in local currency. It remains to be seen how this will all play out, as consumers often prefer anything but local currency. During the quarter, we successfully navigated this change in 2 different countries, in Angola and in Nigeria. Finally, in Latin America, our growth was solid, once again, driven by our agent expansion. Inter-Latin America sends have been strong, especially from Guatemala, Honduras and El Salvador. The recent World Bank report highlighted the resilience of those intra-region transactions, and we are positioning our business to capitalize on the opportunity. In addition to renewing contracts with key agents in Honduras and El Salvador, we signed a new agreement in Costa Rica with Casa Blanca, a leading electronics retailer. In the third quarter, our self-service and new channel money transfer transactions increased 47%, driving an excellent 35% revenue growth. This was a huge increase from 24% revenue growth last quarter. Self-service and new channel revenue represents 6% of our total money transfer revenue. As I've already mentioned, we acquired the full-service kiosk business of Nexxo Financial. These kiosks, primarily located in California, are standalone cash-accepting machines, which provide convenient money transfers for consumers in mere minutes. For the purchase price of $12 million, we acquired 195 kiosks that generated nearly 1 million transactions in 2012. Currently, the kiosk only offers send transaction to Latin America. But once they are fully integrated into our network, they will power transfers all over the world. This quarter, we launched the funds-in service with PayPal, that gives consumers the ability to load a PayPal account with cash at MoneyGram. This new service provides access to e-commerce for all U.S. consumers. It went live in select markets during the quarter, but there's a full launch in the fourth quarter with strong promotional support. Our funds-out service with PayPal is already growing very nicely, and we look forward to funds-in being a success as well. Also during the quarter, we extended our relationship with BTS, a cash-to-account partner. Through this agreement, we offer cash-to-account at over 20 banks in Latin America and the Caribbean. A few of these are already receiving transactions from our full-service agents' kiosk and MoneyGram Online. Finally, our largest self-service revenue comes from our MoneyGram Online business, which offers money transfers in the U.S., U.K. and Germany and bill payments services in the U.S. In the third quarter, our global MoneyGram Online revenue increased 30% with 46% transaction growth. MoneyGram Online is a powerful channel for us, and the revenue growth closed the gap to transaction growth after lapping online price changes from the prior year.

Importantly, our transaction growth remained stellar, in spite of facing this headwind from last year. Our future growth continues to look promising, as we had over 240,000 new customer profiles created in the quarter. Our self-service solutions are designed to offer convenience for the consumer to send and receive money any way and anywhere they want. Through our great partnership strategy, MoneyGram services are available through kiosks, prepaid cards, virtual agents, mobile wallets and online. Our multidimensional self-service strategy has points of presence in more than 20 countries around the world.

Now let's take a look quickly at the bill payment product, which represented 7% of total revenue. For the third quarter, transactions were essentially flat with a 3% revenue decline. Our bill payment business is seeing growth from our self-service channels with now by 5% of bill pay revenue coming from self-service. Through exclusive agreements, we are targeting expansion in state and local government vertical. In wrapping up, the GFT segment, I hope you can see we're truly excited about the large growth potential of our young network, our new products and our acquisition. We've added over 60,000 agent locations since the beginning of 2012, and we still have a great opportunity to add agents in so many countries, where we are just beginning to crack the surface.

And before I turn it over to Alex to walk you through the financials, I want to spend just a minute at talking about our Financial Paper Products business. We provide money orders and official check outsourcing through this business segment. Many agents view money orders as integral to our full suite of service offerings, and our official check business builds relationships with financial institutions. While it's not the revenue growth driver for MoneyGram, it does play a very important role in our growth. We recently changed management of this business, and the team is having a great impact already. During the quarter, the official check business renewed over 15 contracts with FIs, including Susquehanna and Mountain America. This was a great quarter for FPP, and I look forward to continued success from this team.

Now I'll turn it over to Alex.

W. Alexander Holmes

Thanks, Pam. Total revenue was strong in the quarter, increasing a healthy 13% to $383 million on the strength of our core money transfer business. Money transfer revenue was $333.7 million, increasing 15% on a reported basis and 14% in constant currency. Investment revenue was $7.2 million, up from $2.9 million in the prior year period due to $3.3 million in principal and interest received on a legacy CDO, as well as higher returns on our investment portfolio. Reported EBITDA for the quarter was $72.6 million. Reported EBITDA was impacted by $3.7 million of stock-based and contingent performance compensation and $200,000 of legal expenses related to certain ongoing matters. Adjusted EBITDA was $76.5 million in the quarter, up 9% on a reported basis and 7% in constant currency. Adjusted EBITDA margin was 20%, a decrease of 80 basis points from the prior year period. Adjusted EBITDA margin was primarily impacted by increased commission expense, increased incentive compensation cost and increased cost for compliance initiatives and the monitor, which were partially offset by higher investment revenue.

Excluding investment revenue, on a sequential quarter basis, adjusted EBITDA margin was flat. Year-to-date, adjusted EBITDA was $219.1 million, an increase of 6% on a reported basis and 5% in constant currency.

Year-to-date adjusted EBITDA margin was 20.1%. Net income in the quarter was a solid $22.5 million and diluted earnings per share was $0.31, which includes a negative $0.03 per share impact from stock-based and contingent performance compensation. Both net income and EPS increased significantly on a year-over-year and sequential quarter basis. Looking at expenses during the quarter. Total reported operating expense decreased 8% from the prior year period. Considering the cost for MBPA [ph] and restructuring and reorganization activities that occurred in 2012, operating expense in the third quarter of 2013 increased 16%.

This increase was primarily due to increased commission expense, which was driven by both volume and rate, along with higher incentive compensation expense and compliance costs. Total commission expense in the quarter was $178.7 million or 46.7% of revenue compared to 45% in the prior year, as money transfer, again, increased as a percentage of revenue.

Money transfer commission expense increased due to increased money transfer volume and a higher average commission rate due to changes in corridor and agent mix, as well as the step up in commission rate for a large agent, which we've mentioned on previous calls. For the remainder of the year, we anticipate money transfer commission expense on a rate basis to be in line with the third quarter. Compensation and benefits expense in the quarter increased $11.4 million on a year-over-year basis. This increase was primarily driven by increased headcount costs for compliance initiatives, along with increased incentive compensation as compared to last year. On a sequential quarter basis, compensation and benefits remained roughly flat. Transaction and operation support decreased $70.2 million on a reported basis compared to the prior year period, largely due to decreases in expenses for legal matters and reorganization and restructuring cost that occurred in the prior year. Excluding these items, transaction operations support increased $4.4 million or 7% over the prior year, primarily due to monitor costs of $2.3 million in the quarter. Marketing as a percentage of total revenue was 4.2% compared to 4.7% in the prior year period.

Overall, we are pleased with a relatively small increase in transaction op support expense, given the 14% growth achieved in the money transfer business. Interest expense was $10 million in the quarter. And as a result of our debt refinancing, we were able to realize interest expense savings of $7.7 million. Year-to-date, we have achieved approximately $16 million in savings on interest expense. Both income tax and expense for the quarter was $15.6 million, and we did not pay cash taxes.

In the quarter, free cash flow was $47.3 million, up 92% from $24.6 million in the prior year period due to strong growth in both revenue and EBITDA, lower agent signing bonuses and lower debt interest payments. Capital expenditures in the quarter were $10.8 million, down slightly from the prior year, and signing bonus payments were $8.8 million, down from $16.3 million in the prior year period. On a year-to-date basis, capital expenditures were $37.2 million and signing bonus payments were $19 million.

Looking ahead, we anticipate both CapEx and signing bonus payments to be higher in the fourth quarter than in the third, keeping us relatively in line with our full year projections. We ended the third quarter with assets in excess of payment service obligations at a very strong $309.7 million, up from $257.3 million in the second quarter. We are obviously extremely pleased with this number, which continues to be bolstered by increased revenue and prudent capital and expense management. Supported by strong earnings and improved cash flow, we're optimistic about our cash position and the flexibility it provides to us. Looking ahead, we anticipate utilizing our excess cash to reinvest in the business, make targeted acquisitions and reduce our outstanding debt. Turning to the segments. And first, let's look quickly at the FPP business. Total revenue in the Financial Paper Products segment during the quarter increased 15% to $23.3 million with operating income of $10.5 million. Reported operating margin was 45.1% and 46.4% on an adjusted basis.

Total revenue for the Global Funds Transfer segment increased 13%, led by a strong money transfer constant currency revenue growth of 14%. The Global Funds Transfer segment reported operating income of $40.6 million and an operating margin of 11.3%, down from 12.4% in the third quarter of last year. On an adjusted basis, operating margin was 12% in the quarter, down from 14.2% in the prior year. Margin in the GFT segment was impacted by the previously discussed increases in commission expense, incentive compensation and compliance costs. The GFT segment is the growth engine of our business.

While on the surface, margin has declined, it is important to understand the underlying factors contributing to this.

First, we are focused on growth and having -- and are having a very good year. Our performance this quarter is substantially better than last year's, and this has resulted in higher incentive compensation expense, which certainly impacts year-over-year comparisons.

With respect to commission expense, as we've talked about in previous quarters, we have executed a handful of large agent agreements in the past year. That, while resulting in increased commission expense, have helped us to increase our market share and accelerate our revenue growth. These partnerships are beneficial to our long-term growth strategy, and we are very pleased with the performance of these relationships.

Finally, as it relates to compliance, we've been increasing our investments in systems, people and technology, as having a leading compliance organization is, without a doubt, the single most important investment we can make, particularly given the increasing regulatory oversight around the world.

In addition, we are also covering the cost of the monitor, which, as I mentioned on the last call, are higher than we initially believed they would be at the start of the year and are something we don't control. So when you net it all out, we are pleased with our financial position and are very excited about our growth, our market position and the investments we are making in the business.

Now let me turn it back to Pam.

Pamela H. Patsley

Thanks, Alex. That was great. In wrapping up, I want to make a few comments on industry growth. The World Bank came out with updated projections earlier this month, confirming that remittance growth this year would be about 6%. They have also increased their growth estimates for 2014 and beyond. They now are projecting that cross-border remittances will be about $700 billion in 2016. At our current pace, we are doubling the industry growth this year and have consistently outperformed the industry for the past several years.

Additionally, we are expanding our products and service offerings to provide digital options, while not outrunning the adoption curve. Through both own solutions and innovative partnerships, we have expanded into the digital realm with online, mobile and account-based transfers, but we're not taking our eye off the enormous cash-to-cash-based business, which is the vast majority of the industry.

To that end, we have focused the organization to expand our core cash business and have established a separate emerging channels group to develop new digital and self-service solutions.

We believe we have struck the right balance between staying close to our consumer and investing in products for the future. Our robust compliance and settlement network, strong agent base and vibrant brand makes MoneyGram the way to send, pay or load funds anyway, anytime or anywhere.

Thank you, all, again, for joining us today. And operator, please open the line for questions.

Question-and-Answer Session

Operator

[Operator Instructions] And we'll take our first question from Kevin McVeigh with Macquarie.

Kevin D. McVeigh - Macquarie Research

I wonder if you could give us a sense -- it sounds like the pricing actions haven't been as dramatic as what you would have thought. As you think about kind of the component to the guidance boost, how much of that was kind of the pricing versus fundamentals? And just, Pam, if you can lead me to that, how we should think about the appetite for office locations expansion going forward as well would be helpful.

Pamela H. Patsley

Okay, great. Thanks for the question, Kevin. I would say kind of the guiding toward the upper end of the range came more just from a broad base of performance of our business and not focused singularly on how we did against pricing initiatives. And I will say to be very clear, certain parts of the world, we did much better against competitive pricing initiatives. In other parts of the world, as I called out, we have suffered transaction growth, but balanced to where we wanted to be on revenue growth. But as I said, we continue to look at that, and we may decide to make some changes, when we balance revenue growth, transaction growth and what we want our market position to be. As far as continuing to expand, we think, being close to our consumer and also being close to our agents is very important. It's important from a compliance perspective. It's important from a regulatory government perspective. And just on the ground, your understanding is much better. So we haven't planned for next year to continue in different parts around the world, whether it's Latin America, Africa and Asia, to continue opening -- these are small, but putting people on the ground in a country.

Kevin D. McVeigh - Macquarie Research

Great. And then just any comments in kind of Walmart is trending along as expected?

Pamela H. Patsley

Yes. We are very, very happy with our Walmart relationship, and they remain a great partner for MoneyGram.

Operator

And we'll take our next question from Sara Gubins with Bank of America.

Sara Gubins - BofA Merrill Lynch, Research Division

Could you talk about how agent productivity has been trending in the last couple of quarters anything that's worth calling out?

Pamela H. Patsley

Well, that's a great question, Sarah. I would say, overall, we're pleased. It clearly is always going to have timing impact of rolling out some of these large networks, so the large networks have been rushed at getting them up and productive, rolling out new post locations or other things, whether it's in Chile or in parts of Africa. So they're -- but it is a focus. And I think, from your perspective, we have not taken our eye off that. It's something we talk about at the monthly and quarterly management review meetings. It's something that each regional manager talks about within their country or their channel managers. So it is going in the right direction. I have nothing negative to offer to you on agent productivity. And certainly, there's a wide variety of that productivity when you look at quarter. If you look to U.S.-to-Mexico, of course, with those strong numbers, you would say amazing agent productivity. If you look to, as I've called out, some of our France to Francophone Africa, that's not where we're seeing the strongest agent productivity. But it is a focus, and something we're on.

Sara Gubins - BofA Merrill Lynch, Research Division

Great. Separately, in terms of transactions, is there anything worth calling out in terms of the trends on a month-over-month basis during the third quarter? And can you talk about what you saw in the last couple of weeks?

Pamela H. Patsley

There's nothing really worth calling out per se for the quarter and -- versus the benefit. When we had our quarterly call the week after -- the month following, you got more data. But man, that finance organization is humming like a machine, so our calls are earlier.

Sara Gubins - BofA Merrill Lynch, Research Division

Okay. And then just last question. There's clearly a lot of price pressure in online. How are you thinking about your online pricing strategy? Do you think you need to do more there? Is that one of the areas where you mentioned, perhaps, needed to take more action?

Pamela H. Patsley

Yes. Thanks, Sara. Our -- when I mentioned possibly taking more action, I had more in mind more the traditional business and not online. However, we will always run tests on certain quarters or product sets, and that's broader than just online. That might be -- whether it incorporates kiosks or mobile. So it could be anything in more of that broad, digital realm of growing our self-service business.

Operator

And we'll take your next question from Rayna Kumar with Evercore.

Rayna Kumar - Evercore Partners Inc., Research Division

Could you please quantify your anticipated commission expense increase for 2014?

Pamela H. Patsley

I don't think we've provided any guidance on 2014, but...

Rayna Kumar - Evercore Partners Inc., Research Division

Well, could you talk about your strategy and thinking about commission expense for next year?

W. Alexander Holmes

Yes, I mean, we can certainly comment at a high level. I think that we have 1 or 2 particularly large contracts that have had an outside impact on the increase this year. I think as we look at the rest of the underlying pieces of the business, I'd say the trends are generally in line with where we've been historically on commission expense. I think we're doing a very good job, particularly on the send side around the world in terms of keeping commissions relatively stable, if not down a little bit over the last several years. I think on the receive side, we've seen a bit of an uptick. But I think the receive side is also where we've had some unique opportunities in the last 18 months or so to really add some agents that we didn't have in our portfolio before. So yes, we feel good about where we are. I feel really good about the revenue growth that we're seeing, about the transaction growth that we're seeing from these agents signings. And I think, from time to time, you have to reposition yourself a little bit, and there's some excess cost to that. So we haven't gone through all the details yet. We're working on our 2014 plan, and we'll certainly provide more color on that outlook on the Q4 call and as we look ahead into '14 in more detail.

Rayna Kumar - Evercore Partners Inc., Research Division

Great. And if I can just slip the second question in there, do you anticipate competitive pressure from Square's new P-to-P Square Cash? And if so, how will you compete?

Pamela H. Patsley

Yes. We think it's probably, again, addresses a slightly different market. It doesn't appear to be a lot different than some other things that have already been existing in the market like Popmoney. So we watch it closely. It's a very different -- it's a delayed service, both ends have to have a debit card. You have to go online to receive it. But all new things in many ways, so they can be category expanders. And that's a great opportunity. We don't think for something like that. We need to be the first adopter or implementer. But we have the kind of the back office engine and know-how. That's the kind of thing we can more quickly ramp up. It's a much smaller average base than what our business is running.

Operator

We'll go next to Jason Nacca with Sidoti & Company.

Jason Nacca - Sidoti & Company, LLC

Just wanted to see given the strength in the U.S.-to-Mexico performance this quarter, I'm just trying to understand if it's more of a function of an improving consumer, market share gains or just simply some location growth as well?

Pamela H. Patsley

No, it's -- yes is the answer to that, Jason. I mean, it is definitely network growth. It's focused on network productivity on both the send and receive side. It's focused on product and service delivery to that consumer. It's brand and support marketing initiative. The U.S. economy is still slow, so U.S.-to-Mexico -- which is why I think Banco de México continues to report that remittances are not growing. So it clearly is market share gains. But again, at 12%, we've just reached 12% market share on that important quarter. There's ample room for growth ahead.

Jason Nacca - Sidoti & Company, LLC

Okay. And then my last question is given the government shutdown, have you seen any effect so far in the U.S. outbound in the fourth quarter? Or would you say it necessarily didn't affect the traditional MoneyGram user?

Pamela H. Patsley

I don't think it -- we have not seen that, so no.

Operator

We'll go next to Bob Napoli with William Blair.

Robert P. Napoli - William Blair & Company L.L.C., Research Division

Question on, I mean, the monitor, which I know is out of your control, and the costing view on a run-rate basis over $10 million a year. Now I mean, how are you working with that monitor? How long -- what is -- can you remind me what the timeframe is? And is this something where the monitor is going to work for another year? And then give you a report and say, "We want you to do this?" Or is it -- is there a back-and-forth going on the discussions with the monitor all along?

Pamela H. Patsley

Okay. So per the agreement with the Department of Justice, the monitor is assigned for 5 years. So we're about through our first year. There is a proviso that, at some point, we might be relieved of that responsibility early. But that's -- our mindset is to fully embrace and actually work in lock step with the monitor. It is interactive. It's not like they're kind of an entity, and there's no intersection. I mean, there is daily ongoing dialogue, and it's a very interactive relationship. I think it has not been contentious. It has been constructive. It has been professional. And I think the things that we will be implementing in working in concert with the monitor are probably more directional for the industry as a whole. So in some regards, we're going to get there first. And it's largely going to be focused on probably continuing around the essence of knowing our agents, knowing our senders, knowing our receivers. As far as reporting, there is prescribed reporting and different things from the DPA, and we've been meeting all those milestones. So in the next -- within the next month, we'll get a draft of their first report, then we go off and implement, they come back and then look. So it's kind of this ongoing process.

Robert P. Napoli - William Blair & Company L.L.C., Research Division

Great, okay. And then just a follow-up question. Your excess capital, if you would, I guess, on unrestricted assets, $310 million, very nice growth in that, and you kind of laid out that you are looking at additional acquisitions, investments in products. I was just wondering with that -- how much excess capital do you -- what is your target? So how much do you feel was excess at this point? And you're obviously generating a lot of cash flow. And then are you looking at maybe little more discussion on your acquisition strategy? I mean, more superagents, or I mean, are you looking at larger potential acquisitions? A little bit of color. And then at some point, are you looking at cash return to shareholders? I mean, your debt is -- you have pretty attractively priced debt and not necessarily need to reduce debt?

Pamela H. Patsley

It certainly feels better than 13.25%.

W. Alexander Holmes

It sure does. Yes, that's a great question, Bob. And something we've been -- I'm fortunate to spend some time thinking about of late. And yes, I think, back to the base of the question, how much excess cash do we have? We've long said that we try to maintain around $200 million as our floor of kind of cash for our working capital purposes. At the same time, the business is growing. And so we'll continue to assess that and see if that needs to move up over time. So whether you call it $200 million or $225 million, sitting on $310 million today, we're certainly well north of that. I think that we are very interested. If you look at the combination of transactions that we did in the quarter, Nexxo certainly positions us very interestingly in the self-service area, moving us directly into control of kiosks and deployment of those. You think about the superagent acquisition and then the acquisition of the small direct-to-account business. Yes, if you think through all of those, I think it's thinking differently about the agent network. It's thinking differently about how to deploy our services into the market. And I think, as Pam said on the call, moving closer to the customer, closer to our agents, particularly in an increasing compliance world, it's very important. So I think we'll look at some of the superagent pieces. There's not a lot left out there. Certainly, we'll be investing more in retail sales growth and getting more feet on the street. But from an acquisition perspective, I think we're very interested in things that continue to position us differently in the self-service world and are also not just technology placed, but also additive to revenue and EBITDA. And back to the -- on the shareholder value, we think, obviously, that those acquisitions do return quite a bit of shareholder value. They should be additive to our multiple additive to our total business profile. I think we're very focused on increasing our percent of business that is from those self-service channels and alternative channels as we refer to them. And then, we'll continue to look at debt. The debt is fairly inexpensive. We do have one step down on that rate when we get to about 2.5x leverage. So we're below 3 now. We think we feel very comfortable with that position, and we'll continue to evaluate that. And then, we'll look, as we move forward, to whether more shareholder value creating opportunities.

Operator

We'll take our next question from George Mihalos with Credit Suisse.

Georgios Mihalos - Crédit Suisse AG, Research Division

I wanted to circle back to commissions, not so much from the outlook of 2014. But given your push into the self-service area, buying in some of the superagent, is it unreasonable to think that longer term, we can see commissions basically stay flattish to what you've seen this year or maybe even potentially come down longer term as you expand there?

W. Alexander Holmes

Well, yes, absolutely. Longer-term, that would be our focus. I think we do see opportunities in the kiosk model online as well and, certainly, on the account deposit side to reduce the cost of every transaction. And then, certainly, from a pure commission percentage, we are definitely positioning ourselves in many markets to actually -- to move that direction in terms of keeping those commissions where they are, if not push them down over time, which we've done on many, many contracts throughout the period. Again, we just had a couple of larger ones that are offsetting that a little bit as we grow through 2013.

Georgios Mihalos - Crédit Suisse AG, Research Division

Okay. And then just going back to paying out some higher commissions on some receive agents. I assume that's tied to non-exclusivity and the benefits you've seen there. Is there a lot more room to go there, just if you kind of look at your global receive footprint? Is the push from exclusive to nonexclusive still a tailwind for you?

W. Alexander Holmes

Absolutely. I think that there are continuing -- continue to be many opportunities around the world to get into agents that haven't been there before. I think there's some push, as we've talked about before, in Africa on the government side, to remove exclusivity to ensure that consumers have full access to a variety of services. And I think we have a good track record of being able to get in, partner with those agents and approach them in a very different way and really position our brand in a very positive light to the consumer and to the agent and try to get some of the most productive network we can on those receive side. I think there are opportunities as well on the send side, where we're seeing, again, some -- these tend to be smaller agents. But when you have that opportunity to knock out a smaller niche player or partner differently with an agent, we're certainly taking advantage of those opportunities as well. And we're coming up with some, I think, very creative ways to approach that market. And I think our sales teams around the world have done an excellent job positioning us for that opportunity, and I think that's showing in the transaction and revenue growth.

Pamela H. Patsley

I think on that creativity comment there that Alex said, I think, in our mindset as we approach markets -- new markets, agents, whether exclusive, nonexclusive, it's really about providing value and showing that MoneyGram brings value to agents. Commission is just one element of that. Part of it is flexibility and product set and other things, so...

Georgios Mihalos - Crédit Suisse AG, Research Division

Okay, that's great. And just last question from me, an housekeeping item. I'm not sure if you mentioned it, but the percentage of revenue coming from Walmart this quarter.

Pamela H. Patsley

27%.

Georgios Mihalos - Crédit Suisse AG, Research Division

27%.

W. Alexander Holmes

27%. I will add to that though that, that is down from just north of 28% last year. So it is down quite a bit as we've grown in other areas.

Operator

And we'll go next to Smittipon Srethapramote with Morgan Stanley.

Smittipon Srethapramote - Morgan Stanley, Research Division

Yes, just a brief follow-up to the previous question. You mentioned earlier that you have been able to lure a couple of big agents out of exclusive contracts in Mexico. Can you talk about what were the key factors in your success in that market?

Pamela H. Patsley

Yes. I think it is the momentum of our growth right now for that quarter. I think it's the strength of our U.S. agent network that is attractive to those agents. I think it is the way, again, a little bit like to the last question, the way we work with agents. And I think and as we've talked before, we are seeing a move to more non-exclusivity in receive markets. So I want to be honest, a lot of it is market driven, not just MoneyGram per se.

Smittipon Srethapramote - Morgan Stanley, Research Division

Got it. And can you give us an update on where you're planning to roll out MoneyGram Online, which geographies are you contemplating on in the near term?

Pamela H. Patsley

Yes, that's a great question because we have talked about that in the past. Right now, we're not kind of announcing any new geographies, but really more focusing on kind of a broader look at the solutioning, if you will, of our MoneyGram Online. I mean, the U.S. remains just such a strong market. U.K., Germany, we think we're in some good markets today. Now we are adding countries that we really don't call out through what we call virtual agencies, where others connect in. So we're really in more countries and that I really can't even call out all those others. But if you look at, broadly, our self-service offerings, we consider that in 20 countries, and that is growing.

W. Alexander Holmes

Yes. I mean, just recent examples, we did go live in Australia back in the June timeframe through a partnership opportunity and then recently in South Africa as well, along with adding some mobile applications in various markets as well, which, of course, is just, perhaps, a more convenient way to get online.

Operator

We'll go next to Tien-tsin Huang with JP Morgan.

Tien-tsin Huang - JP Morgan Chase & Co, Research Division

I guess, I'll ask on the Financial Paper Products, the official check business, just a little bit more detail. How sustainable is that? Because, obviously, that was quite higher than what we, and probably others, expected. I heard the management changed and others, but can you give us a little bit more?

W. Alexander Holmes

Well, yes. Sure. Just 2 separate issues there. I think on the legacy CDO gain that we received in the quarter, I mean, I think that's just kind of hats off to the treasury team and the work they've been doing, the accounting team and everybody else who has been tracking those securities for a very long time. And there has been some recent activity in many of those. Some of them have come back to life, for a lack of a better term. We've marked a lot of these to 0, but have continued to carry them. And once in a while, you get a windfall, but it's actively being managed and looked at and tracked. And so I think that's -- those are just really nice wins for us to get. As you look more broadly at the FPP business, I think, certainly, money order continues to be a core offering in the United States. I think, if you look at the post office, if you look at Western Union, if you look at the variety of other players out there, money orders continue to be a very, very important part of many consumers' lives, and it's certainly a product that we will continue to offer and continue to invest in. The official check business is probably a little bit of a different product for us. But we believe we're the last man standing, if you will, in that market. We believe there's a lot of opportunities to continue to renew contracts in that business and then enter into new relationships. We've put a broad focus on kind of financial institutions globally from a variety of partnership opportunities. And whether that's foreign currency trading or whether that's investment portfolios or whether that's an official check outsourcing-type product, we think there's a lot of opportunity there. And certainly, the stability of our investable balance is important to us as we grow and continue to look for future cash flow generation opportunities. So we're pretty excited about that.

Tien-tsin Huang - JP Morgan Chase & Co, Research Division

All right, good, good. So a couple more just quick ones. I know a lot of questions have been asked already. The rupee driven an upside that you talked about. I mean, should we think that, that was borrowing from the fourth quarter? Or is this sustainable in terms of the trends? Just trying to understand the dynamic of that.

Pamela H. Patsley

I think there's one thing to think about when you consider or think about the rupee. We clearly benefit when the rupee kind of devalues, people are opportunistic. But for the most part and I say this in kind of comparison or contrasting our business in sends to India with others, that we -- our consumer is more often sending for essentials and basics, and it's more often a required or needed send that we probably aren't going to have as many peaks, or our peaks won't be as high, and our valleys won't be as low. So the swings won't be as broad in our sends to India as maybe others, where there's just a little more play in for the rupee FX. So we're not that scientific, Tien-tsin, to say we've really kind of pulled forward to India transactions into Q3 from Q4. And so it's not something that's impacting our Q4 thinking right now.

Tien-tsin Huang - JP Morgan Chase & Co, Research Division

All right. Because it's a more essential spend. Okay, just last one, sorry, just the CFPB. I know it's due out the end of the month. I know you talked about monitor already. But any incremental expenses that could come from that or just in general? I mean, do you foresee any -- or do you have some cushion there in the event that there's more expenses to come as we close out the year on the regulation side?

Pamela H. Patsley

Yes, thanks. We're ready, and it's Monday, is the CFPB new disclosure rules go live. I will say, again, we've been there. We've largely been meeting their rules, but not particularly in their form. So there have been no question. Lots of development on our part, sometimes on the part of our agents as well based on how we interface or integrate. But everyone's ready to go, and we think that's kind of done then.

Operator

And we'll go next to Mike Grondahl with Piper Jaffray.

Michael J. Grondahl - Piper Jaffray Companies, Research Division

Yes, just 2 quick questions. One, can you just repeat what the legacy CDO gained was in the quarter? And then secondly, those 1,000 agents that you won in Mexico that used to be exclusive, what type of pipeline do you have for that? And what do you think the rationale was for going away from exclusivity?

Pamela H. Patsley

How...

W. Alexander Holmes

Yes, the first answer is the CDO was $3.3 million, and the rest of the increase in the investment revenue side just continues to be from repositioning that portfolio and getting a little bit higher return on that. But I'll turn it over to Pam for the second half of the question on Mexico.

Pamela H. Patsley

Yes, we have a robust pipeline. I mean, we have a team in Mexico, a little bit to that question earlier about offices around the world. So what I didn't say is in places that we have recently, in the last couple of years, put people on the ground and opened offices, put operations or marketing or compliance along with our BizDesk people, Mexico City would be one, and that office continues to grow. So they are working very hard to continue to grow. It's a team with lots of energy. And I would say, their focus is really less about targeting exclusivity breaks, but just really targeting the agent base that we need to continue our productive and market share gaining growth.

Michael J. Grondahl - Piper Jaffray Companies, Research Division

So are you saying you don't see a big trend from agents losing exclusivity, or that's just not a focus of yours?

Pamela H. Patsley

It is not a focus of ours to drive that. Like I said, I mean, it happens. It's somewhat more market driven, and we've certainly been more the beneficiary than the -- more the winner than the loser on those. And -- but it's really just about driving transaction and quarter growth. And solutioning and convenience for our consumers is very, very important.

Operator

We'll go next to Tim Willi with Wells Fargo.

Timothy W. Willi - Wells Fargo Securities, LLC, Research Division

I just had one question on competition. I was sort of interested in your comments around the regional competitor in Italy that you noted you were taking share from, and just sort of curious if you think about other major geographies throughout Europe or other markets, where there are what you would view as maybe noteworthy regional or local competitors, sort of how you're seeing the competitors positioning playing out. Is it compliance burdens that you think will ultimately weigh on those companies? Is it brand awareness on your end as you build up a network in advertising? Is it pricing? Just sort of thinking about that dynamic of market share versus going against Western Union all the time.

Pamela H. Patsley

Yes. Well, I want to say yes. It's all of -- all the things you named, but I will highlight or emphasize there is no question, the compliance or regulatory aspect globally is an element. Now the other side of that, if you're small enough and niche enough, are you "found" and recognized by the government. So that's the other side. I would also say, particularly when you asked your question, thinking about Europe, the credit aspect, I think, has had a big impact. The creditworthiness of a lot of small agents. There's no question, I think niche players, that's been a burden.

Timothy W. Willi - Wells Fargo Securities, LLC, Research Division

So if you had to think about share shifts, and obviously, people focus a lot on Western Union primarily, and maybe you're on that with Ria, sort of the 3 of you guys are the leaders in the market. And you sort of think about where those gains have come, or where they would come from. Would you view it as more likely to come from the smaller players that are below sort of the big 3? Or do you think that there's equal opportunity to take share from the other sort of global players?

Pamela H. Patsley

Yes. I would say growth comes from all aspects, and there are big deltas between the 3 you named as global players. So just even within that, I'm certain Western Union's view would be very different as to our relative size, and certainly, it goes downstream the other way also to Ria. But I think market share is there for all of us and for niche players. I think it really has to come to the product offering, the quality, resonating with the consumer, the service aspect and then playing against and being measured against the same set of rules.

Operator

We'll go next to Glenn Fodor with Autonomous Research.

Glenn T. Fodor - Autonomous Research LLP

Pam, I just wanted to go back to your prepared remarks on pricing and just, perhaps, splitting hairs a little but. But I'm just trying to get the right texture. I mean, are you more open to cuts than you were, or considering cuts than you were last quarter? Or are you -- is your mindset still exactly the same as it was last quarter? You'll do it tactically, but nothing is really imminent right now.

Pamela H. Patsley

Well, I would say, yes. I don't know that I ever set my mind. So I'm sorry, I'm having a hard time answering this because I'm not sure I ever had my mind closed to cuts. We said at the start of this year, we were going to watch things. And we didn't know how things would bear out. I would say U.S. to Latin America, Caribbean and things held up more strongly than other parts of the world, where there was fierce price competition at either commission rates for agents or pricing to the consumer. So I would say we're looking at it and thinking about what is the right way and what's a sustainable proposition for a consumer that we don't want to get them just for one transaction and then lose them. So it's about stickiness, repeat business. We're really proud that still 85%, 86% of our transactions come from repeat customers. So we're not looking to just build a one-and-done portfolio.

Glenn T. Fodor - Autonomous Research LLP

Okay. I can appreciate that. But just getting back to then the trajectory of your opinion as it relates to that view, has anything changed based on what you're seeing, or anything you've been testing out there this quarter versus last quarter? Or are you -- your mindset is still the same wherever it's been before?

Pamela H. Patsley

Well, I'm not sure you know my mindset, so I'm kind of going -- or getting into an effort there.

Glenn T. Fodor - Autonomous Research LLP

Whatever your mindset might be.

Pamela H. Patsley

So my mindset's, I think, the same. We are open and, I think, always wanting to be nimble and flexible on making some calls. And there are some parts of the world that we're looking at maybe making some changes. But my mindset was always like that.

Glenn T. Fodor - Autonomous Research LLP

Got it, okay. Sure. And then just to wrap up on Russia. It sounds like you're doing well there. But is there anything you're seeing from your largest competitor in their actions in trying to catch up to you? Is it having any impact on your cost profile at all?

Pamela H. Patsley

We're happy with our Russian business, very happy.

Operator

And ladies and gentlemen, this does conclude today's question-and-answer session. I would now like to turn the conference back to Pam Patsley for further comments and closing remarks.

Pamela H. Patsley

I only have to say thank you very much and have a wonderful day, appreciate it.

Operator

Ladies and gentlemen, this does conclude today's conference. We thank you for your participation.

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