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Executives

Alex Holmes – SVP, IR and Strategic Development

Pam Patsley – Chairman and CEO

Jim Shields – EVP and CFO

Jean Benson – SVP and Controller

Analysts

Kartik Mehta – Northcoast Research

Robert Dodd – Morgan Keegan

Frank McEvoy – Craig-Hallum

Tom Trebby – Northland Securities

MoneyGram International, Inc. (MGI) Q2 2010 Earnings Call Transcript July 30, 2010 9:00 AM ET

Operator

Good morning and welcome to the MoneyGram International second quarter 2010 earnings 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 open for your questions following the presentation. It is now my pleasure to turn the floor over to your host, Alex Holmes.

Alex Holmes

Thank you. Good morning, everyone. My name is Alex Holmes, Senior Vice President of Investor Relations and Corporate Strategy. And I’d like to welcome you all to our second quarter 2010 conference call. With me today are Pam Patsley, Chairman and Chief Executive Officer; Jim Shield, Chief Financial Officer and Jean Benson, Senior Vice President and Controller.

If you’ve not yet seen our earnings release, you can find it on our website at www.moneygram.com. I must remind you 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 purposes of the Safe Harbor Provisions 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-Q for the quarter-ended June 30, 2010, which is expected to be filed with the SEC by August 9.

Additionally, I like to note that today's remarks includes certain non-GAAP financial measures including a presentation of EBITDA and adjusted EBITDA. Our earnings release include a full reconciliation of these non-GAAP financial measures to the related GAAP financial measures. And with that, I’ll turn the call over to Pam.

Pam Patsley

Great. Thanks, Alex. Good morning, everyone. I want to start with a very warm welcome for Jim Shield, our new CFO. Jim joined us a few weeks ago and brings to MoneyGram strategic business leadership and a global perspective gained from his years of experience leading finance functions at some of the world's most successful and regulated brand’s name companies, such as Celanese, Coopers and Lybrand, Qwest and Royal Caribbean.

Jim’s robust background also includes extensive experience taking company's public and leading them through financial and operational restructuring, all very relevant for us. Jim is a great addition to the MoneyGram team and I know he's looking forward to meeting all of you over the next weeks and month.

As we visit today, seven months ended 2010, I believe we have made steady progress in repositioning the company, where there are challenges broadly from the global economy and specifically new competitive pricing initiatives in the U.S. business, we are focused on the right issues and continue to make the right decisions for long-term growth and value creation.

We continue to see positive signs in the global remittance space and we like our competitive position in an industry that still offers tremendous growth potential in our cash-to-cash money transfer business, but also through emerging products. In the quarter, we achieved 7% transaction growth, a slight improvement from the first quarter.

Constant currency revenue growth was 3%. The primary difference between transaction and revenue growth is related to the introduction of the $50 price brand. This had a disproportionate effect on our revenue as today about two third of our money transfer transaction originate in the U.S. I see this as a number that confirms our opportunity for future growth.

While we will continue to perform well in the U.S., we want to outgrow if you will, this 65%, 68% number through significant growth in sense originating outside the U.S. This quarter, I'm happy to say that in those markets outside of the U.S., transaction growth was 12% or 16% without pay. And we're very pleased with the associated revenue growth we saw with these results.

Europe, particularly France, Italy, Germany and U.K., all delivered good growth in the quarter. Saudi Arabia has exceeded our expectations with triple digit transaction growth and collectively, Latin America outbound has been growing in the high teens.

Globally, we are focused on growth in our Western Europe, Russia, Middle East and U.S. outbound market and we're making good progress. In Europe, for example, through PSD, we have many agents in the pipeline and we have already signed and launched SRDMP and its partner by media, a value add services provider for tobacco in news retailers throughout France.

This is one of our first large new PSD network signings. And we expect this new network to enable MoneyGram Money Transfer services at more than 2500 tobacco shops across the country. This signing will greatly enhance our coverage throughout France and we look forward to implementing and promoting this new agent.

In Russia, we recently signed Sberbank and we're excited to begin the roll out of 7000 locations and ultimately their full network of 10,000 agent locations across the country, this all starting in the fourth quarter. While MoneyGram has an established presence in the commonwealth of independent states or CIS, we have not yet fully tapped into that potential that Russia, the third largest send country in the world can offer our business.

The agreement with Sberbank represents significant opportunity to increase our reach in competitiveness in this very important region and we're anxious to get them up and running. In the Middle East, Saudi Arabia continues to outperform, having only been in Saudi now for about a year with our agent, national commercial bank. This country is now one of our top 15 send countries.

To help improve U.S. outbound, we're focused on increasing our network of independent agents. These agents reach consumers, who tend to prefer smaller shops for sending money particularly to markets such as Africa, South Asia and Latin America. Through coordinated marketing plan, we’re focused on activating the independent agent network in the U.S. well at the same time, ramping up the network in the receive regions and driving transactions through the quarter.

In addition to our cash opportunities, we are also expanding into alternative channel to drive growth. In the quarter, we built important partnership with companies such as Visa through the launch of cash to Visa card program. We also continued our focus on innovation with the strategic agreement with National Bank of Abu Dhabi in the UAE. This will bring international remittances via mobile phone to the UAE for the first time. Alex is going to tell you more about these later.

At a more macro level, we have solidified our management team over the past four to five months. The team is now collectively focused on restructuring the organization to further strengthen our business. Clearly, we've been active for a while so we've now formally launched a globally restructuring reorganization initiative.

This effort will broadly focus on realigning expenses with the changing global economy and increasingly competitive environment by streamlining operations and simplifying business processes. We continue to build out the plans and estimate that the company will incur cost, approximating $45 million to $50 million for these activities with an anticipated annual savings of at least $25 million to $30 million, when fully implemented, which should be sometime in 2012.

We also continue to delever the balance sheet. In April, we made a $30 million prepayment on our Senior Tranche B Loan under our Senior Facility and then again made another $30 million prepayment on the same facility in June. Since January of 2009, we have now paid down $247 million or 25% of our outstanding debt.

In June, we finalized the federal securities class action and shareholder derivative action, when the court approved the settlement that we had previously announced. We're committed to cleaning up and moving forward from the events leading to the leverage recap in 2008 and refocusing the organization to create shareholder value.

We're specifically excited about the money transfer business. So let’s take a look at results. In the second quarter, we added our 200,000 agent location, a very significant milestone in the history of this company.

Celebrations were held around the globe with key agent partners in Paris, San Salvadore, Beijing and in many other cities around the world. In total, we increased our global agent locations 13% year-over-year ending June with more than 203,000 agent locations and 191 countries and territories and with many more location signings in the pipeline.

Consistent with trends from the first quarter, our EMEAP business continued its strong performance. Growth during the quarter was helped by strong sends transaction from Saudi, France, South Africa, Australia, Malaysia and Russia and was aided by strong received transaction growth in China, Philippines, Thailand, India and Bangladesh.

In Africa, the Franc Zone region delivered strong growth mainly driven by sends from the Ivory Coast, Gabon, Senegal and Mali and transaction received in key markets such as Cameron, Senegal, Ivory Coast and Morocco. Across the continent of Africa, we had a solid quarter adding numerous locations in many countries. Again, we continue to benefit from the breakdown in exclusivity that controlled the entourage in many of these countries for so long.

In the quarter, we signed more than 1400 locations in Morocco. Morocco continues to improve with transaction from Spain and Italy turning the corner and sends from the U.S, France and Canada, all growing double-digit. In Nigeria, we rolled out more than 500 locations through First Bank, Nigeria’s oldest bank and one of the largest in terms of network size.

And we're also very pleased to expand our network in Egypt, with the signing of United Bank that will add key locations throughout this important remittance market. Eastern Europe turned in a solid performance with positive growth, particularly to Bulgaria and Romania. Romania was ahead of expectations with strong sends from the U.K. and U.S. quarters.

We also continue to reinforce our good relationships with post offices around the world, signing the Kazakhstan post 800 locations and expanding our agreement with the Moldova Post to increase our locations to nearly 2000 in that country. These expansions fit well with our plans for growing the Russia outbound business through Sberbank.

As I mentioned in the Middle East, Saudi continued its high growth rate with transaction sent to its main quarters of India, Pakistan and Philippines, all continuing to increase. However, I must say at across our other areas in Middle East, transaction volume is feeling the stress of the economic downturn. Our Asia-Pacific region had another excellent quarter with double-digit transaction growth in key received markets like India, China and Philippines, Thailand and Bangladesh.

The China market continue to benefit from the ramped up of Bank of China locations, opening 947 locations in the Guangdong province and 675 locations launched in Jiangsu province. In Southeast Asia, we signed key agents in Laos, Vietnam and Indonesia. In India, we're very pleased to announce our new partnership with party Wal-Mart bringing MoneyGram’s value money transfer services to consumers through this retail chain. This wholesale cash and carry retailer is the first retail chain to offer MoneyGram services in India and we are delighted to offer our services at locations that are open long hours and with the reputation for convenience and value. You'll be hearing more about party Wal-Mart in the future.

Turning to the Americas. In the second quarter, our money transfer transactions originating in the U.S. but not including sends to Mexico increased 7%. This revenue growth was led by the U.S. to U.S. quarter, where transaction volume again increased double-digit and revenue growth this quarter was flat. The difference between transaction growth and revenue growth in the quarter was largely due to the introduction of the $50 price band for U.S. to U.S. transaction.

You may recall that we introduce this new $50 price band to most of our U.S. outlets in late March and April. Through this service consumers can send $50 for $5 at most locations or $4.75 at Wal-Mart. While this $50 price band is a smaller portion of our overall intra-U.S. transaction volume, there has been good consumer adoption from our existing customer and accelerated new customer acquisition which has put pressure on revenue.

We believe these lower base transactions are reaching new customers who can instantly realized the value of sending a 10 minute MoneyGram transaction versus the other less effective way. Through the first quarter of 2011, we anticipate revenue growth to be slower because of this category.

In June, we initiated a promotional activity with up to $50 price band to include sends from U.S. to non-U.S. locations. This promotional offer is scheduled to end tomorrow, July 31. We have strong support from our agent partner with this promotional pricing, through point of sale marketing in store locations and broader advertising support from Wal-Mart.

Looking at our U.S. outbound business as I mentioned previously, this business continues to be slowed by transaction sent to Latin America and Mexico. U.S. sends to Mexico decreased 4% in the quarter. While this is a significant improvement from the 11% negative growth in Q1 and our second sequential quarter of improvement, there is clearly still work to be done. And we are so good on returning this important quarter to positive growth.

I am pleased to report however, that through yesterday, transaction growth for U.S. sends to Mexico for MoneyGram in the month of July was positive. As in prior quarters our Latin America sends business remain strong led by intraregional spends. Sends to China and the U.S. are continuing to improve from LAC.

In the region, we launched Citibank and Citi Remesas in Guatemala, El Salvador, Honduras, Costa Rica, and Nicaragua. They're total network of 831 locations in five countries represents 525 new locations for MoneyGram. U.S. transactions sent to the Caribbean continue to grow well, driven by sends to Jamaica and the Dominican Republic. While U.S. sends to Africa continue to be led by Ghana and Kenya.

Finally, looking at transactions sent from the U.S. to Asia in the second quarter, sends to the Philippines, Thailand and India had all had solid growth. A few minutes on bill pay business. As we discussed our focus in this business has been on expanding into new vertical, fund setting our legacy platform and launching new products. Clearly this is a reset of the business model for us. On all fronts we're doing well.

Bill payment transaction growth for the quarter was essentially flat and seeing other revenue decline 2% versus second quarter of 2009. For both transaction and review growth, it's a nice improvement from prior quarters. The difference here between transaction and revenue growth is largely related to transaction mix as our new vertical which have slightly lower revenue per transaction are becoming a larger portion of the business. These new verticals such as prepaid and telecom performed extremely well in the quarter, while our transaction consequence vertical such as auto, collections, credit card payments continue their struggle brought on by the economic downturn.

Finally, we continue to prepare for the roll out of the Fiserv business which will follow this quarter and roll out later this year. We remain extremely excited about the prospects for this relationship. Before I hand it over to Alex I like to make a few comments about our alternative channel.

Today, 98% of our money transfer business comes from our traditional cash to cash business. But the global remittance market continues to resolve. As we’ve discussed, we've made good in-roads into alternative channel like online, mobile and the card product and we’ve largely carried this momentum through to second quarter. Our go-to-market strategy of partnering allows us to offer different services in various markets and has enabled us to add these services extremely efficiently with very little investment. Over the coming months, we will continue to expand these services driving into more markets and adding more partnerships.

In addition, we’re also focused on expansion into more channels including cash to account – account cash and expansion into the prepaid base. We're confident we have the right model and we're very excited about the opportunities in the future of these relationships. Alex?

Alex Holmes

Thanks Pam. In the second quarter, we continue to make great strides in expanding our regions in new products and channels to new partnership agreements. First in May, as Pam mentioned we announced our global partnership with Visa to the launch of MoneyGram’s first cash to Visa Card program, which enables consumers to transfer money from MoneyGram locations in United States directly to the Visa Card to Cash recipients outside the United States.

Today, the program enables funds to be received on visa branded credit and debit cards issued by Banco Industrial, a leading Visa blank and MoneyGram agent in Guatemala. We expect to work with Visa to expand the cash to Visa card services to several additional countries by the end of the year and are very pleased where this partnership has taken us.

In the mobile money transfer space, we were extremely excited to announce in June the strategic agreement with National Bank of Abu Dhabi or NBAD in the UAE that will make international money transfer services by mobile phones available for the first time to the banks’ customers all over the UAE. NBAD is the first bank in the Middle East to allow international remittances via mobile phones.

The agreement, which significantly expands MoneyGram’s presence in this important country, will enable NBAD customers to initiate mobile money transfers virtually any time and anywhere without the need to go to a retail location. Partnering on with us on this service is Loop, an innovative provider of mobile payment strategies for financial institutions.

Similar tour relationship with Mozilo [ph], our partnership with Loop greatly enhances our speed to market enabling us to partner with retail agents, mobile network operators and banks around the world interested in adding mobile money transfer services to their list of products. National Bank of Abu Dhabi is our third mobile service to launch in the last seven months with Poste Italiane in Italy and SMART in Philippines as the other mobile services, live and active today.

On a more traditional note, our MoneyGram online business had an excellent second quarter with a record volume month in May. We continue to increase automation and drive down transaction processing cost in this business and enhance the service, recently launching our new location and estimation online tool in 23 languages.

In May, we were pleased to enhance our antifraud capabilities with the rollout of our new Global Compliance system. Global Compliance is a tool set that identifies suspicious activities and high-risk transactions. Enhanced technologies which lay on protection to identification of suspicious transactions, computer and behavior authentication and anti-phishing capabilities are already dramatically reducing third-part consumer fraud at agent location and online.

We take consumer fraud in protecting our consumer’s transactions very seriously at MoneyGram and we believe our Global Compliance system is a lead forward in our efforts to reduce fraud in our money transfer business.

Lastly, turning to marketing, MoneyGram is committed to reaching its target consumers and strengthen brand awareness and brand affinity among them. Last quarter, we announced that we’ve participated as a local sponsor in the ICC T20 World Cup, which took place in the West Indies.

I am pleased to note that the results in the sponsorship were extremely positive. Cricket fans across the world, particularly those from important received countries like India, Pakistan, Bangladesh, Sri Lanka, the West Indies and some countries like United Kingdom, South Africa and Australia, all guys can activate MoneyGram to multiple media, consumer promotions and public relation activities that took place before, during and after the world cup.

Ryan and his team has many exciting things underway as we continue to promote our brand to our target market and we look forward to updating you on these in future quarters. Now, I’ll turn it over to Jim to take you through the financials.

Jim Shields

Thanks Alex. Good morning everyone. It's certainly great to be at MoneyGram with all of these here today. It’s been an exciting and interesting three weeks and I look forward to meeting all of you in person over the coming months.

Now for the financials, net income for the quarter was $6.8 million and EBITDA was $55.4 million. Both net income and EBITDA was impacted by $6 million of stock-based compensation, $1.9 million of restructuring cost, which is largely for severance cost relating to our EMEAP region and $1.5 million of asset impairment charges related to the sale of the corporate aircraft which we sold this month.

Adjusted EBITDA in the quarter was $65 million versus $57.3 million in the prior year. Second quarter 2010 adjusted EBITDA reflects lower net investment revenue of $2.1 million compared with the same period in 2009. While adjusted EBITDA in the second quarter of 2009 was negatively impacted by a $9 million provision for loss related to an international agent.

Looking at revenue, total revenue in the quarter declined 3% to $283.6 million compared with $291.2 million in the same period last year. Total revenue in 2010 reflects lower investment revenue of $2.2 million and lower net securities gain of $4.5 million, so essentially flat growth year-over-year when backing out our investment activity.

Fee and other revenue was $277.6 million in the second quarter, also basically flat compared to the second quarter of 2009. Growth in money transfer fee and other revenue of 2% was offset by a decline in bill payment and financial paper products fee and other revenue, which I will cover in more detail in a minute when I review our segment performance.

Total operating expenses for the quarter were $154.1 million, down $18.6 million or 11% from $172.7 million in the second quarter last year. There are several significant items impacting expenses in both years. So let me outline them for you.

The second quarter of last year was impacted by $12 million legal accrual the $9 million of provision for loss I mentioned earlier and $3.9 million of asset impairment charges. The second quarter 2010 expenses were impacted by higher stock-based compensation expense of $6 million, $1.9 million of restructuring cost and asset impairment charge of $1.5 million and a $3.5 million write-off of deferred financing in debt discount related to early debt pay down.

Taking these items into account, expenses are down approximately 5%. We saw saving in telecommunication costs in agent forms and supply costs, which were down 12% due to our cost saving initiatives that we spoke of last quarter. In addition, depreciation and amortization expenses lowered due to discipline capital spend as well as lower interest expense driven by our debt pay down.

As Pam mentioned earlier, we formally announced our restructuring and reorganization activities this quarter and provided you with the preliminary estimates of the cost and pre-tax saving associated with this important initiative. Now, that the senior leadership team is in place, these activities kicked off in earnest in the second quarter.

The focus is to create an efficient, scalable organization that is positioned in the future for accelerated profitable global growth. Activities will include organizational changes, taking out layers, redirecting reporting line, globalizing responsibilities, work migration and moving decision making closer to the market place.

We hope that providing you with this information now and in the future calls will give you greater transparency into our restructuring activity, how it impact issue financial results and more importantly a view to the value creation opportunity here at MoneyGram.

Turning now to the segments, total revenue in the global funds transfer segment increased 1% to $254 million. This increase was driven by 7% increase in money transfer transaction growth, which resulted in money transfer fee and other revenue growth of 2%.

This growth was impacted by a decline in the euro to dollar currency exchange rate. On a constant currency basis, money transfer fee and other revenue increased 3%. In addition, money transfer revenue growth was impacted by the introduction of the $50 price ban, which Pam reported earlier.

Growth in the money transfer revenue was slighting offset by a decline in bill payment fee and other revenue of 3%. This decline is largely driven by a transaction mix coming from new emerging verticals that are at a lower price point than our traditional consequence vertical as Pam outlined earlier.

Operating income for the segment was $30.9 million and operating margin for the segment was 12.2%. Adjusting for stock-based compensation allocated to the segment, operating margin was 14.2%. We’re pleased with this margin improvement considering that this quarter had headwinds resulting from currency valuations and challenging price environment.

Now, turning to the financial paper product segment. Revenue in the second quarter declined $2.3 million or 7% to $29.2 million, largely driven by declines in investment yields and lower average investible balances.

Operating income increased 14% to $11.6 million, operating margin in the quarter was 39.7%. Adjusted for the allocated portion of stock-based compensation, margin was 42.7%.

Spending a few minutes on the balance sheet, we started the quarter with assets and excess of payment service obligations of $324 million. During the quarter, we recorded adjusted EBITDA of $65 million, made a total of $21 million in interest payment and $60 million of principal payment on our debt and funded $11 million of capital expenditures.

This along with $13 million of other balance sheet and working capital items led to our ending the quarter with assets and excess of payment service obligations of $284 million. As for our capital structure, we ended the quarter with outstanding debt principal of approximately $746 million and subtracting our assets in excess of payment service obligations. Our net debt at the end of the quarter was $462 million.

As the new CFO, I take great comfort in the strike, the company has made to pay down the debt over the past 14 months. With a net debt to adjusted EBITDA ratio of under two, the company has a strong balance sheet, yet we still have more work to do.

We recognized that our total capital structure is less than optimal and we continue to work towards addressing these issues and look for opportunities to create value for our shareholders. Now, I like turn it over to Pam.

Pam Patsley

Great. Thanks Jim. In closing, I’d like to emphasize just one more time it really is finally great to have the executive leadership team in place. We've had and still have much to do at MoneyGram but I am confident we have the best people to truly get the company moving and lead all of the activities that will strengthen our competitive position.

We have made a lot of progress, signing agents, expanding our networks, enhancing our product offering and importantly taking out cost. As we move ahead, we will continue to align the organization closer to the customer focusing on location productivity and revenue and transaction growth.

I continue to be really encouraged by the progress we've made and importantly our future progress. This team is running the company with a critical eye to examining and tackling all opportunities that enhance shareholder value. There's a lot of passion for success around here. So with that, I thank you for your time and your interest today and operator, Dave, you want to open the line for questions.

Question-and-Answer Session

Operator

(Operator Instructions) And our first question will come from Kartik Mehta with Northcoast Research.

Kartik Mehta – Northcoast Research

Hi. Good morning, Pam. I wanted to ask you a little bit about the U.S. strategy. It seems like obviously there's been some pricing pressure in that and this particular market with you and Western Union change in pricing. I just want to get your thought, as we move forward do you anticipate that changing at all or do you anticipate kind of keeping the strategy that you've laid out for the domestic market and trying to gain market share that way?

Pam Patsley

Yeah. Thanks for your question. A lot of correct observations there, we think – first of all, we like our partner line up in the U.S. We like what we're doing to continue to enhance that current agent relationship base with targeting very specific by geography and ethnicity group, the independent agent.

So we're really excited about that initiative that's really come about through some of its realignment activity and Pete Ohser is now leading that initiative for the company. So we think that’s going to really augment our strategy.

The 50-dollar price band, there's negative pressure on revenue, no doubt but it is reaching new consumers. And so there's a little bit of growth through on that. We also have to continue as it gets reported grow through, I think I mentioned about two-thirds of our business is still sends that originate whether its intra or U.S. out down there originate in the U.S.

As we continue to grow, other corridors with transaction originating someplace else, you know, we have a lot more opportunity because of kind of a little bit of unbalanced portfolio today to grow through some of these challenging pricing initiatives. But I will say – I don't want to just leave it that I hate the notion of the $50 price ban because as we reach new consumers and we're finding it is a really efficient way to get money from here to there in 10 minutes, you know that's a good thing for the industry and anything that expands our industry and enhances this business, we think it's good for us.

So I think I mentioned last quarter it's a little bit of balancing act going toward transaction growth, balancing with our need for revenue growth and we continue to have laser like focus on it.

Kartik Mehta – Northcoast Research

And then ma’am, if you look at geographies outside of the U.S. where do you think there's best opportunity and may be the biggest risk, not from a MoneyGram growth potential but just a fundamental market stand point, where you think your most concerned about may be the economy and what that could have as an impact on money transfer business. Do you see an opportunity, where may be market is discounting the opportunity for growth because the fundamentals are improving.

Pam Patsley

Yeah. Okay. There was a lot there. Let me – I think I got that. So on the one hand, there aren't a lot of places that we're that concerned about from now forward that could have a major significant detriment to us because we're just not that big outside the U.S. but, for where we had a very significant presence in Spain and we've already been kind of you know, living through that. Greece clearly as you would guess, that's been a very challenging market, not to the impact to our overall results that Spain had but just Greece year-over-year is not growing.

So, I mentioned parts of the Middle East particularly the UAE, I think, the guest worker and construction slow down those things impacts us. But yet our base business there, on the one hand, this is positive that slow down doesn't impacted fall through the bottom line that significantly because our presence is small. So I think when you start from a small base but from a few large economies, we still have the opportunity to grow and take share. I kind of like our position in that regard.

Kartik Mehta – Northcoast Research

And then one final question, Pam, any geographies where pricing is occurring which is surprising to you whether going down or going up?

Pam Patsley

I’m not sure, I’d say anything that is the pricing. There are certain quarters that have more competitive pressures from each player than other quarters. Again, you've called out Spain to Portugal to Latin America. We are – It's an all hands effort from the constituents across the pond, here the marketing folks. But again that's not new that's kind of been present for the last, so nothing really that would fit in the surprising category.

Kartik Mehta – Northcoast Research

Thank you very much.

Pam Patsley

Yeah. Thanks.

Operator

Next, we'll hear from Robert Dodd with Morgan Keegan.

Robert Dodd – Morgan Keegan

Sorry about that. Can you tell us which line items the asset payments and the restructuring cost were in?

Jean Benson

Yeah. This is Jean. It went through our transaction and operation line item.

Robert Dodd – Morgan Keegan

Just sticking with the 50-dollar price spend, you’re saying and it's enabling you to draw new customers and Western Union said the same thing. The implication being, obviously the smaller operator that there are significant market shares size in that band, the downturn. Can you give us more color on that? Are you seeing maybe some of those that are you seeing those guys lose share or even go out of business? How is the competitive environment between the top and everybody else, evolving over the last six months at your expected results?

Pam Patsley

Yeah. You were break up a little bit there Robert. I think I got your question and I'll give it a go and if not correct me or try again.

Robert Dodd – Morgan Keegan

Okay.

Pam Patsley

Sound quality wasn't so clear. In the U.S. – So that 50-dollar price band mostly was about the intra-U.S. business. And largely that market doesn't have a vast number of other players. So I would say there is probably from a money transfer business I think the opportunity that may be there are more money transfer transaction at that price band that might have – people might have sent money another way. It's a little bit more about may be expanding the market perhaps than less about other small competitive players in the U.S.

Robert Dodd – Morgan Keegan

Okay. Thank you. Just moving on to restructuring hopefully and hopefully, you can hear me. Can you give us some more color? Is this the classic headcount reductions or are you going to be prepaying commissions to make future commissions lower. Do you have a margin target for 2012 that you can tell us when this is all fully implemented?

Pam Patsley

Yeah. It is definitely not about prepaying commissions. It’s – And I don't want to also bucket it. You gave me two choices, it's really neither. It's not just classic headcount either. It's about realigning how we do business at the core and it is using technology to enhance efficiencies. It's about thinking about smart sourcing, smart shoring, right shoring, picking some of those kinds of adjectives if you will to describe it. It's about looking at total floor space and where do we need to be located. It's about utilizing outsource opportunity, perhaps in technical areas or possibly to augment or add to something creative at our call centers. So it's really about how we go to market, getting close to the customer, a little bit more centralized but yet executed in a distributed fashion, as we get closer to the customer.

Robert Dodd – Morgan Keegan

Okay. Got it. Last question, primarily. Obviously, now you unrestricted – net assets have now just below to hundred and you talked on the last call about having more flexibility there in terms of how much the cushion you had to keep. Can you give us any color on what the floor is in that cushion? Can you get us to go – are you allowed to take it down below 280? Or can you give us a ballpark there?

Pam Patsley

Yeah. I will just start by saying that we are allowed to go lower. So 280, you should not think that as synonymous with the floor. I’m going to let Jim give you his perspective on that.

Jim Shields

Yeah. We constantly revaluate that every quarter. We pay about $60 million in debt this past quarter and we felt comfortable based upon what our balance were that we were able to, that gives us plenty of cushion. Obviously, we have various bank agreements. We have limits on how far we can go down, but we have plenty to cushion to above those limits. And so we constantly look at what our inflows are, what our outflows are, what we anticipate coming over the next few months. And as we become even more refined, I hope we begin to get closer to levels that are more refined and levels that would give us the opportunity to manage our liquidity even closer and tighter.

Robert Dodd – Morgan Keegan

Okay. Thank you.

Pam Patsley

It's been helpful that we've also gotten a lot of some of these uncertainties, shareholders litigation and other things. So that helps form our view as to comfort on cushion on cash. It's evolving

Operator

(Operator Instructions). Our next question will come from Frank McEvoy with Craig-Hallum.

Frank McEvoy – Craig-Hallum

Hey, good morning everyone. First I will start off with another question on the $50 band, a couple of questions on that. Can you give us an idea like what percent of the transactions in the quarter were in that band, within the U.S – originally within the U.S.?

Pam Patsley

It's not the largest part of our intra-U.S. volume. We haven't disclosed that separately.

Frank McEvoy – Craig-Hallum

Okay.

Pam Patsley

Kind of distribution by band.

Frank McEvoy – Craig-Hallum

And Pam you mentioned it.

Pam Patsley

We definitely had some higher growth as you look at bands and growth rate that band. The brand new band had higher growth.

Frank McEvoy – Craig-Hallum

You mentioned that it would have a limiting effect I think through Q1 of 2011 on the revenue. Can you give us a sense what it might have been had it been – what the revenues may have been, the revenue impact in the quarter had not that band been introduced?

Pam Patsley

If you kind of look at some transaction overall, total transaction growth was 7%, constant currency revenue growth was 3%. That gap between transaction growth and revenue growth gets closed 75% of the way if we didn’t kept that band.

Frank McEvoy – Craig-Hallum

Got you.

Pam Patsley

How’s that.

Frank McEvoy – Craig-Hallum

That helps. That helps. Thank you. And then what was Wal-Mart as percent of total revenues in the quarter?

Pam Patsley

As a percent of total revenue because of this price band they was just a bit, they were below 30% at 29.5%.

Frank McEvoy – Craig-Hallum

29.5%. And then on the restructuring and reorganization, couple of questions on that. The confidence and saving loan – Is this kind of an outcome of those, I think the past conference call you talked about the 12 efficiencies in business transformation projects. This kind of combination of that and setting it out to $45 to $50 million in cash outlays and then you expected savings. Can you give us on that?

Pam Patsley

Yes. Those initiatives also were partially organized some around revenue growth as well. I think while we were building our team and getting the team into place those were great very specific things. I would say that has totally been served and worked into a much more formalized leadership kind of driven. How do we all – what division and how do we get there and past to get there, we can execute on that.

Frank McEvoy – Craig-Hallum

Can you give us a little more color on – may be the timing on that $45 and $50 million and the additional cash outlays and how the saving – the annualize saving might phase in as well over the next couple of years?

Jim Shields

Yeah. I can give you general direction where that comes. This is Jim. General direction. Most of it is going to come in the back half. You have to split into two halves. I would it's probably going to be 75% in the back half as opposed to the front half. These things – obviously, some of the initiatives that Pam had outline. These things take a period of ramp time in terms of getting things in place and the organization and the technology deployed associated with it. So that's probably the best guidance I can give you right now on it

Frank McEvoy – Craig-Hallum

So 75% of the savings will be in the back half. The flip side of that 75% of the $45 to $50 million, is that in the front half?

Jim Shields

I will probably not going to give you guidance on so much on that side of it. As we move along in the process, we'll give you more guidance as our plans become more finalized in term of the rollout.

Pam Patsley

Can I just add? We are seeing – Just all along the way, good improvement I think as Jim talked about kind of when we were just going through the first part of the call about 12% cost save and some key lines. So we are very encouraged that there's just a lot of activity nicking away at it and then some of these are just bigger, wholesale step function changes if you will that Jim is referring to – where the savings it's going to take a while. We're going to kind of repurpose to redirect whole department.

Jim Shields

Exact. And that could give you just observations from like first three weeks here, I would reiterate what Pam said is that there's a lot of things going on through the company that fall out of this restructuring bucket that relative on the procurement side and some of these other activities. And we're really taking a deep dive down into and looking at how we can just improve efficiencies by just being smarter and operating better and making good decisions, so.

Frank McEvoy – Craig-Hallum

Well, you’ve already got a quite of few savings in there. Our adjusted EBITDA was pretty good at $65 million, basically one what you have. Just looking at the kind of following up on your earlier question in terms of available unrestricted assets that you could get access on – I mean in the past we talked a little bit about the role that rating agencies operate and might play. Can you give us some more color on where you stand? I know there was some outlook and an increase in their outlook of one other agencies, but can you give us any update on what the status is with the work with the rating agencies, the impact that might have?

Pam Patsley

Yeah. I would say all that falls in the overall looking at our capital structure and as you heard from Jim that is something that get as lot of attention around here. Our work with the rating agencies, we had another movement by one of the agencies this quarter, moved their outlook up on us. So, they continue to be very positive about the efforts we're making to delever and at the core it’s about running the company amazing well and capturing all of the opportunities – on the efficiency side but as well is on the market income side. We continue to have those conversations and as we think about at some point moving to a more optimal capital structure.

Frank McEvoy – Craig-Hallum

And then CapEx, I think you heard – You said it was $11 million in the quarter and what portion of that was agent signing bonuses? And then in terms of outlook for CapEx, to what extent is the, might the reorganization affect that CapEx outlook for remainder of this year in 2011?

Jim Shields

Let me give you relative to agent’s signs – about $2 million of that CapEx was associated with that. Relative to the capital expenses associated with the restructuring initiatives, again, that's not something we are going to put out right now. We probably give you more visibility of that as time goes on.

Frank McEvoy – Craig-Hallum

All right. Very good. Thank you.

Pam Patsley

Thanks.

Operator

Next, we'll hear from Mike Grondahl with Northland Securities.

Tom Trebby – Northland Securities

This is Tom for Mike. My first question is…Hello.

Pam Patsley

Hi.

Tom Trebby – Northland Securities

Can you hear me?

Pam Patsley

Yes, yeah.

Tom Trebby – Northland Securities

My first question is can you talk a little bit more about the new opportunity in Russia? You kind of touched on it at the beginning of the call but it sounds pretty interesting, I was just wondering if you can shed a little bit more light on that? And specifically I’m wondering how quick do you think it can ramp up?

Pam Patsley

Well, believe me we are all focused and aligned on ramping it as quickly as possible. This is a very significant opportunity I think for us. So just reviewing a couple environmental facts, Russia is the third largest remittance company on numbers of transactions. It's actually second largest if you go by dollars remitted because it has a highest average principle. There's a tremendous number of guest workers because we've talked just for the industry and developed countries because of low birthrate agent population. And Russia probably experiences that to a greater degree than some others. There are a lot of immigrant workers.

So there are kind of two money transfer businesses in Russia. There is the intra-Russia business which is generally run internal, not on what you would think of as a global brand. Then the remittances outside of Russia – We have had very, very small presence. So this basically as I said, before a year ago, Saudi Arabia second largest send country wasn't on our map as send. It’s now continue to ramp up to the 15, top 15 and we would see that moving into the top ten by the end of the year.

Russia, you have to go way down on our list of send countries, so far 191 send, where Russia is today. So the opportunity for us is huge. Burbank, largest state owned saving banks, 10,000 plus locations, a commitment to roll it out and begin that in the fourth quarter with 7000. I think the opportunity is really great. We've been building up the network in the receive markets, so you have to have both.

Tom Trebby – Northland Securities

Okay. And my second and final question was, when the cost save initiatives are finally implemented, what type of range of EBITDA margins would you expect to see or I guess what are you shooting for?

Pam Patsley

We just – we haven’t given that. I think we're going to take a hard look when we come out, when we close 2010 and see. We've had so many ins and outs, puts and takes and how do we talk about, what's significant, what's adjusted, what this what's that. We might have a view to provide a little more direction on things as we kind of close out 2010. So I would just say higher margin, growing and we like the direction we're going.

Tom Trebby – Northland Securities

Okay. Thanks.

Pam Patsley

Thanks.

Alex Holmes

Operator, looks like it's the top of the hour, so I think we'll probably say good-bye.

Operator

And there are no further questions. At this time I like to turn the conference over to Ms. Pam Patsley for any additional or closing comments.

Pam Patsley

Thanks. Other than to say, again, I appreciate your interest and support and happy to follow up. I think you all know how to contact Alex if you have follow-on questions or desire for other meetings. So I appreciate it and everyone have a great day.

Operator

That does conclude today's conference. Thank you for your participation.

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Source: MoneyGram International, Inc. Q2 2010 Earnings Call Transcript
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