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Moneygram International (NASDAQ:MGI)

Q2 2014 Earnings Call

August 01, 2014 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, Chief Operating Officer and Executive Vice President

Analysts

Georgios Mihalos - Crédit Suisse AG, Research Division

Kartik Mehta - Northcoast Research

Rayna Kumar - Evercore Partners Inc., Research Division

Danyal Hussain - Morgan Stanley, Research Division

Kevin D. McVeigh - Macquarie Research

Sara Gubins - BofA Merrill Lynch, Research Division

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

Alan Donatiello - Wells Fargo Securities, LLC, Research Division

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

Michael J. Grondahl - Piper Jaffray Companies, Research Division

Operator

Good morning, and welcome to the MoneyGram International Second Quarter 2014 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. Good morning, everyone, and welcome to our second quarter 2014 earnings call. With me today are Pam Patsley, Chairman and Chief Executive Officer; and Alex Holmes, Chief Financial Officer and Chief Operating Officer. Our earnings release and accompanying slides are on our website at moneygram.com. Please note that today's call is being recorded, and some of the information you will hear contains forward-looking statements. Actual results or trends could differ materially from our forecasts or expectations. For more information, please refer to the risk factors discussed in our Form 10-K for 2013 and our most recently filed 10-Q. MoneyGram assumes no obligation to update any forward-looking statements.

Our presentation also includes certain non-GAAP financial measures in an effort to provide additional information to investors. All non-GAAP measures have been reconciled to their related GAAP measures in accordance with the SEC rules. You will find reconciliation tables within our earnings release issued this morning and in the Form 8-K submitted to the SEC.

Now I'll turn the call over to Pam.

Pamela H. Patsley

Great. Thanks, Eric. Good morning, everyone. MoneyGram did face significant headwinds in the second quarter, particularly in our U.S.-to-U.S. business. While our growth is not at our historically high levels, we did continue to see very strong performance in our U.S. outbound business, our self-service channels and in emerging markets. We also continued to strengthen our core money transfer business through key agent signings. With the renewal of CVS and Canada Post, we have now secured 7 of our top 10 send agents until the second quarter of 2017, with several of those contracts through 2020.

In the quarter, we were able to recover $22.4 million in security settlements related to legacy portfolio losses on CDOs and RMBSs. While not part of a forecast or budget, these settlements provide additional cash to fuel the business. These settlements, along with our consistent cash flow, will be strategically reinvested in the business and returned to our shareholders through a newly reaffirmed share repurchase authorization. To be clear, this authorization has been in place for years, but was last utilized as a buyback in 2007. As we're committed to building long-term shareholder value, this is a nice next step for MoneyGram towards that end.

We added 6,000 additional agent locations in the quarter, increasing the MoneyGram network to 345,000 locations, plus all the nonphysical ways in which consumers can use our services, such as online with virtual agents or through our account deposit services. Many of the 6,000 additions came in emerging markets, with significant network adds in Indonesia and the Indian subcontinent. In fact, there are now more than 50,000 MoneyGram agent locations in India. We are proud of the broad set of traditional agents that we've partnered with, as well as the growing number of virtual agents we are adding to provide customers with the flexibility and convenience to send or receive money.

In the quarter, money transfer transactions increased 4%, while revenue increased 3% on a reported basis or 1% on a constant-currency basis. Excluding U.S.-to-U.S. transactions originated at Walmart, money transfer transactions increased a strong 13%, while revenue grew 10% on a reported basis and 9% in constant currency.

As you know, the competing Walmart U.S.-to-U.S. white-label product was introduced in mid-April, and it has negatively impacted MoneyGram transaction and revenue growth for the quarter. U.S.-to-U.S. sends originated at Walmart declined 31% and revenue declined 33% versus the prior year. We're currently experiencing and will continue to experience higher transaction declines in future quarters due to the significant price differential in the upper band, along with general lack of clarity around the differing product features at the point-of-sale.

Despite challenges at the outset of the U.S.-to-U.S. white-label product launch, U.S. outbound transactions originated at Walmart remained strong. Total Walmart revenue, including bill pay and money orders, represented 23% of total company revenue for the quarter.

Walmart and MoneyGram continue to have a close relationship, and the combined team is focused on innovative opportunities to accelerate revenue growth and enhance consumer experience across store formats. We've taken no significant pricing actions to date as we plan for the future. One point of comparison is the growth of the rest of our U.S.-to-U.S. business, which had strong 13% growth. Our total U.S.-to-U.S. business represented 23% of money transfer transactions and 20% of money transfer revenue in the quarter. We remain cautious and continue to monitor pricing dynamics in the U.S.-to-U.S. market.

Now U.S. outbound growth was anchored by continued market share gains in the U.S.-to-Mexico quarter. U.S. outbound remittances represented 41% of total money transfer transactions and 33% of money transfer revenue for the quarter. Both transaction and revenue growth were an impressive 15%. We had our seventh consecutive quarter of transaction growth in excess of 20% for U.S.-to-Mexico, with 21% growth on top of the over 30% growth in the second quarter of last year.

MoneyGram now represents 13% of the U.S.-to-Mexico market. During their critical Mother's Day period, we saw record transactions to Mexico and Central America, where our market-leading network provides consumers excellent choice and convenience. Our other historically large outbound category is U.S. to Latin America, excluding Mexico, and it grew well also in the quarter. U.S. to Africa had an excellent growth, thanks to our network expansion across the continent. We're also excited about acquiring and retaining new customers who are connecting with our brand and our value proposition to send to Asia and the Middle East.

Now sends originating outside of the U.S. posted another quarter of double-digit growth despite continued economic weakness in parts of Europe. Transaction growth was 10% and revenue growth was 7%. We highlighted last year that we were taking some proactive compliance measures that could reduce growth in Italy. The combination of these compliance measures resulting in send limits and agent closures, along with our growth last year, created a tough grow-over comparable for this category. Excluding Italy, transaction growth in sends originated outside the U.S. would have been 15%.

As we are still building out our network around the world, agent signings play an integral role in our growth. We have key anchor relationships in many of these countries, and I'm pleased to announce that our agreement with Canada Post was extended until 2020.

The Post operates the largest retail network in Canada, with over 6,000 locations offering MoneyGram money transfer and bill pay services. Several new relationships were signed in Latin America. For example, Grupo Monge, a top Central America retailer was signed as a new agent. With convenient retail hours, the stores provide access to money transfers 7 days a week in 6 countries. Other new agent signings in the region include Maracaibo in Venezuela and Paraguay UB [ph] , a financial services company.

While many think of Latin American market as receive countries, we're now generating significant sends from traditional receive markets like El Salvador, Honduras and Mexico. Our Middle East and Asia-Pac business saw accelerated transaction and revenue growth in the second quarter, as we focused on building out our network and self-service channels. Markets such as Saudi Arabia, Qatar, UAE, Japan and Singapore continue to be high performers. Services opened with Oman International Exchange, a leading currency exchange business. Oman has one of the highest immigrant population percentages in the world at 28%.

Our previously announced new partnership with AlJazira in Saudi Arabia has been growing very well and has substantially increased our business in the kingdom. Our brand affinity continues to grow in the region from our proprietary cricket property that we launched last year, Cricket Ke Badshah. This tournament had another successful year in 2014, attracting over 4,000 cricket players from 11 cricket associations.

In South Asia, we added over 3,000 locations in India in the quarter. In Sri Lanka, 2 long-term agent renewals were signed with Sampath Bank and Hatton National Bank. The region also has new campaigns underway around the Ramadan Holiday. We continue to invest in these exciting areas of the world with new leadership added in both Asia and South Asia.

We saw strong growth in the CIS and in parts of Europe, offset again by the softness in Italy. We expect the situation in Italy to stabilize over the next several quarters and will begin to lap the effect of last year's compliance measures in the fourth quarter. Across Europe, growth in the region has been driven by a continued focus on network expansion and productivity, along with key quarter pair focus for major send countries to parts of Africa, Philippines; and Eastern Europe, such as in Romania, Bulgaria and Albania.

New partnerships are expanding smaller retail relationships, as well. In Belgium, we're partnering with Lyfra to reach their broad-based, small retail partners. In the larger retail space, we continue to roll out services at Tesco and deepened our relationship with Continente in Portugal by extending our services to a new small-format bookstore chain. The region also continues to see robust growth from our online channels in the U.K. and Germany.

In Africa, our recent network expansion continued to drive growth. We've added an East Africa regional office in Nairobi to support our growing African business. We're bringing increased choice for consumers on the continent by providing a new option for global remittances. While we signed exclusive agreements with some agents, over 85% of our agent locations in Africa are nonexclusive. In addition to strong growth in transactions into Africa, we've also had good growth in intra-Africa and Africa outbound transactions.

Growing our market share outside of the U.S. remains our largest opportunity and a key component of our value proposition. During the quarter, this category represented 36% of money transfer transactions and 47% of money transfer revenue. We're growing globally through agent expansion, brand awareness, agent and consumer productivity and deployment of innovative products. We continue to invest in promoting our brand through specific holiday marketing programs and sponsorships designed to build our local brand affinity. Globally, MoneyGram is seeing our brand affinity grow. We're particularly excited about using social media to build brand equity and attract new customers, especially for self-service.

And now looking across all geographies. We're very excited about our self-service opportunities. In the second quarter, our self-service business accelerated to 60% transaction growth and 42% revenue growth, up from 36% revenue growth in the first quarter. Self-service represented 8% of money transfer revenue, and we're now halfway to our goal of 15% to 20% of money transfer revenue from self-service in 2017. The acceleration in growth was driven by MoneyGram online, as well as the launch of new virtual agents and account deposit services.

MoneyGram online had another fantastic quarter. If we considered MoneyGram online as a separate entity, it would now be our second largest agent based on transactions. Our online customer acquisition program continues to perform well. Online money transfer and bill pay transaction growth was 41%, with revenue growth of 31%.

In addition to our own online presence, we're building a diverse base of virtual agents. For example, we announced new relation -- a new relationship with virtual agent, Topengo, a French online phone top-up provider, with over 100,000 monthly unique visitors. Additionally, new account deposit services were launched in the quarter. Now consumers can choose to go online or to an agent location in order to send funds into accounts at all bank accounts in Mexico. The new service is also available to top banks in Honduras, Guatemala and El Salvador.

We're also bringing exciting innovation to our large retail agent partners. We extended our contract with 7-Eleven in Australia to provide money transfer services through self-service kiosks 24 hours a day, 7 days a week at more than 500 stores.

Also, we signed a new long-term agreement with CVS Pharmacy, which has 7,500 locations. As part of the agreement, MoneyGram will deliver a new multichannel solution that will include a kiosk-based platform at thousands of stores, providing customers an easy-to-use interface to stage money transfers or bill pays. Our relationship with CVS began in 2007, and it's been exciting to watch them grow from a non-seller of money transfers to the key agent that it is today. This new agreement extends the relationship through 2019.

MoneyGram is an industry leader in self-service with 10% of our money transfer transactions and 8% of our money transfer revenue coming through self-service channels. Our differentiated strategy is helping us secure and build upon our outstanding money transfer agent base and bring new solutions to consumers.

With that, I'll let Alex take you through the financials.

W. Alexander Holmes

Great. Thanks, Pam. There were certainly many moving parts in the quarter, so let me take you through that in detail. In the second quarter, total revenue increased 2% to $372.4 million. Money transfer revenue increased $8.6 million or 3% on a reported basis and 1% in constant currency. Investment revenue was $3.6 million, which is a slight increase compared to the prior year due to higher returns on investments. Balances remained stable.

Revenue generated from U.S.-to-U.S. sends originated at Walmart declined $18.8 million in the quarter compared to the prior year. We did see a gross margin benefit from the lower percentage of Walmart-to-Walmart business. However, this benefit was offset by ongoing fixed operating costs, which we could not adjust as quickly as the revenue declined. We will continue to focus on balancing our growth initiatives with cost cuts to normalize our cost structure as we move ahead.

For the quarter, net income was $25.6 million, up from $19.1 million in the prior year; and diluted earnings per share was $0.40, up 48%. Both net income and diluted earnings per share were impacted by a decrease in operating income, partially driven by increased costs for the global transformation program. This decrease was offset by the $22.4 million gain on security settlements.

Diluted shares outstanding for the quarter were 63.8 million.

Net income was further impacted by $1 million of expenses related to the recent capital transaction, with the bulk of that being related to the Walmart participation agreement. Recall that there's agreement between Walmart and our private equity sponsors, whereby Walmart participates in gains from the private equity investments on an increasing scale.

During the quarter, Walmart received $600,000 from this agreement, which was not paid by MoneyGram. But strange as it sounds, it is recorded as an operating expense on our books, with the offset recorded in our balance sheet as additional paid-in capital.

Finally, here I'd like to note that while monitor costs were $100,000 in the quarter, we do anticipate that these costs will increase in the back half of the year, as they ramp up more global due diligence activities.

Adjusted EBITDA in the quarter was $68.1 million, down 3% as reported and down 6% on a constant-currency basis as compared to the prior year.

Adjusted EBITDA margin declined 100 basis points on a year-over-year basis to 18.3%. This was primarily related to increased costs for compliance, marketing and other agent-related activities.

Total commissions as a percent of revenue declined to 46.1%, down about 40 basis points, primarily driven by lower Walmart-to-Walmart commission expense and partially offset by higher onetime commission payments and amortization of signing bonuses. We now anticipate that our money transfer commission rate will trend favorably in 2014, due to favorable mix shift to lower commission rate channels, obviously partly driven by larger declines in Walmart-to-Walmart transactions.

During the quarter, total recorded operating expense increased 9% over the prior year, driven primarily by increased investments in our global transformation program. On an adjusted basis, total operating expenses only increased 4%.

Compensation costs increased 13% in the quarter on a reported basis, as a result of approximately $5.9 million of increased costs for global transformation activities, mostly related to severance. On an adjusted basis, compensation and benefit costs increased only 3% and represented 17.2% of revenue, an increase of 20 basis points on a year-over-year basis.

Second quarter transaction and operation support costs were $77.3 million, which included approximately $7.7 million of expense related to global transformation activities and direct monitor costs. On an adjusted basis, transaction operations support represented 18.3% of revenue. In Q3 and Q4, I expect this percentage to trend favorably.

Marketing expense increased $4.4 million versus the first quarter, representing 4.6% of revenue in the second quarter. That's up quite a bit from the first quarter when that percentage was 3.4%. It is quite common to see marketing expense fluctuate between quarters, as the timing of corridor investments, promotional campaigns and other large-scale global campaigns tend to fluctuate. We still anticipate that marketing expense on a full year basis will represent 4% to 4.5% of total revenue.

Depreciation and amortization expense increased $1.4 million due to increased capital expenditures for investments in growth and investments in repositioning our business. Interest expense was $11.4 million, an increase of $1.5 million compared to the prior year quarter as a result of increased outstanding debt.

Book income tax expense for the quarter was $6.5 million or a 20.2% effective tax rate, largely due to the tax treatment of the $22.4 million gain on the security settlements. A major portion of these settlements are treated as capital gains and are offset with capital loss carryforwards from prior years. Cash taxes in the quarter were $300,000.

As a quick update on our litigation with the IRS, in June of 2014, the Tax Court heard oral arguments on motions for summary judgment. If summary judgment is not granted or the parties do not otherwise settle, we expect the matter to be litigated before the U.S. Tax Court. In the meantime, we continue to anticipate no changes to our outlook for our effective tax rate or for cash taxes.

The compliance enhancement program continues to ramp up. In the quarter, we incurred total cash outlays of $11.8 million comprised of operating expense of $7.4 million and capital expenditures of $4.4 million. The bulk of the operating expense is related to $5.8 million in our transaction operation support line, primarily for contractor and consulting expense on systems and process redesign. While the program is a large upfront expense, we're excited about the future of this program, the automation of our processes and, of course, having a state-of-the-art compliance program. The team has been doing a tremendous job moving this program forward, and we appreciate everyone's effort across the organization.

For our reorganization and restructuring activities, we incurred total expenses of $6.7 million in the second quarter. These costs were booked primarily in the compensation and benefit line to cover severance. As with the compliance enhancement program, we continue to make good progress in our efforts here and are pleased to have announced that we will open a new global business center in Poland in the fall of 2014. The team here has also been doing a great job working overtime to help transform MoneyGram.

Adjusted free cash flow in the quarter was $30.2 million, which does not include additional positive cash flow generated from the $22.4 million of security settlements. Considering that in the quarter, we incurred $22.4 million of cash payments for capital expenditures, coincidentally the exact same number as our security settlements, and we incurred $4.6 million for signing bonuses. Collecting on the settlements was a very positive result. With respect to signing bonuses, we still anticipate incurring $70 million to $90 million in signing bonuses for the full year, but we are obviously lower so far due to the timing of certain payments.

We ended the quarter with assets in excess of payment service obligations at a very strong $349.1 million, up from $329.6 million in the first quarter. Outstanding debt principal at the end of the quarter was $969.1 million.

Looking ahead, we anticipate utilizing our excess cash to reinvest in the business, make small targeted acquisitions, pay down debt and return cash to shareholders through stock buybacks.

From a leverage perspective, we're at a comfortable level of 3.2x adjusted EBITDA post our new debt issuance, which gives us substantial cushion to our total secured leverage covenant of 5x adjusted EBITDA.

Looking at the segments. Total revenue for the Global Funds Transfer segment increased 2% to $352.8 million. Bill payment transactions were up 2% compared to the prior year, a 200 basis point improvement versus the first quarter. Revenue was flat compared to the prior year and represented 7% of our total revenue. We continue to reposition this business to align with changes in the payments industry and larger macroeconomic trends. Convenience payments have become a much bigger portion of this business, as we have expanded into new verticals such as health care. These strategic growth opportunities have demonstrated good transaction growth but at a lower revenue per transaction.

The GFT segment reported operating income of $19.5 million and an operating margin of 5.5%. On an adjusted basis, operating margin was 10.4% in the quarter, down from 12.5% in the prior year, largely due to higher expenses for compliance, agent-related costs and increased marketing expense.

Turning finally to our Financial Paper Products segment. Total revenue in the quarter was $19.6 million, down 3% compared to the prior year. Operating income was $6.1 million, down from $7.6 million in the second quarter of 2013. Operating margin was 31.1% and adjusted operating margin was 38.8%, which was flat compared to the prior year. As a reminder, this business continued to generate the largest percentage of our outstanding cash balances. And should interest rates rise, which maybe they will someday, MoneyGram will benefit from higher interest income, and we look forward to that.

Now back to you, Pam.

Pamela H. Patsley

Great. Thanks, Alex. In closing, our global transformation program is repositioning the company to be even more nimble, innovative and cost effective. Our goal continues to be $2 billion in annual revenue, with 15% to 20% of money transfer revenue generated from self-service products in 2017. We have already delivered clear results, as strategic investments in self-service led to 60% transaction growth, coupled with strong revenue growth.

We announced that MoneyGram will be opening a new global business center this fall in Poland to improve our operational efficiencies and accelerate innovation. Poland has a business-friendly environment and talented workforce, but it's also an important receive market and an emerging send market due to its excellent economic growth. MoneyGram is well positioned in a dynamic growing industry, providing critical financial services to the ever-growing migrant and under-banked population. The strength of our brand, product breadth, global settlement platform and leading position in cross-border remittances remain our strategic assets. Our resilient business is led by a talented team, committed to ensuring that MoneyGram remains a leader in the global financial services industry. I'm very proud of how the team has responded to the present opportunity to accelerate the transformation of our business.

With that, thanks as always for your interest in MoneyGram. And I'll turn it over to the operator for Q&A.

Question-and-Answer Session

Operator

[Operator Instructions] And we'll take our first question from George Mihalos of Crédit Suisse.

Georgios Mihalos - Crédit Suisse AG, Research Division

Pam, I was hoping to start off, if you could perhaps give us an update on some of the money transfer transaction trends that you might be seeing in July so far, given all the geopolitical uncertainty that's out there in certain regions.

Pamela H. Patsley

Yes. There are a lot of, shall we say, hotspots around the world. I know we were asked about -- if we start with kind of the Russia, Ukraine, I already commented. We had actually very strong growth broadly from the CIS in the second quarter, and we've not seen that change in July. We've talked in the past about when the Ivory Coast had a civil war, when Libya has kind of fallen apart or Egypt. There are moments where, depending on kind of the situation, access to cash, bank opening hours, it's those types of things that can disrupt our business. But so far, nothing significant to comment on thus far in July.

Georgios Mihalos - Crédit Suisse AG, Research Division

Okay. And then, Alex, just looking at the band for the agent signing bonuses, the $70 million and $90 million. Should we expect that in 2015 to sort of normalize to the $50 million, $55 million range still? And given sort of the start in those payments over the first half of the year, should we really be assuming that you're going to skew more toward the $70 million as opposed to the $90 million based on the trends?

W. Alexander Holmes

Yes, that was a great question. I would say for next year, I think your range is probably appropriate. We haven't gotten into the details of that yet. But I think for now that's probably a good normalized run rate to at least base your model on. Now the $70 million to $90 million for this year, we still have a couple of opportunities out there. We've obviously always have timing differences on when payments go out the door. But I think the $70 million to $90 million is still a very good range, and there's always more opportunities out there. So we're looking hard at that. But I don't think it necessarily means that we're leaning towards the lower end by any means.

Operator

And the next question is from Kartik Mehta.

Kartik Mehta - Northcoast Research

Alex, you talked about the ability to take some cost out to offset what's happening at Walmart. Based on the way the business is formed, is there an opportunity for you to take much cost out? Or is this just a business where you're going to have fixed costs, and it's just a matter of accepting what happened there?

W. Alexander Holmes

That's a great question. I think that there's always that balancing act there, but we do have opportunities to level set our cost base. I think the challenge there continues to be that we want to invest and move into other areas. And so we're spending quite a bit of money. And whether you look at that from a compliance perspective or you look at that as part of the restructuring and moving things offshore or just the investments in self-service and how we reposition that business, there are new incremental costs that come with those. And so rightsizing the legacy business, if you will, is important and it's something that we continue to focus on. We think we have opportunities across infrastructure, other areas where we have -- we can reduce that run rate cost and take those out. So we have the target there. I think if you look at our guidance and sort of the mix that we gave on that outlook, when you look at the projections for the decline in revenue versus the decline in EBITDA, I think you'd see there that we do believe there are cost take-outs we can make. I think from a quarter perspective, things just happened a little bit quickly. And so we did get some cost out. But we have a plan. We feel good about it. So no, I don't think it's about absorbing it. I think when you are looking at an agent, though, the size of Walmart, you do have to take into consideration that there are a lot of costs to support them. And so the volume mix is important as well. So we can't just completely strip out everything we do there to support that business. So it takes a little bit of finesse, but we're working on it and feel good about it.

Kartik Mehta - Northcoast Research

And Pam, you talked about the success you're having with MoneyGram online and the self-service business. Is the profitability for that business in line with the traditional money transfer business? Or do you have to get to a certain scale to be able to achieve that?

Pamela H. Patsley

I think actually it's less about achieving scale to improve the profitability. So let me first say, we like the metrics on the business today. We want to and are focused on improving the bottom line performance of it, and it is less about scale and more about implementing some new technologies to make credit decisioning, risk decisioning faster, more automated, less manual, less people intensive. And so those are things that are underway and we're moving forward. And of course, our MoneyGram online business today, it's just really -- from a direct perspective, in the U.S., the U.K. and Germany, of course, virtual agents -- as I called out Topengo in France and we have others in different parts around the world. But otherwise, it is just oriented in those 3 countries. So as we continue to roll out new countries, that naturally will also kind of have a picking-up steam effect in turn of -- in terms of outgrowing that. So you have the benefit of lower commissions, certainly. And when it's MoneyGram online, there is no send commission. So we see better margins in the future, but we're not unhappy with it where it is today.

Operator

And the next question is from Rayna Kumar of Evercore.

Rayna Kumar - Evercore Partners Inc., Research Division

Could you please discuss your pricing strategy in the U.S.-to-U.S. corridor for the remainder of '14 and 2015?

Pamela H. Patsley

Sure. We have not -- as I think maybe both Alex and I said in our prepared remarks, we've not taken any significant price changes. We're watching it very closely and trying -- at the end of today, we are driving for revenue growth and profitable revenue growth. And we think the value that our service provides, essentially a 10-minute money transfer service, all the different ways you can send and receive, 35-plus thousand points of presence in the U.S. and all that we're asked to do from a compliance perspective, demands a fair price. Now having said that, there is clearly a large price delta in the $900 and below face or principal sent as a result of the new introduction of the Walmart-to-Walmart product. And so we're watching that carefully. But our decisions will be kind of in a very balanced way and kind of finding the best way for it. And that's why to date, we've taken no dramatic pricing actions.

Rayna Kumar - Evercore Partners Inc., Research Division

Great. And could you also discuss your plans for introducing an instant ACH cross-border money transfer product?

Pamela H. Patsley

Sure.

W. Alexander Holmes

Yes, and I think that's a great question. And it's something as we look at repositioning our MoneyGram online business, it's certainly a key element of where we want to go. But I wouldn't say it's the only one. There's a lot of things we want to do. I think today, from a consumer perspective, whether you're using an ACH or you're using a debit card, that point-of-sale experience is not materially different for those consumers. And so I think it is a nice solution to have. Clearly, to move in that direction, it takes a different set of broad analytics, a different set of predictive models, which we are working on building. And as we look to roll out and improve and enhance and continue to move forward with our MoneyGram online product, we do anticipate that will be an important element of it. We do offer ACH today. We offer a 4-hour ACH, in some cases. What's interesting about it, for our business, is that it tends to be chosen less often. Obviously, there's a variety of competitors out there who are doing more of an instant ACH model, certainly helps from a margin perspective. But we tend to index pretty high on debit. So there is some cost savings to be had there. But it's not critical to our future success, but certainly something that we would like to offer. In that, we think that the entire experience of MoneyGram online, getting into more countries internationally is actually a bigger opportunity for us. Linking the account deposit side on the receives and those types of activities are equally important as we go ahead.

Rayna Kumar - Evercore Partners Inc., Research Division

Is sometime this year a reasonable time line for that introduction?

W. Alexander Holmes

No. I'm not going to prognosticate on that. We have an entire team who's designing and putting forward best efforts on our platform. We continue to make improvements kind of on a monthly basis. And when that gets rolled out and fully implemented, I really can't say at this point.

Pamela H. Patsley

I think, Rayna, what's most important to take away is there -- we already have, as Alex said, an ACH funded solution and offering, and it isn't chosen most often. So it's the alternative, chosen least often. We are continuing to fine-tune the product, and it's just our growth trajectory for MoneyGram online. Contemplates, I guess, if you will, the time line that Alex really kind of alluded to. And I -- we don't see this as being a huge disruptor nor a huge shift change once it's in place. So we don't see it needed by year end.

Operator

And the next question is from Danyal Hussain.

Danyal Hussain - Morgan Stanley, Research Division

I was hoping maybe you could just provide a little more information on the -- kind of the cadence of the share loss from Walmart. So in other words, was it a fairly rapid decline that has since stabilized? Or do you see the consumers acting maybe a little bit more inertially?

Pamela H. Patsley

Yes. I would say from the numbers that we've reported, the 31% decline for the second quarter, the rate of loss in the price bands with the competing products is higher than that 31% that we report for Q2. And partially, that's just simply because there were about 3 weeks where the product wasn't in the market. And then of course, there is just the rollout, the ramp-up and kind of clarity at the point-of-sale. So I guess, the cadence would be it's the 31% we're seeing a current, if you take about like what was end of June run rate or something like that, it's definitely more than 31%.

Danyal Hussain - Morgan Stanley, Research Division

Got it. And then I guess, are you expecting it to remain at this pace? Is that what's baked into your guidance at this point?

Pamela H. Patsley

Yes. I think our guidance contemplates what we have seen in the last, whatever, it's been 16 weeks or so since -- 15 weeks since the product was launched.

Operator

And the next question is from Kevin McVeigh of Macquarie.

Kevin D. McVeigh - Macquarie Research

I wonder if you could give us a sense of -- with the additional settlements, it sounds like there's about $22.5 million. Is that something that should be recurring on a go-forward basis? And is that the proxy to use for the buyback in terms of how much capital you deploy there?

Pamela H. Patsley

Yes. With regard to the repeatability of that, I wish it were so, but it's not. So those were where MoneyGram took very aggressive action to pursue collection on the CDOs and RMBSs where we could use public data. We don't have subpoena power to identify that certain securities were put together fraudulently, conveyed fraudulently, misrepresented and so on. So we had to aggressively go pursue. So they really are more settlements. It's not just a security that we wrote off now becomes good. So they truly are settlements. I think we've said all along, we started this process years ago, and we're finally seeing a few of these things come to fruition. You might recall several years ago, also in the June quarter, where the SEC had a settlement with a large bank for some of this, and it was over securities that we also had purchased. We benefited and had some gain there. There is -- I think we've talked about this before, one of the settlements, another settlement with the SEC, we own some of that security but it hasn't made it through the court. And so we'll get a little bit of money there. I mean, we don't know how much and how -- depends on the dollars. So these are very episodic, and there's only so much we can go after. And so unfortunately, not a $22.4 million quarterly repeatable. And certainly our losses were much greater than that in '07.

Kevin D. McVeigh - Macquarie Research

Got it. Is it fair to say, Pam, that would be primarily dedicated to the buyback in terms of the $22.5 million?

Pamela H. Patsley

I think you should not think about our buyback as specifically tied or ring-fenced to any one particular event of our cash flow. I think the buyback has come about, largely just kind of the maturation of MoneyGram, the position we're in, the clearing of kind of some of the underbrush of the past and getting a clearer line of sight forward, consistent strong cash flow, what we know will be the result of kind of the benefit of our global transformation program. There is no question, settlements like that are helpful. But you can't -- we don't look at it as a one for one. It's just another element of our overall strong cash flow that's enabling us to move forward and now take the step to re-implement this buyback that actually had the authorization sitting there. So we've had our board reaffirm that. And as I said, we think this is just the right next step for MoneyGram.

Kevin D. McVeigh - Macquarie Research

Got it. And if I could sneak one more in. In terms of the declines across the bands at Walmart, is it fair to say, obviously, it was probably more so at the upper bands as opposed to the lower? Or just any color around that.

Pamela H. Patsley

I would say that the private-label product is offered from -- anywhere from sending $1 to $900. And I would say -- so clearly, the biggest declines are in that bucket. But the way the product is marketed, the signage at the point-of-sale and other things, it has had a significant impact even on -- where we're only $0.50 more or $0.25 more priced at that $0 to $50, so where we're $4.75 for $0 to $50 and the private-label product is $4.50. I have to be honest, it's also had a surprising. But part of that is just the experience at the point-of-sale of the consumer, the signage and the interaction and just how Walmart promotes the product.

Operator

And the next question is from Sara Gubins with Bank of America Merrill Lynch.

Sara Gubins - BofA Merrill Lynch, Research Division

With the 2014 guidance maintained, can you give us some thoughts on how you're thinking about money transfer volume trends for the rest of the year?

W. Alexander Holmes

Absolutely. I think there's probably 2 aspects to that. There's kind of our trends with and without the Walmart impact. So if you normalize for that, I think our trend should be steady as we look ahead. There's really not anything out there. I mean -- and I think Pam touched on a couple of times the softness in Europe, particularly in Italy, as we grow over that in the third quarter this year and kind of get through the normalization of that. The rest of the business has been performing very well. I think the U.S. outbound business, non-U.S. sends across the regions have been very good. So we look forward to kind of continuing that pattern. I think with respect to Walmart, that's certainly going to continue to be a drag on the business. And the guidance and that look ahead considered many outcomes with respect to that product; and again, coming back to one of the questions earlier, kind of contemplated a cannibalization effect at various levels. It contemplated us needing to change prices perhaps at some point in time. So as Pam said, no decisions have been taken on that. But for the most part, I think that's an isolated variable that we can look at and somewhat make -- choose our own path on that. The rest of the business continues to move ahead. So it feels good.

Sara Gubins - BofA Merrill Lynch, Research Division

Great. And then within online, is the trend similar to what you are expecting? And are you seeing any change in the trajectory of growth or a change in competitive dynamics?

W. Alexander Holmes

I don't know about a change in competitive dynamics. I think we've been continuing to focus on our product. We continue to focus on the customer experience, our acquisition of customers, the investments we make in that business to not only improve that customer experience, but also to enhance the product on a global scale. So right now, we have very good trends in that business, and we expect those to continue as we move ahead. Broadly speaking in self-service, we've been doing extremely well across our kiosk business as well and then signing virtual agents, whether they be mobile or other type of online players that we can partner with to expand service offering. So across the board, that continues to move forward. We have a lot of plans and opportunities there. And they can be lumpy. But at this point, particularly back to the online business, I think it's full speed ahead here.

Sara Gubins - BofA Merrill Lynch, Research Division

Great. And then just last question. How should we think about agent commission expense for the second half with you presumably losing a lot of the Walmart business?

W. Alexander Holmes

Yes. What I called out was that we anticipate a favorable trend there as we move forward in the second quarter. We did see some of that positive gross margin lift on the commission line. That was somewhat offset by some onetime payments and the amortization of signing bonuses. Obviously, as we roll on signing bonuses, we'll have to look at the entire mix. But we expect that to trend somewhat favorably at least over the next couple of quarters. Again, it will be a bit volume driven. And as we talked about, some of those scenario plannings around what's really going to happen with the Walmart business longer term will obviously influence that. But we normally don't give a specific number, but you can see it in our total commission expense line.

Operator

The next question is from Bob Napoli of William Blair.

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

Sorry. One more time on the Walmart. The $18 million of revenue. The Walmart to Walmart, I think 13% of your revenues. So it was about $200 million in annual revenue per year that you were getting from that. Now the $18 million that you lost this quarter is not quite half of the quarterly run rate. Do you expect that $18 million to -- I mean, how much do you expect of that to lose? I mean, at this point, are you comfortable you'll keep some of that $200 million of revenue? Or maybe a little color on the third quarter, does that $18 million go to $25 million?

W. Alexander Holmes

Well, certainly, I would anticipate the $18 million will increase in size. I mean, I think as we look back at number one, the product wasn't rolled in until late April, so we had several weeks of normal growth into the quarter. On top of that, there was introduction of the product and some ramp-up time. We've talked about the trend at which it came in. And certainly, the 31% decline that we reported is higher than that today. Where that goes and how that normalizes out, I think, is still something of a question mark there. So I would anticipate that the number being more than $18 million in future quarters, and then we'll see how that plays out.

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

Why would it not go to the full $200 million? Essentially, the way they market it, they -- Walmart is pretty aggressive. Why would you not lose the vast majority of that $200 million?

W. Alexander Holmes

Well, the product does have certain limitations. Certainly, not only does it only go to $900. So we have the upper bands above $900, where we continue to see consumers transact. We also have numerous consumers, that want to utilize our service to send broadly across the United States. Walmart is the largest retailer, but that doesn't mean that they're everywhere. When you look at some inner city concentrations and other pieces, they don't have coverage in a lot of those areas. And we have a vast U.S.-to-U.S. business that expands beyond just Walmart. There's also the trust factor there. Some of those convenience service pieces as well, that play into that. So I wouldn't anticipate that just because of a pricing differential that we'd lose 100% of that business. As Pam mentioned, we're looking at some various scenarios and continue to keep a close eye on the rest of our U.S-to-U.S. business, looking at what competitors are doing outside of Walmart as well. So yes.

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

Maybe I'm a little bit confused. That 13%, I thought that was all Walmart to Walmart. It's not -- it's just Walmart to U.S.? It's not...

Pamela H. Patsley

That is -- so first of all, Walmart to Walmart, when we talk about that, is always U.S. to U.S.

W. Alexander Holmes

Right. So yes, I guess, the way I was answering the question was that our product offering at Walmart -- so you're asking the question in terms of those sends that are just in Walmart to Walmart?

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

Right.

W. Alexander Holmes

So why wouldn't it just go 100% away?

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

Well, how much of that -- of the 13%, how much of that is purely Walmart to Walmart, which I understand...

W. Alexander Holmes

That is Walmart to Walmart. I was answering a broader question, I suppose, than your specific one. So let me come back to the specific one. In the end, I don't think that price differential is 100% of the solution. If you look at prices $0 to $50 in particular, they're only off $0.25. Not every -- there are 2 products at the point-of-sale. Consumers do have a choice. While there is some confusion, I wouldn't say 100% of all the transactions are being directed. It's not like our products completely gone dark. It still exists. Consumers have a choice. And then obviously, we do have the bands over $900, where we continue to be the only provider of that particular service.

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

And what percentage of your -- of that business was over $900, like 10% or something?

Pamela H. Patsley

That, we didn't break down.

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

Okay. On your online business or the -- what percentage of that is mobile and what are you doing on the mobile side? Your one focused competitor has a really slick mobile solution that I think their customers seem to really like. And I don't know -- I'm not exactly sure where MoneyGram is going with that.

W. Alexander Holmes

Yes. No, that's a great question. Mobile means a lot of things to us. Certainly, we have mobilized MoneyGram online today. And I think as you look at the future of that product, we'll continue to improve upon that, look at the rollout of apps. We're looking at it from a global perspective, not just from a U.S. perspective. So we think there's a lot of opportunity there. So you have kind of your mobilized online opportunities. And then what we have around the world are various mobile send and mobile receive capabilities, which continue to be an important aspect of our service offering. We broadly categorize those into virtual agents, as it were. And then we continue to focus on that experience with those service offerings. So partnering with telcos, as we've talked a lot about, our partnerships in Qatar, South Africa and partnerships in Abu Dhabi with various banks that offer the MoneyGram service through their online applications and, more importantly, through their mobile applications. And that's where we've connected directly with those types of services. So we intend, as we go forward, to improve on our mobilized web application, continue to roll out our own apps for that service, expand MoneyGram online globally and then continue to partner with mobile wallets on a send and receive basis. So today, it's a small portion. Those types of virtual agents is a small portion of our transactions in revenue, but a growing one. When you look at the percentage of business that's through our mobile phone -- I don't have the statistics in front of me. But from a mobilized MGO perspective, that continues to grow pretty much every day on a percentage of transactions. So it's pretty exciting to see. And as we reposition that and roll out, again, continue to improve customer experience around those types of products, we anticipate that, that will continue to increase as a percentage of our revenue.

Operator

And the next question is from Tim Willi of Wells Fargo Securities.

Alan Donatiello - Wells Fargo Securities, LLC, Research Division

Alan Donatiello in for Tim. Just one quick question. Can you comment on whether you're seeing any momentum building as a result of the shift towards the focus on the international business? And if so, what corridors in particular?

Pamela H. Patsley

We are continuing to see momentum build. And outside the U.S. is a big place. And so there's lots going on. So we called out some soft spots, some grow-over issues in Europe. But yet we also called out some places that are very new markets for us and very big markets like Russia and Saudi Arabia, broadly the Middle East, Latin America sends. We're seeing very positive growth in some exciting corridors around the world.

Operator

The next question is from Tien-tsin Huang of JPMorgan.

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

Just 2 questions. I'll ask them both upfront. Just first on Mexico, that was strong again, well above market, so -- despite some tough comps. So curious how sustainable that is. And then the second one just on the renewals. It's nice that you called out a lot of those bigger ones getting done. But I'm curious, things like CVS, do the concept of private label come up at all? And just generally, I know you gave commission commentary, but how has the -- how has renewal pricing been on the newer -- on the bigger deals?

Pamela H. Patsley

Sure. I'll take that first one, let Alex give you a little color back to commission and specific to your question, Tien-tsin, on CVS. We just remain very, very excited about Mexico. And so not kind of saying anything disparaging about the question and the reason for the repeat, but you all were asking this a year ago, and we've continued to perform. So I'm not prognosticating, but I think we know the market is big. We're just now at 13% of the U.S.-to-Mexico market share. We are focusing on the consumer experience on the send side, as well as the receive side, working with our agents that want to provide the best solution to our consumers. We've continued to add product functionality with now the availability of sending directly into any bank account in Mexico in a really streamlined and efficient fashion. So I think the 7 quarters of consecutive 20-plus percent growth, we sure hope we can make it 8, 9, 10, 11. But I'm not promising that. But I will tell you the focus, the team, both in the U.S. and south of the border, are oriented towards that. So yes, we're pretty pleased and very proud.

W. Alexander Holmes

Yes. And then the second half of your question with respect to renewals, I mean, I think that the renewals have been within the realm of our historic trends. Certainly, renewals, particularly large agents, are always competitive. But I think we have a good value proposition, a good relationship with our agents with respect to what we would like to call kind of the customizations of our service and being able to provide offerings inside those locations in a robust way. So there's always an aspect of price and commission to those agents. But then there's also kind of the service and the investments that you're going to make alongside of that, whether that's system investments or whether that's marketing investments. And so I think from a total cost perspective, we feel very good about our renewals that we put in place, and very excited to be tying up and continuing the relationship with agents we've had for a long time. I think in the case of Canada Post, we've seen that grow from a few thousand locations to the entire Canada Post network. It's a great relationship there. That goes right up to, kind of the -- to the board level. When you look at CVS, I mean, that was a non-seller several years ago when we started that relationship, and we've really partnered together to grow that business and make it what it is today, which is just a phenomenal growth engine for MoneyGram. And their position not only with money transfers, but also with bill pay continues to grow. And so it's very exciting, the amount of signage we've rolled out and the other investments we've made together. So feel very good about those renewals and don't have any concerns about it.

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

So the private-label concept didn't come up?

W. Alexander Holmes

Oh, great. Sorry, I forgot that question, too. Not to any large degree, I mean, obviously they're aware of what's going on at Walmart.

Operator

And our next question is from Mike Grondahl of Piper Jaffray.

Michael J. Grondahl - Piper Jaffray Companies, Research Division

Most of them have been asked and answered, but one quick one. The $22.4 million security gain, can you comment what percent that was of your sort of outstanding litigation?

Pamela H. Patsley

No, we really haven't given that. I mean, you know the company lost $1.5 billion. So I mean, I don't know, do you want that on numbers of banks? There were less than 10 big investment banks, probably less than 7 that sold most of the securities to us. So We couldn't go after all of them. So on whatever measure, it's tiny, but it is what it is. So something is better than nothing.

Eric Dutcher

All right, thanks so much.

Pamela H. Patsley

Thanks, everyone. As always, we appreciate your interest in MoneyGram.

Operator

This concludes today's call. We thank you for your participation.

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