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Executives

Alex Holmes – SVP, Corporate Strategy and IR

Pam Patsley – Chairman and CEO

Jim Shields – EVP and CFO

Analysts

Kartik Mehta – Northcoast Research

Mike Grondahl - Piper Jaffray

Bob Napoli – William Blair

Robert Dodd – Morgan Keegan & Company

MoneyGram International, Inc. (MGI) Q3 2011 Earnings Conference Call October 27, 2011 9:00 AM ET

Operator

Good morning and welcome to the MoneyGram International Third Quarter 2011 Earnings Conference Call. Today's call 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 to your host, Alex Holmes, Senior Vice President of Investor Relations and Strategic Development. Please go ahead, sir.

Alex Holmes

Thank you. Good morning, everyone. And welcome to our third quarter 2011 conference call. With me today are Pam Patsley, Chairman and Chief Executive Officer; and Jim Shields, Executive Vice President and Chief Financial Officer.

If you've not yet seen our earnings release, you can find it on our website at 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 September 30, 2011, which is expected to be filed with the SEC by November 3.

Additionally, I want to note that today's remarks include certain non-GAAP financial measures, including EBITDA, adjusted EBITDA, and adjusted EBITDA margin. Our earnings release includes the full reconciliation of these non-GAAP financial measures to the related GAAP financial measures.

And with that, I'll turn the call to Pam.

Pamela H. Patsley

Thanks Alex. Good morning everyone. We had a great third quarter at MoneyGram across the board and in spite of continued global economic challenges, we had excellent results. Both total revenue as well as fee and other revenue increased 10% led by impressive performance in our core money transfer business. Money transfer transactions increased 13% but constant currency revenue increasing 12%. Growth in the money transfer business was solid in all regions with newest US sends increasing 16%. US outbound sends increasing 9% and sends originating outside of the US increasing 16%.

We increased our global agent locations by 24%, ending the quarter with 256,000 global agent locations. Our focus in squarely on agents’ productivity with this growing base.

Adjusted EBITDA for the quarter increased 6% to $72 million and diluted earnings per share was $0.03. Adjusted EBITDA margin was a strong 22.4% and while down slightly from the third quarter in 2010, adjusted EBITDA margin is up sequentially from 20.7% in the second quarter. On a year-over-year basis, the reduction in margin is related to our planned increase in marketing expense during the quarter of $1.1 million, along with lower net investment revenue and lower operating income from our bill payment business.

Now, taking a closer look at our money transfer business. During the quarter, our US to US business again delivered impressive year-over-year transaction growth. 16% for the quarter just ended. This is our fifth consecutive quarter of double-digit transaction growth in this line of business, US to US.

Revenue in the US to US business accelerated above last quarter’s growth. As we stated previously in the fourth quarter, we will finally lap a $5 for $50 pricing which was implemented last year in 2010.

Our US agent base continues to grow. This week, we were excited to launch our service with QC Holdings in Kansas City. QC will offer MoneyGram money transfer bill payments and money orders in more than 300 locations, and through them we extend our presence with a leading pay-day lender.

Our US outbound business also had another solid quarter, reporting transaction growth of 9%, which was driven by sends to Mexico, where again accelerated our growth to report 13% growth. We are really pleased with especially since the corresponding revenue growth was also double-digit. This is the eighth consecutive quarter of accelerated growth in US to Mexico transactions. In Mexico, we recently signed an agreement with De Banco. This addition provides improved covered in and around Mexico City and many resorts import areas. We continued to improve our network in Mexico which we believe has much to do with our outside market gains we’ve been reporting there.

Sends from the US to other areas in Latin America such as El Salvador, Guatemala and Honduras remain strong. In Latin America, we previously announce the signing of several agreements and are please to share we will be launching next week our service with Banco de Credito in 350 locations.

Intra LAC sends are growing, as migrant consumers seeking work make alternative choices to traditional quarter patterns. US send transactions to non-Latin America markets help to round out a very solid quarter. Transactions sends to Philippines, Ghana, Romania, India, Russia and China among others all delivered very good transaction growth in the third quarter.

Now send transactions originating out of the US remain very healthy, delivering our eighth consecutive quarter of double-digit transaction growth and this despite a weak global economy. Whether it’s been political turmoil in the Middle East and North Africa, or economic and employment challenges across parts of Europe, our team at MoneyGram has navigated these situations well. Our customers have shown incredible resilience, and our business continues to grow at exceptional rate during the tough times. We think we’ve been focusing on the right corridors for growth.

To that end, our growth in the Middle East has been amazing. As I said during our discussions, the remittance market in the Middle East is a huge opportunity for MoneyGram. We have increased our focus in the region, assigned resources, invested in marketing and partnered with many new agents and the results are clear. Transaction growth from the UAE and Saudi Arabia are reporting some of the highest growth in our entire network and new agents are coming on first.

Our network in Pakistan continues to grow and we signed Tameer Bank this quarter. The addition of the post office in Lebanon, Liban Post, rounds up several new relationships with post offices for MoneyGram around the world.

Growth in Africa remains robust on the strength of sends from Europe and the US. Receive volumes were particularly notable in Kenya, Cameroon and Morocco. Sends from Africa were led by robust growth in the Ivory Coast, Cameroon and Angola. Sends from the Ivory Coast continue to perform extremely well especially since our reopening in May which followed the shutdown earlier during Geo-Political unrest.

Our agents in Libya remain closed for money transfer services, but we are optimistic that this important send and receive market will reopen soon. Despite continued economic uncertainty, transactions sends from the Europe during this quarter continue to impress. Growth was led by France and Germany with strong performance from UK, Italy and Greece. During this quarter, growth in Belgium and Switzerland strengthened, and we added three new agents with the signing of the Iceland post and Post NL, in the Netherlands. Both Posts are expected to launch early next year and both will provide great coverage for us in same regions where we have traditionally been under represented.

We remain focused on improving growth in Spain where unemployment continue to slow our growth in this large but very important sends market.

In Eastern Europe, the CIS and Russia, we delivered robust growth and expanded our network. Our Russia outbound corridors continued to accelerate on the strength of Sberbank and receives in Ukraine and Romania remains particularly strong.

We signed an agreement with Oschad bank in the Ukraine where we will roll out over 1700 agent locations yet this year, maintaining this excellent momentum we have in the region.

And with Uzbekistan, agent agreements were recently signed with National Bank of Uzbekistan, Post bank and Halq Bank, a local Bank. This Banks represents the addition of more than 220 locations to our network in Uzbekistan.

Moving South, a strong position in India, the world’s largest receive market continues to grow. On the heels of last quarter’s announcement of our partnership with Bharti Walmart, we recently announced the signing and opening of our first agent outlets with the India Post. India Post is the world’s largest post office from a distribution perspective. This new relationship will be phased in over the next year adding several thousand new convenient locations for customers to receive funds. Through our expanding relationships in India and marketing investments in key send countries, we are building out and capturing the opportunity in the largest remittance receives market.

In the Asia pacific, we also continue to deliver strong results. Send transactions from Malaysia accelerated, while sends from Australia remain very solid. Receives in the key market of the Philippines continues its strong growth trajectory with receives in Vietnam and Thailand rounding up very good transactions and revenue growth quarter for the region.

In China we completed our Bank of China expansion to all 27 provinces, and we are committed to building MoneyGram’s business in China.

Now turning to bill payments. For the quarter, transactions were down 5%, with revenues down 9%. As discussed on prior calls, we anticipated results would improve in the latter half of 2011 and the trend lines did improve with September results considerably better than July. The improving performance was driven by moderation in consumer credit markets as well as our business development efforts including the launch of bill payments in all of our Canada Post locations. This is our first bill payment offering for originations in agent locations outside of the US. Additionally we added a utility bill payment offering in all CBS locations in the US. We are also seeing an impact from aggressive effort to add more billers to the MoneyGram bill payment platform.

We had a strong quarter for new billers, with new contract signings across all industries, most notably Mortgage, Auto, Prepaid Card and corrections. Key new billers include Nissan, City Credit Card and the Federal Bureau of Prisons. We’ve added over 1,000 billers this year which is nearly a ten-fold increase to new billers as of last year.

Finally, I will just mention that during the quarter, we closed some of the divestiture of our PropertyBridge business. PropertyBridge is a great business but was not core for us. It was an acquisition the company made in August of 2007. The divestiture of the business improved our focus and is another step in the repositioning of our bill payment business.

In the third quarter, we executed two significant global marketing campaigns that focused on Back-to-school and on Ramadan. Each campaign was supported by all mediums including TV, print, radio, online and social media and each was tailored to be relevant to our send and receive countries. For example, the Back-to-school campaign in twelve West and Central Africa countries included MoneyGram distributing 84,000 notebooks and medical packs, while in the Philippines and Thailand, public relations and philanthropic giving were part of the local execution. In these countries, MoneyGram’s global giving program donated $35,000 to HOPE International for education assistance, providing 750 children in the Philippines and Thailand with needed tuition, full suppliers and meals. Our Ramadan campaign was very successful with strong transaction growth in Middle East and Africa throughout the Ramadan season.

You will hear more from Jim on our operational efficiencies and restructuring efforts, but I want to emphasize that while we are growing, we are not taking our eyes of, of the need to invest and enhance our processes, systems and infrastructure. We believe these initiatives will be a competitive advantage for the long term, and as you’ve heard me say before, we are also investing in our people. Getting closer to our agents and partners around the world is our focus.

Recently, we’ve added corridors, connective leaders and new corporate talent. While it is always easy to talk about growth, new business and financial metrics, these are other elements are truly foundational for building out a world-class organization.

And now Alex will highlight some activities in our new channel and product areas.

Alex Holmes

Thank you, Pam. With regards to our core products, we continue our focus on expanding consumer choice for money transfer services to the rollout of multicurrency capabilities. We are offering consumers the option of sending or receiving funds in a variety of currencies. MoneyGram expects to drive transactions and revenue growth in many countries. Most recently we added multi-currency send capability in Israel and Ukraine. We are moving towards adding send currencies in certain Latin American countries and other areas around the world.

Multi-currency receive capabilities also recently added in Peru and Mozambique to add to our many others around the world and more rollout of these products are planned through the remainder of this year. This functionality and other basic improvements to our core products are in line with our set objectives of improving our core capability in creating a product that we can confidently state that is as good as or better than the competition.

In regard to new channels and services this quarter, we announced several exciting new relationship. In September, we announced that MoneyGram became the first international money transfer company to join SWIFT as a member of its Worker's Remittance Group. Our relationship with SWIFT remit will allow us to rapidly develop our bank account deposit services across the globe.

We are also excited to announce that we are finalizing agreement with CashEdge, which will enable banks connected to their person-to-person service, to send money through the MoneyGram network. The agreement also allows the receivers of P-to-P payment to create a cash payout option with MoneyGram.

Continuing in the online space, during the quarter, our MoneyGram online had another excellent quarter delivering transaction and revenue growth of 28%. Sends during the quarter were strong across the board, led by sends in the US and the continuing growth of sends to international markets.

As we look to extend our reach with MoneyGram online, we recognize not only the importance of extending our core service, but also the importance of adding partnership. To that end, I am very excited to announce that we recently extended our relationship with Walmart by adding our money transfer service capability to walmart.com. Additionally, we also recently announced our agreement with AccountNow to become the first US based prepaid card program to provide MoneyGram’s money transfer product as an online agent. This agreement enables AccountNow customers to use they prepaid card account to send money in 10 minutes to any MoneyGram location in the world conveniently from AccountNow’s website.

In October, Cumberland Farms became our first agent to launch our new MoneyGram X-press service. This service allows customers to purchase a prepackage money transfer at the point of sale, and them redeem it online or by telephone to complete their transaction. By changing the in-storage experience, the MoneyGram X-press product provides a unique and convenient service to many retailers who traditionally were not able to offer money transfer services to their customers. You can see we continue to expand our network and products providing additional convenience and choice to our consumers. Anyway a consumer wants to send, and any way wants to receive is what we are focused. Globally new channels now account for 4% of money transfer revenues. Look for more announcements about these new and exciting services in the coming months.

And with that I will turn it over to Jim.

Jim Shields

Thanks Alex. As Pam mentioned earlier, we did indeed have a very strong quarter. So let’s take a close a look beginning with revenue. Total revenue in the third quarter increased a strong 10% to $322 million. Total fee and other revenue also increased 10% to $318 million. Total revenue in the third quarter was driven by strong growth in our money transfer business, partially offset by clients and our bill payment business and Financial Paper Product segment. This is the first quarter in over two years that we’ve seen double-digit total revenue growth. In addition, our money transfer business now represents 84% of total revenue compared to 80% in the third quarter last year. This shift represents our continued focus on growing our core fee-based global funds transfer business.

Net income in the quarter was $15.8 million, an increase of 59% from the same period last year and EBITDA was $59.1 million. Both net income and EBITDA were impacted in the third quarter of 2011 by $6.4 million of restructuring and reorganization costs and $4.4 million of stock-based compensation, $1.3 million of certain legal accruals and $900,000 of asset impairment charges.

Adjusted EBITDA for the third quarter increased 6% to $72 million and adjusted EBITDA margin was 22.4%.

We ended the quarter with diluted weighed averaged outstanding common shares of $577.4 million and delivered diluted income per common share of $0.03.

Turning now to operating expenses. Total commission expense for the quarter was up $13.9 million or 10.9%, which was driven by our strong revenue growth in the quarter. Commission’s expense on a percentage basis was flat. Compensation and benefits expense for the quarter was $60.6 million, up $4.4 million. Comps and benefit was negatively affected by $2.1 million of incremental restructuring costs mostly related to streamlining our retail operations in Europe. $1.4 million related to the strong euro. $2.8 million in incremental incentive compensation over the prior year due to a strong performance again for current year’s objectives. But the remaining increase related to ordinary employee salary clause in our changing mix of employee base as we invest in sales, marketing development and compliance functions. These increases in expenses were partially offset by lower stock base compensation of $2.8 million. You should also note that our global headcount is down 165 employees to 2,350 employees as we continue to streamline our operations.

Our transaction and off-the-board expense, we were up $10.4 million in the quarter. This increase is primarily derived from $3.2 million in incremental restructuring cost, $1.1 million of incremental marketing investments, $3.9 million for FX impacts on our non-dollars denominated monetary assets and liabilities and euro denominated expense base. And $1.1 million from non-cash valuation losses on a trust held for certain former director which continues to use it for all options to reduce our costs associated with this and other legacy pension and benefit plans.

Taking these items into consideration, costs are up $1.1 million or 2% which is great considering we increased transaction volume by 13% during the quarter.

Occupancy, equipment and supplies was favorable $1.4 million primarily related to our facility fragilization efforts.

In the other expense line, in the non-operating section, costs were up $770,000 primarily from asset impairment charges in selling costs related to the sale of PropertyBridge. Rounding out the expense section, interest expense was favorable $2.5 million as a result of our continued de-levering activity and the 2011 refinancing.

Depreciation and amortization came in essentially flat.

Also during the quarter we continued to add diligent effort to build a more efficient organization through restructuring activities. Specifically, we spent $7 million during the quarter, which was comprised of $6.1 million of severance, reallocation and other resourcing costs for the remaining costs relating to facility fragilization efforts.

Today, we have incurred $23.1 million in restructuring expense since the program was announced in the second quarter of 2010 and have realized approximately $14 million in annualized run rate savings. We are approximately half way to our stated goal of realizing between $25million and $30 million in annual run rate savings exiting 2012.

To date, we have $3 million in consolidated operations in finance, human resources, customer service support and other back office areas. Going forward we will continue to leverage our existing technology platform to further consolidate our operations and create a scalable organization that is precision to efficiently support our accelerated global revenue growth.

Now let’s turn to the segment. Total revenue for the global funds transferred segment increased 12%, led by very strong money transfer constant currency revenue growth of 12%. This segment reported operating income of $39.1 million and an operating margin of 13.1% in the third quarter of 2011.

Adjusted operating margin increased to 16.4% in the quarter, up from 16% in the prior year quarter. And this is the highest margin in this segment in over three years. The higher margin in this segment was achieved notwithstanding the impact of increased profit expense and lower operating incomes from the bill payment business. It’s clear our restructuring efforts are paying off. The driving force out of the business realized scale on our business model and as a result our margins are growing. A true testament to our growing profitability of our core money transfer business.

In the Financial Paper Products segment, revenue declined 13% to $22.5 million in the third quarter of 2011, with operating income of $5.5 million. Operating margin in the third quarter of 2011 was 24.6%. Adjusted operating margin was 30.5%. Segment margin continues to be negatively impacted by declining investment revenue and declining fee revenue associated with lower volume. Financial Paper Product revenue represented 7% of total revenue in the quarter, compared to 8.9% of total company revenue in the same quarter of 2010 and 13.7% of operating income, compared to 19.4% of total operating income a year ago.

As far as liquidity, we began the quarter with assets in excess of payment service obligations of $233.1 million. During the quarter we recorded adjusted EBITDA of $72 million and made $21.1 million of debt interest payment, funded $7.2 million of capital expenditures, invested $7.6 million in signing bonus payments, and had $6.5 million in cash restructuring expense. This in addition to $13.3 million of working capital items, led to our ending the quarter with assets in excess of payment service obligations of $249.4 million.

Earlier this week, we filed an 8-K, which you might have seen. To update you, we execute our fifth amendment to our second lien indenture. With this amendment to the indenture, we now have the flexibility to execute the call-back feature in the event the secondary offering, not just the primary share offer. It also more closely aligned the terms of the indenture with those of our current credit facility. This is a positive development for MoneyGram and provides us additional flexibility in managing our capital structure.

We continue to manage our cash prudently and our focus on de-levering our balance sheet in the most cost efficient manner. With $250 million of liquidity on our balance sheet and strong cash flow, we have ample opportunity in the near term to lever our balance sheet further. We are exploring all options and we use our liquidity to de-lever in a manner that creates value to all our shareholders.

And with that, let me turn it back to Pam.

Pam Patsley

Thanks, Jim. Like last quarter, I’d just like to reiterate how pleased we are with our results. We are successfully allocating capital and resources to capture opportunities in the global money transfer market. MoneyGram is a powerful brand and through our focus on consumers, agents and partners, we are intent on creating better value for our shareholders. The turnaround of MoneyGram is certainly well on its way.

And with that, I’ll turn it back to the operator. We look forward to your questions and comments. Thank you.

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen, (operator instructions). And we’ll go first to Kartik Mehta with Northcoast Research.

Kartik Mehta – Northcoast Research

Thank you. Pam, just a question on a statement you made and you might have answered it. I apologize, I ran in from another call, but you had a very good quarter driving revenue and transactions for the money transfer business. But you did say there are some global economic challenges which obviously we all know about and I’m wondering if that’s creating any softness in your business recently or that was just a statement of you saying this is something that’s happening so be aware of it in the future.

Pam Patsley

Well, I think it’s more of the latter, but there’s no question as I did say, we’re really focused on improving the transaction volume we’re seeing from Spain. That’s a big market for us and that kind of several years was really suffering. It was improving and I would say it feels a little softer now and then besides the global economic environment; there are kind of episodic regulatory initiatives that I think we’re managing through quite well, some in Italy and other places. But it’s probably more a general statement and we’re trying to be very focused to get as much growth as possible. We’re really pleased with our numbers.

Kartik Mehta – Northcoast Research

And then, Pam, just your thoughts on what you might see in terms of a pricing impact for the year for 2011 for the money transfer business.

Pam Patsley

Yeah, it really remained about the same as we’ve been talking, that we just kind of in general the way you parse it down somewhere in the 1% to 2%.

Jim Shields

I’ll just add, that’s outside of the 5 for 15 pack that we saw.

Pam Patsley

Yeah, that’s right. But we’re about done talking about that on a lap basis. We’re about to do like for like now.

Kartik Mehta – Northcoast Research

And then just one last one question, Pam. You’ve obviously introduced some new products. We’ve heard some very good new partnerships and I’m wondering, as we go over the next two, three years, do you think this will have an impact on your marketing expenses at all because of products or competition or you’re trying to get the MoneyGram name out even more broader and if so, could you see an increase in marketing expenses as a percentage of revenue going forward?

Pam Patsley

We think we got to a level that we’re going to be pretty happy with here in 2011. As I’ve talked about the last two quarters, we view 2011 as that year for that step function increase to get back to those levels that MoneyGram historically had been at and closer to what the industry is. So we’re at about 4.5%, 5.5% of revenue.

Jim Shields

We’re about 4.6% I think we’re focusing on this year.

Pam Patsley

So the biggest step function I see, Kartik, has been this year. The marketing expense will grow as our volume grows, but I don’t see any huge adjustments. We’re also I think, the team is just doing a great job embracing all mediums and some of these new mediums for getting the message out are more efficient than some of the legacy marketing mediums, and it takes a good blend and I think they’re going a great job of balancing all those, whether it’s social media or legacy prints, billboard and TV.

Kartik Mehta – Northcoast Research

Well, thank you very much. I appreciate it.

Operator

Next we’ll hear from Mike Grondahl with Piper Jaffray.

Mike Grondahl - Piper Jaffray

Yes, thanks for taking my questions. First one, really get to that kind of revenue per agents. You've grown agents so much in the last year-and-a-half, two years that that revenue per agent came down about 20%. How do you see getting back to those higher levels and how long does that take?

Pam Patsley

Well, to get agents really productive it’s certainly over 12 months and depending on the network it could be as much as 18 to 24 months. So that’s going to vary. It varies whether you’re a seller or a non-seller that we added. Certainly varies by quarter and there’s always just a network effect if you will that when you sign large cost, large bank distributions, not all locations are crazy busy equal. So the location across from the train station is going to be highly productive and the location that’s also in our accounts, that’s in a small town maybe in Siberia or in the far north regions of Scotland or whatever, is not going to be as productive.

So and then as we’ve been just growing our base so aggressively, you’re seeing more of that impact. So our focus is on agent productivity. I think you should take comfort in the fact that we are managing our team on agent productivity, same-store sales, some other metrics that we put in just kind of our own internal management reporting. So we’re focused on the right issue but I couldn’t be predictive based on continued aggressive agent network expansion as to what that 20% you’re calculating change is to be.

Mike Grondahl - Piper Jaffray

Sure. Could you speak a little bit to what you're seeing at least directionally in the same-store sales trends?

Pam Patsley

Better, improving.

Mike Grondahl - Piper Jaffray

Great. And then the – Pamela, the 10% top line growth year-over-year this quarter, when was the last time you grew that fast?

Pam Patsley

I think Jim mentioned that. When was the last time we had double digit total company revenue, two years…

Jim Shields

Yes, two years ago. The issue was this. In 2008, the company had a significant amount in losses that were hitting back to the revenue from that securities losses which flowed through the revenue lines. So 2009, we obviously showed tremendous amount of revenue growth. So it’s not comparable.

Mike Grondahl - Piper Jaffray

Got you, and then, it was kind of alluded to on the last question, but in terms of marketing spend, it seems like you're getting a good return on that. Pam, any thoughts on raising that?

Pam Patsley

Just as I mentioned before, we have raised it significantly and we’ve also changed the phasing if you will in terms of which quarters that marketing is falling in as opposed to in the past being so heavily weighted to the fourth quarter. Our global consumers celebrate a lot of holidays and a lot of other initiatives, there are important different times of the year. So we’ve changed that phasing and 2011 was really the step function. So there’ll be very modest increase kind of in our marketing spend fourth quarter ’11 over fourth quarter ’10. So some, but not a huge amount so we’ve kind of had our biggest step function increases in the first several quarters of the year.

Mike Grondahl - Piper Jaffray

Okay, and then lastly, any update on settlement gains? If I remember right, about $30 million in the June quarter, looks like nothing this quarter. What's kind of the outlook there?

Pam Patsley

Well, that would be just one very difficult to project. We think that we’re doing all the right things for the company to take positive steps in our efforts to protect and create shareholder value, but it’s certainly not predictive.

Mike Grondahl - Piper Jaffray

Got you. Okay, thank you.

Operator

And next we’ll hear from Bob Napoli with William Blair

Bob Napoli – William Blair

Thank you. Good morning and congratulations on the quarter. You guys are making a lot of progress, clearly. Question that – and you'll probably be asked this question every quarter until while I'm sure you hear it, during the quarter from investors, but the Walmart contract, you guys really didn't have a lot of operating momentum and everybody knows obviously that Walmart is a big chunk of your business and the contract’s up in 2013 and you brought it over, MoneyGram has several times in the past. But can you give any update on your thoughts around that contract?

Pam Patsley

Just that we are focused on doing the right thing for all of our agents. Only continue to intensify and increase. Walmart is a very important agent, being our largest. For the third quarter, Walmart revenue was 28.7% of total company revenue. As you’ve heard me say, we work hard each and every day to continue to earn their business and that’s worked out well for us in the past and hopefully that’s a predictor of the future. But I’m not predicting the future. We continued to expand our relationship in India with Walmart.com, different things. So we love our relationship with them and I think we have a good one.

Bob Napoli – William Blair

Then on, I guess the adjustment to the call-back, are you – you were referring to the 13% debt in particular, is…

Jim Shields

That’s exactly right. It’s our second lien note.

Bob Napoli – William Blair

It's the second lien notes. So does that have – does that have any effect though on the prepayment penalty or?

Pam Patsley

No.

Jim Shields

No, it doesn’t have any effect on the cost of basically calling back that in terms of provisions within that indenture, but it allows us, one of the key elements of the amendment was just to allow us to do this call-back in the event a secondary offering is done as opposed to just a primary offer.

Bob Napoli – William Blair

And as I would imagine, you're going to do that at the earliest time that the capital markets are right for a call-back of that debt or a restructuring of that debt. And what would be the fee that you would pay, and may I know what goes down a lot, I guess, over the – somewhat over the next year, but how does that fee lay out today?

Pam Patsley

I’ll let Jim kind of talk to the fee part, but I just want to be clear, the ability to execute on the call-back is not wholly in MoneyGram’s control because there are other things that have to happen first and we have – those things are not in our control and as you can see…

Bob Napoli – William Blair

Okay, the secondary offering obviously.

Pam Patsley

Yes, add to the fee.

Jim Shields

I think what you were referencing there was the make-whole provision. So we can call-back second lien notes at any time we want, but we would have to pay a make-whole penalty and there’s a formula within the indenture, which I won’t get into. What the call-back feature is, we are able to call this back if these certain events that Pam alluded to do happen at a penalty and that penalty would be a 13.25% premium above what the par amount of those bonds are.

Bob Napoli – William Blair

Okay. Then on the restructuring costs, it looks like you're making progress, but how much more do you have left on restructuring and impairment and one-time related costs? When do we start getting clean quarters?

Pam Patsley

I think our spend continues through at more about this pace through the first half of 2012 and then tails off and as we said, the full benefits that we’re targeting of 25 million to 30 million in annualized savings will be there as we exit 2012. So it’s really what we laid out in July 2010. We’re sticking to that and seeing good results. So we have an increased suspend that we announced at that time.

Bob Napoli – William Blair

And so, what you – the run rate for this quarter, we should expect to see something in that range over the next several quarters?

Jim Shields

Yes. That’s a fair assumption to make.

Bob Napoli – William Blair

Okay. And then competitively, pricing trends seemed – looked – yours looked better during the quarter. Western Union had less. Is there less pricing pressure in the market? Is there global competitiveness? I think there are some small players in this market that are trying to grow very fast with low pricing, but would you characterize the pricing environment as improved today or?

Pam Patsley

Well, I would say – so there hasn’t been any dramatic initiative and in the rest, it’s hard to characterize it as there isn’t pricing pressure. I would characterize it as it’s just at a normal pace. At historic – what we typically see and that also clearly varies by category of agents by quarter. So there’s many variables that contribute to that but if you’ve kind of taken across the board look, there’s nothing alarming or out of the ordinary that we see nor is there like oh my gosh, everybody is raising prices and this is like a panacea. So it’s just kind of the same.

Bob Napoli – William Blair

And then last question. I was just hoping for some update on your progress with your joint ventures with Visa and MasterCard on account to cash and on prepaid?

Alex Holmes

Hey, Bob. I don’t know that we have a great update for you this morning. I would say that our products with Visa continue to be in the marketplace. We continue to work on efforts to market those products differently, promote them to consumers in both the US and in Mexico. Obviously we continue to be very excited about the product capability and at this point it’s about exploring how to push it further into the marketplace and really start gaining some better traction around consumer adoption. I think we knew it was going to be kind of a revolutionary product, but something that was going to take some time for normal consumers to get used to.

I think we’re seeing some decent trends in there and we’re exploring different opportunities and different things to do in the marketplace as well. On MasterCard in particular, I don’t really have any comment there. Obviously like Visa, they have ideas and thoughts and things they want to do in the marketplace and to the extent that we can partner with them and help them out, we’d love to do that. As it relates to prepaid, again I don’t think our position has changed much. Obviously we still haven’t made a big step function move into the prepaid market.

They continue to be a market of some interest to us in many different places around the world, but nothing imminent for us there. I think our partnership evolution has been a good one. I think the opening with AccountNow, things we’re doing with other providers, Univision, etc has been really good for not only our bill pay business, but also some of the overlap back into the money transfer space and we enjoy those partnerships and what we’ve been creating there and I think you’ll see more of that in the near future.

Bob Napoli – William Blair

Okay, thank you everybody. Appreciate it.

Operator

(Operator instructions). From Morgan Keegan we’ll go on to Robert Dodd.

Robert Dodd – Morgan Keegan & Company

Hi, guys. Just one hopefully simple question then a seasonality question. Well, the first one, one of the areas you pushed into earlier this year pretty significantly was Russia and there was commentary on obviously Western Union's call about increased competition there. With your Sberbank relationship over there, how is that – is there anything unusual going on over there? Are you the competitive threat or is it just small fragmented smaller competitors that are getting a bit more aggressive in that market? How is that affecting the relationship with Sberbank?

Pam Patsley

We are very pleased with our relationship with Sberbank. We’re seeing tremendous growth and we’re seeing good productivity and growth out of our other agents in Russia and the whole region is performing quite well. I would say less than competitive pressures if there were anything from our perspective are just things, how the ruble and dollar move against each other and how that impacts the business, but really nothing unusual from a competitive. We’re feeling really good about what we’re doing over there in the region.

Robert Dodd – Morgan Keegan & Company

Okay, that's great. The second one, if I can on seasonality. Obviously, you've talked about the marketing seasonality is going to be a bit more even through the year. We kind of got a rough idea on revenue; at least I like to think I did, but the margins obviously, very good margins in the third quarter. Up year-over-year and up significantly from the first half, even though you spend more on marketing spend. Is this a consequence of the cost savings, which more likely to kick in later or is this just kind of the native seasonality of the business that we should expect to occur going forward?

Jim Shields

I think there’s a couple of things. Yes, there is seasonality in this, I think, but obviously a lot of the cost savings are moving on a – are beginning to move through the income statement, particularly as you’re seeing how in year-over-year basis and particularly in our global funds transfer business in terms of how that’s basically improving and obviously with margins and some of the key elements that have been affecting us on margins on a company-wide basis is basically bill pay in Financial Paper products. The core money transfer business, a lot is basically beginning to flow right through the bottom line. We do have seasonality. Third quarter is a particularly strong one. Fourth quarter isn’t quite as strong for us in terms of margins overall and so you’ll see that there will be some things relative to timing in terms of margins expansion contraction over a year.

Robert Dodd – Morgan Keegan & Company

Okay. Thank you.

Pam Patsley

Operator, any further questions?

Operator

There are not at this time.

Pam Patsley

Okay. Then we thank everyone for your time and attention this morning and look forward to visiting with you again soon. We appreciate it.

Operator

Thank you. Ladies and gentlemen, at this time that does conclude today’s conference. Thank you for joining.

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