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MoneyGram International, Inc. (NASDAQ:MGI)

Q4 2011 Earnings Call

February 03, 2012 9:00 AM ET

Executives

Alex Holmes – SVP, Corporate Strategy and IR

Pamela Patsley – Chairman and CEO

Jim Shields – EVP and CFO

Analysts

Sara Gubins – Bank of America Merrill Lynch

Glenn Fodor – Morgan Stanley

Roman Leal – Goldman Sachs

Robert Napoli - William Blair

Jim Kissane – Credit Suisse

Tim Willi – Wells Fargo

Tien-Tsin Huang – J.P Morgan

Operator

Good day ladies and gentlemen. Welcome to today’s MoneyGram International Fourth Quarter 2011 Earnings Conference Call. Today's conference is being recorded. At this time, all participants have been placed in a listen-only-mode and the floor will be open for your questions following the presentation.

It is now my pleasure to turn the floor over to your host, Alex Holmes, Senior Vice President of Investor Relations and Strategic Development. Please go ahead, sir.

Alex Holmes

Thank you. Good morning, everyone. And welcome to our fourth quarter 2011 earnings 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 along with accompanying slides for the quarter. 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-K for the year ended December 31, 2011, which is expected to be filed with the SEC in early March.

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 over to Pam.

Pamela H. Patsley

Thanks Alex. Good morning everyone. We are very pleased with our accomplishments in 2011. For the year we achieved double-digit growth in money transfer transactions, constant currency revenue and agent locations. Our impressive performance was achieved while we recapitalized our preferred shares, nearly doubled our public float and reduced our second lien debt by $175 million.

We are also pleased to have finished 2011 with such a great fourth quarter. We delivered solid financial performance, met our management targets and ended the quarter with strong momentum.

For the quarter we increased total revenue by 6% led by constant currency money transfer fee and other revenue growth of 11% and money transfer transaction growth of 13%.

We increased adjusted EBITDA by 12%, our strongest quarterly growth of the year and we improved adjusted EBITDA margin by 120-basis points over the prior year fourth quarter.

Before getting into the details of the money transfer business, I want to take a minute to thank the entire MoneyGram team on our performance this past year. It was a tremendous effort and it is appreciated.

The performance for the quarter was fantastic and while we executed on our plans, we also addressed corporate initiatives and legacy matters. During the quarter, we completed a secondary public offering for 10.2 million shares, nearly doubling our float, greatly improving our liquidity and adding valuable new shareholders.

In conjunction with the offering, we also made $175 million partial redemption on our 13.25% Goldman notes and de-levered an additional $25 million. With the partial redemption behind us, our focus will be on de-levering further in 2012 and accessing the right timing for refinancing the remaining $325 million of our expenses second lien notes.

This morning, we filed an 8-K that updates our disclosures following January meetings on the matter involving the US District Court for the Middle District of Pennsylvania. While there is not a lot that I can add to what the disclosure says, as I told you in July, we are making every effort to resolve this matter as soon as possible. I believe a full range of outcomes is on the table and it is my focus to ensure we achieve the best outcome. The investigation is ongoing, we continue to cooperate fully. We have achieved very positive feedback from the government and law enforcement regarding our anti-fraud efforts the past couple of years. We will certainly keep you apprised of any material updates to this legacy matter.

I also want to mention that recently, we commenced actions against several banks related to investments. Namely CDOs and RMBS that MoneyGram made prior to 2008. These actions seek to recover a portion of significant losses that MoneyGram incurred related to these investments. Our claims are outlined in the complaints for these matters and while we don’t take lightly and commence action lightly against any entity, we do feel that these actions are necessary in order to help realize our goal of consistently protecting and bringing value to our shareholders.

Now before we go through the great performance in the money transfer business and since it’s so current, as many of you know the consumer financial protection bureau or the CFPB issued its final remittance rule on January 20. While we are still reviewing the final rule to determine the steps we will need to take to comply, we think that the rule will not fundamentally change what we already do for consumers today. However, we will have to make changes to comply. MoneyGram currently provides information, multiple languages to consumers about fees, exchange rates, payout amounts and dates of availability of transaction in compliance with all our applicable law. We’ll have a year from the date the final rule is published in the Federal register to comply. We believe the new rule essentially standardizes across the industry, our existing high level of disclosure.

Now for our money transfer business. All US to US business continue its sensational performance. We reported year-over-year transaction growth of 15% for the fourth quarter with strong growth across our retail and strategic account channels. We continue to generate robust same store sales growth across our US agent base. This helped to fuel our above average industry growth in what prove to be an outstanding holiday season for MoneyGram.

During the quarter we fully lapped the $5 for $50 pricing implemented last year. However, with an increase in holiday gifting, we felt slightly lower average face value per transaction for the US to US business. This past year we were very successful in signing and renewing agents across the US and finished the year on a strong note by renewing our relationship with Wegmans Food Markets, who offer our full suite of products. Wegmans is a regional grocer in the North East and has been a MoneyGram agent for over 20 years.

Our US outbound business completed another solid quarter reporting transaction growth of 10%. Our performance during the quarter was driven by accelerating sends to each of our major receive regions.

The Mexico quarter continued its impressive growth trajectory throughout the year. For the quarter, the US to Mexico business reported a robust 15% growth. Strong holiday activity, a weaker Peso and targeted agent expansion both in the US and in Mexico have fueled this continued growth. We now have 14,000 agent locations in Mexico.

US sends to Latin America also showed solid growth during the quarter led by higher transaction volumes to Honduras, Guatemala and El Salvador.

US to Asia and Africa remained very healthy in the fourth quarter with transactions particularly to India, Thailand, Philippines, Nigeria and Ghana contributing to the double-digit growth in our US outbound business.

In 2011, send transactions and revenues outside of the US had robust growth each quarter. Although we’ve faced a challenging global economy, political unrest and new regulations, the business grew and delivered solid results.

In the fourth quarter, sends originating outside of the US remained healthy delivering the ninth consecutive quarter of double-digit transaction growth. Our focus on sends originating outside of the US is squarely paying dividends.

This quarter both Saudi Arabia and Russia respectively the second and third largest sends markets in the world grew at triple-digit rate for MoneyGram, more than doubling the size of the business in each country.

On the receive side, our growth has been equally impressive with India and Philippines, the first and fourth largest receive markets in the world, growing between 40% and 50%.

With that as a backdrop, let’s take a look at some of the regional trends in the business. In Europe, where economic uncertainty continues to be in the forefront, the business was resilient with transaction sent from most countries showing growth. This growth was led by France and Germany with additional strong performance from the UK.

The strength in Northern Europe was somewhat offset by weakness in Spain, Italy and Greece. New regulations in Italy which include a tax on non EU residents and sending limits of €999 at non-bank locations limited our consumer’s ability to send money and stymied growth in the country. The new legislation impact was somewhat muted since our agent Post Italian can send €1,999 maximum versus the €999 limit for other agents. This advantage to the consumer was highlighted in media campaigns in the country.

As you would expect the slower economy in Greece yielded limited transaction growth. However, we did see pickup in other European send countries due to additional Greece receive quarter paired. The benefited geographical diversity allows us to reach our consumers as migration patterns change to adjust to economic trends.

Finally, we showed improving performance in Spain during the quarter. Although the economic climate remains uncertain in this important remittance country, more than ever, we are focused on Europe with a sharp eye toward the ever changing political, economic and regulatory environment.

Growth in Africa remained robust on the strength of sends from Western Europe and the US. Receive volumes were particularly notable in Kenya, Cameroon and Morocco. Sends from Africa were led by growth in the Ivory Coast, Cameroon and Angola. Given that the Ivory Coast in particular was closed for four months due to political unrest, we are very pleased that the business performance since our reopening.

Along those same lines, am pleased to announce that we restarted our network send and receive capabilities in Libya. We are already seeing healthy growth with pent up demand from consumers wishing to move money in and out of the country. Thank you to the regional team and corporate support staff who navigated a very difficult political and economic environment during 2011.

In Eastern Europe, the CIS and Russia we delivered another great quarter of growth in transactions and revenues. During the quarter, our Russia outbound transaction volume continued to accelerate while receives in Ukraine and Romania were particularly strong.

In the third quarter, we signed an agreement Oschadbank in Ukraine and we rolled out over 1,700 agent locations in the fourth quarter, maintaining the excellent momentum we have in the region. Additionally, we began the rollout of locations with the post office in Bulgaria and signed an agreement with UniCreidit in Ukraine. UniCredit represents a strong brand with excellent and expanding retail prices in the country along with ties to locations and other parts of the world.

In the Middle East, we continue to see exceptional growth. The business in the UAE and Saudi Arabia outperformed expectations with strong transaction growth to India, Bangladesh and the Philippines. Our pipeline of new agents across the region is full and our ever expanding receive network is helping us to build our quarters and increase productivity from our send market locations.

In the Indian sub-continent, we are focused on the rollout and ramp of new agent locations with both India Post and the State Bank of India.

In 2012, we are increasing our marketing and agent awareness on the send side and places like the US, Canada, UK and the Middle East to ensure consumers are aware of the availability of MoneyGram at these important new outlets.

In nearby Bangladesh, we have additional agent locations coming on board with the National Bank of Bangladesh and have further plans for network expansion in 2012.

In Asia-Pacific we had a good year and a strong quarter. Send transactions from the six largest send country in the world, Malaysia accelerated for MoneyGram, while sends from Australia, on the strength of our relationship with 7/11 remain solid and double-digit.

Our cash to account service with BDO in the Philippines continues to gain momentum. Through BDO and their 20 other correspondent bank, senders in 23 countries can transfer directly to bank accounts providing flexibility and choice to consumers in this strategic market.

In China, we launch our cash to account service with our agent ICBC adding this new and valued service to certainly a key market China.

Now turning to bill payments. Transactions were down 2% with revenue down 7% for the quarter if we exclude the property bridge business with was diverted late in Q3. In 2011, trends in the bill payment business show improvement each quarter with December marking our first month of transaction growth since early 2010. This improving performance was driven by moderation in consumer credit markets and the ramp of business development efforts in 2011.

In the year we added over 1,500 new billers to the MoneyGram network along with the rollout of the product in Canada. We expect billers such as Nissan and the Federal Bureau of Prisons to continue to ramp throughout 2012. We are encouraged by the prospect for this business and as we add new billers, expand the international payments and move into new biller verticals that add value to our agent network and compliment the core money transfer business.

Let’s look at marketing. “Enjoy the magic of the season,” was this year holiday campaign theme. It ran in 20 countries and seven languages with television, radio, billboards, online, print, direct mail and consumer promotions. The campaign encouraged our consumers to enjoy the magic of the holidays, send money around the world and watch the happiness grow. This message really resonated with our consumers and I am pleased with the strength of our brand and messaging.

Our PR campaign was also developed to complement our holiday marketing efforts spreading holiday magic. This campaign built on the creative theme of our advertising and included global giving to deliver a day of magic to schools and children around the world. With this relay soft program, MoneyGram distributed much needed money, suppliers and learning tools to 11 schools in eight countries.

Building on the momentum of our holiday activity, in January we developed campaigns for the Lunar New Year celebrations as well as for the Africa Cup of Nations. In addition to Africa, most European markets are also participating with TV support, consumer promotions and our online activities. Many other marketing programs are in the pipeline for 2012 including our traditional gifting seasons like Mother’s Day, Ramadan and Diwali. Plus other exciting campaigns like the ICCT 20 Cricket World Cup which takes place in Sri Lanka in September and October.

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

Alex Holmes

Great. Thank you. As Pam mentioned earlier we continue to leverage our core money transfer business to expand into online account based, mobile and self service offerings. All within towards our strategic rolling out new product enhancements based on consumers and agent demand.

As we reflect back on 2011, it is clear that we made great slides in many of these areas and in 2011 with our new channels growing at 61% and now representing 4.2% of money transfer revenues.

Looking first at online. MoneyGram online continues to be a growth engine for the company. In fact, if it were considered a send country it would be our seventh largest. MoneyGram online had another great year with growth in both revenue and transactions exceeding 30%.

In 2011 we took important step to expand the service beyond the walls of MoneyGram. To co-branded service of Walmart.com that was launched in the fall and affiliate programs with notable names such as account now, we are providing unique and differentiated access to our service for our agents and their customers.

Outside of the US, our relationship with FDI in Japan continues to grow extremely quickly. In 2011 the business nearly doubled in volume each of the last three quarters while our online partnerships in Italy and Saudi Arabia continued to strengthen.

In 2012, the MoneyGram online service will be enabled in multiple countries outside of the US and our focus on adding additional partners will increase.

Cash to account has also been an area of keen focus for us and with our service now enabled in several countries and with many more on the way in 2012, we are adding value and providing enhanced choice to consumers at the point of sale. In 2011 we opened our cash to account service with BDO in the Philippines and recently expanded our service in China through our new cash to account agreement with ICBC. This service, launched in December enables MoneyGram customers to send funds directly to any of the more than 200 million ICBC bank accounts in China in four different currencies.

Recently, we also signed an agreement with Banco Rendimento in Brazil which will allow MoneyGram customers to send funds directly to any bank account in Brazil and be deposited in Brazilian Reais. This relationship is a significant step for MoneyGram in enhancing our presence in this very important receive market in South America.

On the mobile front, we remain very active in discussion with telcos, handset makers, hubs and others around the world to ensure that MoneyGram is at the forefront of this emerging channel. While still developing, we have a tremendous amount from our already successful offerings with SMART, Mezido, SMART, (indiscernible) Poste Italiane and we will continue to revive and further invest in our strategies in these emerging channel.

On the self-service side, agents and consumers are clearly demanding more flexibility at the point-of-sale. Both on the send and receive sides for self-service capability. Whether that be to an ATM, a kiosk or crowd based technologies. Agents are asking for faster time to the point-of-sale and consumers are looking for more and more flexibility. As we forge ahead in this area, we will leverage the successes of our services such as those with NCD in Saudi, 7/11 in Australia and Cardtronics here in the US to deploy more self-service solutions to our agents and consumers which includes our new in-lane card MoneyGram express.

In 2012, an important aspect of MoneyGram’s transformation includes the launch of a new global point-of-entry system. The launch of this web system commonly known as Agent Works places firmly in MoneyGram’s control the ability to quickly deliver global functionality to our agents that includes improved products, services, compliance measures, any fraud strategies and training. This functionality will enable MoneyGram and our agents to more readily accommodate the ever evolving regulatory and competitive landscape, while at the same time delivering new features to the marketplace more rapidly than we’ve ever been able to do so before. This speed to market will drive a faster return on investment for our new initiatives and provide more revenue growth for our partners. We are excited to deliver this new solution to the market and drive a more efficient infrastructure into our ecosystem for future growth.

Now, I’ll turn it over to Jim to take you through the financials.

Jim Shields

Thanks Alex. Total revenue in the fourth quarter increased 6% to $322 million.

Total fee and other revenue increased 7% to $319 million.

Total revenue in the fourth quarter was driven by strong growth in our money transfer business partially offset by declines in our financial paper product segment, bill payment business and the divestiture of Property Bridge.

For the full year 2011, total revenue increased 7% and total fee and other revenue increased 8%.

Net income for the quarter was $3.1 million and EBITDA was $22 million. Most notably net income and EBITDA were impacted by $33.3 million of costs related to our extinguishment of $175 million of second lien notes in November. In addition, net income and EBITDA were also reduced by the following: $6.2 million of restructuring and reorganization costs, $4.1 million of stock based compensation, $900,000 of certain legal accruals and $700,000 of assets impairment charges.

Adjusted EBITDA for the fourth quarter increased a very strong 12% to $67.2 million and adjusted EBITDA margin improved to 20.9% on the strength of our money transfer growth engine.

Taking to account the effect of the secondary offering and the reverse split we completed in November, we ended the quarter with diluted weighted average outstanding common shares of 71.7 million, and diluted earnings per common share of $0.04. This included a -$0.28 non-operating impact from the previous mentioned debt extinguishment.

Turning now to expenses. Total commission expense for the quarter was up $10.8 million or 8.2%, which was driven by strong money transfer revenue growth in the quarter. Money transfer of commission as a percentage of money, transfer fee and other revenue was flat.

Compensation benefit expense for the quarter was $57.9 million up $438,000. Compensation and benefit expense was impacted by $1 million in incremental restructuring cost mostly related to severance. This was offset by $1.8 million of lower stock based compensation expense during the quarter.

Transaction and app support expense was up $18.8 million in the quarter. Most of the increase is due to 2010 benefiting from $16.4 million reversal of a patent law suit accrual. The remaining increase is due to $2.3 million of incremental restructuring costs in 2011.

Occupancy, equipment and supply costs increased by $1.4 million of which $600,000 related to incremental restructuring costs for facilities optimization.

Taking all these items into accounts, our non-commission operating cost increased by just $1 million or less than 1% we carried to the fourth quarter of 2010.

Given our transaction volume increase of 13%, you can see we are gaining operating leverage in our business.

In other expense line, in the non-operating section, costs were up $1.5 million primarily from capitalized transaction cost from the secondary offering as impairment charges and selling costs related to the sale of Property Bridge.

Interest expense was favorable $5.2 million compared to the same quarter a year ago and depreciation and amortization came in essentially flat.

During the quarter we continued our diligent effort on building a more efficient organization through restructuring activities. Specifically, we spent $7.8 million primarily comprised of $4.6 million of severance, relocation and other resourcing costs. $1.6 million for facilities optimization and $1.6 million of capital investments mostly related to systems development. Today, we have incurred $33.1 million in restructuring expense since the program was announced in the second quarter of 2010 and have realized approximately $20 million in annualized run-rate savings.

We are already two-thirds of way through our goal of $25 million to $30 million in annualized savings. Importantly, our restructuring efforts are broader than just cost savings. We are creating a flexible, leveragable and efficient organization. As an example, in 2010 only 36% of our Tier One customer care support calls were outsourced. But by the end of 2011 approximately 91% of our Tier One calls were outsourced. To these efforts we reduced our overall cost per call by approximately 8% in 2011 and increased our ability to manage service quality.

In 2012, our restructuring efforts are focused on completing the integration of our retail operations in Europe along with the completion of our call center outsourcing plans. Complete these initiatives in 2012; we plan to incur $12 million to $15 million in restructuring costs in order to achieve a remaining $7 million to $10 million in annual savings.

Total revenue for the global funds transfer segment increased to 8% in the fourth quarter of 2011 driven by 11% increase in money transfer constant currency revenues. The segment reported operating income of $33.4 million and an operating margin of 11.1%.

Adjusted operating margin was 14% in the quarter, up from 11.9% in the prior year. Adjusted operating margin was positively impacted by realized savings from the restructuring activities and outsourcing.

Total revenue in the financial paper product segment declined 18% to $21.3 million in the fourth quarter of 2011.

Operating income was $5.9 million and operating margin was 27.7%. Adjusted operating margin was 33.3%.

Segment margin continues to be negatively impacted by lower transaction volume and a lower investment rate.

Financial paper product revenue represented 6.6% of total revenue in the quarter compared to 8.6% of total company revenue in the same quarter in 2010. And 16.3% of operating income compared to 17.8% of total company operating income a year ago.

As far as liquidity, we begin the quarter with assets in excess of payment service obligations of $249.4 million and finish with $211.7 million.

During the quarter we recorded adjusted EBITDA of $67.2 million and reduced debt outstanding by $25 million.

We paid $23.1 million of cash payment penalties on the early retirement of our second lien notes, made $19 million of interest expense payments, funded $12.8 million of capital expenditures, invested $12.6 million in signing bonus payments and had $4.6 million in cash restructuring expenses. These payments, in addition to $7.8 million in change in working capital led to our ending the quarter with assets in excess of payment service obligation of $211.7 million. Together with our $150 million revolving credit facility, we have $361.7 million of liquidity available. This is in line with our targeted liquidity position.

In 2012, we will continue to manage cash prudently and focus on de-levering our balance sheet in the most cost efficient manner. In addition, as Pam mentioned we are keeping a sharp eye toward opportunity to refinance the remaining $325 million of our Goldman Sachs second lien notes which carry a first call date of March 2013.

Now let me turn it back to Pam.

Pamela H. Patsley

Thanks Jim. Over the past three years, we’ve worked diligently to rebuild MoneyGram. We have focused on our people, created a culture of accountability, brought in new talent and reorganized for better efficiency.

In closing this year’s call, I want to remind you of the five objectives we set for 2011. Specifically, we set our goals were to one, increase our market share. Two, accelerate our topline growth. Three, expand margins. Four, pay down debt and five, reinvest in our brand, our people and our product.

I think a quick review of our results against what we said one year ago is appropriate. This past year we increased transaction volume by 14%, an increase constant currency money transfer revenue by 10.2% for the year more than doubling last year’s constant currency revenue growth rate. By any measure we gained market share.

On the bottom line where margin declined, this declined primarily related to reinvestments in brand marketing, our sales force and lower investment revenue.

Fourth quarter margin is clearly more indicative of the direction we are headed; we will continue to focus on this.

Our capital market activities in 2011have been well highlighted. Total leverage including preferred stock from last year is down from 2010 as is our weighted average cost of debt.

We increased our marketing spend as a percentage of revenue and invested in our core money transfer system, rolled out new products and services, enhanced our compliance systems and improved our anti-fraud measures. All highly indicative of our focus of new products and systems enhancements.

I believe we did very well against these five objectives. We are optimistic about 2012 and while we are mindful of the economic challenges in Europe, our business is geographically diverse. We have great momentum in our money transfer business and continue to leverage the core as we expand into online, account base, mobile and self-service offerings. We will utilize our strong cash flow to invest in the business and maximize shareholder value.

From a financial perspective, our management objectives in 2012 are clear. In 2012 we are estimating topline revenue growth to be in the range of 8% to 10%, an adjusted EBITDA growth to be in the range of 9% to 11%, consistent with our long term management objectives. And alongside these management objectives we are still focused on increasing our market share through double-digit network growth, double-digit money transfer transaction growth and continued investment in our brand, our people and our product.

Thank you for your time and your interest today. We’ve gone on long enough. So operator, please open the line for questions.

Question-and-Answer Session

Operator

Absolutely. Ladies and gentlemen, (operator instructions). We’ll take our first question from Sara Gubins from Bank of America Merrill Lynch.

Sara Gubins – Bank of America Merrill Lynch

Oh, thank you. Good morning. Just a first quick question. I wanted to check what I heard about the 2012 goals. Could you talk about what you’re expecting for revenue growth? I thought I heard 8% to 10%, but I thought the release said 7% to 9%.

Pamela Patsley

8% to 10%. In 2012 we’re estimating topline revenue growth to be in the range of 8% to 10%.

Sara Gubins – Bank of America Merrill Lynch

Okay. And 9% to 11% on adjusted EBITDA?

Pamela Patsley

That’s correct.

Sara Gubins – Bank of America Merrill Lynch

Okay, great. Could you talk a bit about what you’re seeing in terms of tone as we head into the New Year? In particular your comparison for money transfer get a lot more difficult in 2012 given the strong performance that you had during 2011 and so I’m wondering how you’re expecting that to trend over the course of the year.

Pamela Patsley

How we’re expecting the…?

Sara Gubins – Bank of America Merrill Lynch

Money transfer transaction volumes.

Pamela Patsley

Well, there is seasonality, but we hope we’re geared for growth in our planning throughout the year. But clearly you have different holidays that kind of move. I do believe Ramadan this year is within the third quarter. Last quarter it was in the third quarter, again this year. The ICC Cricket was 1st quarter last year. It’s going to be third and fourth quarter this coming year. That’s going to impact a little bit marketing spend. So we are looking for year-over-year by quarter growth and then of course you’ll have holidays and seasonal initiatives that impact that. Some, obviously all the same as the prior year and some that’s new.

Sara Gubins – Bank of America Merrill Lynch

Okay. And then just the last question on pricing. Now that we’ve lapped the $5 for $50 promotion, how should we think about the spread in transaction volume and constant currency revenue growth?

Pamela Patsley

I guess part of it is a little bit more as we continue to grow in sends outside the US and there’s a lot of those, they’re Euro denominated or pound denominated. That’s going to have a little bit more impact now between reported and constant currency versus supply for 50. So we’re on a like for like year-over-year on the $5 for $50.

Jim Shields

Yeah. I think also there’s going to be a lot of mix that affects us going forward between countries and it’s always had relative to send outside the United States. We are still seeing some impact in terms of the lower bands growing at a faster rate in the US and some of the higher bands out there that obviously makes the differential between transactions and revenue growth. So we’ve seen a narrowing of that gap over the period of time. We expect it probably to remain constant or maybe slightly better than that over the next period of time.

Sara Gubins – Bank of America Merrill Lynch

Okay. Thank you.

Pamela Patsley

Thanks, Sarah.

Operator

And our next question comes from Glenn Fodor from Morgan Stanley.

Glenn Fodor – Morgan Stanley

Hi. Good morning. I’ll attempt to ask a high level question about the investigation, hopefully you can provide some color. But you said the full range of outcomes were on the table. I know you can’t say much, but can you give us any high level conceptual view of what types of settlements you could potentially envision? Is it all just monetary? Is it business practices? Can you expand upon that at all?

Pamela Patsley

Well, I think when you’re hitting on it, I wish I could and it’s not that I can’t provide because I won’t. I can’t because I don’t know. I mean we just wouldn’t want to speculate. So I think the disclosures stand on their own, but I think you’ve hit the right category. There – any combination of these different categories of what a penalty is called. There’s monetary. There’s what I call to-do list initiatives. You look to our FTC matter which as we have previously disclosed, that settlement covers much the same issues that this investigation started with or was centered around and so there was monetary and what I call the to-do list thing. So it’s a full range of outcomes and it is clearly my focus and everyone else here to – we’d love to get this behind us as soon as possible. But that’s not really our call on timing.

Glenn Fodor – Morgan Stanley

I appreciate the color given what you’re up against. Just taking it from a different angle, is there anything that out there settlement wise you think could impact your ability to grow the business in the future?

Pamela Patsley

Anything? Oh…

Glenn Fodor – Morgan Stanley

Anything that would impact your growth rates.

Pamela Patsley

Our goal – we’re running I think a great business. I think our results are really, I want to say the words spectacular or amazing. I think we had a great year, a great quarter and that is what we are heads down about continuing to do.

Glenn Fodor – Morgan Stanley

Okay. Thank you. Appreciate it.

Pamela Patsley

Yeah. Thanks, Glen.

Operator

And we have a question from Julio Quinteros from Goldman Sachs.

Roman Leal – Goldman Sachs

Thank you. It’s actually Roman Leal for Julio. A few quick follow ups here. Good to hear that you’re continuing to add agents worldwide, but should we expect most of the build to occur on the receive side or the send side? Just curious on how that impacts your model.

Pamela Patsley

Yes, it takes both and there are clearly some very large receive markets that we still are a long way from where we want to be. If you look at our legacy business and how long we’ve been transacting in the US and rate of penetration, you can see that both on the large receive market and the large send market, there are some of those that we’re just beginning our penetration and so it’s really both. When I pass it down to say the top three send countries, US clearly the largest remittance country. Double digit growth on both metrics in intra US and US outbound, and then you look at number two and three and more than doubling our business in those. So that’s kind of how we’re focused. But then I call that great growth in Malaysia. It’s the sixth largest thereabouts send market. But again while our growth rate was tremendous, we are very early stages there. And then you can do the same metric if you will on the receive side. So, Roman, it’s going to be both and I think that’s the healthiest for our business and shows the most growth potential with geographic diversity.

Roman Leal – Goldman Sachs

Okay. That’s great color, thanks. And are there any major differences between your Walmart.com and in store relationship as far as any commission structure or revenue sharing agreement that we should be aware of?

Pamela Patsley

Yeah. Nothing that you should be aware of. It’s a different product. We work with the core same people at Wal-Mart but also different products, different verticals. There are other people involved as well. So we’re just really pleased and I think they’re also really pleased and that’s an important part with the success we saw this last quarter with our launch of Walmart.com

Roman Leal – Goldman Sachs

Great and just last question on bill payment. Happy to hear that transaction growth there turned positive in December. Can you talk about what the trend was like in January and any color on whether this was mostly kind of driven by your comments on stabilizing consumer credit markets or it’s just more the addition of new billers?

Pamela Patsley

I’ll take the latter part of your question first. It’s really both. So as we see more stabilization in some of those core categories that we call consequent payments like auto payments, mortgage payments, credit card. There’s upside. It was a big slide down for the last couple of years on that and I think there’s some nice potential upside on that. With regard – and I think it helps that through that we were innovative and creative to continue to say what can this core engine do and where else can we take the solution. So whether it’s telcos, cable, different kinds of billers, certainly the 100 plus pop-ups that we reload. That provides a great new base of business and there is some really nice crossover between bill pay customers and money transfer. So I think we’re not going to be dissing the bill pay segment this coming year. I like it.

Roman Leal – Goldman Sachs

Okay. Thank you.

Pamela Patsley

I guess I should say to your question about what about January. You know I can’t tell you that.

Roman Leal – Goldman Sachs

I try.

Pamela Patsley

I know.

Operator

And we’ll take a question from Bob Napoli from William Blair.

Robert Napoli - William Blair

Thank you. Good morning. On the DOJ cases, any feel for timing? Have they given – what kind of – what was their last feedback like just you’ll hear from us sometime in the future or talk to you next month? What’s going on? What kind of feel do you have for timing? And didn’t you pay a payment – didn’t MoneyGram make a payment in regards to this very issue several years ago?

Pamela Patsley

With that it’s – yes, and as we have said this issues were originating out of much the same issue on our consumer anti fraud measures and that was a settlement in late 2009 with the FTC.

Robert Napoli - William Blair

What was the amount that you paid?

Pamela Patsley

$18 million.

Robert Napoli - William Blair

Okay. And then timing?

Pamela Patsley

Timing, I mean there’s nothing more that I can say that we haven’t already said about it through our 8-Ks.

Robert Napoli - William Blair

There are no scheduled meetings or anything?

Pamela Patsley

No. I mean you know…

Jim Shields

It’s ongoing.

Pamela Patsley

It’s ongoing and we are cooperating and doing everything we can. Like I said I’d love to get this behind us sooner than later.

Robert Napoli - William Blair

Okay. And then on the…

Pamela Patsley

But I also want the right outcome for the company so you know, yes.

Robert Napoli - William Blair

That’s tough. I understand. And for investors too. The CFPB changes, the cost – what kind of cost do you think you – will it take to comply? You mentioned additional costs. I would imagine you have that built into your guidance. But what kind of costs are you thinking there?

Pamela Patsley

On…

Robert Napoli - William Blair

Complying with the latest CFPB, what they came out with (inaudible).

Pamela Patsley

Oh, the cost on the CFPB?

Robert Napoli - William Blair

Right.

Pamela Patsley

We haven’t assessed that. That’s not going to be a significant number to derail any of our other product plans or anything like that.

Robert Napoli - William Blair

Okay. And then the remainder of the high yield second lean notes, what are your thoughts on the timing of refinancing those? Any update on that?

Jim Shields

Yes. I think we don’t have any update on it. It’s basically as we’ve mentioned in the past, it’s basically just math at the end of the day. If we do refinance it now we basically have to incur some penalties associated with it. Some of the upfront interest expense we have to pay and so as we get closer and closer to it, it becomes much more profitable. But we don’t have any specific dates. If all of a sudden the credit markets open up or the capital markets open up significantly and we have opportunity for a really low cost debt, we might take advantage of that. But as it stands right now, we don’t have any immediate plans to deal with it. We will continue to look as we approach the first call date.

Robert Napoli - William Blair

And then on your restructuring costs, $6 million this quarter. What do you have left? What are you expecting and when do we see an end of restructuring costs?

Jim Shields

You’re going to see the end of restructuring costs by the end of 2012 and as I said in my script, we’ve got – we’re substantially through. We have most of the – basically the savings and we’re going to be anywhere between, around $20 million, slightly less than $20 million in expenses for the remainder of 2012.

Robert Napoli - William Blair

Okay. And then just last question on the bill pay business. You’re talking more optimistically about it, but as I look at the revenue, it looks like the revenue decline actually accelerated. So are you doing more transactions but is there a lot of pricing pressure in bill pay?

Jim Shields

No. it’s not a pricing pressure issue. We are obviously – there was a decline relative to transactions overall. We did have – if you take out the Property Bridge transactions on a year-over-year basis, transactions declined only 2% this quarter, which is very positive relative to previous quarters. But we will say also is the year-over-year comparisons were quite difficult for property bridge. We will continue to have challenges on a transaction basis going through the first two quarters of 2012. We think by the latter half of this year we’re going to see year-over-year transaction growth. But the trends are very positive in bill pay on a sequential basis. So we’re very happy with that and as Pam had mentioned that we had signed up substantial number of billers and those guys we can see, those new billers we can see ramping up. So like we said we see the inflection point here.

Robert Napoli - William Blair

Okay. And then just the month of January, we are on a public call. You could give us updated what happened in January if you had it in front of you on money transfer in particular I guess is what I’d be interested in. if the trends have continued.

Pamela Patsley

Well, we could. We’ve never done that before and I don’t think we want to start that precedent.

Robert Napoli - William Blair

Okay. Thanks.

Pamela Patsley

I think I would take the context of the whole call and what I said for our outlook for 2012, mood, tone, tempo, momentum.

Jim Shields

Exactly, yeah.

Pamela Patsley

And that’s what you got.

Robert Napoli - William Blair

Great. Thank you.

Pamela Patsley

Yes, thanks. And don’t forget the past good performance.

Operator

And we’ll take a question from Jim Kissane from Credit Suisse.

Jim Kissane – Credit Suisse

Good job guys. Jim, can you give us the net impact of pricing in the quarter and maybe the full year 2011 and then give us maybe a sense of your outlook for pricing in the C to C business? Thanks.

Jim Shields

Yes, sure. No problem. The pricing impact – I’m going to talk in terms of excluding the $5 for $50 aspect of it, Jim. Obviously that has had – in 2011 that had a substantial impact on us, but if you take that out, what we saw in 2011 is right along with what we’ve talked about previously, anywhere between 1% and 2% price declines overall. Actually in the fourth quarter, we saw a little bit less pricing pressure than that 1.2%. So just slightly less than 1%. So we’re not seeing any substantial changes from what we had previously guided in that area.

Jim Kissane – Credit Suisse

Okay, great. And so use the 1% to 2% for – that’s what imbedded in your 8% to 10%? And just to be clear, it’s 8% to 10%, Pam, not 9%?

Jim Shields

Oh, it’s – in fact it’s…

Pamela Patsley

Okay. The guidance? Okay. I misspoke. Sarah is right. The press release says 7% to 9%. All I’ll say is perhaps the 8% to 10% may give you insight into my thinking. It’s 7% to 9%.

Jim Kissane – Credit Suisse

All right. Going back to…

Pamela Patsley

I hope that’s clear. Sarah, I’m sorry. I misspoke when I said 8% to 10%, but take it for however you want to take that.

Jim Kissane – Credit Suisse

That’s your incentive. All right.

Jim Shields

There you go.

Jim Kissane – Credit Suisse

Can you give us…

Pamela Patsley

Not just mine.

Jim Kissane – Credit Suisse

I got you. And then can you give us a little more specificity on the trends in Italy and Spain and then just following up on that, maybe a sense of the mix of your European send business between North and South Europe?

Pamela Patsley

Spain?

Jim Kissane – Credit Suisse

Spain and Italy.

Pamela Patsley

Yes. Those are both – I would just say they suffer from the general economic malaise. You still have unemployment in Spain north of 20%. Some reports show that the immigrant population unemployment is around 30%. Having said that, it’s not like this is a new phenomenon for Spain. Spain has kind of been in that position for a while. We continue to have more opportunities in more quarters to send to and so there’s some growth or offset to some of that economic malaise that sits there. We think the team has some great initiatives in plan both in Spain and Italy and I would say Italy was more impacted by just the suddenness of the new regulation on both the tax and to all spending across Italy. And I want to be clear and there is some view that perhaps we’ll get that reversed, that money transfer wasn’t to be caught up. But there is that €999 limit on any cash purchase.

You can’t buy shoes or coats and send more than that in cash because I think the regulators, the government works more from a tax perspective and indicative of other parts of money transfer just kind of got caught up. So we’re working really aggressively with all others in the industry. Clearly our interests are aligned and so – and again there we have a very diverse business. I would also call your attention to we see where people move for work. So as I called out, some traditional Greek receive countries are now seeing enhanced growth from other send countries. So in other words the population moved and again that just speaks to we need to continue to work on our network and continue growth. We have a young network. I think there’s a lot of upside just in getting productivity as we continue to put up 15%, 17%, 18% network growth each quarter. So I think that all bodes well for the future.

Jim Kissane – Credit Suisse

That’s great. And Pam, can you take a stab, maybe a long term target for operating margins? Let’s say you’re around 14% today. Over a three, four year period, where do you think you can drive those?

Pamela Patsley

Well, I think we talked about that on the road show.

Jim Shields

Yes. Jim, I think we talked about it on the road show. There’s adjusted EBITDA margin there. We said we’re looking at 50 basis points increase on an annualized basis every year. So this isn’t a high capital intensive business. So I think on an operating margin side you could probably equate that a little bit to something similar to what we’re seeing on adjusted EBITDA margins going forward.

Jim Kissane – Credit Suisse

Great. Thank you.

Pamela Patsley

Thanks. We forgot you were on garden leave during the road show.

Jim Kissane – Credit Suisse

I was off my feet, yes.

Pamela Patsley

That’s why you missed that.

Jim Kissane – Credit Suisse

Thank you.

Operator

And we’ll take our next question from Tim Willi from Wells Fargo.

Tim Willi – Wells Fargo

Thanks. Good morning. Two questions both around alternative channels that Alex talked about. Number one is, I’m curious where you think the share gains come from as you build those channels out. Is it people that typically use the MoneyGram brand in the more traditional world that are now seeing the convenience of the web otherwise or do you think that there are other pockets of market share that are gravitating to these channels? And then second, as you continue to have discussions and talk about partnerships and things like that, how do you sense that the economics of the emerging channels like mobile money transfer work out compared to the traditional money transfer business?

Alex Holmes

Yeah, this is Alex. I’ll start it off. I think when you’re thinking about online, where does the market share gains come from? I think your question – I think it’s coming a little bit from both. I think it’s certainly a convenience factor for a number of consumers. I’d say consumers that in some cases it may be a little bit of cannibalization of your walk in business. But I don’t think that’s really the case. I think both businesses have growth extremely well, kind of in parallel. So I think in one aspect you’re getting a new group of consumers that you didn’t have access to. I think the number of choices for online is certainly limited at this point and in terms of outside of the banking world. And so certainly this is a bit of a more efficient transaction when you’re thinking of traditional money transfer versus kind of your traditional bank wire. But I think that’s a component of it and then certainly the convenience factor goes a long way towards driving some of that usage.

And so certainly it’s – from an economics perspective, either on online or any of the other mobile channels etc, I think right now for the most past fees are similar. I think online you see fees are a little bit more expensive. But obviously the service is a little bit more convenient as well. Our cost from a processing perspective tends to be a little bit more expensive as well, particularly on the credit side. So certainly there’s a reason for the slightly higher prices. But I think for the most part we’re driving good efficiency through those and you’re seeing some advantages, particularly in the direct to account areas, mobile to some extent as well. You’re getting a little bit better economics on those. But right now I think pricing has maintained or I should say is consistent and so I think some of the trending over time will be whether or not that changes from a pricing perspective in the meantime. Certainly those fees are very consistent across the board and the service quality is as good as better when you’re moving into some of those electronic channels.

Tim Willi – Wells Fargo

And I can just follow up on that and again I know it’s only 4% of the business so it’s probably not real significant relative to any specific agent or network. But I guess if you think about building this out over time, have any of your big agent partners talked about are you going to disintermediate me? Am I losing business because of these channels or how do you think those discussions might evolve, if ever, as the mobile and the internet become more prevalent too?

Pamela Patsley

I find our conversations with our agents are actually more positive because our approach has been very collaborative with them, like doing the linked agent on Walmart.com, MoneyGram Online. Working with Poste Italiane on mobile initiative. So kind of affiliate program, working with them. Some of our agents, this is really all the way they do it, whether it’s kiosks with 711, whether it’s full ATM registration center, online sends with National Commercial Bank of Saudi Arabia. So I see it really as it has more upsides than downsides.

Alex Holmes

Yeah. I think a great example of that I think is our MoneyGram Online business in the US today. We do a lot of US domestic transactions and most of those transactions are picked up in cash. So certainly it’s very additive to that business if you make the assumption you wouldn’t have those transactions otherwise and so those agents are benefitting from that receive side of that transaction and I think globally the same. The vast majority of those transactions are picked up in cash and so it certainly benefits receive agents in all those countries. You think about how the world has evolved. Outside of a couple of select areas, I would say that most agents are now send and receive agents and it certainly adds to the beneficial. And then to Pam’s point, a lot of our agents have online websites. They have online services. They’re pushing that. When you think about direct to bank, a lot of that through our agent partners is where we’re partnered with banks already and they’re saying let’s add an enhance service where it can go directly to a bank account. So very, very additive and certainly that is the idea is to expand the agent network, not to detract from it in any way.

Tim Willi – Wells Fargo

Okay, great. I appreciate these thoughts. Thank you.

Pamela Patsley

Thanks, Tim.

Operator

And we’ll take our final question from Tien-Tsin from J.P Morgan.

Tien-Tsin Huang – J.P Morgan

Good morning. Thanks. Good results here. I guess I’ll ask Pam, maybe can you just comment on how the US customer feels to you today? I guess the job number today look good and decent signs of better housing trends. Do you feel bad about the US end market now than say a quarter ago?

Pamela Patsley

Yes and it’s hard for me with the results we’ve had to say we ever really felt bad because MoneyGram number one remittance market in both aspects. I think the team is doing a fabulous job. So I think all that is going to be additive. If you start seeing constructions pick up in the US, that’s really important for our customer. And the other interesting aspect and it’s more anecdotal and to your question Tien-Tsin, how do you feel? We see our service providing a much needed solution for more and more customers because it’s just the most efficient way to get money from here to there. Which is why you take such a mature market like US to US and we had 15% transaction growth. So I do feel good about it and if the number is a little better on unemployment, that’s even better. But I’m not going to like panic if that unemployment had ticked up the opposite way two points, two bps or something.

Tien-Tsin Huang – J.P Morgan

Yes. I totally understand that. That makes sense. I guess I was trying to piece everything together. Obviously the results and the momentum is good. You feel a little better about the economic back trap. I’m just thinking, the 6% growth in the fourth quarter accelerating into the 7% to 9% range in ’12. How much of that is possibly you’re feeling a little bit better about the macro plus the momentum continuing. Is there a way to help maybe bridge the acceleration from what we saw in the fourth quarter to the guidance for 2012?

Jim Shields

Yes. I think there’s a couple of things going on there. We feel very comfortable like Pam had mentioned about what’s going on in the US and particularly we’re seeing in terms of the growth markets outside the US, we’re very comfortable. We had some things that hurt growth this particular quarter relative to Property Bridge and revenue there that was basically pulled out that we hadn’t seen previously. But overall we feel as though that we look at the underlying business. We see the areas where we are presently under penetrated. We see the growth rate what we’re taking a look in Northern Europe and we feel as though that we see – and we see obviously the backlog of agents that have come online, the ramp of basically some of the new agents and signings that we’ve gotten online. We feel very comfortable going into 2012 with the guidance that we’ve provided.

Pamela Patsley

Investment revenue delta continues to be part of that in our results. 2010, bigger investible balance, higher rate. So I think probably hopefully we’ve lived through the worst of the rate side on the earnings for ’11. So that aspect will more be like for like in 2012 to 2011 and…

Jim Shields

And the other big aspect is bill pay, right? We see particularly the second half of the year that turning around here and that has been a drag on us for the last six quarters here. So if we stand back and we talk about what Pam had mentioned relative to investible balances and some of the financial…

Pamela Patsley

And rate.

Jim Shields

Yeah and rate and what’s going on in terms of financial paper product segment. We have any help on that side. We feel comfortable with the guidance that we’ve provided.

Tien-Tsin Huang – J.P Morgan

Okay, thanks for that. Maybe if I can do just one more, just on Saudi Arabia. Kind of surprised you didn’t see any disruption there given some of the – I guess the protectionism efforts that we read about. Was that effectively a non-issue? I think some of the data points we saw did show a little bit of weakness at a macro level there. what’s happening on the ground and maybe just with protectionism in general?

Pamela Patsley

Yes. We haven’t seen a disruption to our business. The numbers are amazing. I keep wanting to use that word and I keep wanting to edit me. I’m telling you, they were amazing and there’s no question. Egypt was totally shut for a while. Ivory Coast was totally shut for three or four months. Libya was shut for most of the year. Bahrain, on and off. But Saudi, no. Just kind of kept on going.

Tien-Tsin Huang – J.P Morgan

All right. Good stuff. Appreciate the time.

Pamela Patsley

Thanks, Tien-Tsin. I guess that was our last question. I want to just again thank everyone. Hope you can sense how excited we are about what we just shared with you, the results for 2011 and all the things we’re focused on and working toward 2012 and we look forward to visiting with you if not before, next quarter. So thanks and have a fabulous day.

Operator

And once again, ladies and gentlemen, that does conclude today’s conference. We appreciate your participation today.

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