Michelle Buckalew - MoneyGram International, Inc. W.

Alexander Holmes - MoneyGram International, Inc. Lawrence Angelilli - MoneyGram International, Inc.

David M. Scharf - JMP Securities LLC James Schneider - Goldman Sachs & Co.

LLC Kartik Mehta - Northcoast Research Partners LLC James E. Faucette - Morgan Stanley & Co.

LLC Tien-Tsin Huang - JPMorgan Chase & Co. Matt C.

O'Neill - Autonomous Research US LP Mike Grondahl - Northland Securities, Inc.

Hi. Good morning.

Thank you. Welcome to our second quarter 2018 call.

With me today are Alex Holmes, Chairman and Chief Executive Officer; and Larry Angelilli, our Chief Financial Officer. Our earnings release is available on our website at moneygram.com.

Please note that today's call is being recorded, and some of the information you will hear contains forward looking statements. Actual results or trends could differ materially from our forecast or expectations.

For more information, please refer to the risk factors discussed in our Form 10-K for 2017. MoneyGram assumes no obligation to update any forward-looking statements.

Our presentation also includes certain non-GAAP financial measures to provide additional information to investors. All non-GAAP measures have been reconciled to their related GAAP measures in accordance with SEC rules.

You will find reconciliation tables within our earnings release issued this morning and in the Form 8-K submitted to the SEC. And now, I will turn the call over the Alex.

Great. Thank you.

Good morning, everyone and thank you very much for joining our call today. Our second quarter results were in line with expectations and reflect the anticipated impact of higher compliance standards, the roll-out of the Walmart2World service, and lower investment revenue as compared to 2017.

At the same time, we executed against our plans to expand our digital capabilities, took steps to optimize our physical network, and implemented important operational improvements to our restructuring initiatives. On our first quarter call, we laid out for you the building blocks of our strategic vision for the future, a vision of a customer-centric company that will increasingly facilitate digital transactions and deploy digital capabilities to enhance and personalize interactions with our customers; a company that will capitalize on the unique strength of its physical network; a company whose operations are better structured to compete in a dynamic (00:02:13) and a company that is the leader in compliance (00:02:16) made substantial progress towards that vision.

First, on the digital front, we continue to build our digital capabilities by enhancing our ability to facilitate digital transactions, expanding internationally, entering partnerships, and personalizing interaction. As you know, the digital remittance market continues to grow.

In fact, some analysts estimate that digital remittances will total $300 billion by 2021. As such, we continue to invest in the ability to better facilitate digital transactions by building a more customer-centric mobile app and improving our website through additional features and functionality.

These investments are already paying off as our data shows that online customers are transacting more frequently, and we're excited to announce that digital revenue represented 16% of total revenue in the quarter. Another key aspect of our efforts to build our digital presence is to expand internationally.

As you know, we launched MoneyGram online in France and Spain earlier this year, and both countries continue to see increases in sends. Leveraging on that success, two weeks ago, we launched the service in Belgium, Austria, Portugal, and the Netherlands, and late last week, it went live in Ireland, further bringing our award winning moneygram.com service to more customers (00:03:29).

Additionally, we launched in Australia, a market with substantial potential for online sends. We now have presence in 11 countries, and we look forward to continuing to (00:03:40) on our future international expansion.

Shifting now to another example of how we're continuing to look for innovative solutions to expand our presence digitally, we recently announced a new relationship with Visa through Visa Direct, the company's payment platform. This service, which is expected to launch in October, will allow customers to choose to receive funds directly into their bank account by a Visa Direct or to a Visa prepaid Card.

This is Visa's first cross-border use case for Visa Direct and we're excited that they chose us to be a part of it. The initial phase includes two priority corridors, United States to Mexico and United States to Philippines, and we hope to expand this service to other corridors following the launch.

And one final point on our digital initiatives, as we increasingly interact more directly with customers, we continue to invest in technologies that will enable us to better (00:04:31) interactions in order to deliver a differentiated experience. In one commonly cited study, Gartner found that 89% of (00:04:38) customer experience will be the primary basis for competitive differentiation.

In today's world, you must give customers a reason to choose you. It can't just be about price or the size of the network.

You need to differentiate. Frankly, our business and our industry need to change.

Convenience, choice, simplification, ease of use and personalization are all pillars for a better value proposition for our customers. As a result, during the quarter, we rolled out a new notification and profile services that allow us to better communicate with our customers, whether they transact in-store or online.

Customers can now receive notifications about their transactions (00:05:14) SMS, text and email. They can also create a personal profile which gives them the opportunity to communicate (00:05:20) with us.

At this point, we have enabled more than 30% of our global volume with these digital services and we expect that to increase to 50% within the coming weeks. This effort, combined with our global deployment of data collection and quality standards for all transactions, has and will continue to give us a much more dynamic insight into our customers and our network, which in turn will enable us to provide a better, more personalized experience for them.

Another area of our strategic focus is to capitalize on our physical network and ensure that we have the best possible agents. Cash-in and cash-out capabilities are of huge value for many underserved consumers who have wrongfully been forgotten by most startups.

Many individuals, especially our core customers, still rely on cash. For example, in Latin America, cash transactions still make up 85% to 90% of all remittances (00:06:13).

Furthermore, according to a recent study by the Bank for International Settlements, hard currency used is on the rise (00:06:20) circulation as a share of GDP, rising from 7% to 9% for group of countries that comprise more than 80% of the world's economy. Cash-in and cash-out is an offering that most of the new competition does not have and it is one that has been wrongfully dismissed as antiquated.

I believe the capability of transacting cash will continue to be a competitive advantage for MoneyGram for many years to come. Thus, to further enhance our competitive advantage in this space, I am excited to report that we've recently extended our relationship with two key partners; first, the UK Post Office, and secondly, Elektra in Mexico.

The UK Post Office is one of our oldest and largest agent partners in the world. I'm very grateful for their continued partnership and what it means for all of our customers in the United Kingdom.

Second, as you know, Mexico has been an important market for our business for a long time and we are thankful to extend our relationship with Elektra, one of our largest receive partners globally. Elektra has also been a great partner and we look forward to many more years of success with them.

And finally, I'd like to touch on our important relationship with Walmart. The new Walmart2World service was completely rolled out during the quarter and is up running and tracking to plan.

Marketing for this new innovative service (00:07:31) June and we are already seeing a positive reception in (00:07:35). In addition to these key renewals and new services, I'm pleased to announce today that we have entered into a new partnership with OXXO in Mexico, the country's largest convenience store retailer, with more than 16,000 locations across the country.

We're excited for all that OXXO and MoneyGram can do together, and we look forward to sharing more on that relationship in the coming weeks. I want to shift now to providing an update on our third strategic initiative for the year, the implementation of a restructuring program that was started as a result of our expansion into the digital world, along with our emphasis on margin and profitability.

Larry will give you more financial insight, but we are at this point, largely ahead of schedule. Since the start of the program, we have reduced our global head count by more than 8%, eliminated overhead and hardware costs, migrated our entire IT development shop to an agile environment, and in conjunction, reduced our total contractor spend.

We've consolidated and centralized our sales functions and leadership, and we've accelerated our network optimization efforts, which have led to the closing of underperforming locations, while also eliminating the associated overhead costs. A combination of these efforts, along with the efficiencies that we've gained from a focus on simplification and profitability, will enable us to maintain margin against the backdrop of declining revenue.

Our fourth key strategic initiative this year has been to improve our compliance capabilities to help protect the business and our consumers from criminal activity. In a world of increasing risk where 70% of companies say they're expecting the focus on managing regulatory risk to rise, we implemented higher compliance standards.

Once implemented, these compliance standards have their intended impact on our business, which in the short-term, also led to an expected decrease in revenue. Longer-term, however, these standards will enable us to be in a position of strength for three primary reasons; one, we'll have a reduced risk profile relative to other players in the industry; two, higher data standards will enable us to better protect and communicate with our customers, and therefore, deliver a safer and more personalized customer experience; and three, we implemented what is right and what should be and (00:09:48) be required to become industry standards.

DTA itself, I will simply say that as you saw in June, we agreed to extend DTA to September. We continue to be in dialogue with the Department of Justice and are hopeful of reaching an agreeable outcome in the coming weeks.

And with that, I'll turn it over to Larry.

Thanks, Alex. Total revenue for the quarter was $375 million.

Money transfer revenue was $330 million, a decrease of 10% on a constant currency basis. As we anticipated, the most significant factor in this decline was the implementation of transaction limits and other compliance standards as the cornerstone of our effort to de-risk and improve the operations of our business.

Also in the quarter, we felt the full impact of our new pricing at Walmart, combined with volume curtailments in certain Middle Eastern and African countries. The U.S.

market also had a negative impact on (00:10:42) no-fee/low-fee digital products continue to displace traditional cash money transfer. Another factor impacting comparisons to last year is the investment income earned in 2017 from the one-time redemption of an asset-backed security, which resulted in $12.2 million in revenue and that flowed through to income.

Comparing revenue without this item, total revenue would have declined 8% for the quarter on a constant currency basis. However, the negative impact of our higher compliance standards has not been universal.

We continue to see growth in most of Europe and Latin America. We also continued our strong growth record in our mobile and online business, and we expect an acceleration of volume from our new countries for MoneyGram online.

Our efforts will center on growing that user base rather than seeking revenue growth in 2018. The operating expenses for the quarter were down $24 million or 6.2% year-over-year.

Total reported non-commission and non-direct transaction operating expenses for the quarter decreased approximately $14 million over the prior year, as the impact of our restructuring was beginning to be realized. The company incurred $5.5 million in restructuring and re-org cost the second quarter, and has incurred $13 million for the year so far.

We expect this process to be complete in 2019 at a total cost of up to $18 million. Total compensation and benefits decreased approximately $400,000 for the quarter.

However, excluding $3.7 million (00:12:24) cost related to the reorganization, total compensation (00:12:28) would have decreased $4.1 million. We're on track to achieve $30 million in cost savings this year and a run rate savings of $45 million.

As expected, the restructuring will be accretive to 2018. The savings achieved by the company under this program are permanent in nature and positioned us to achieve economies of scale, as our new technologies reshape the customer and agent experience.

That means that this is a permanent component of an improved operating model that facilitates more automation and it also directly benefits the users of MoneyGram's products. Regarding our taxes, the company recognized a net benefit of $7.4 million for the second quarter due to one-time discrete items.

Comparisons to last year are meaningful due to the impact of tax reform (00:13:20) in the current year and the impact of discrete items in the quarter. We've now changed (00:13:28) effective tax rate since last quarter, but we continue to evaluate the legislation and then mitigate some of its negative impact.

Ultimately, we believe that it would be necessary for corrective action to be taken by the government for MoneyGram to achieve the tax rates intended by the legislation. Second quarter EBITDA was $43.4 million versus $51.7 million last year.

Adjusted EBITDA was $59.8 million compared to $70.4 million last year. However, when you exclude the onetime (00:13:59) income of $12.2 million from last year (00:14:02) increased 10% and adjusted EBITDA (00:14:07) approximately 3% on a year-over-year basis.

Ultimately, we improved our performance over last year in spite of the impact of revenue from our higher compliance standards. Our margin expansion strategy and the improved efficiency of the MoneyGram have offset the decline in revenue.

Adjusted free cash flow was $21.6 million for the second quarter versus $27.4 million the last year. Again, excluding the onetime investment income, MoneyGram's adjusted free cash flow would have increased $6.4 million or 42% year-over-year.

This includes the impact of higher interest expense in 2018 and includes the impact of lower capital expenditures and lower agent signing bonuses. As Alex mentioned, these financial results are within our expected ranges.

Now I'll turn the call back over to Alex.

Thanks, Larry. In summary, it was an incredibly busy quarter and it's been a very busy year building and reshuffling the (00:15:08) strategic outlook.

That said, I'm excited about how our four main strategic initiatives are beginning to bear fruit, and we are increasingly facilitating digital transactions. We're deploying digital capabilities to personalize our customer interactions.

We're capitalizing on each strength of our global physical network. We're modernizing our operations, and we are becoming a leader in compliance.

Operator, I think we're ready for questions.

Good morning. Thanks for taking my questions.

For the first half of the year, your constant currency revenue was down 8%. So what gives you confidence that in the back-half, things are going improve, you kept your revenue guide to be down 4% to 6%?

Part of it is what we saw in the second half last year. I think that comparing to the second half last year, we did see some weakness in the second half.

The other thing is we do have new business coming online and so really the combination of the two. And part of it too is just the impact of the compliance rules.

So I think as they settle in, I think it'll be a little more predictable in terms of the impact on revenue.

When do you expect revenue and EBITDA to grow again?

Well, I think 2019 is really our expectation. I don't think – we're not guiding towards it this year, and we think that return to growth, that happens next year.

Got it. And then you have $905 million of debt coming due in 2020, could you just discuss your plan how you plan on cutting that down or will you...?

Well, we expect to refinance it. Once we complete the DPA, we'll be refinancing our capital structure.

So we expect that to be a fourth quarter item.

Understood. And just lastly, if you can just discuss your compliance for the quarter and your expectation for the back-half of the year?

Yeah, definitely. And for all of you on the call, I guess, we're having (00:17:44) technical difficulties, I guess, for cutting in and out a little bit, apologize for that.

Yeah, on the compliance front, we're doing a lot of unique things, which I think are having, as I mentioned, the intended benefit on the business that we were looking for. The implementation of ID for sends and receives (00:18:05) along with some new (00:18:11) on total volume and velocity that certain consumers can send and then a very specific focus on high fraud corridors and the unique impact that those have on the business, I think, collectively were the biggest headwinds on revenue for the quarter.

What's difficult about making changes like that is that you have a number of other players in the industry, I think it goes without saying that, you know, are implementing the same set and obviously consumers have choices and optionality. And so I do think that there's probably been a little bit of an overreaction in the market.

I know that smaller players are selling against us in the market right now, really highlighting their compliance-light focus and saying, we don't ask for this type of information, we don't ask for ID. And it's unfortunate I think because we're trying to do the right things for those consumers, there is a lot of risk out there, there's a lot of risk in the market.

And so, at the end of the day, we are doing what we think is right and what's going to be beneficial for the business over the long-term. I think that as our clientele gets used to the data collection standards as they get used to what we're doing with that information, I think we'll see that the business begin to turn around.

Some of this is going to be just revenue that we're not going to see come back and that's because we don't want that business to come back. And so, I think it's a little bit of parsing through and working with our (00:19:47) market to explain the value and the benefits of the service.

I can tell you that from the implementation of the standard data elements that we're asking, along with ID, we've learned an incredible amount, and have had just a fantastic impact on the compliance efforts that we're trying to undertake. So I'm very pleased with that.

Obviously, seeing the revenue go down is disappointing, but I think as long as we're taking out business we don't want and not overly burdening the consumers that we do want, we're going to be in really good shaped, and right now I think it's probably an overreaction on some degree to the negative on the good customers. And so, with people, word of mouth travels quickly in this industry.

I think once consumers hear something they get nervous about it, and it takes time to sort of normalize that out and get it back. But I think we're taking the right steps, doing the right things and putting ourselves in a really good position.

But that will continue to impact the business. We expect the compliance rules to be a headwind as we take out business that we don't want.

Understood. If I could sneak one more in there, because you may have addressed this in your commentary, but could you just tell us how much of your revenue comes from digital and what your target is over the next year or two for digital revenue?

Yeah, digital revenue was 16% in the quarter. I don't have a specific target that I'm ready to share yet.

I think because there's two kind of ways to look at it. One is the digital sends and the digital receives and then there's also another component which is really important to me which is the digital interaction.

And so, we're really focused on two things at the moment. One is deploying digital capabilities on those at send side, so rolling out moneygram.com.

We're in 11 markets and we're targeting to be in the high-20s, the 30 markets by the end of the year or at least into the first quarter of next year. We're also working quite dynamically on the receive side, trying to improve our digital wallet receive capabilities, obviously account (00:22:03) and the Visa Direct is an important part of that.

And so, we continue to grow and that really today comprises (00:22:09). But you do see a lot of sends and receives at kind of starting cash or ending cash and vice versa.

And so there is this component that sort of goes through both. And so, the digital touch points and the digital capabilities for the non-transacting side, meaning if you're paying in cash at the point of sale, I want that experience to be as digital as possible, so that we can communicate with those customers.

And so that's where we're about 30% deployed on those capabilities. So, once we have all of that deployed and we have the right toolkit and the (00:22:41) right capabilities in the places that (00:22:45) and want to have it, then we can really go after the market and shift that.

So at that point, I'll be able to give a little more clarity on the percentage that we think the business will become, because I think it will be very different.

Thank you.

Thanks, (00:22:58)

Hi. Good morning.

Thanks for taking my questions. The few things Alex, on the restructuring side, you gave some detail, I wasn't writing down quick enough, but the 8% head count reduction, I mean, how much of that was actually sort of either agent's store-based, customer touching related versus what we would think of is more sort of fixed overhead related?

That's an interesting question, because it's a little bit of – it's a mix of both is, I'm sure you expected me to say. We literally restructured basically our global revenue organization and we did close a number of owned stores.

We also took out a number of underperforming locations. We have quite a bit more to do on that end.

And so we did sort of restructuring (00:24:11) there were some of the (00:24:15) associated with those changes. But a lot of the other changes are really related to back office servicing operations and the go-to-market aspect of our business.

And so, we really try to consolidate and operationalize in a more streamlined fashion, basically how we do our business and looking at opportunities to save time and cost. I mean, a good example of that is the efforts we've taken to restructure the IT organization and become more efficient there.

That's enabled us to eliminate a number of positions that you would sort of need under a different structure that you don't need on in a future structure. Then we've also done I think a really nice job on the operational front as well.

We do still handle a lot of phone calls, and I think phone calls are the result of having a large agent network that doesn't necessarily service itself on its own. It requires a lot of contact from MoneyGram and that's expensive.

And consumers call, consumers inquire about their service and what's going on. And that's why the overhaul of the systems, the changing out of the interfaces with agents and improving those connectivities and pushing the digital communications to our customers is going to be able to save us a lot of time and energy there, which in turn gives us a lot of (00:25:44) back end.

So that's kind of what it was all about. We didn't in my mind anyway decimate any particular area or put ourselves in disadvantage because of the changes.

I think what we've done is aligned to what we think is the right structure for where we want to take the business.

Got it. Got it.

And it sounds like there's more to come there. Hey, may be switching to compliance questions.

One, I wanted to follow-up on the last question in terms of the actual customer experience, can you maybe give us just in some real simple terms, 30 seconds, like, what is different about me walking into a, let's say, a U.S. agent location, if I'm sending abroad, just what's different about the experience now with your new standards versus six months ago, and the same question where if I go on to moneygram.com?

Just trying to understand, because you'd mentioned that maybe there was even a little more off than you were expecting. Trying to understand whether it is an overreaction, as you mentioned, or whether on the margin, the experience is such that, it's going to be hard to win back those customers if other players aren't ultimately required to adopt the same compliance standards.

So just literally the customer experience level, is it just I got to pull out my ID one more time or what's different?

Well, yeah, that's an interesting thought line there because I do think it's important what that customer is experiencing and I do think that there has been sort of some disruption as a result. I would say – this is not completely perfect because it did vary by market, but I would say that, and we've talked about before, in the United States, the send, in the MoneyGram network and I would say other players are quite comparable to send U.S.

outbound transaction required effectively your name and some more information, but the data collection was inconsistent and there were really no standards around that. So we changed that so that we now (00:28:13) about our customers.

And I think in fairness, right, so the industry (00:28:17) business was created, it really was (00:28:21) service and based on (00:28:23) and so, consumers could (00:28:25) money from point A to point B. You don't have to register, you don't have to sign up, you don't have to "become a customer".

You could simply go to a location that provided the service and send money. I think I've highlighted before, the standards in the U.S.

were – are pretty strict about $3,000, and below that, it's really sort of company dependent. So MoneyGram used to have a policy of around $800 or $900 on ID collection.

And so we changed that. So we're also now asking and requiring consumers to give us their phone numbers, give us their address, give us their date of birth, and their name and then we capture the ID at the point of sale, key in the number as it were.

So, I think that's a very different experience from what a consumer may find at a competitor, and obviously, collecting that ID particularly on the send side (00:29:20) is not something that is required or that other people objects. I can tell you, right, if you're cashing checks, if you're getting your pay days on your ID, if you're doing other financial services in this country, (00:29:32) ID for that, and I think there's a reason for that.

And I think it's because it's a safer transaction, it's more secure and you're capturing the right information about customers and you're better able to interface with them and maintains (00:29:46) information about those customers and it makes a lot of the backend technology changes on the compliance side easier. So that's a different experience (00:29:56) those customers.

And if someone comes in and says, they feel that that's sort of a violation of their privacy or they don't want to share that information and you've got a smaller player next door or maybe you're in a non-exclusive location, he says, well, I don't collect that information and I don't need your ID, the consumer can just (00:30:14) want or the agent could point them in that direction if the agent doesn't want to deal with those question standards that we have. So, that's a little bit of – I think those are corner cases, but I do think it's happening and so it's different.

If you go online, we ask you all that information (00:30:32) provide it without much problem. And the other thing I think Larry highlighted is that (00:30:37) corridors.

So there's a number of corridors where the impact of this has really been minimal to nothing. It's just certain aspects of the business that are more sensitive.

And then the other thing I will just say on that, David, is that, there are – we did put in a lot of increased standards and restrictions on a number of high fraud corridors, and some of those corridors are large U.S. outbound markets that were relatively profitable.

But there's a mix of fraud and suspicious activity in those corridors and so we've really cracked down on that to eliminate those corner (00:31:16) take out as much risk as possible and try to get down to those customers that we know are we want to be interacting with. And so, I'm not surprised where our revenue is, and I'm not surprised by some of the numbers that the competition is reporting, because we are intentionally changing our business, and so I'm certain that those customers are going other places and the ones that I want to keep – that we've lost, we're certainly going to do our best to win back and explain of our service and what we're doing, and then those that (00:31:51) we're not going to take back.

Got it. And are these standards, are they in Walmarts as well?

Yep.

Got it.

Yep, and they were, yeah, Walmart was – Walmart is (00:32:05) on the compliance front.

Got it. And staying on the compliance front, did I hear correctly about final settlement with the DOJ is in a few weeks you said, the DPA is...?

Well, we're hopeful it is. I mean, we've been in dialogue for a while here.

Our original DPA was supposed to expire last November and we've extended a number of times and I am...

Right.

...I think I said was I'm hopeful that we can reach an agreeable outcome in the coming weeks, because it'd just be nice to get that buttoned up and move on to the next. But we have a lot of work to do as an organization.

I understand the importance of the situation that we're in and we're very focused on it, and trying to be as cooperative as possible.

Got it. Got it.

And then – and last question is more strategically, obviously, last quarter was the first time [Technical Difficulty] (00:33:10-00:33:41)

Good morning. Thanks for taking my question.

I was wondering if you can maybe talk a little bit about – well, I'm sorry, just maybe to finish up on the compliance, I wanted to clarify, going forward with all the changes you've made on transaction size limits and increased scrutiny on certain corridors, Alex, maybe just kind of discuss whether there's any interplay between the DPA and any of those limits, and whether there is any kind of negotiations or asking for additional restrictions to be put on that would be kind of further clamped on, on some of those volume – compliance-related volume declines you're seeing right now, or whether – or you feel confident that (00:34:35) steady run rate with respect to those restrictions?

Okay.

Hi, thanks everybody.

Hi.

Sorry about that. We just took a short break.

Alex...

(00:35:25) Jim?

Yeah. Hi, Alex.

How are you? So you hear me now.

Okay, great. So the question I asked was basically just a follow up on the compliance thing, just to put that to bed hopefully.

Is there any interplay between the DPA and the compliance restrictions on volumes. In other words, are the regulators asking for any more restrictions to be put on as part of the DPA negotiation process that would further kind of curtail the volume impact going to the back-half of the year or do you feel like all the restrictions in terms of compliance are now in the run rate right now?

Yeah. It's a good question because there's really sort of two ways to look at that.

I think you can look at it as what are the standards and then what are the expectations or you can look at in terms of what are the expectations and what do you need to do to achieve that? And so, I would argue that the requirements of the DPA or any other regulator out there is to ensure that you're protecting consumers.

So you know who consumers are, ensure you're doing the proper diligence work on all of your agents and agent locations, and that you're taking actions and taking steps as expected when issues arise, and that you're responsive to that. And for me – then I think for the industry, that means that you need to be gentle on the spot when issues come up.

You need to understand who absolutely loyal customers are, you need to understand every transaction where it's going, what it's doing. You need to look at aggregation and you need to understand all those various aspects.

And then you need to respond extremely quickly when you see anomalies in your business. And I would argue that if you don't have the requisite information about consumers, you're in a very difficult position to be responsive to those types of challenges.

And so, I would say that the demands of whether it's our DPA or an FTC consensus order or regulatory exam finding or from a state regulator or whatever it may be, you have to have proper controls and systems in place to be responsive and do the things that they're expecting to find when they look at the exam findings. And that's actually – and the tough part there is it's different from what is sort of mandated and required on the face of it.

They don't tell you how to do that. So you have to figure out your own way to do that.

And obviously, we've been in the line of fire for a number of years with regulators and federal government. And, I don't want to be in that position anymore.

And so, I think the improvements and changes you made to the business, I give my team a lot of credit for the work that they've done in the past year, in particular. And I like the position that we're in and I like where we're taking the business from a compliance standpoint.

And it's different from what others are doing, but I think it's the right place to be and it's going to put us in the best position for success longer-term. So it's one of those, I think, a little bit of – it's unfortunate to be in that position.

But on the other hand, you're sort of fortunate to be in that position because you know how to address it and what to do about it.

Helpful color, thank you. And then maybe you talked about some new business coming on in the back-half that's going to impact you.

And how do you think about the net effects of the Walmart2World program and OXXO. When OXXO actually comes into the numbers and then kind of how you think about the impact of Albertsons rolling off?

Yeah. Maybe think those kind of together.

Listen, I think number one, the Walmart2World product has been, from our perspective, successful. I think that Walmart would probably tell you that they like to see more and more.

And I think that's a good place to be vis-à-vis that product. I have not really heard any sort of negative reaction from our agent partners and market with respect to that product.

And so I think that's a good place to be. When you think about someone like an OXXO coming on board, 16,000 locations.

I think we've great partners in Mexico, but this was one of those opportunities to put ourselves in a location, in a service that's available on almost every street corner. It's well known and they have a very unique product that's in store where they try to drive not only remittance receives, but also good consumer interaction and try to get consumers to stay in the store and shop and it's very, very convenient.

So I think that could have a very positive impact on receives in Mexico in our U.S. outbound growth, whether it's through our traditional channels or through Walmart2World type channel.

With respect to Albertsons, that's an unfortunate situation there. I think, as it's been highlighted a couple of times in the last 24 hours, that was a 2015 merger with Safeway.

(00:40:47). And so we've been in a bit of a competitive disadvantage vis-à-vis the competition there, simply because of the size of the other two networks.

And then, also kind of way where that business will go in terms of a merger. So I think we put forward a good proposal.

Unfortunately we didn't win. We've talked a lot about trying to minimize signing bonuses and this is one where there was no way we were going to able to compete with the size check that was offered, at least the one that we think was offered.

So it is what it is. Albertsons has been a good partner.

It's unfortunate they're leaving. But we have good networks behind that and the business will continue forward.

So Albertsons was not by any means the largest agent. So that's quite unfortunate.

But -and that together, we also have been notified by Albertsons in terms of when they're leaving. So it's really hard for us to blend it in.

So at this point, we don't really see any impact or at least nothing material on the financials for this year.

That's great. Thanks.

And then maybe just quickly for you, Larry, can you maybe (00:42:07) give us an update on where you expect the free cash flow generation to land for the year, and you expect the generation to be as strong in the back-half as it was in the first half or how you just think about sizing that?

Yeah, we think it's going to be fairly consistent. No material change.

Fourth quarter usually is just a little more seasonally better. But right now, we don't have any big cash event that we think would move the needle.

So we think we're pretty much on schedule for the year to annualize the numbers is probably okay.

Thank you very much.

Hey, good morning, Alex and Larry. Alex, a lot of conversation about compliance, but one of the things you mentioned early on about this compliance was the ability to maybe eventually drive more revenue or engage with your customers more.

And I'm wondering maybe it's too early, but I wanted to ask, if you've been able to take advantage of the other side of the compliance issue for you

Yeah. It's an interesting thing, right.

So in a world of GDPR, you can't sort of just default all your customers into listening to you. But that capability to personalize a customer interaction, signing consumers up, creating profiles on them, and eventually rolling into a more dynamic loyalty program, you want to have that information about those customers, right.

You want to know who they are, what they're doing, great profiles for them, allow them to have profiles on their transaction history and their receivers and this type of thing. And so, it really is that same subset of data.

And so, obviously, there is a, you know, dynamic consumer interaction when you're talking about marketing to consumers or when you're operationalizing receipt and notifications about transactions. So, they kind of go hand-in-hand.

So the good news is, is that higher data standards and collection points give you that data already and then you get the customers to sign up and opt in and create a better experience. I think it sort of begins to snowball on itself in terms of people understand, why we need that information, people volunteer the information.

And its interesting, right, because as I've mentioned earlier (00:44:43), I think before we get cut off with David is, the data that you collect online is really detailed and people don't really have a lot of issues giving that information. And the point of sale, people are little more sensitive to it.

So I think that, you know, personalizing the experience, allowing them to enroll through you know mobile technologies or kiosks or self-service at the point of sale helps that. And then, I think it allows us to – to notify the 30% that we've enabled, we've seen very good success in terms of customers enrolling and wanting to communicate with MoneyGram.

And those customers that we reached out that we've reached out, that we're seeing really good response rates from. So, you know, I'm pretty happy about that.

There's a lot more to do. We're sort of in the infancy stages here or – but there's a lot to do and so I'm pretty excited about what that interoperability and interaction with customers is going to mean for us down the road.

And also we're gaining a lot of voice to the customer information. We're going to hear more from them and understand their habits and their behaviors and where they go and why they're doing what they're doing, which is just something that I think we've understood, but obviously don't have that dynamic experience on a daily basis.

Thanks, hey, Alex and just to finally, your thoughts on pricing kind of where the market is, both here domestically, outbounds are in the U.S., but international as well?

Yeah, I think it's an interesting one. And U.S.

is always interesting. I think it continues to be a lower-priced market, but it tends to come in different forms as either competitors focusing on lower fees and moving FX rates around and then there's others that are maintaining fees, but lowering FX rates, and then of course there's the ones that are no FX rate at all.

And I think, as Larry pointed out, the U.S. market is one where there's been disruption from traditional players on lower prices and then we've also seen the no-fee/low-fee competitors come on-board.

And I think collectively, that's really hurting the business. And so I think, we need not only look-alike products, but we also need to reposition our pricing to address that.

And so it's something that we need to take on. When I look globally, I would say pricing is changing.

And again, it's the same, you may hear that pricing is relatively stable and perhaps that's on sort of a global average, but when you look quarter-by-quarter or specific markets, prices are changing quite dramatically in a number of places. The smaller players are still attacking the markets with low introductory fees.

Some of them are trying to come in with the best FX rates and I've seen across Asia, Africa, Middle East in particular and then parts of Europe as well, you've seen shifting prices, and I think that those are definitely having an impact on the business and something that we're tracking and something and we need to be prepared for it. I think in the first quarter I talked about we need to lower our costs and we need to change the way we operate, so that we can better compete in a world with lower prices and so we continue to prepare for that and we're working on it.

Thanks, Alex. I really appreciate it.

Thanks.

Thanks.

Thank you very much. I just wanted to follow-up on your pricing commentary there and kind of how dynamic individual corridors can be.

Is that – from your perspective, is there increased activity now with the little bit more volatility in our tax rates or is this just the way that things have been for a while? Just trying to get a sense as to whether there's more pricing activity and changes now than in the past?

I think that the way I view it would be the responsiveness of larger players to some of the disruptive prices that was put in place by the smaller players I think is beginning to roll into the market. I think throughout the first quarter and into the second quarter, we've seen a lot of price changes and we've seen a lot of new competition really leading with price.

And so, it is, I would argue, corridors specific, and that helps blended in a little bit. So it's not nearly as transparent.

And I think the U.S. market is one where prices are little more consistent or a little more homogenous across this different states.

But when you move to the UAE or you move to Singapore or the Philippines or Thailand, Korea, Saudi et cetera, a lot of it is corridor-specific, but some of those corridors are bigger than others. And so what we're seeing is either, again, prices coming down from be it at same charge, but then maybe they're putting a little bit more back into effect side of it.

So it's kind of interesting because you sort of see this sort of cause and effect and a little bit of ebb and flow of that. You can lower your fees and increase your FX, but that may not be transparent for a little while, but then you may have to dial that back a little, depending on where the FX goes.

But largely speaking, there's also big efforts being placed on sending money into accounts and account-based services tend to start with lower fees. And oftentimes, the FX can be lower, sometimes the FX can be a little higher.

So, I think on average, (00:50:12) in the quarter and I think that's probably a consistent trend.

And then, in historical perspective, it seemed like there was a lull for a couple of years. But 2018 seems to be more active than it had been in the past.

Yeah. (00:50:31)

And then, I wanted to ask as well, you recently announced new partnership with Visa. You kind of talked about that.

It sounds interesting. Are there any particular markets where you see this product gaining traction earlier, faster, given that, as you said, a lot of (00:50:54) markets are still cash dominated.

And I guess the second part of that question is, you also have bank relationships on the receiver side (00:51:01) is this going to be additive to those or does this replace the banking relationships and speed up the send transfers?

I think that, well, (00:51:13) so first, the target markets right now are Mexico and Philippines. Obviously, those are very dynamic, very interesting markets.

They're both very competitive. They're both very large.

And so that makes it I think easier to differentiate, put yourself in a position where you can offer something that unique and you can try to approach the market differently, without necessarily having to focus on disruptive pricing in these types of things. And that's why I think it's sort of interesting markets to venture into.

I think, to answer your question on the (00:51:47) side, we have a lot of good bank partners that have very efficient services and we have some that are little bit less efficient. I think quality of service, not just speed, but quality of service matters and consistency of service.

And so consumers knowing that their money is there, where it is, when it gets there, notifications to both senders and receivers makes a big difference. And simplification of the send, when you're sending to an account, there is often a lot of information that you need to know.

And so what we're hoping to do with this product is take another turn out of the complexity and really make it simpler to send to through a receiver directly. So I think it remains to be seen.

I don't think this is intending to displace anything and it's intending to be additive. If it ends up being a better, higher-quality service that consumer is really adopting, then you can sort of change and pivot in market.

But certainly, I think the more partnerships you have, the more options you have for consumers, and it gives you the ability to sort of test them and to figure out which ones are going to be the right ones.

Great. And then just one last follow-up question on the international with DOJ.

Has there been a notable change in tenor or topic of conversation that makes you to feel like you're getting closer there. Just wanted once again a little more color on how you're thinking about that timing and why?

So maybe it's not in my nature. I was trying to be optimistic, I guess.

So, I don't know that there's – we've had a lot of discussions. I think the issues are known and the positions are quite well known.

Clearly, it's not in anybody's interest to continue to extend and extend and extend. And so, I'd like to see us be able to get to an agreement.

And I guess I'm being hopeful on that, because I think it's important for the business and for where we want to do and where we want to go with our company. So, we are trying to provide the right information, have the right dialogue and the right discussions.

No, I can't really say that anything has accelerated or decelerated or anything materially different. It's just that I'm hopeful that we can push it to the end.

That's great. Thank you very much for your comments.

Thank you.

Hi. Thanks so much.

Good morning. Just couple questions on the agent renewals.

And so, I'm curious how the pricing (00:54:26), any change or surprise?

Oh, on the...

In terms of a commissions or contract terms?

Yeah. I'm sorry, like on the commission side, either in terms of share or returns...

No, but – no, I mean, I think they were – they were good. I mean, they're sort of in line where they were or improved.

So...

Okay.

kind of very happy with that.

No, that's great to hear. And then just I had a last one on the compliance, forgive me, just – have all the big changes been phased in at this point or is there still some that needs to be rolled in?

Well, I think the biggest of the changes has been rolled in. I do think that there are a few high fraud areas that we're going to continue to focus on, to ensure that those are materially de-risked, and there could be some more fallout from that.

One of the challenges with compliance controls is that, if you push too hard on something you can have a negative effect which is to spread something out rather than able to target it. So targeting things is more surgically, can be very, very useful, but it can take a little bit more time because if you just try to slam things down, you can blend it back into the business and areas that you don't want it.

So we're trying to be targetive. We're trying to be tactical on the end here.

But I would say that the bulk of the heavy-lifting was done at least on the consumer-facing side of a lot of the rules and controls changes. We still have quite a bit of work to do on the back side in terms of back-end systems and technologies that we've been working on for a number of years.

We still continue to work with our monitor on that, and we've engaged with Ernst and Young to help us guide to the end, and so that's all kind of ongoing.

All right. Okay.

That was the case, just wanted to make sure. Thanks, Alex.

Yeah. Thanks.

Yeah. Hi, thanks for taking my question.

I hate to harp on all the compliance and DPA questions, but – and maybe it was covered when my call dropped earlier. But I was just curious if you could give us any more thoughts on, there's been so many extensions here I guess.

What are the sticking points, is it dramatic change, so what's been accrued for a settlement or is it more around the ongoing kind of practices and rules that you'll have in place going forward? And then, do you view where you stand right now as basically being in a prolonged period of kind of an asymmetric competitive disadvantage versus your competitors?

Or do you think eventually what you guys are putting in place will represent the new norm for the industry, and others will ultimately have to catch up to that? Thanks.

Yeah. Thanks, Matt.

And it's good to talk to you. I don't want to get too much into the back and forth dialogue on the DOJ because it's honestly not really appropriate.

What I can say is that, there is an aspect of all of this which relates to practices and standards. And again, I think some of this is regulation by enforcement and demands and requirements on the business to do things in a way that they feel are compliant or maybe better said leads to the best consumer protections available, because that at the end of the day is the primary focus, whether you're in the Department of Justice or the SEC or a state regulator item.

And if you're trying to protect your consumers in those markets. And I think consumers getting the product.

I think I said on the first quarter call, I mean if you haven't gotten a fake call from the IRS demanding you pay money, you're one of the lucky ones, because those calls are rampant. And fortunately from time to time consumers pick up those calls and think they need to send money to somebody they don't know, and that goes through your system.

Companies like MoneyGram are being held accountable for that. I don't want to be held accountable for that.

I want to have the right systems in place, so that I don't have to worry about that type of activity going to that business. And we are trying to put in place all of those things that are going to be industry leading to prevent that.

And I think proof is in the pudding, and if you can put up the best metrics associated with that, you can show the government that you are doing everything in your hand possible to eliminate that you're working with your agents proactively, you're putting the right controls in place. I think there is a competitive disadvantage aspect, you have to think about from a business competitive disadvantage and then there's sort of a government disadvantage.

And I certainly don't want to be in a position of the government disadvantage. And it's time for, you put yourself in a good position, you pick the issues that you have, and then the government can go look at somebody else.

So that's what I'm trying to do.

Got it. Thanks so much.

Thank you.

Yeah. Good morning, guys.

Hey. When you were talking about the digital transformation and you mentioned sort of closing some agents and location, can you know how many you've closed and how many do you kind of plan on closing in total?

Yeah, well, I'm not going to say how many we plan to close. At this point, we've closed about 3,000, and those are a combination of locations related to larger agents, and then also those are just specific smaller agents we have.

We also did close a number of owned stores that we have. But those numbers aren't large, but obviously there is some costing, considerable cost there.

So, yeah, that's about where we are and you know we're going to continue to look at that. I think we've highlighted that you know in the past, that we have a couple of different ways of looking at it.

We're looking at compliance, we're looking at volumes, and then we have kind of what we call this agent tiering process, which takes into account both volumes and compliance activities, but also commitment to the business, we looked at, exclusive, non-exclusive we look at profitability, commission impact things and others and we're really trying to get rid of what we call the tier-4s which is the bottom tier, and then, begin to see if we can optimize the 2s and 3s and push everybody into the tier-1 bucket if we can. And then, it's also looking at what you need in market.

And if you have agents that you've signed that are good for hanging up a banner that says I'm in ex-hundred thousand locations, but they're really not doing any volume. You know we want those out of the system because it's just not helpful to us.

And obviously, also increases costs and create some risk. So, I think for us, the days of having locations for location sake are behind us and we're going to be very tactical on who we are and where we are them and we're going to try to reduce our costs and our risk by taking out those that aren't performing.

And, Mike, just to put into perspective this year, we're not really seeing any impact on revenue. We're not material from that – that really is taking out the underperformers.

So you get uplift in your expenses that you don't really take our revenues.

Great. Is that geography can sort of spread out around the world?

Yes.

Okay.

There is no – there's no restrictions on which geography we're looking at.

Okay. Lastly, with the pressure from the compliance standards in Walmart to Walmart, how do we think about rest of the world or outside of the U.S.

and how that piece of your business is doing?

Yeah. I know that's a good question.

I think we had a very good quarter in Latin America. We had a reasonably good quarter across Europe.

I'd say the areas where some of these compliance rules are hitting the hardest are in the U.S. and in Africa.

And on Asia, it's a little bit of a mix. So there's some areas and Asia is obviously huge, but CIS has been good.

And then, as you move into, kind of other markets, we've seen a little softness, but generally, generally okay. So the primary driver has really been kind of across the U.S.

and parts of Africa. But even in those, there are good corridors, but just some of the larger impacts are, obviously, overweigh or outweigh the other.

Got it. Okay.

Thanks, guys.

Thanks, Mike. I think, yeah, go ahead operator.

I apologize.

Okay. Great.

Thank you. I apologize again for the disconnection and obviously for the disruption on the call.

Hopefully it was clear enough. Before I end the call, I did want to let you know or remind you all in case you weren't aware that Suzanne Rosenberg who was our former Head of IR has recently left the company.

She's taken a job in a different industry somewhere nearby. So we wish her well.

Thus, anyway, the point is we're currently operating without a Head of Investor Relations. And so I just ask that you all be patient with us over the next few weeks.

We are going to be as proactive as possible, but the instant hotline that was there before won't be around. So – anyway, again, thank you all for joining us today.

I look forward to continue to report our progress to you and look forward to follow-up calls and talk to you soon. Thank you.