MoneyGram International, Inc.
Q1 2015 Earnings Call Transcript

Published: 1 May 2015

[Operator:]

Good morning, and welcome to the MoneyGram International First Quarter 2015 Earnings Release Conference Call. This conference is being recorded. At this time, all participants have been placed in a listen-only mode and the floor will be opened for your questions following the presentation. It is now my pleasure to turn the floor over to your host, Eric Dutcher, Vice President of Investor Relations. Please go ahead, sir.

[Eric Dutcher:]

Thank you. Good morning, everyone, and welcome to our first quarter 2015 earnings call. With me today are Pam Patsley, Chairman and Chief Executive Officer; and Alex Holmes, Chief Financial Officer and Chief Operating Officer. Our earnings release and accompanying slides are on our website at MoneyGram.com. Please note that today's call is being recorded, and some of the information you will hear contains forward-looking statements. Actual results or trends could differ materially from our forecasts or expectations. For more information, please refer to the risk factors discussed in our Form 10-K for 2014. MoneyGram assumes no obligation to update any forward-looking statements. Our presentation also includes certain non-GAAP financial measures in an effort to provide additional information to investors. All non-GAAP measures have been reconciled to their related GAAP measures in accordance with SEC rules. You will find reconciliation tables within our earnings release issued this morning and in the Form 8-K submitted to the SEC. Now I will turn the call over to Pam.

[Pam Patsley:]

Great. Thanks, Eric, and good morning, everyone. Our first quarter financial results reflects the impact from a full quarter of both the grow-over of the competitive product and the new low prices we introduced late last year in the U.S.-to-U.S. market. These factors significantly reduced revenue and cash flow in the first quarter. However, the strengths of our U.S. Outbound and Non-U.S. sends along with our investments in emerging market in innovative new technologies are successfully positioning MoneyGram for future growth. U.S. Outbound and Non-U.S. sends are now 82% of our money transfer transactions and 86% of money transfer revenue, which grew 10% on a constant currency basis in the quarter. These corridors are MoneyGram's value creating engine demonstrating consistently strong transaction growth, higher revenue in principal per transaction and, thus, higher contribution. We have significant opportunity to continue to grow our network and our customer base. In addition, we are particularly excited that self-service generated 45% revenue growth and 55% transaction growth in the quarter. With 11% of our money transfer revenue now coming from innovative self-service channel, we are at the forefront of leading consumers to technology-enabled cash and digital money transfers. Again, it was a tough quarter due to the year-over-year compare. But with the growth and cost-saving initiatives we have underway and the simple fact that we begin to lap the U.S.-to-U.S. headwind, we are on track to return to double-digit constant currency revenue and adjusted EBITDA growth in the fourth quarter of this year. Total money transfer transactions were flat as U.S.-to-U.S. transactions declined 37% in the quarter. However, this was an improvement from a 40% decline in the fourth quarter last year. Excluding U.S.-to-U.S. transactions originated at Wal-Mart, money transfer transactions increased 13% and constant currency revenue growth was 6%. Our U.S. to-U.S. transaction volume for the month of March was the highest we've seen since August of last year and we've seen our average pace increase. We’re encouraged by these results and certainly the pricing initiative that we implemented on October 31 has had a significant positive effect on transaction growth in this corridor. We’re also very pleased that we have seen sequential monthly transaction growth at Wal-Mart throughout the quarter. Our strong U.S. Outbound business delivered its 14th consecutive quarter of double digit growth and our non-U.S. business accelerated for the third consecutive quarter reaching 14% transaction growth. We are extremely pleased with these results. Money transfer revenue decreased 12% on a reported basis and 7% on a constant currency basis, an improvement over the 8% constant currency decline in the fourth quarter. With 47% of our money transfer revenue now originating outside the United States our reported top line was heavily impacted by the strengthening of the dollar since the 1st of the year. On a positive note, excluding all U.S.-to-U.S. transactions, money transfer transactions increased 15% and money transfer revenue increased 10% on a constant currency basis. And importantly, pricing impacted this revenue growth by less than 1% in the quarter. We ended the quarter with 349,000 locations worldwide which was 3% growth compared to last year. While this location count is essentially flat on a sequential quarter basis, we actually had good network growth in key emerging market such as in Eastern Europe, South Asia and Africa. At the same time, we embarked at a fairly aggressive initiative to close unproductive locations in Western Europe, the U.S. and Latin America. Our sales teams are continuing their successful efforts in growing our physical and virtual points of presence around the world. Our U.S. outbound remittance business continue to show steady growth with significant increases in sends to Latin America and Africa. Transactions and revenue both grew 15%. U.S. outbound represented 43% of total money transfer transactions and 39% of money transfer revenue in the first quarter. Our 12% transaction growth for the U.S. to Mexico corridor once again significantly outpaced Banco de México's reported remittance data. U.S. outbound sends to Africa were robust as our expanding network is providing new options for consumer sending either for cash payout or into a mobile wallet. MoneyGram is a global leader in the mobile money space in Africa offering services directly to consumers through agreements with Safaricom, that’s like m-pesa in Kenya, EasyTranzact in Nigeria and FNB in South Africa. We’re very excited about building relationships with mobile money providers throughout the continent to increase access to financial services. More broadly, we have nearly a dozen mobile wallet and virtual partnerships around the world and are focused on adding more. During the quarter, non-U.S. transaction growth was 14% and constant currency revenue growth was 5% both accelerating sequentially led by sends from the Middle East and Western Europe. The difference, however, between transaction growth and constant currency revenue growth came primarily from corridor mix and lower face value per transaction. What's key is that pricing actions only represented about 1 percentage point of the difference in the quarter. In a recent report, the World Bank highlighted declining oil prices as a reason to reduce the remittance outlook for the year. For MoneyGram, lower oil prices have had a nominal impact primarily reducing the face value of transaction send rather than a reduction in transaction volume. Our business in Russia which is a small portion of overall company revenue has been impacted somewhat by this trend and certainly among other challenges in the region. With more financial resources and large scale infrastructure projects in the Middle East declining oil prices have not impacted MoneyGram in that important region. Our U.S.-to-U.S. business began to improve in December as a result of our new low pricing and innovative self-service solution. Our transactions improved in the bands where we changed pricing, that is, those over $200, but the overall improvement was somewhat muted by transaction decline in the less than $50 band at Wal-Mart, however, that band is growing elsewhere. Our average amount sent has increased 30% year-over-year as we are attracting higher dollar transactions to the MoneyGram offering. We’ve seen improving results for this business and here at the end of April we've now lapped the initial launch of the competitive product last year. Our U.S.-to-U.S. business represented 18% of total money transfer transaction and 14% of money transfer revenue in the quarter. Looking now at self-service, we had excellent performance once again as transactions grew 55% while revenue grew 45%. Both growth rates are significantly higher than the fourth quarter due to the continued rollout of our kiosks in the United States and Ukraine. Now 13% of our money transfer transactions and 11% of our money transfer revenue comes from self-service. If you would annualize this quarter’s results self-service channels would generate over $125 million in annual revenue highlighting MoneyGram’s innovative approach to technology-enabled money transfer services. We are investing for scale as these products have a higher contribution margin than the rest of our money transfer business. We have an industry leading kiosk offering and are busy with new deployments around the world. Again, our roll-outs with CVS and Privatbank have been very successful delivering results ahead of expectations on a per location basis. Through our innovative kiosk we’re facilitating tech-enabled cash money transfer services which in turn are significantly improving both the customer and the agent experience. Our MoneyGram Online channel posted 21% transaction growth and 11% revenue growth. We added over $170,000 new active customers in the quarter and had good volume from our repeat customers. We are investing significantly in this platform and look forward to rolling out our upgraded MobileFirst MoneyGram online service later this year. We’re clearly making progress on our goal to have 15% to 20% of money transfer generated from self-service channels in 2017. With our differentiated solutions in the self-service space, consumers can create a financial connection to friends and family any way they want online, through a mobile device, at a kiosk or of course in a local store. I’ll now turn it over to Alex to cover the detailed financial.

[Alex Holmes:]

Great, thank you, Pam. While this was certainly not one of our better quarters it is important to keep in mind that entering 2015 we knew that the first half of the year would be a transition period for the company. In the first quarter, the culmination of lower revenue from our U.S.-to-U.S. business, along with the strengthening dollar, combined with the increased cash outlets for a global transformation program, investments in self-service innovation and signing bonus payment led to financial results that were clearly below our historical performance. However, we’re actually slightly ahead of where we expected to be at this point and we are making good progress as evidenced by the impressive growth in our self-service channel, the opening of our global business center in Warsaw, the roll-out of our compliant system, and the steady improvement in our U.S.-to-U.S. business, all of this bolstered by the accelerated growth in our U.S. outbound in non-U.S. corridors. We anticipate stronger results as we move into the latter half of the year. And with that to provide some context, let's discuss the numbers from the quarter. Total revenue for the quarter was $330.6 million, down $44.3 million from the prior year, as the impact of the U.S.-to-U.S. business and the stronger U.S. dollar offset the growth in our U.S. outbound and non-U.S. send corridors. The decline in revenue was primarily driven by the impact of the new pricing and the grow-over of the competitive products in the U.S.-to-U.S. market, which had a disproportionate impact on revenue in the quarter of about $50 million. Currency further impacted reported revenue by about $15 million. Total commission expense as a percent of revenue was 46.4%, an increase of about 80 basis points as compared to the first quarter of 2014. This increase was primarily driven by increased signing bonus amortization. We anticipate commission expense as a percent of revenue to gradually decline over the remainder of the year. Total reported non-commission operating expense excluding D&A for the quarter increased $6.8 million over the prior year driven primarily by increased investments in our global transformation program. On an adjusted basis, total non-commission operating expenses excluding D&A decreased $700,000 reflecting our improving cost structure. Compensation and benefit costs were $74.7 million in the quarter, an increase of $5 million on a reported basis, due to increased cost for the global transformation program. On an adjusted basis, compensation and benefit cost actually decreased to $1.1 million year-over-year. Transaction and operation support costs were $70.4 million and $61 million on an adjusted basis, about $1 million decline year-over-year on both the reported and adjusted basis. As you know, the timing of marketing spend will fluctuate throughout the year and we expect marketing expenses to increase about $7 million on a sequential basis as promotion activities and other global brand initiatives ramped in the second quarter. Book income tax was $62.6 million which included a $63.7 million charge as a result of the tax court ruling in our IRS tax matter. Cash taxes were $7.6 million which included a $5.2 million payment related to the IRS tax matter. About $55 million remains to be paid later this year. Court procedures require the company to make payments prior to filing an appeal. We believe that we have substantive tax law arguments in favor of our position that were not considered in the ruling, so we will be filing an appeal. First quarter pretax loss was $9.4 million and net loss was $72 million. Diluted loss per common share was $1.16 and adjusted diluted earnings per share was $0.11. First quarter adjusted EBITDA was $54.6 million and adjusted EBITDA margin was 16.5%. U.S.-to-U.S. pricing and lower investment revenue led to margin decline. We anticipate margin will improve in the latter half of the year as savings from our restructuring and reorganization program begin to be realized and realize the U.S.-to-U.S. headwind. Looking now at the segments. First quarter Global Funds Transfer segment revenue was $312.3 million. On an adjusted basis, operating margin in the segment was 6.2% in the quarter, down from the prior year due primarily to the U.S.-to-U.S. corridor. While on the segment, just a quick note; bill payment revenue was flat, but transactions were up 4% compared to the prior year which was encouraging to see. In the Financial Paper Product segment, total revenue was $18.3 million. Operating income was $5.4 million, down $4.4 million from the first quarter of 2014. Investment revenue declined $4.3 million, primarily due to one-time return on legacy investments realized in the first quarter of last year. Fee and other revenue was fairly resilient with lower volumes in the Official Check business being offset by higher face values. Turning now to the global transformation program. As we said in the first quarter of 2014, we launched the global transformation program to create a market-leading compliance platform, fund, monitor and legal cost, and fuel self-service growth. Regulatory cost have increased for the financial services industry and taking on a large-scale compliance initiative while continuing to grow our self-service channel certainly requires substantial investment. In short, we said we needed to take out cost. And our reorganization and restructuring initiative is doing just that; enhancing our competitiveness, reducing our cost, and aligning the business model with our multinational business. We are now projecting savings above and beyond the initially stated goal. In January, we opened our new global business center in Warsaw and the transition has been going quite well. First quarter cash outlays were $9.9 million and we now expect to incur an additional $5 million for an approximate total of $45 million to complete the program. This additional investment will help further improve our cost structure and we now anticipate total annualized pretax cost savings of $25 million, which exceed our original goal of $15 million to $20 million when fully implemented, exiting 2015. For the compliance enhancement program, we incurred total cash outlays of $12.1 million in the quarter, comprised of $5.5 million in operating expense and $6.6 million of capital expenditures. The company has had total cash outlays of $61.1 million comprised of $32.2 million in operating expenses and capital expenditures of $28.9 million since the program was announced. A major component of our new system with live this month representing a key milestone for the project. As you know, regulators continue to increase requirements on financial institutions and MSB globally to ensure compliance but anti-money laundering laws and anti-fraud protection programs for consumers. Initiatives such as Know Your Customer have evolved to Know Your Customer’s Customer, which is now becoming more standard across the spectrum of financial institutions. The systems and program changes we are implementing will position MoneyGram at the forefront of this effort in the money transfer industry, enhancing our abilities to detect fraudulent or illicit activity utilizing the most innovative technologies currently available. We are proud of the leadership position MoneyGram has taken to educate regulators and consumers alike on the importance of formal money transfer channels and of the steps we are taking to ensure our compliance program protect our agents, our consumers, and MoneyGram itself. The implementation of this industry leading system has required coordination across the entire organization and participation from our agent partners. The team has done a great job to get the system live and I want to thank them all for their dedication to the project. Adjusted free cash flow for the quarter was negative $34.3 million reflecting the repositioning of the U.S.-to-U.S. business, investments in the global transformation program and signing bonus payments. In the quarter, agent signing bonus payments were $44 million while capital expenditures were $26.9 million. We ended the quarter with cash and cash equivalents of $175.2 million. Looking at the outlook for the year, the company continues to estimate constant currency revenue growth to be approximately flat. For constant currency adjusted EBITDA growth, the company continues to estimate a decline of approximately 8% to 12% for the full year 2015. As we mentioned, we anticipate returning to double-digit constant currency revenue and adjusted EBITDA growth in the fourth quarter. Now I’ll turn it back Pam for some closing thoughts.

[Pam Patsley:]

Great. Thanks, Alex. 2015 is indeed a transitional year for MoneyGram as we complete the repositioning of our U.S.-to-U.S. business and as we've seen that repositioning is most dramatic in the first quarter. We’re continuing our investments in self-service products, marketing, agent productivity, and global customer acquisition strategies. The money transfer industry and the need for our services are growing and we’re attracting new customers to our brand through the addition of physical and virtual outlets. I'm excited that MoneyGram is making financial inclusion a reality in countries around the world and we provide a vital connection for consumers. I'm also excited about the innovation we’re bringing to benefit consumers. Thank you, as always, for your interest in MoneyGram. We’ll be participating in several investor conferences in May, and we look forward to seeing many of you there. I’ll now turn it over to the operator to being the Q&A session.

[Operator:]

Thank you. [Operator Instructions]. And we’ll take our first question from Kevin McVeigh with Macquarie.

[Kevin McVeigh:]

If I'm hearing it right, it sounds like Wal-Mart has probably bottomed at this point. I wanted to understand what’s kind of driving the sequential improvement and, if you can, just remind us what percentage of the business is it today?

[Pam Patsley:]

Sure. Wal-Mart accounted for 21% of total company revenue, and I think the sequential improvement is just really the continuing awareness of MoneyGram's new prices that are available, and I think more broadly our marketing message and other things begin to resonate with consumers.

[Kevin McVeigh:]

And then if I heard you right, was it -- the pricing investment, that it was a 100 basis points overall, is that right?

[Pam Patsley:]

You’re not talking about the reset on the U.S.-to-U.S., are you, Kevin?

[Kevin McVeigh:]

No, no, no, just overall.

[Pam Patsley:]

Yes, yes, overall, I think two different points, most specifically when I was speaking about non-U.S. send and the 5% revenue growth I wanted to really call out that really was more from a mix perspective and where we were seeing the sends this year versus last year and that pricing was really only one point of that delta, if you will.

[Kevin McVeigh:]

Understood. Thanks, Pam.

[Operator:]

Our next question comes from Sara Gubins with Bank of America.

[Sara Gubins:]

Have you started to have discussions with Wal-Mart about extending the international partnership or is it too early for those given that it runs through next April?

[Pam Patsley:]

Yes, I would say this, first of all, there is a nuance there in your question that I want to be clear. There is not a separate contract for the international; we have one relationship with Wal-Mart U.S. Everything we do with them is kind of embodied in that one contract. And I would just say through all the great MoneyGram folks on the ground that are in Bentonville or the dedicated Wal-Mart support team here in Dallas or Frisco from compliance perspective in other places, there are just so many initiatives underway and I would say it’s just a, we work very well with Wal-Mart whether it’s on technology or marketing or bill pay or money transfer, and I don’t really have anything else to add at this point.

[Sara Gubins:]

Okay. And then turning to guidance, what level of money transfer volume trends are included in the 2015 guidance?

[Alex Holmes:]

That’s a good question; I think you have to separate the parts. The underlying business has been growing in kind of low teens and that’s really the recovery of the U.S.-to-U.S. business that will drive any differentiation there. So I would say certainly our forecast is for the U.S.-to-U.S. business to continue to improve over the next couple of quarters particularly as you move into the third and fourth quarter and we get some of the lapping of the U.S.-to-U.S. grow-over from last year and as we’ll see those transaction rates come back, and those should go into the double digit range as well. Revenue will obviously lag that given the price cut that were put in place. But we continue to anticipate the double-digit growth in the U.S. and non-U.S. sends always obviously subject to some volatility on a quarterly basis, but definitely anticipate strong growth in the money transfer business.

[Sara Gubins:]

Thank you.

[Operator:]

Next we’ll hear from Kartik Mehta with Northcoast Research.

[Kartik Mehta:]

I wanted to ask you a little bit about the self-service business. It seems like that business is going really well and you're seeing some really good growth in it. Alex, can you talk maybe about the margin profile of that business and what it will take to get the margin profile to kind of the traditional business if it’s not already there?

[Alex Holmes:]

Yes, absolutely, it’s a great question. And certainly there is a lot of excitement activity going on in the self-service business, so we certainly appreciate the question. I think as Pam called out, the contribution margin of those products right now is definitely above where the core business is. I think we've been very public about talking about the MoneyGram online business and working on the reduction of the interchange cost and some of our back office operation cost and those activities are underway right now, and we’re looking forward to launching a new MobileFirst platform in the coming month. I think when you look at it holistically, right now, we’re in a definite investment phase across all of the self-service products putting a lot of product effort and development effort in to that and we’re pushing that forward for scale so. We certainly think longer term that margin profile will look great.

[Kartik Mehta:]

And then just one last question, Alex. On the FX side, what kind of revenue headwind are you assuming for the year? And is FX benefiting you at all in the expense side especially as you’re moving cost overseas?

[Alex Holmes:]

Yes, that’s also a great question because there are certainly, again, a lot of things going on with that. We had forecast about a 3% headwind on the revenue line and certainly depending on what happens with the euro, I mean is -- it’s kind of been all over the place in the last four months. And so we had forecasted the euro to be around $1.11, $1.13-ish and the pound around $1.51 and we'll have to see how those kind of come out. So, I would say probably that 3% to 4% for the top-line is the right way to look at it. We are certainly seeing a lot of benefit on the reported line on our expenses as we're shipping cost overseas. Certainly, when you look at on a constant currency basis it’s been about neutral and we definitely longer term want to continue to shift our cost base to more equally match our revenue.

[Kartik Mehta:]

Thanks a lot, Alex, appreciate it.

[Operator:]

We’ll next hear from Rayna Kumar with Evercore ISI.

[Rayna Kumar:]

Good morning. Do you expect to take additional pricing actions in domestic money transfer given we still have a $2 premium on the Wal-Mart to Wal-Mart product in the 500 -- in the $50 to $900 principal band?

[Pam Patsley:]

Yes, we do not. We are -- we like the results, we like our positioning, and we think the benefit that comes with that $2 is definitely worth the $2 in terms of convenience and choice and other things.

[Rayna Kumar:]

Could you quantify on net pricing changes for your cross-border business in the first quarter?

[Pam Patsley:]

Yes, I think broadly cross-border we saw about a one point hit from pricing. In some quarters that was even less and nets out to about one is it.

[Rayna Kumar:]

And finally, could you give us your agent location count for the quarter, and your target for 2015?

[Pam Patsley:]

Sure. Well so to the first part of that, it was 349,000 at March 31. And we don’t give location count predictions. I will just say we have an active sales force, an effective sales force and a growing sales force, and we like the profile and, most importantly, the increase in productivity from our agent location.

[Operator:]

And our next question comes from Tien-tsin Huang with JPMorgan.

[Tien-tsin Huang:]

Good morning. Just on the -- also on the pricing I guess for cross-border between you and Western Union, seems to be pretty healthy and stable. And so I’m curious what’s driving that, what’s changed, is it competition has changed, curious?

[Pam Patsley:]

Well I think -- I don’t think competition has changed and, in fact, you see continuing start-up of new money transfer this or that, whether its virtual or mobile or whatever, but I think the price now where things have kind of settled in at and where they’ve been for a long while in fact are most cross-border for MoneyGram, I think is an appropriate value for what’s delivered, basically, money in minutes essentially certainly at same day and global settlement, and then sharing with the agents and cost of fund, continued investment and regulatory and compliance. You also look, Tien-tsin, to the World Bank and they have kind of set, Gee, we'd like to see fee in FX kind of net out around 5% and we look good against that statistic.

[Tien-tsin Huang:]

Yes, okay. That makes sense. Just as my follow-up just on the signing bonus, any change, probably I missed it, in the full year target for signing bonus and how the quarterly trend will look in that $45 million in the -- or $44 million in the first quarter sort of any call outs there in terms of how that can be done? Thanks.

[Pam Patsley:]

Yes. No, that was expected and known, and no change to our overall annual guidance for what we’ve talked about for annual signing bonus payment.

[Tien-tsin Huang:]

Terrific.

[Pam Patsley:]

Just a little lumpier.

[Operator:]

And next we’ll hear from Danyal Hussain with Morgan Stanley.

[Danyal Hussain:]

Thanks for taking my question. Just wanted to go back into the U.S.-to-U.S. transaction growth, I guess, it looks like it came in line with your expectations, but could you maybe break it down by how the Wal-Mart originated versus non-Wal-Mart originated perform versus your internal expectation?

[Pam Patsley:]

Sure. I would say just overall, and we don’t like to get two specific ensuring about any particular customer. So I think it's most important to say that overall we are very happy with the results from our new pricing launch October 31. And I think there were several things that called out. You can see momentum coming back in both inside Wal-Mart and outside. And importantly, I would say our broad agent base saw an opportunity to continue to grow their business and offer to their consumers and our joint consumers alike a great value proposition and get that energized again. Is there anything, Alex, you want to ask to add to that or?

[Alex Holmes:]

No, I think in the script you covered the increase in the principle per transaction and the strong growth we’ve seen in those upper bands, and I think that is a consistent trend across the network and something that we’re very excited about.

[Danyal Hussain:]

Got it. And then just thinking about this new system for compliance the KYC and KYCC, are these changes at all impacting the user experience and are you getting any push back from agent?

[Pam Patsley:]

We both --

[Alex Holmes:]

I'd be quite happy to take [indiscernible] --

[Pam Patsley:]

Let's take the breadth.

[Alex Holmes:]

So exiting. Yes, now go ahead, Pam, you start off.

[Pam Patsley:]

I think if we get to KYCC, C is where I think we really begin to get kind of some push back. I think everybody is kind of finding their way. I think many of us with a call for all to participate against the same requirements would be very helpful for the industry because if it is a good program and it’s a required program, then my belief is then a good and required for all. So I think we have a great communication and partnership with our agents and I think our most importantly our agents recognized that they are in the same boat with us, we are in the same boat with them. There are a lot of interdependencies, and that strength of partnership is coming through as we go through these changes in the industry together.

[Alex Holmes:]

Yes, now that said, I will just add since it was a long month for a lot of people internally we did an amazing job through this process. We went live with this huge system installation and we had a very few minor blips; we had one particular area where we had a little bit of a -- a different impact on the business than we had anticipated. So I guess those agents who were impacted and we apologize for that, we worked very diligent with them, we were able to tune the system and get it. And I'd say our performance measures on our system right now actually better than where we were before. So we were really excited about that.

[Danyal Hussain:]

And then may be just one last quick one on FX, so you think with the dollar as strong as it is any impact on consumer behavior; whether there's a tail-end to U.S. outbound?

[Alex Holmes:]

Not really. No, I mean, you see kind of net normal across the world as it moves up and down different places.

[Pam Patsley:]

I think it's again, most U.S. consumer spending cross border sending money home, they are spending for life essentials, it may be a slightly lesser amount they send but largely for most parts of the world we don't see them walk away from that obligation. And I would just say, I know there were some disappointing economic growth statistics for the U.S. I don’t think anyone here at MoneyGram has built plans around a strong robust U.S. economy or a belief in that for years. And so I don't think that's really a delta for us and because we just haven’t really seen it, so.

[Danyal Hussain:]

Great, thanks.

[Operator:]

Mike Grondahl with Piper Jaffray has our next question.

[Mike Grondahl:]

Yes. First question just on the 170,000 kind of new customer profiles in the online business, can you kind of talk about your marketing strategy and cost of acquisition there?

[Pam Patsley:]

Sure, and I will say that we really didn’t have an aggressive - let me state this way, Mike, we are happy with those new customer profiles, the amount of new customers and particularly so, I'll say it this way, because we did not have a really aggressive marketing initiative in the first quarter because we really want to save our precious dollars and tie it for the launch of our new MobileFirst approximately for MGO. And we have a team of very talented folks working on that initiative, and I'll just say we were very excited. We are pleased with our results and I think just watch this space and more to come.

[Mike Grondahl:]

And then maybe this is a follow up to that. Any new developments on an instant ACH product?

[Pam Patsley:]

I think that will come following the release. We actually have an ACH capability today. It's actually a choice chosen least often among our offering, but as we continue to ramp up our investments and MoneyGram mobile and online platforms we'll accelerated some of our service offerings around the ACH. But we're not really beating our self up or anything about where we stand today. We're happy with our offering.

[Mike Grondahl:]

Okay. Lastly, was there any update or did you buyback any stock during the quarter?

[Pam Patsley:]

We did not buyback any stock during the quarter.

[Mike Grondahl:]

Okay. Thank you.

[Pam Patsley:]

Thanks, Mike.

[Operator:]

We will now take a question from Bob Napoli with William Blair.

[Bob Napoli:]

Thank you. I think that you said that your savings you're now expecting $25 million of expense savings going -- is it by the end of 2015 going into 2016? How should we think about I guess the current run rate? We look at the operating expenses and back out the unusual items that hopefully disappear in a year or so. Well, what should we be thinking about run rate per operating expenses, and what kind of effect on margins is this going to have?

[Alex Holmes:]

Yes, thanks for the question. Again, we talk a lot about when we launch the program it was really designed to fund not only our increasing compliance cost but also our investments in self-service, and that's what we are doing right now. We are beginning to see the cost savings come in as we’ve moved oversee certainly putting a lot of our expenses and since a lot of expense some dollar expense has been very helpful on the bottom-line and we'll continue to see the benefit. As we said, we’re in a investment ramp up phase in some of the self-service and so you’re now seeing the benefit of all that margin. But we certainly think run rate basis, I think 2016 -- excuse me, I think 2015 into 2016 that we should see that margin improvement. In terms of margin, I think as long as we stay in this world of enhanced compliance and then also the investments that we were doing in self-service to really grow and scale that up, we think high teens EBITDA margin is in the direction we want to be and certainly sustainable.

[Bob Napoli:]

Okay. And then just a question, I know you’ve never answered before. I mean, your tax rate being -- I know you’ve hired additional tax people, but just I’m trying to understand like how the difference stood up between your tax rate and Western Union's is so, so dramatic. And I know they have a much bigger international business, but what are your thoughts? I mean, what percentage of your earnings comes from international? Is it a structural thing? And I mean, what seems to me that your tax rate over the next several years should be substantially lower than what it is.

[Pam Patsley:]

I would just say you have some good observation. And I think I called it out in the quarter about 47% of our revenue came from outside of the U.S. so, and actually it really was effectively a little more. It fell to a little kind of 47, because of the strengthening dollar during the first quarter so on a like for like, you're really sitting around 50% or more. So we’re undergoing a process, as Alex talked about, really part of global transformation and others to really better align our geographic resources with our revenue distribution and we know there are some opportunities.

[Bob Napoli:]

What would you think that tax rate could be in three to five years from now?

[Pam Patsley:]

I think if we have anything specific to give to you -- to say we'll share it then.

[Alex Holmes:]

Yes. And I just assume --

[Pam Patsley:]

We certainly hope it’s not higher, and we know -- and we want it lower.

[Alex Holmes:]

Right. And I think there is a business mix issue as you pointed out if you’re comparing us to Western Union, but certainly at this point of time it is a structural difference and that is something that it’s part of our -- look at our aligning our global cost structure in our operations that we’ll be looking at in terms of structurally how to do that, but certainly there is opportunity for tax rates to be significantly lower.

[Bob Napoli:]

The MobileFirst app, when is that going to be rolled out?

[Pam Patsley:]

We’re not going to tell you exactly.

[Bob Napoli:]

But is it within the next few months or?

[Alex Holmes:]

Yes. We’re just saying [indiscernible], Bob, for competitive reasons.

[Eric Dutcher:]

Operator, I think we have time for one more question.

[Operator:]

And we’ll hear form Matt O'Neil with Autonomous Research.

[Matt O'Neil:]

I was just hoping you could address, let's say, Western Union announced that in certain geographies they're going to 12.50 on a size $50 to $1000 principle per transaction there and is that anything you’ve seen yet?

[Pam Patsley:]

We have. I mean they’ve had pricing like that in certain DMAs for months, I believe.

[Pam Patsley:]

Operator, I think that that’s it. And we again, thank everyone for your interest in participation today, and we’re here and available. So make it a great day, and have a great weekend.

[Operator:]

And ladies and gentlemen, that does conclude our conference for today. We thank you for your participation.