MoneyGram International, Inc.
Q2 2015 Earnings Call Transcript

Published: 2 Aug 2015

[Operator:]

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

[Eric Dutcher:]

Thank you, Dana. Good morning, everyone and welcome to our second 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 informational 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 forecast or expectations. For more information, please refer to the risk factors discussed in our Form 10-K for 2014 and subsequent 10-Q. MoneyGram assumes no obligation to update any forward-looking statements. Our presentation also includes certain non-GAAP financial measures in an effort to provide additional information to investors. All non-GAAP measures have been reconciled to the 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. Before I turn the call over to Pam, I also wanted to mention that I have accepted a new role within MoneyGram’s corporate finance function. I look forward to serving MoneyGram in a different capacity. I really enjoyed getting to know you and working with you over the years. With us today is Suzanne Rosenberg who has just joined MoneyGram as Vice President of Investor Relations and we will be working together over the coming months to ensure a smooth transition. Now, I will turn the call over to Pam.

[Pam Patsley:]

Great, thank you. Good morning, everyone. While we certainly have a few transitions to discuss today, I do want to first take a few moments to just say thanks to Eric for all he has done while serving as Head of Investor Relations. By my count, he has participated in 15 quarterly earnings calls I guess an achievement in and of itself and a very warm welcome to Suzanne Rosenberg who is joining our team here in Dallas. So, more on other transition later, but let’s first talk about the quarter. This was a really solid quarter for MoneyGram. Our results reflect the significant progress MoneyGram has made toward executing the strategic initiatives we outlined at the beginning of the year. We returned to constant currency revenue growth, posted the largest number of money transfer transactions in our history and accelerated both our self-service revenue and transaction growth. MoneyGram provides a financial connection to family and friends and we are focusing on ways to make it easier for our customers to do just that for revolutionizing the agent and consumer experience with our innovative self-service solutions. The launch of the new moneygram.com, along with the growth of our market-leading kiosks, are generating substantial momentum. Revenue from these self-service channels increased 58% and now represents 12% of money transfer revenue. Additionally, our services are available through about 353,000 locations. Bank accounts and mobile channels are available also. We have strong recognition in more than 200 countries and territories and most importantly, our brand recognition continues to grow. Now, let’s get to the details. Total money transfer transactions this quarter were the highest in our history, growing 6% year-over-year. This is a significant improvement from flat year-over-year transaction growth last quarter. Our U.S. outbound business reached four years of continuous quarterly double-digit revenue growth and our non-U.S. business accelerated for the third consecutive quarter, reaching 16% transaction growth. Money transfer revenue increased 2% on a constant currency basis, with a 4% decrease on a reported basis due to the translation impact of the stronger dollar. Recall that 49% of our money transfer revenue now originates outside the United States, so our reported top line was heavily impacted by the stronger dollar. Now, much has been written recently about pricing in the money transfer industry. From our view, pricing in the industry has been stable and within the normal 1% to 2% impact that we always talk about. In fact, pricing actions in the quarter impacted revenue less than 1%, excluding of course the U.S. to U.S. markets. MoneyGram pricing is already very competitive both in person and online. In fact, MoneyGram has better FX rates and more competitive transfer fees than other online money transfer providers. We offer convenient services at a compelling price for customers and our top line results reflect that. We had good network growth in the quarter led by additions in key emerging markets like China and Russia, ending the quarter with, as I said, 353,000 locations worldwide. We also opened our services in Turkmenistan and we reopened our service in Iraq. Our focus remains on high-quality agents and productive locations. As a result, we have seen increased agent productivity and equally exciting, we are seeing increased customer productivity. Now, let’s review our regional performance in more detail beginning with our U.S. outbound and non-U.S. categories. These two categories combined represent 87% of money transfer revenue and they grew 14% on a constant currency basis over last year. Clearly, this is exceptional growth on a large business base. So, first, with U.S. outbound, U.S. outbound remittance business continued to show steady growth with significant increases in sends to Latin America and Africa. Transactions grew 13% and revenue grew 12%. U.S. outbound represents 43% of total money transfer transactions and 38% of money transfer revenue in the second quarter. U.S. to Latin America was bolstered by an expanded network in South America and solid growth to Mexico, which was again significantly greater than the Banco de Mexico data. We launched services with 4-72, that’s the name of the official Post Office in Columbia, providing customers with new convenient locations for sending and receiving money transfers. U.S. outbound sends to Africa were robust as well, driven by marketing campaigns and network growth. During the quarter, we added new locations in Ivory Coast, Ethiopia, Kenya and Senegal and we continued our expansion of mobile wallet partnerships, adding Econet in Zimbabwe. Now, looking at the non-U.S. sends business. During the quarter, non-U.S. transaction growth was 16% and constant currency revenue growth was 12%, both accelerating sequentially. In Europe, we signed a new agreement with the German savings association, providing expansion of MoneyGram services into smaller geographically diverse regional banks. Additionally, we added a large bank in Bosnia, increasing our presence in this emerging market. During the quarter, we rolled out services to Postal Savings Bank of China, which places MoneyGram in every province and municipality in China, providing access to money transfers in even the most remote parts of the country. Investments in sales and marketing in the Middle East drove impressive growth again this quarter. Despite the translation impact of the stronger dollar, we posted excellent results outside the U.S. Now, back here at home. Our U.S.-to-U.S. business represented 17% of total money transfer transactions and 13% of money transfer revenue in the quarter. The U.S.-to-U.S. business further improved this quarter as a result of strong growth through our self-service solutions and the new low prices introduced late last year. Our average amount spent has increased more than 30% year-over-year as customers returning to MoneyGram for their higher dollar transactions. We are very pleased with the repositioning of our U.S. business. Now, specific to Walmart, money transfer transaction growth accelerated for the second consecutive quarter on the strength of operational improvement, quarter focused activities and the opening of new Walmart stores. In fact, Walmart has added almost 350 stores in the past year and our service is now available in over 4,500 Walmart stores across the U.S. We are working together on a number of exciting new initiatives, all focused on the customer experience, including acceleration of quarter growth and the rollout of product enhancements. Walmart represented 19% of total company revenue in the quarter. As I mentioned before, self-service business had an outstanding quarter and accelerated its growth rate. Money transfer transactions grew 67% and revenue grew 58%, both growth rates are significantly higher than the first quarter. We now generate 14% of our money transfer transactions and 12% of money transfer revenue from self-service solution. On an annualized basis, self-service channels generated nearly $150 million in revenue. Customers love using our convenient time-saving kiosks. Kiosks significantly improved the customer and the agent experience. Customers can fill in information quickly on the screen and save their information for future transactions. Agents benefit through efficiency at the point-of-sale, reducing wait times and freeing up resources. Our kiosks in the U.S., Saudi Arabia, Australia and Ukraine are attracting new customers and improving customer productivity. As a result, we are expanding our kiosk solutions into Europe and China. Our re-imagined moneygram.com and mobile app for Apple and Android device is launched in June. The platform is the first online money transfer service to enable customers to send money without needing to create an account. In addition, new features and functionality allow customers to check the status of online and offline transfers with the new Track a Transfer tool. Also, this state-of-the-art platform allows MoneyGram to rapidly update and introduce new features, like our recently announced new bill payment option through our mobile app. In conjunction with the launch, we also added an instant ACH option. This easy-to-use platform helped to attract almost 190,000 new active customers in the quarter, which accelerated from the previous quarter. For this quarter moneygram.com posted 19% transaction growth and 10% revenue growth. Since we jump – just launched this new platform in June, we anticipate higher revenue and transaction growth later in the year. I am excited to also announce the kickoff of our account deposit service at select Walmart stores with a complete rollout over the next several months. This further differentiates our product and service offerings and enables Walmart customers to send directly to a bank account or mobile wallet. MoneyGram customers have the option to direct their funds via account deposits to 15 countries, including the top four received markets of China, India, Philippines and Mexico and alongside that with mobile wallet, including M-Pesa in Kenya. We are clearly progressing on our goal to have 15% to 20% of money transfer revenue generated from self-service channels in 2017. Additionally, we are driving more bill payment transactions through self-service due to a growing number of people adopting self-service at kiosk and online, over 10% of our bill payment revenue originated from these sources. We are investing heavily in these differentiating strategic assets with this quarter being one of the highest levels of investment that these are the right investments and they are at the right time, ensuring our long-term success. Our innovative technology is changing the way customers meet their financial needs. We are facilitating financial inclusion, which is so important and our convenient solutions are a positive force in the industry. We believe we are well-positioned with our suite of self-service products and offerings coupled with of course, the strength of our physical network. I will now turn it over to Alex to cover the detailed financials.

[Alex Holmes:]

Great. Thank you, Pam. As we discussed on the first quarter call, the combination of lower revenue from our U.S.-to-U.S. business along with the strengthening dollar and increased cash outlays for investments in the business, would weight on our financial results in the first half of 2015. However, the second quarter represents an inflection point for MoneyGram’s top line and we delivered results that were slightly ahead of our internal expectations. We saw an impressive acceleration in our money transfer business and returned to total company constant currency revenue growth in the quarter. While our bottom line reflects the cost of investments in the global transformation program and the one-time impact of our pension buyout, both will have lasting benefits for the company. More importantly, adjusted EBITDA and adjusted EPS improved sequentially from the first quarter results and we are in a good position to reach our double-digit growth targets in the fourth quarter. Total revenue for the quarter was $358.8 million, which was nearly a $30 million increase from the first quarter. All three categories, U.S.-to-U.S, U.S. outbound and non-U.S. sends produced more revenue in the second quarter from the first with significant growth from emerging markets such as Africa, Middle East, along with accelerated growth from our self-service offering. As compared to the prior year, the stronger dollar again had a significant translation impact on our reported results, reducing revenue by about $18 million. As a result, reported revenue declined 4%. Gross margins improved to 54.5%, a 60 basis point improvement over the prior year. This was due to a favorable shift in transaction mix from lower margin U.S.-to-U.S. business to higher margin cross-border sends. On a sequential quarter basis, gross margin improved 90 basis points. Gross margin may fluctuate a bit in the second half of the year, but I anticipate ending the year in the neighborhood of 54%. Looking at our operating costs, compensation and benefit costs were $87.8 million in the quarter, an increase of $12.8 million on a reported basis, primarily due to the pension buyout. In June, we completed the partial buyout of certain pension obligations. The effect of the buyout was a reduction in the company’s pension liability and a non-cash charge of $13.8 million. The buyout also reduces pension plan expenses for the remaining life of the plan and importantly, the buyout was funded with pension assets, thus not impacting the overall cash position of the company. All-in-all, this was a very successful initiative. On an adjusted basis, compensation and benefit costs increased only $500,000 year-over-year. Transaction and operation support costs were $90.3 million and $72.9 million on an adjusted basis. Adjusted T&O costs increased $4.7 million primarily driven by variable costs related to increased usage of outsourced service providers and increased investments in self-service technology. Our second quarter pretax loss was $27.1 million, and net loss was $12.4 million, primarily due to the pension buyout and investments in the global transformation program. Adjusted diluted earnings per share was $0.23, a healthy increase from the first quarter. Book income tax in the quarter was a benefit of $14.7 million. Second quarter adjusted EBITDA was $57.7 million and adjusted EBITDA margin was 16.1%. Marketing expense increased about $6.5 million from the first quarter due to increased spend on seasonal campaigns and new product launches. We continue to anticipate improving margins as we move towards the latter half of the year. Now, let’s look at the segment. Second quarter Global Funds Transfer segment revenue was $340.7 million. On an adjusted basis, operating margin for this segment was 6.2%, down from the prior year due primarily to lower pricing in the U.S.-to-U.S. corridor. Bill payment transactions were up 1% compared to prior year with revenue down 1%. As we mentioned, self-service is also bringing convenience to the bill payment business and 10% of bill payment revenue is now generated from self-service channel. In the Financial Paper Product segment, total revenue was $18.1 million and operating income was $4 million. With potentially higher interest rates coming later this year, our investment portfolio stands to benefit. While there is no guarantee that this will occur, any increase in rate would be positive for MoneyGram. Investment revenue in the quarter was $2.7 million. Now turning to the global transformation program, in the quarter we continued to invest in new self-service capabilities and incurred $4.6 million of restructuring costs and $10.2 million for our compliance enhancement program. When we launched the global transformation program in 2014, it was designed to create a market-leading compliance platform, fund legal and monitor cost and fuel self-service growth. Looking back now 18 months, we have made an incredible amount of progress towards those goals. Self-service revenue has reached 12% of our money transfer revenue, 20% of our workforce has been moved to our new global business center in Poland and we have launched the first module of our new compliance platform. As we look ahead, the compelling results of our self-service investments clearly mandate that we keep our focus and push hard to expand our global self-service capability. Investments into self-service innovation will continue and we are extremely excited about our pipeline of opportunities. The restructuring reorganization program has been very effective in transforming our operations and we see investments here ramping down considerably over the latter half of the year as most of the activities have been completed. We will however, continue to realign our cost base and look to maximize operational efficiencies globally as we improve processes and enhance our technological capabilities over the coming months. As we are transitioning to a more global operating model, we have an opportunity to better match our foreign revenues to our foreign expenses, which will have a positive impact on our net income. With respect to the compliance enhancement program, this is probably the single most complex initiative the company has undertaken. We believe the systems and program changes we are implementing position MoneyGram at the forefront of compliance programs in the money transfer industry. I think all of you know that the current regulatory environment and that of the past several years has been challenging for many businesses. We are balancing system changes with finding the least impact possible on our customers, agents and on our business in total. As such, we are ensuring that the timing of new system component rollouts are well planned and well communicated. Since the start of this program in early 2014, we have incurred cash outlays of approximately $76 million. Given the size and scope of this project, we now anticipate spending a little more than expected to complete the program, which is not uncommon on large-scale complex projects. At this time, we believe we have $25 million to $35 million in cash outlays remaining to complete the program in 2016. Let’s look at the balance sheet and cash flow. Investments in the global transformation program and signing bonus payments led to a negative free cash flow of $7.4 million. In the quarter, agent signing bonus payments were $19.8 million and capital expenditures were $32.8 million, both capital expenditures and agent signing bonuses will be lower in the second half of the year. Additionally, as we discussed last quarter, MoneyGram paid $55.8 million in May related to the IRS tax matter. We have now officially filed our appeal. While the timing or outcome of the appeal is uncertain, any positive outcome would be upside for us. We ended the quarter with cash and cash equivalents of $128.6 million. Now I would like to comment on our outlook for the year. The company continues to estimate constant currency revenue growth to be approximately flat for the full year. Our constant currency adjusted EBITDA growth, the company continues to estimate a decline of approximately 8% to 12% for the full year. Now as we mentioned, we anticipate returning to double-digit constant currency revenue and adjusted EBITDA growth in the fourth quarter. Now I will turn it back to Pam for some closing thoughts.

[Pam Patsley:]

Thanks Alex. Before we start the Q&A, I just want to make a few comments on the other news MoneyGram announced this morning. As you know, planning for CEO succession is a topic regularly discussed by Board and I couldn’t be more pleased that our Board has selected Alex to succeed me as MoneyGram’s CEO on January 1, 2016. On that same day I will assume the role of Executive Chairman through the end of 2017. This is exciting news for MoneyGram. It is a deliberate and logical transition for the company and the timing is right. Not only has Alex been a tremendous asset since joining the company in 2009 and he has been instrumental in MoneyGram’s accomplishment, he is ready for this opportunity to lead MoneyGram and the very talented team we have here. He has a demonstrated track record of success across multiple areas of our company. As Chief Financial Officer and Chief Operating Officer, he is a proven and exceptional leader. In my new role, I will help Alex in overseeing our strategic planning efforts and represent MoneyGram in interactions with customers, of the financial community, regulators and government officials. I will also continue to lead the Board’s governance function, take an active role in the MoneyGram foundation and continue to speak out on issues affecting the money transfer industry. MoneyGram’s future is bright. We are executing well and we are making great progress towards achieving our goal. I just am so proud of all that we have accomplished. This will be a seamless transition and we are going to continue building upon our momentum. So, as always, thank you for your interest in MoneyGram this morning. I will now turn it over to the operator for Q&A.

[Operator:]

Thank you. [Operator Instructions] We will go first to Kevin McVeigh with Macquarie.

[Kevin McVeigh:]

Congratulations to all you folks, great to see kind of just the overall moves and congrats to everyone. In terms of – just obviously, there has been some consolidation, so I wanted to talk about consolidation relative to, I think clearly your success on the compliance side should turn into a competitive advantage, so how should we think of that relative to pricing kind of compliance. And then just given the new competitive dynamics, is there any shift in strategy?

[Pam Patsley:]

Yes. First of all, thanks for your comments. We appreciate, as always everything your side of the business world does for us and for the industry. We have got a couple kind of thoughts going on there. Let me first talk a little bit on the compliance side. And we really believe our investments in compliance in fact can set – can and do set us apart from others. It is a reality though that right now, I think there are a couple of us in the industry that feel we get a lot more attention from regulators than the industry as a whole. I don’t believe that will continue. I think the rules are the rules and they are for everyone. And – so I think we will be very well-positioned. I think it continues to also come to light that our capabilities, whether you call it just through our compliance systems or our whole operational infrastructure, could potentially be leveraged by others in a more processing kind of relationship. So all others that have to comply with rules about cross-border wire transfers that are maybe large dollar for their bank customers and the disclosures, we have a lot of that capability that we could do for others. But to be perfectly clear, our focus has been on our core business, driving the amazing organic growth that we continued to post and – but those are things that are kind of stand at the ready and kind of a little bit the next turn. So we have them in our mind. We have them in our sights. And certainly, those are all possible. With regard to acquisitions you also mentioned, I think it’s great. I assume you must be referencing, PayPal’s announced acquisition of Xoom. I think there is a recognition that what money transfer companies have and some of that unique capability is very valuable on a broader base. So I think our continued focus on what we do is absolutely what we should be doing. We think it’s good. Good for the industry.

[Kevin McVeigh:]

Great. Thanks and congrats again.

[Pam Patsley:]

Thanks.

[Operator:]

We will go next to Bob Napoli with William Blair.

[Bob Napoli:]

Thank you and congratulations Alex, Pam and Eric. I guess I would like to dig a little bit more into the self-service growth 58% and accelerating. Is – if you could be a little bit more specific on what the drivers are and what you would expect out of that like over the next 2 years?

[Alex Holmes:]

Yes. That’s a great question and obviously something we are very excited about. There is really three main drivers of the growth. There is clearly the ongoing and continued investment in moneygram.com. We have certainly seen really good performance there, adding 190,000 new active customers in the quarter, which is a substantial increase and we have a lot of positive outlook for that business for the rest of this year. Clearly, expansion into additional markets over the next couple of years is important for us on moneygram.com and we are certainly looking for great returns from those investments. The kiosk has been an absolutely wonderful success for us. And we really – I think about kiosk in kind of three categories. I think we have our own what we call full-service kiosks here in the U.S. We of course have our staging kiosks, which have been extremely successful at CVS. And we are now rolling those out to additional locations in Europe. And then our success partnering with staging kiosks or full-service kiosks that already exist in the markets who are agent partners or in some cases through ATMs has really just continued to expand. Consumers are adopting to these new services, adopting to services, adapting to kind of the new technologies that are out there. And we really continue to see great results from that and we are extremely excited about where that can take us in the next couple of years.

[Bob Napoli:]

Is the CVS – I mean, is that a big success, would you characterize that or is that what can you say about that CVS?

[Pam Patsley:]

It is a very big success. As we mentioned, we are seeing increased agent productivity and we are seeing increased customer productivity. And some might say that’s really kind of right, the ultimate goal and we are definitely experiencing that there and across our business.

[Alex Holmes:]

Yes, right. And I will just probably have one last little tidbit, which is there is a lot of excitement on the send side of the business. We are obviously focusing quite a bit on the account deposit services expansion, including integration into mobile wallet. And that is something that is increasing. It’s still relatively small, but it’s increasing at a pretty fast rate as well. And then we are really excited to also continue to see the growth of what we call self-service to self-service where we are seeing things sent from kiosks or from online actually going directly into those bank accounts or into those mobile wallets. And so while that also is a smaller piece of the business right now, it is also growing at a very fast rate. So it’s exciting that we are capturing a new consumer and appealing to our current consumers in a different way. So I would say it’s been very, very good.

[Bob Napoli:]

Thanks. And last question this – you made a lot of comments about Walmart, it sounds like you are getting – I mean you are very active with Walmart in getting more integrated in some ways. But that’s still probably an overhang on your stock and that people look at Walmart as a risk, given what happened with the U.S.-to-U.S. I mean is there – I mean, the contract the way it’s set up today, what are your – March of 2016, is that really – is that date important or I mean, what are your thoughts around the risk to that relationship with Walmart?

[Pam Patsley:]

Yes. That date isn’t unimportant, but what’s most important is continuing to have great interaction each and every day and solid alignment on our goals to deliver to the customers and continuing to improve that customer experience. I tried to highlight, I think, a number of really positive initiatives that are going on. The contract is filed. You can look at it. There are terms in the contract that allow for some natural rolling of the contract. We don’t operate our business with Walmart kind of just focused on a contract per se. And yes, there is no question, I am not trying to ignore it. It has been tough. It’s been a tough whatever we are up to now, 15 months since the launch of the competing product. But quite honestly, the repositioning of the U.S.-to-U.S. business overall and the relationship with all of our agents and the message to our customers, it’s been tough in going through it. But we are going to complete that grow over. All-in-all, I think it has been the right thing to do. And we feel good about kind of all those initiatives taken as a whole.

[Bob Napoli:]

Great, thank you. I appreciate it.

[Alex Holmes:]

Thanks Bob.

[Operator:]

We will go next to Sara Gubins with Bank of America Merrill Lynch.

[Sara Gubins:]

Hi. Thanks. Just to start off on PayPal and Xoom, I know that you have relationship with PayPal currently, is there any expectation or has there been any discussions about that potentially changing given your acquisition or pending acquisition of Xoom?

[Pam Patsley:]

No, I am not aware of anything where that would change. And quite honestly, what we are doing with them are things that Xoom doesn’t have the capability because it’s really about the need to reach into physical locations and where cash is needed. So that’s why we continue to empathize. We love self-service. We love new moneygram.com. But the collection of assets here at MoneyGram and having both sides it continues to show to be a real asset for us.

[Sara Gubins:]

Okay. And are any specific corridors that are either outperforming or underperforming?

[Pam Patsley:]

Well, okay. So Greece didn’t have a really great quarter here is an – but I mean it. And okay, taking nothing away from the amazing MoneyGram team that supports and manages that region, talk about resilience, we are participating along with the rules of the country and all of that. I think they are – so that’s going to come back. It’s not a huge part of our business. I think we continued to be so excited about what we see in the Middle East. I think Africa, we called out. And what’s really kind of interesting is we are seeing Western Europe beginning to really return and get a little energy back in spite what it would seem to be not really great economic news per se. But our positioning is good, so that feels good.

[Sara Gubins:]

Great. Thanks. And then just last question. So we know that you are expecting double-digit transaction growth in the fourth quarter, do you think there is a chance you could get there in the third quarter as well?

[Pam Patsley:]

I think we have said what our outlook is. And we are going to report the third quarter around the end of October.

[Sara Gubins:]

Okay, thank you.

[Pam Patsley:]

Thanks Sara.

[Operator:]

We will go next to Kartik Mehta with Northcoast Research.

[Kartik Mehta:]

Good morning Alex and Pam. And Alex I just wanted to ask little bit about the liquidity situation, I know you said you are going to have a little bit more expenses, cash expenses than you originally thought and free cash flow was negative this quarter. As you look at the year, where do you think free cash flow comes in and any concerns about liquidity covenants or issues relating to that?

[Alex Holmes:]

No. Thank you for the question. No, there are no concerns from a liquidity covenant perspective. We are right up – I would say right now, right up against four times levered and there is really no issue that we are comfortable where we are. If you look at the cash position in the quarter, if not for the IRS tax payment, we would have been just about flat, maybe a little bit up on total cash. So it’s unfortunate the IRS tax payment came at the time it did. But isolating for that variable, we are okay. We have a good view of our cash requirements. I think we have a good view of where the top and bottom line are going to be going in the next couple of quarters and into 2016. So no, I mean it’s been a year of investment. And again, the IRS tax payment timing was not ideal, but the investments are good for the company and we are making the right decisions. On the CEP program, just in general – sorry the compliance enhancement program. The increased cash outlay for that will be not just 2015, but also into 2016 as well. So I mean the timing of that is not particularly of concern.

[Kartik Mehta:]

And so what you – Alex what would you expect for free cash flow for 2015?

[Alex Holmes:]

No, I don’t want to get into the complete details of all of the moving parts on CapEx and signing bonuses, I mean they tend to fluctuate a little bit. But clearly, it’s going to be flat to slightly up from where we are.

[Kartik Mehta:]

Thanks Alex. Pam, you talked about pricing this quarter only was down 1%, it seems like pricing has been relatively good for now a few quarters, what would you attribute that to, is there something that’s changing in the industry or is it something else?

[Pam Patsley:]

That’s a great question, Kartik. For us, we have not really made dramatic moves, but for those where we have needed to kind of address competitive moves. I think the pricing for money transfer services, there is a recognition that it’s a very fair price for what’s delivered. Same-day money, money in minutes most often and this long list of things everyone is expecting money transfer companies to check against, protect against, provide for – and the business in some ways it’s not really getting easier. So you have some of the overhang of the bank de-risking or operation chokepoint. All these things weigh on the business. And I think everyone recognizes it as kind of in a good place.

[Kartik Mehta:]

Yes. And then just, Alex, one last question, I just want to make sure I understood what you said. You have sequential growth, transaction growth, I believe. Is that because – are there any calendar issues that are coming in, like holidays or something that happened, that didn’t happen last year or is it just fundamentals of the business that are improving and that’s what’s really getting to the transaction growth?

[Alex Holmes:]

Yes, Kartik, I don’t think we guided to sequential transaction growth. I think we were – what we are saying is that we will reach our double-digits in the fourth quarter as we expected and we feel good about that.

[Kartik Mehta:]

Alright. Thanks, Alex.

[Operator:]

And we will go next to Tien-tsin Huang with JPMorgan.

[Puneet Jain:]

This is Puneet filling in Tien-tsin. Let me also congratulate everyone for new roles.

[Alex Holmes:]

Thank you and good morning, Puneet. How are you?

[Puneet Jain:]

Good. So, what proportion of self-service has cash pay in payout at least one and given that business should be somewhat protected from competition from digital pure-play forms?

[Alex Holmes:]

Yes. No, I mean, I would say that the vast majority of our self-service business today, on the sends side, is still going around the world and being paid out in cash at our typical agent locations. We are continuing to focus on, as I mentioned, the expansion of mobile wallet capability along with bank account deposit services. But we think that, that certainly attracts a different customer, someone looking to send money to themselves or deposit money to a bank account for as a slightly different purpose than you would be sending money to pullout in cash. So, we think that any overlap there is good for the company or any additional benefit we get from those account deposit services is positive. So again, self-service to self-service is relatively small right now. It’s growing quickly, but we think it’s a different consumer than what we are seeing from a self-service to cash perspective.

[Eric Dutcher:]

Yes, thank you, Puneet. I think we have got several other people in the queue and we want to be timely. So, can we go to the next caller?

[Operator:]

We’ll go next to David Scharf with JMP Securities.

[Alex Holmes:]

Hey, David.

[Pam Patsley:]

David?

[Operator:]

Your line is open. Please check your mute button. Hearing no response, we will move on to Rayna Kumar with Evercore ISI.

[Rayna Kumar:]

Good morning. Congratulations on the new roles. Alex, what do you expect to do differently than Pam as CEO?

[Alex Holmes:]

Yes, thanks for the easy question. Well, I have worked with Pam for over a decade now and she has been just an amazing leader to be around and a great mentor for me. And personally, I am hoping to live up to some of the expectations. I am excited and obviously honored that the Board selected me to take over and move the company ahead. Quite honestly, I think our outlook is pretty clear. We see a dynamic growing money transfer industry. We have a great business that’s obviously been somewhat hampered by some legacy issues, some challenging regulatory environment issues, but if you – and some competitive issues as well. But if you isolate a lot of those variables and kind of look at what we are doing the business that we have, the amazing set of assets that we have, we really have a great opportunity, I think to continue to not only grow our physical locations around the world, but also lead the industry into the future, kind of changing the way consumers look at the business and moving from really a transaction-focused business historically to much more of a consumer-centric focused business that allows us to really communicate and interact with customers very differently in the coming years. So, from a leadership and management position, I think I have my own quirks and unique thesis, but I think from a strategy perspective and direction of the company, I don’t really see a big change.

[Pam Patsley:]

Rayna, I will add something what I hope he does differently. I hope our stock multiple continues to expand and get where it should be and recognized for the great assets that we have here at MoneyGram. And I have all my interests aligned and totally happy if all that credit goes to Alex. We just need to get to the right place.

[Rayna Kumar:]

Great, that’s very helpful. Since that was an easy question, I think it’s fair I get one more.

[Alex Holmes:]

Yes, please.

[Rayna Kumar:]

Thanks. Could you quantify your target agent location growth for the next two years? And just where is the best opportunity for you to grow?

[Pam Patsley:]

We don’t have and I think its right that we don’t have a target location growth. We are continuing to focus on agent productivity. If we have the same number of locations and with the expansion of account deposit, with the expansion of mobile wallet and our transactions and revenue continue to grow like we are posting now, I don’t know that we need another one. But in terms of net count perspective, but there will continue to be a calling of those that are good, strong, weak, the right place for our brand. Now, having said that, there are so many great people at MoneyGram today working on continuing to build our network. And so whether it’s Africa, Southeast Asia, Asia Minor, I mean it’s hard to pick a place that we would say we are at end of job. And you look at the migration patterns in the industry, I think you will continue to see network growth for MoneyGram, but there is not a target per se.

[Rayna Kumar:]

Thank you.

[Alex Holmes:]

Thanks, Rayna.

[Operator:]

We will go next to Danyal Hussain with Morgan Stanley.

[Danyal Hussain:]

Hi, thanks for taking my question and congratulations to everyone. Just a quick question on instant ACH, could you maybe just talk about how that product is different from your – I think you said about 4-hour ACH product? And then maybe you could just talk a little bit about the risk scoring, I know there was something you had mentioned working on it in the past. So, maybe how your ability has improved and whether you are able to approve the majority of your customers at this point?

[Alex Holmes:]

Yes, thank you. Yes, we were excited to rollout and get instant ACH started in June. It’s only been about a month or so of performance and so we are continuing to assess our effectiveness there with it and the benefit of it. Clearly, from a customer perspective, it’s greatly valued and we are seeing very fast growth rates for that particular service. With respect to the risk funding of management, it’s an area we continue to invest in. We clearly need to continue, to continue invest in that as we move forward. And we will continue to expand our algorithms and our capabilities. Right now, it looks pretty good. We are going through kind of the bumps and bruises and little hiccups you get when you launch something new, but we are managing it.

[Danyal Hussain:]

Great, thanks. And then maybe just a quick question on the U.S. outbound transaction volumes. It was strong, but it looks like they decelerated slightly. And Pam, I know you called out the higher volume per transaction. But I guess I would have expected from stronger U.S. dollar, maybe more send transactions as well, but is it really just the impact of people sending fewer higher volume reductions or is there something else there as well? Thanks.

[Pam Patsley:]

So, I don’t know that there is anything particular. We are not worried about the numbers we posted. And it’s such a big and growing denominator. We feel really good about it. It is a fact that just the corridor U.S. to Mexico decelerated as reported by Banco de Mexico. So, that’s a component, but the sends to Africa, to Asia, to all of Latin America and even to Mexico continue to be very, very strong. It’s one of those fun things about that denominator continuing to get bigger.

[Danyal Hussain:]

Okay, thanks.

[Pam Patsley:]

Thanks.

[Operator:]

[Operator Instructions] We will go next to Mike Grondahl with Piper Jaffray.

[Mike Grondahl:]

Yes, thank you and congratulations to everyone. With the new moneygram.com, you mentioned that you can do a money transfer without opening an account, how popular has that option been? And are there any compliance considerations for that?

[Pam Patsley:]

We do all the same compliance checking. So, do not ever take the notion of not having an account with your check left, but it is really around the customer experience. And just as when you go onsite and you – if you do this and you shop and buy online, most sites offer you register, resign in, want an account, blah, blah, blah, or continue as guest. And a lot of people just feel that maybe that’s easier or they – there is just something about that that appeals to them. So, it really was with the customer in mind that we designed everything about that site. That team has been on it, the development team, the business line people, their marketing partners. I mean, it is all around a customer and messaging to them and designing the site in a way that really speaks to the customer.

[Mike Grondahl:]

Got it. And then just quickly, if moneygram.com and the self-service business were standalone, are they profitable?

[Alex Holmes:]

Yes.

[Mike Grondahl:]

Can you talk at all about the margins?

[Alex Holmes:]

Well, yes. No, it’s a question Mike, we get often. And so certainly, we don’t have it as a segment or a separate business unit per se. So I mean there is no actual margin I can give you. But certainly we are aware of the various cost components associated with each individual products, balanced, of course against the investments that we are making. We are doing a lot of development work right now, deploying kiosks into the market, revamping the moneygram.com, adding new account deposit services and of course all the marketing promotion behind them. So clearly, there is a lot of current investment going into them. But when you look at it from a gross margin perspective, they are as profitable, if not better. And when you look at in total right now, when you add it all up, it’s going to be a little bit of a drag on margin due to all the investment. But when you normalize for that and look at the business longer term, I think we are going to be in very good shape.

[Eric Dutcher:]

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

[Operator:]

Okay. We will take our final question from Matt O'Neill with Autonomous Research.

[Matt O'Neill:]

Hey, good morning everybody. Congratulations on all the job moves, I just was hoping you could explain the delta when excluding Walmart between transaction revenue growth looks like 3%, but I believe you are speaking about maybe roughly 1% pricing, so what else is kind of in that mix there or is it just mix?

[Pam Patsley:]

It’s really just corridor mix, absolutely.

[Matt O'Neill:]

Okay. And then I know Western Union came out in some geographies with the $12.50 pricing in the U.S., is that something that you guys are really seeing much of in the market, I don’t think they’ve done it nationwide.

[Alex Holmes:]

We keep track of all those things and we can see areas where they put in. It’s not broad-based. I think you can turn to them and ask more questions about where they have launched it. But we are not feeling the impacts on our business from them.

[Matt O'Neill:]

Okay, great. Thanks very much.

[Alex Holmes:]

Thank you.

[Pam Patsley:]

I think that concludes the call. I guess it dawned on me as we went through this and everyone, we have actually had a trifecta here of transition. Anyway, we appreciate your interest and I assure you we are going to continue to go back and execute. So good to talk to you today and have a great weekend, everyone. Thanks.

[Operator:]

Again, that does conclude today’s presentation. We thank you for your participation.