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MoneyGram International (NASDAQ:MGI)
Q4 2018 Earnings Conference Call
Feb. 11, 2019 4:30 p.m. ET

Contents:

Prepared Remarks:

Operator 

Good afternoon, ladies and gentlemen, and welcome to the MoneyGram International Incorporated fourth-quarter 2018 earnings release conference call. Today's conference is being recorded. [Operator instructions] And the floor will be open for your questions following the presentation. Thank you.

It is now my pleasure to turn over to your host, Wendi Schlarb, head of corporate communications and digital marketing. Please go ahead, ma'am.

Wendi Schlarb -- Head of Corporate Communications and Digital Marketing

Thank you and good afternoon. Thank you for joining us today. On the call with me are Alex Holmes, chairman and chief executive officer; and Larry Angelilli, chief financial officer. On the MoneyGram Investor Relations website, you can find our earnings press release and financial summary slide deck, which is intended to supplement our prepared remarks during today's call and provides a reconciliation of differences between GAAP and non-GAAP financial measures.

Unless otherwise specified, we will refer to non-GAAP metrics on this call. The non-GAAP financial measures provided should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance with GAAP. They are included as additional clarifying items to aid investors in further understanding the company's fourth-quarter and full-year performance in addition to the impact that these items and events had on the financial results. Please note that today's call is being recorded.

During this call, we will be making forward-looking statements, which are predictions, projections or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could materially differ because of factors discussed in today's earnings press release and the comments made during this conference call and in the Risk Factor section of our Form 10-K, Forms 10-Q, and other reports and filings with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statements.

And with that I'll turn the call over to Alex.

Alex Holmes -- Chairman and Chief Executive Officer

Thanks, Wendi. Good afternoon, everyone, and thank you for joining us. As we start the new year, Larry and I are going to walk you through our story in a more visual format to better showcase some of our new capabilities and strategic plans. I'll start off with a summary of our accomplishments in 2018.

Larry will then discuss our financials and then I'll conclude with highlights for our 2019 plans. So now let's kick things off with a summary that introduces the main takeaways from 2018. First and foremost, it was a year of building, modernizing, and derisking. In many ways, it was a year of transition for us as we rapidly accelerate our digital transformation and derisk the business to lead and protecting consumers.

The second major headline of the year was the successful execution of our restructuring and cost savings initiatives that enabled us to maintain margin and cash flow despite lower revenue. In 2019, we're now focused on deploying these new capabilities to deliver an exceptional and differentiated customer experience, which will pave the way to return to growth. Three years ago, MoneyGram was an entirely different company and since then we've worked tirelessly to overhaul our technology infrastructure, build and launch digital capabilities, derisk the business, and optimize the expense structure. We've made remarkable progress in each of these four key areas.

And I'll spend a few minutes walking through each one in a bit more detail. As the next slide illustrates, we've completely overhauled our technology infrastructure. Our partnerships at leading technology providers enabled us to operate more efficiently, reduce costs, scale for the future, identify better insights, mitigate risks, and improve the customer experience. We are now fully API-driven and are currently exploring additional opportunities and partnerships to capitalize on this capability.

I won't bore you by going into all the details of our updated architecture and technology, but we are migrating to the cloud and implementing robotics process automation to improve our operational efficiency. Additionally, we're evaluating how to best implement technologies such as AI and machine learning to improve predictive analytics. Furthermore, we've upgraded our point-of-sale technology to simplify integration and speed-to-market in addition to providing a best-in-class experience that enables our agents to quickly and easily serve MoneyGram customers. Our second major priority in 2018 was the building and launching of digital capabilities, and 2018 was certainly an incredibly successful and productive year on this front.

We launched our new state-of-the art app, which now rivals that of any other fintech company. The app has unique card-based screen flows, the ability to create receiver profiles, transparent tracking, location-based interfaces, and upcoming integration with our loyalty program. We are extremely pleased to see that just one month after we launched the app, we saw a 5x increase in the number of users. I encourage everyone in this call to download the app, check it out, and send us a few transactions.

In addition, to the new app, we also aptly expanded our digital presence across the globe. We added online capability to 21 countries last year, which now brings our current total to 24 with further expansion planned in Asia, Europe, and Latin America in the near-term. These new sites are already producing strong results with online transaction growth, excluding the legacy U.S. quarter, up 37% in 2018.

Furthermore, in Q4, we achieved 54% quarter-to-quarter growth in the new countries where MoneyGram online was launched. Shifting gears to talk about our derisking initiatives in 2018, we implemented two overarching changes, both of which are more focused around knowing our customers versus focusing on transactions. First, we enhanced our data collection standards and second, we reduced our participation in certain corridors,given the risks. Unpacking the first point, in 2018, we implemented enhanced data collection standard, which among other things, requires customers to provide a form of I.D.

for all transactions at the point of sale. This information is necessary for any company to actually know their customers, and we're pleased to be the leader in protecting consumers. Though this standard led to revenue headwinds, particularly in the U.S. outbound business, we believe the impact will be short term and that we will recapture the vast majority of this business as, one, our consumers and agents become more comfortable with the various forms of I.D.

accepted; and two, when other companies begin to adopt our leading standards. In fact, when we talk to our agents, most of them are quite supportive of our new requirement and some have even told us that they prefer doing business with us because of our higher compliance standards. Furthermore, in addition to the compliance benefit of these new standards, there has been a customer benefit as well. We're now able to better and more effectively communicate personally with our customers as well as better protect them against fraud.

When we touch on some of the customer experience improvements later in the deck, you'll see how this enhanced communication is helping to both improve the customer experience and drive bottom-line results. The second overarching change we made to our compliance program last year was to reduce our participation in certain corridors. As we've discussed, consumer fraud is on the rise globally. In the U.S.

alone, Americans received 48 billion robo calls from fraudsters last year. Globally, the U.N. estimates that shady transactions total as much as $2 trillion per year. Despite these rising fraud trends, our enhanced compliance program has enabled us to decrease our fraud rate by 64% over the last few years to what we believe is now the lowest rate in the industry.

In fact, when you compare our data to the public FTC sentinel data, it provides additional evidence that other companies have a much bigger challenge ahead of them. So how and why did we do this? By analyzing our global fraud trends and overlaying our portfolio, we made the decision that there were certain areas where the cost of doing business simply outweighed the benefits. Therefore, in corridors where fraud risk index is higher than in other corridors such as and sends to West Africa, specifically countries like Nigeria, and back here at home in the U.S. to U.S.

corridor, we decided to be more selective and derisk the business by placing larger restrictions on who can send, when they can, and how much they can send. Both of these efforts are consistent with the overall progress we've made in the past several years toward full compliance with the DPA and FTC order. In addition, to materially reducing our fraud risk over the last few years, we have also engaged a leading global consulting firm to support our efforts to enhance our compliance program, largely completed the build out of the state-of-the art compliance system and implemented enhanced processes, systems, and rules. The remaining requirements are clear and the timelines to get to the end are defined.

Our monthly reporting to the department begins this month and we feel very good about the relationship and dialogue. Today, we have one of the most comprehensive compliance programs in the industry and we're working hard to ensure it is the best. I'm confident in our ability to exit the DPA by May of 2021. This leads me to our fourth transformation a focus area, which is our work to optimize our expense structure.

Since 2016, we've reduced $85 million in cost to maintain strong margins during our period of transformation. To accomplish this, we restructured to reduce headcount, eliminate IT costs, and reduce contractor spend. Additionally, we accelerated our network optimization efforts by closing more than 61,000 unproductive and/or higher risk locations globally in 2018. This eliminated the associated overhead costs and then also reduced risks while improving network productivity, all with a negligible impact on revenue.

During this time, we also added new strategic partners to maintain our leading digital and physical network of 350,000 agent locations, which I'll discuss in more detail shortly. But before that, Larry will walk you through last year's financials. Larry?

Larry Angelilli -- Chief Financial Officer

Thanks, Alex. As we've been describing, revenues have been impacted by our deliberate strategy of increasing compliance controls and imposing limits on certain transactions. for the fourth quarter, total revenue was $346 million, which is down 15% year over year on a reported basis. Money transfer revenue was $303 million, a decrease of 16% on a constant-currency basis.

As Alex mentioned, the impact of tighter restrictions on corridors such as Nigeria as well as the U.S. to U. S. corridor were the principal drivers.

In addition to the compliance changes, the evolving competitive landscape also add to the continuing revenue challenges in the U.S. to U.S. market. Furthermore, we continue to be negatively impacted by governmental capital controls in parts of North Africa and certain sub-Saharan African markets.

In 2018, we realized $122 million negative impact from derisking and an additional $32 million from other account-specific events, such as the new Walmart contract and the loss of Albertsons. However, as you can see on Slide 12, we are seeing stabilization in the business. Total revenue and money-transfer revenue were both virtually the same in the fourth quarter as they were for Q3 of 2018. This leveling off of our run rate sets a new baseline and would be meaningfully different than looking at MoneyGram's 2019 results on a year-over-year basis, particularly in the first half of this year.

In other words, we'll continue to see the effects of our 2018 derisking efforts and the impact of the Walmart contract in the first half of 2019. Due to successful implementation of our restructuring and our improved operating systems, MoneyGram continues to significantly reduce operating expenses, which were $332 million for the quarter, down 12% on a year-over-year basis. This excludes the $85 million accrual for the DPA settlement in the fourth quarter of 2017. The company incurred $6.4 million in restructuring and the organization cost for the fourth quarter and $20 million for the year.

This program is essentially complete with the final accrual expected in the first quarter of 2019. Total compensation and benefits decreased $10 million or about 15% from the quarter last year. Excluding $6 million of severance cost related to reorganization and restructuring total comp and benefits would have decreased $16 million or 23%. We anticipate a run rate savings of approximately $55 million from this program.

Also, while restructuring charges have been acretive in the same year in which they were incurred. This process has streamlined the company and we have the ability to scale our business off of this lower cost base. As you'll see, on Slide 13, one of the most important aspects of the changes we have made to the company is the positive impact on margins in 2018. While adjusted EBITDA was $60 million in the fourth quarter, compared to $71 million last year, we held our adjusted EBITDA margin for the quarter flat at 17.4% despite declining revenues.

Importantly, we also held adjusted EBITDA margin at 17% for the full year. Similar to the trends on revenue, as you can see on this slide, on a sequential-quarter basis, adjusted EBITDA, and adjusted EBITDA margin were both flat quarter to quarter. Our annual capital expenditures are down 47% from their peak in 2015 and 31% from last year. We expect to hold close to this level in 2019 as well.

We have a similar trend on agent signing bonuses, which were down 63% from the peak in 2015 and down 22% from last year. In 2019, we expect our capital expenditures to be approximately $65 million and signing bonuses to be approximately $40 million. Both of these changes had significant positive impact to adjusted free cash flow, which was $101 million for 2018. Looking at our adjusted free cash flow on an annual basis on slide 16, you can see that we've been able to sustain our adjusted free cash flow levels despite the reductions in revenue.

For the quarter, adjusted free cash flow was $21.1 million versus $25.7 million last year, which is primarily driven by higher interest expense. As a result of our strong cash flow, we finished the quarter with $146 million in cash and cash equivalents, which included the $70 million payment we made to the government in the fourth quarter for the extension of the DPA. We've also begun the process of refinancing our long-term debt and improving our capital structure. As we recently reported, we amended revolving credit agreement to increase permissible secured leverage and we reduced the commitment size to $45 million.

We're pleased with the support that we've received from our banker and can now move to work with long-term lenders to develop the optimal structure to take the company forward. We're actively engaging with both existing and potential new lenders and are confident that we can complete our refinancing on a timely basis. Regarding our taxes, the non-deductibility of the DOJ settlement amount and the double and sometimes triple taxation impacts of the TCGA or tax reform, combined with lower-book income, largely driven by the DOJ settlement, has created a current effective tax rate that is not indicative of what we would see with the company's return to profitability. In 2018 and in 2019, we have attributes that will allow our cash taxes to remain relatively constant.

And beyond 2019, assuming a return to normalized profitability, we would not expect to see an effective tax rate in excess of 30%. For the full year 2019, on a constant-currency basis, we project a 2% to 4% reduction in revenue and adjusted EBITDA decline of 8% to 12%. We don't expect our financial results in 2019 to be on a straight line as the first and second quarter will continue to feel the impact of the derisking effects from 2018 on a year-over-year basis. We expect the majority of the impact on our adjusted EBITDA decline to be in the first quarter.

We anticipate returning to growth in the second half of the year with a return to a full-year growth in 2020. To summarize 2018, we reset the business by removing high-risk revenue. We optimized the business by reducing fixed and variable cost by $85 million since 2016 while also significantly reducing our CAPEX and we maintained strong margin and cash flows during this time of transformation. In 2019, Q1 will be the primary challenge in 2019 as compliance changes were not fully implemented until the end of Q1 2018.

And we're positioned to grow the core business off a new baseline and return to growth in the second half of 2019. And now, I'll turn the call back over to Alex.

Alex Holmes -- Chairman and Chief Executive Officer

Thanks, Larry. Turning now to Slide 21. While 2018 was a year of building, modernizing, and derisking, 2019 will be the year of the customer, the year to acquire, retain, and learn. We will recapture growth, deliver on our vision to offer an exceptional customer experience at each transaction, and continue to enhance and lead the industry in compliance.

In order to execute this vision, we redefined our corporate strategy and we are laser-focused on executing it. As you can see on Slide 22, we have four key pillars to growth: delivering a differentiated customer experience, capitalizing on our physical and digital network, accelerating growth in key regions, and pursuing the business model of the future. Each of these growth initiatives are underpinned by internal initiatives and priorities that further accelerate and enable our continued transformation. I'd like to now spend a few moments diving into the first pillar and highlight some of our recent customer experience improvements that will be a main focus for 2019.

As you see here on Slide 23, in addition to our new app, we launched numerous initiatives this past year to improve the customer experience. Text and email notifications, transaction staging, agent point-of-sale upgrades, a robust loyalty program, and promo codes and coupons, just to name a few. These capabilities increase transparency, improve the speed of conducting a transaction, and reward customers for loyalty. Speed, simplicity, choice, convenience, protection, and value is what the consumer demands in an omni-channel environment, wnd we're focused on deploying these innovative efforts to continue to provide consumers with this differentiated experience.

We now serve roughly 50 million people each year and it's a responsibility we do not take lightly, especially in today's geopolitical environment. We serve people, who send a high percentage of their wages back home to help support their families by paying for things such as education, food, and healthcare. The capabilities we've launched last year are making their lives easier. They want to know that the money they've sent to their family has arrived safely, so we improved tracking capabilities and communication.

Their time is valuable, so we enabled further convenience. Their budgets are tight, so provided discounts for their loyalty. We're now in the process of deploying these capabilities to more and more markets, and we're already seeing results. For example, last year, we launched notification capabilities in 65 country countries in 18 languages.

And in 2019, we plan to add an additional 100 countries. Further, our customer communication tools have email open and click [Inaudible] rates well above industry standards, and digital conversions from these communications are excelling in the triple digits. Lastly, our loyalty program, new members are enrolling everyday and they are averaging about 20% more transactions than nonmembers. With the success of our launch in the U.S., we're excited about rolling it out to other markets in the coming months.

Before wrapping things up, I'd like to provide a brief update on our global network. Looking at Slide 24, we'll start by discussing the APAC region. First and foremost, I'm excited to announce that our partnership with Alipay is now live. Our relationship with Alipay and Bank of China enables consumers to redirect funds to the Alipay wallet.

This launch highlights the continued strength of our partnership with AMP Financial as we continue to work together to support the growth of digital channels across Asia. Overall, the APAC region is a strategic priority for the company and we're focused on expanding receive side distribution, growing our existing wallet integrations, and finding new wallet providers in about half a dozen markets. Though I don't have time to go through all the activity in the region, I did want to call out our renewal 7-Eleven in Australia as well as our ongoing partnership with SBI in Japan. SBI recently relaunched its website, and we believe this newly launched site will help spur growth in this key send market.

In the Middle East, we're seeing stability in the region, especially in Saudi Arabia, thanks to our key partners of [Inaudible] and Bank AlJazira. In Africa, our priority is to sign 20 wallets in the next two years and to leverage our digital capabilities to return to growth and expand to more markets. Our partnership with zPay, which was launched last year, is a great example of what we're looking to replicate. This relationship has enabled customers to send money directly to more than 11 million mobile wallets in Ghana.

In Europe, we're seeing growth in the retail space, which is being complemented by our digital expansion. We're also working with our key partners to support their digital growth strategies, all of which are designed to complement their physical footprint. Looking at the Latin America and the Caribbean region, we continue to see strong results. In Mexico, our key partners [Inaudible], Elektra, and [Inaudible] are reinvigorating activity.

Elsewhere in the region, we're focused on growing our physical and digital network in addition to expanding send capabilities. In the U.S., we've been focused on U.S. outbound growth and we're seeing signs of that business stabilizing. Furthermore, we've had some key wins with grocery store chains such as Northgate Gonzalez and Island Pacific Supermarket and we have many more opportunities in the pipeline.

As Larry discussed earlier, the U.S. to U.S. business continues to be a challenge as a result of both compliance controls and competitive pressures from the likes of Venmo and Zelle. In 2019, we'll be taking action to stem the tide and believe our updated app, coupled with our updated loyalty rewards program, will have a positive impact on the business.

And finally, on the U.S. front, our relationship with Walmart continues to be strong and mutually beneficial. We're particularly excited about the results of the white label outbound solution, which was launched last April. Importantly, Walmart has been incredibly supportive of our transformation and derisking efforts, and I'd like to thank the entire Walmart team for their ongoing support.

I'd like to conclude today by thanking the entire MoneyGram team, all employees around the globe for all that they've done over the past year and for working tirelessly to build and expand our digital capabilities, modernize both our technology and our expense structure, and help to risk the business. In 2019, my team and I are excited to execute our strategy and utilize all that was built in the past year to return to growth. And with that, I'll turn it over to our moderator to take your questions. Thank you all for your time today. 

Questions and Answers:

Operator

Thank you. [Operator instructions] We'll take our first question from Ramsey El-Assal with Barclays. Please go ahead.

Ben Budish -- Barclays -- Analyst

Hey, guys. This is Ben Budish on for Ramsey. I just wanted to ask on the margin outlook, you commented in the prepared remarks that you had seen stabilization year over year. Can you maybe pass out a little bit of what we're going to see next year, just with the guidance of the top-line down single digits and the adjusted EBITDA down to teens?

Larry Angelilli -- Chief Financial Officer

Yeah. It's a combination of a couple of things. I think we will have stabilization in our cost base and we'll have declining revenues, so you're going to have a flow-through of the lower gross margin that will probably flow through to EBITDA. Part of it is going to be timing.

I think the first quarter and the first half of the year will have the most impact and I think the timing of when the turn occurs will have an impact on that margin as well. So what we're doing really is taking kind of an average and saying that it would be lower in the first half and we'll have to compensate for that in the second half of the year.

Ben Budish -- Barclays -- Analyst

OK. And you mentioned the top half returning to growth in the back half. Would you expect to see the same with EBITDA or is that more of a 2020 event?

Larry Angelilli -- Chief Financial Officer

Right now we would say that they should be later in the year, possibly of both.

Ben Budish -- Barclays -- Analyst

And then if I could sneak one in, I don't know if you can comment on it or not but earlier -- last month, it was reported that the company was considering some strategic alternatives -- or any comment you guys can make on that?

Alex Holmes -- Chairman and Chief Executive Officer

Yes. I mean, I guess, I can give you the generic answer we always give, which is -- I mean, I think we're -- with the structure we have and who we are, I mean, I think we're always looking to maximize shareholder value and certainly would consider any opportunities out there. I think our focus continues to be on moving the business forward, executing on the strategies that we have and following through on derisking efforts. Importantly, obviously, we have to address our term loan and extending of our debt facility.

But we've made good progress on that, getting the revolving debt facility agreement done earlier as we said we would do and then now kind of moving forward with our senior lender. So, there's a lot to do on that front and, obviously, we'll we'll consider all options and see what we can do to come out with the right structure for everyone involved.

Ben Budish -- Barclays -- Analyst

OK. Thanks for taking my questions.

Operator

We'll take our next question from Kartik Mehta with Northcoast Research.

Kartik Mehta -- Northcoast Research -- Analyst

Hey. Good afternoon, Alex and Larry. Alex, just big-picture thoughts on a company. You're increasing your online business, you're increasing your partnerships with wallets.

As you look at those, over the next couple of years as they grow as part of the business, how does that impact maybe the revenue of the company, and just as importantly, the margins for the company?

Alex Holmes -- Chairman and Chief Executive Officer

Yes. Good question. I think there's a kind of couple of different moving parts on that. I mean, I think first and foremost, consistent with a lot of commentary I've heard in the past quarter, right, I mean, I think cash is going to be a key part of the business for a very long time and I don't think we have a view that it's going away anytime soon.

I think the importance and relevance of cash continues to be critical, which I think is a value add, and to a large degree, a strategic advantage as so many new online entrants and other players with closed-loop networks, who are trying to figure out how to get cash out of the system or put cash into the system. So, clearly an opportunity that we want to leverage as we go forward. But I think continuing to diversify and increase the size of the pipes and the flows of funds is critically important, particularly as you look at how the business is evolving globally in a number of different markets. And it goes without saying that technology in mobile phones and the proliferation of apps and utility of all the above is important.

And so I think as you look at different markets, Asia Pac in particular, parts of Africa, I think that the digital wallet, the receive side is going to continue to play a very big role in how people receive funds. I think the adaptation of sending to a wallet is going to be a lot slower to develop and I do think that the traditional methods of mobile phones and online websites and apps with more traditional send methods are going to be critical. And as more and more people, sort of at the end of foray, I think there's a bigger opportunity to capture new market share and capture new consumers. We see a lot of new customers new to the app, new to our online service that are just different from the walk-in customers.

And so I think we have to continue to have both. And I do think that making sure that those services are optimized for margin protect is important. When you look at a wallet receive right now, we're seeing a lot lower RPG revenue per transaction because of a lot of introductory pricing and some of the things that we're doing there., but you're also seeing a lower principal per transaction as well as people tend to send a little bit less money into those wallets or maybe traditionally how they would tend to cash or maybe send to a bank account. So I think time will tell a little bit in terms of what the really ability becomes and which markets they proliferate and which markets are a lot of chasing ideas versus actual real value and impact there.

But we spent, I think, a lot of time and energy and effort in the past year to look at margin with respect to our online business payment methods and these types of things and what we're seeing right now is really a margin-neutral business model. I think it becomes a question around where do you want to chase marketing, where do you want to chase introductory pricing, and these types of things. And right now that's having an impact on margin and giving us a lower return on value there. But you're also in a bit of a customer acquisition mode and an opportunity to try to scale and grab customers in new markets where we've had an opportunity to compete.

So, long term, I feel very good about it. Shorter term, I think it's going to drive a little bit of lumpiness in the results. but I think we're doing extremely well, and we have an opportunity now with tools that we've never had before. So when you think about loyalty programs that offer discounts or promo codes and a lot of the new services we're implementing this year to give us more dynamic pricing flexibility and potentially pricing flexibility on a consumer-by-consumer basis, I think there's a huge opportunity to really, not only increase value on a per transaction,but really increase value in a per customer basis.

And so I think that the story is pretty bullish when you look at it that way.

Kartik Mehta -- Northcoast Research -- Analyst

And then just sort of your thoughts on that term the term loan that you're obviously trying to refinance. Any thoughts on terms of that, how much how long you can extend that for, maybe early thoughts on what you think rates could be or what will happen interest expense as you finance that?

Larry Angelilli -- Chief Financial Officer

It's a little early, I think, to call that out. I would make a general statement that I think our interest expense will be higher. I think we have every expectation that our terms won't be as good as the one we have now. We're working with the lenders right now.

There's a little bit of a moving target here. Part of it is the projections for this year and I think when the return to growth is what the EBITDA coverage looks like. So people are digesting that right now, but I think we have an expectation that the debt would be a little more expensive and that it may have more tranches than it does today. Other than that, I think we're -- it's too early to make a call.

Kartik Mehta -- Northcoast Research -- Analyst

And I appreciate it. Thank you both of you. Appreciate it.

Alex Holmes -- Chairman and Chief Executive Officer

Yes. Thanks, Kartik.

Operator

We'll take our next question from Rayna Kumar with Everclear ISI -- excuse me, Evercore ISI.

Rayna Kumar -- Evercore ISI -- Analyst

Good evening. Thanks for taking my question. For 2019, if you can quantify your target agent location growth and separately for customer retention, please?

Alex Holmes -- Chairman and Chief Executive Officer

Agent location growth isn't really something that we've forecast in a number of quarters. We've really taken a very different approach. I think we've talked in the past about sort of our agents sharing process and then trying to be very strategic about who we had. I think in this business it's probably easy to chase location count for the sake of self gratification, I guess, but you've got to make sure there's returns on that.

When we took out the 61,000 agent locations, I think in the last call we talked about we had a dormancy rate in -- of under -- in our 350,000 of like 20%. So we were able to cut that, I think, about in half and then add in more new, better, more productive locations. So we want to maintain a great network and I think in a lot of cases, it's gonna be an evolving one, where we're going to have to look to more online or digital capabilities and cash becomes a key component with an entry and an exit point. And so, we're kind of balancing that by market.

Clearly, our broader focus is on customers, customer retention, particularly customer acquisition and then, obviously, the throughput of those customers. And we think for the first time, from a competitive perspective, I think we have all of the pieces that we need to compete in this evolving world today for the omni-channel consumer. We don't have all of those services in all the markets we need yet. Obviously, we started a lot of it here in the U.S.

We've got a lot of things that we're working on in Europe with respect to direct-to-consumer type communications and programs. And so our focus in 2019 is really going to be expanding that capability and then driving that customer retention. I also think too, to talk about compliance point real quick, is having the data around who our customers are, the ability to communicate back to them, offering them opt-in capabilities, the ability to market to them, communicate with them more broadly on on transactions, and really kind of link senders and receivers together and make it a more seamless transaction is something that we're pretty passionate about. I think we're putting those pieces together and delivering good value to the market.

So we can we can accept the customers that we want. We can give those customers incentives to stay. We can keep them coming back and turn away the customers that we don't want, which is a good feeling and a very nice place to be from a competitive-differentiation perspective.

Rayna Kumar -- Evercore ISI -- Analyst

Thanks it's very helpful. And if I can sneak another one in there., if you can discuss your 2019 outlook for both cross-border pricing and domestic.

Alex Holmes -- Chairman and Chief Executive Officer

Yes, well, the more complicated one, I think, which is domestic, clearly we have to do something with the domestic market here in the U.S. The market has changed dynamically, obviously. The cash component of it is pretty important, but I just don't think our product is really well-positioned anymore. I'm not sure the pricing is right.

I'm not sure that the service is quite right, particularly against the backdrop of a lot of different solutions for consumers. So it's something we're taking a hard look at. I don't have a great answer for you on that but it is something we're going to be working on. We have a lot of ideas, a lot of things that we'd love to see happen and come to market, so we'll talk about more of that, I think, throughout the year.

Internationally and maybe more, I guess your point, cross-border, I think it's going to continue to be competitive. We continue to see and believe that pricing is going to be used as a competitive tool for new entrants and that's something that we're just going to have to continue to deal with and get used to. And so I think reducing costs, thinking about how you get competitive with consumer pricing, again, loyalty programs, the discounts, and rewarding customers for coming back and re transacting with you, I mean, these are all sort of formulaic and kind of part of the plan. So, I think we're -- feel good about it.

I think it's gonna be competitive on the pricing front and so we are anticipating that it will be probably trending down. But we're gonna do everything we can to make sure that we get more customer throughput and offset that.

Rayna Kumar -- Evercore ISI -- Analyst

Does your 2019 decline, your guidance, does that include the assumption that pricing will be down? And if so, how much?

Alex Holmes -- Chairman and Chief Executive Officer

Yes, it's all built into that for sure. It's hard to call out exactly specifics because it's so different by market and we have such a difficult first quarter here. I think the first quarter last year was our largest quarter. And it was just sort of ironic because it tends to be seasonally your lowest volume quarter.

So we're definitely looking for the bulk of our decline this year to really occur in kind of the first quarter, second quarter of this year, so pricing is part of that. Obviously, the compliance changes are a broader portion of that plus growing through some of our changes in the Walmart relationship from last year and then, obviously, the loss of Albertsons and these type of things kind of all lumped together causing a little bit of a perfect storm in the first quarter. But beyond that, the outlook is good and I think that the pricing or any changes is baked into that.

Larry Angelilli -- Chief Financial Officer

Yes. And, Rayna, what I could add is that it does include what Alex talked about earlier, where we do price aggressively in the digital markets when we're launching new markets and our assumptions for '19 are that we continue to do that.

Rayna Kumar -- Evercore ISI -- Analyst

Thank you.

Alex Holmes -- Chairman and Chief Executive Officer

Thanks, Rayna.

Operator

We'll take our next question from Bob Napoli` with William Blair.

Bob Napoli -- William Blair -- Analyst

Thank you. Good afternoon.

Alex Holmes -- Chairman and Chief Executive Officer

Hey, Bob.

Bob Napoli -- William Blair -- Analyst

Larry, just on the -- what is the timing? When do you hope to have that debt refinanced or have a deal announced?

Larry Angelilli -- Chief Financial Officer

I think in the next 60 to 90 days. That's our target.

Bob Napoli -- William Blair -- Analyst

OK. Thank you. And then just on the agent -- the competitive environment, I mean, with more strict guidelines that MoneyGram than your competitors, if I'm an agent, I mean, I probably -- if have a good competitor, A, who has less strict guidelines, MoneyGram, who has more strict guidelines, I mean, I probably want to go with a good competitor A. I mean, how are you confident that you're not going to have more fallout from your agent network because you are required to have -- and you suggested that your competitors would need to go to the same level of compliance as you are today, what gives you that confidence?

Alex Holmes -- Chairman and Chief Executive Officer

Yes, good questions. I think I got the bulk of them. I lost track if I was a good competitor A or the other but I'll go with that I'm feeling good about the business. I think there's a couple of ways to look at it.

If I'm an agent, obviously, there's a couple, I think, big transitions in the world, right. First of all, a lot of sort of the exclusivity that used to kind of dominate the industry has changed a lot. And whether that's changing on received markets, whether that's in send markets, whether that's big agents, whether it's in the cash space, digital space, how you define it, I think, is changing, right? Everyone is looking to address consumers differently. Everyone is looking for the best sort of value-add product.

I think what's interesting about the changes that we made last year is that in a lot of places, where we made changes on, like, ID collection and higher standards on consumer data collection, a lot of it's a non-exclusive market. And so we can clearly see what consumers want to do. We can talk to agents about the impact of that. We can figure out how to address those changes.

One of the things I've tried to emphasize and, I guess, I'll just keep doing it is most of our agents are worried about compliance, right. No one wants to transact with people that shouldn't they shouldn't be transacting with. So, if we're collecting data and consumers don't want to share that data with us, that's on the one hand, I get it. On the other hand, when we are collecting data and I can give you more assurance that the consumer you're transacting with is either good or bad, that's what I would want to know as an agent out there because I think that there is a material amount of risk with licensing and banking and other things associated with not just fraud but also money laundering risk and some of the other things.

I guess, to answer the broader question, by implementing those standards, we've seen tremendous improvements in data quality, tremendous improvements in our capabilities internally. And so, it's my belief that everyone should be doing it. It's my belief that it's mutually beneficial to both the provider of the service, MoneyGram, and also to the consumers. And if you don't want consumers in your business, then you have more optionality and functionality as we do now, to kind of turn them away but we have equal amounts of opportunities to win those customers back.

So I think the conversations with the agents has been very, very positive. They're all super supportive of it. And clearly if the customer doesn't want to transact with you, that's a little bit of a different conversation but the agents shouldn't be driving that and I don't really want to partner with an agent that's going to push my service away because we have higher compliance standards and I'm not sure they're going to want to sign up and tell you that. We haven't seen the world shift yet.

As I said, I think this is largely a U.S. phenomena. Most of the world has I.D. collection, data collection standards that I think are more robust than here in the United States, which is maybe somewhat ironic but I think we have seen a few campaigns out there from competitors.

I saw one that was shared by a head of sales here that he found in a location where they were offering consumers if they registered and gave their I.D. that they could enter to win a TV. So when asked -- when we asked the agent is this going to be permanent or is this just a campaign? And they said," Well, we don't know. We heard it's just a campaign but we also heard that it may become permanent the future." So I think there are signs out there that may swing our direction more favorably.

I think online risk management, you have these standards all over the place. Consumers don't want to track -- transact online have to give you a lot of information. It's just kind of the way it works because of fraud risk management. So listen, I mean, I don't run the industry but I think we're doing the right things and I think we're seeing very tangible results of doing the right things and feel very good about it.

Bob Napoli -- William Blair -- Analyst

A quick question on percentage of the business U.S. domestic, U.S. to U.S. domestic.

What is the percentage of that business today?

Alex Holmes -- Chairman and Chief Executive Officer

I don't think we break that up.

Larry Angelilli -- Chief Financial Officer

Yes, we don't break that out anymore. It's becoming smaller. It's smaller than it's ever been.

Alex Holmes -- Chairman and Chief Executive Officer

Yes. By the day, I mean, it's definitely sub-10%.

Bob Napoli -- William Blair -- Analyst

OK. And then last question, and you guys have worked for a long time. Your company has -- could get compliance with the regulators, and it has dragged just dragged and become more difficult than you -- I think anybody ever imagined. What is -- I mean, you've hired very sophisticated outside tech firms to help you out and -- why has it -- what has happened? Why has it gotten to this point and why it's taken this long? What is the roadblock?

Alex Holmes -- Chairman and Chief Executive Officer

Yes, I guess, my story is -- maybe summarized as follows: I think we've made a tremendous amount of progress since 2016. I think we've implemented a number of the changes and standards that we needed to do. When you look at the rationale the reasoning for the extension of the DPA, I mean, I think, first and foremost, a few of the things that we set out to do weren't finished, and that's completely understandable and that's obviously sort of on us in terms of execution. I think that has improved greatly in the last couple of years, our execution against those programs and I think we're very close to being where we want to be.

And then secondly, I think it goes without saying that, look, we didn't execute 100% the way we were supposed to in the eyes of the regulators and we paid a fine for that. They think that too much fraud went through our systems and so we've agreed to refund those consumers through to the penalties and I think it's illustrative of the risks that are out associated with compliance, right, and noncompliance and the things that you have to do. And when you're under under investigation with a DPA or an FTC consent order, there's steps that they expect you to follow. And when you when you don't, obviously there's -- or when they determine that you haven't, there's challenges to that.

I mean, I think we can we can argue all day that we're doing the right things. I think we can argue all day that we've done the right things and executed the way we have. We've had our reporting requirements and we sent those into the government, so -- listen, I'm not going to relitigate the case here, but I think we're in a much better place than where we've been in the past. I think we know exactly what we're supposed to be doing.

I think the results of that performance are being measured monthly and I think we're meeting those standards and that requirement of the relationship is good and I -- we will be done this time. I don't have any concerns about that.

Bob Napoli -- William Blair -- Analyst

Thank you. Thanks, Alex. Thanks, Larry.

Alex Holmes -- Chairman and Chief Executive Officer

Sure. Thank you.

Operator

We'll take our next question from James Faucette with Morgan Stanley. Please go ahead.

James Faucette -- Morgan Stanley -- Analyst

Thanks very much. I wanted to ask a couple of questions. First, on the debt refinancing. Obviously, you think that you're going to see a change in interest rates and -- but in exchange you'll see some flexibility on coverage ratios, etc.

How much conversations are you having with the creditors in terms of more structural changes to that -- in the debt structure and looking at other flexibility there? And how optimistic are you that you can make more progress? Then I wanted to talk just a little bit more broadly about your partnership with AMP Financial and what you're hoping to get out of that. And if you can talk to us about where you think there may be limitations or not in terms of what that partnership can yield. Thank you very much.

Larry Angelilli -- Chief Financial Officer

OK. On the debt side, we're not really expecting a lot of structural changes. I would say that it was already a secured facility. The covenants were set at pretty reasonable levels, which we would think we would probably replicate in the agreement.

The substantive difference could be whether there's a junior tranche or not. I think that part of what's impacting the credit at this point is our market cap and the way the market looks at a depth to market cap ratio. So, that's really the -- what I would call, the complex part of this is how to size it and what structure that is. And that's really what we're working on today and that's why we're speaking with creditors that would be new to the name or that are more fluent in more subordinated structures.

But really it's sort of a circular argument. I think that we have to look at what the optimal structure is so that it actually helps the credit rather than hurts it, and that's where we're doing work today. So, I really think, to summarize, I really think it's the addition of subordinated tranche that's probably the high likelihood that would be the major structural change.

Alex Holmes -- Chairman and Chief Executive Officer

Yes, and I think on the second question with respect to AMP Financial, I -- listen, I don't think our plans with respect to AMP Financial are really very different from what we said after our acquisition was denied by the government, which is really to partner with them to execute the movement of money, and particularly, around the Asian markets. I mean, they have some of the leading technology providers partnered with them and a number of different markets. And I think to the extent that MoneyGram can be associated with their brand and I think to the extent that we can help facilitate fund flows in and out of the wallet that they have across the various markets in which they participate, so much the better. The world is changing, obviously.

They have -- the Alipay alone is -- I don't know what the number is now, north of 700 million mobile wallet holders in China. China is a big receive market. Chinese are all around Asian markets and clearly interested in sending money back home, mint, which is not controlled by AMP but they have an investment from AMP. In the Philippines, GCash is obviously an important wallet in that region, where Filipinos are beginning to sort of adopt for daily utilization.

So we're trying to send money into those wallets as well as facilitate funds flows. The other thing too is we're trying to change the paradigm a little bit, right, which is giving consumers more utility on the receive, landing the money in different places from traditional cash or in a bank account, which lacks a little bit of utility in some of those markets. So I think it's a great partnership. I think it's really cool technology and we'll see where it goes.

I'm not sort of, I guess, forecasting that we're going to take over the world but I think it can be meaningful. I think it can be very interesting and we're going to keep doing what we can.

James Faucette -- Morgan Stanley -- Analyst

Thanks very much.

Alex Holmes -- Chairman and Chief Executive Officer

Thank you.

Larry Angelilli -- Chief Financial Officer

Thanks.

Operator

We'll take our next question from Mike Grondahl with Northland Capital Markets.

Unidentified speaker

Hi. This is Michael on for Mike. Thanks for taking the questions. Maybe first just on the 61,000 agents kind of cleanup, is there more of that to go or is that pretty much complete, that process?

Alex Holmes -- Chairman and Chief Executive Officer

It's pretty much complete. We have, I think, higher standards on the selection process around agents. Obviously, I think we took a pretty big chunk of the network out. We shrank some long-tail networks, so places where we had a lot of locations and larger agents.

We also closed a lot of smaller mom-and-pops that just really weren't productive for us and didn't have the right financial return. So no, I think that work is largely done and we're going to continue to try to make our network as efficient as possible and drive the most throughput as possible. So we'll do more if we have to, but the intention right now is not to really go heavy at that activity.

Unidentified speaker

And just a quick one on the monitoring and compliance costs kind of going forward. Is that [Inaudible] coming out '18 or is there some increase with a couple of new reporting standards?

Alex Holmes -- Chairman and Chief Executive Officer

Yes, the cost should be OK. We have a little bit of work to do that'll be comparable to last year. I think that the new undertakings have primarily been implemented already and I think actually in our first reports, which have moved from quarterly to monthly reporting were submitted, I think, today or yesterday. So, yes so it's under way and moving forward and we've, as I said, I think the relationship there is good.

I think the reporting is very transparent and we feel good about it.

Operator

We'll take our next question from Tien-Tsin Huang with J.P. Morgan. Please go ahead.

Tien-Tsin Huang -- J.P. Morgan -- Analyst

Hey, thanks. I just have one question. I'm in a car. Hope you can hear me.

Just on the revenue side, if things don't come through how much protection do you have on the EBITDA side, guys. I know that digital transformation plan is in place, just curious how many levers you have left to pull there to deliver on the EBITDA.

Larry Angelilli -- Chief Financial Officer

It's still good. Not all revenue is created equal and I think that we've been seeing declines in some of the lower-margin businesses. No, I think we feel comfortable that there's leeway in that number and that it's not on the edge.

Tien-Tsin Huang -- J.P. Morgan -- Analyst

Great. Thanks. That's all I had.

Larry Angelilli -- Chief Financial Officer

OK.

Alex Holmes -- Chairman and Chief Executive Officer

Sure. Thanks. All right. Well, I think we're -- that is the bottom and it looks like we're out of question, so I think we're good.

Thanks, everybody, for your time and I think we're done.

Operator 

[Operator signoff]

Duration: 56 minutes

Call Participants:

Wendi Schlarb -- Head of Corporate Communications and Digital Marketing

Alex Holmes -- Chairman and Chief Executive Officer

Larry Angelilli -- Chief Financial Officer

Ben Budish -- Barclays -- Analyst

Kartik Mehta -- Northcoast Research -- Analyst

Kartik Mehta -- Northcoast Research -- Analyst

Rayna Kumar -- Evercore ISI -- Analyst

Bob Napoli -- William Blair -- Analyst

James Faucette -- Morgan Stanley -- Analyst

Tien-Tsin Huang -- J.P. Morgan -- Analyst

More MGI analysis

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