Xoom's CEO Discusses Q1 2014 Results - Earnings Call Transcript

Xoom Corp (XOOM) Q1 2014 Earnings Conference Call April 22, 2014 5:00 PM ET

Executives

Sharrifah Al-Salem - Director of IR
John Kunze - President and CEO
Ryno Blignaut - CFO and CRO

Analyst

Darrin Peller - Barclays
Mayank Tandon - Needham & Company
Colin Sebastian - Robert W. Baird
Andrew Jeffrey - SunTrust
Wayne Johnson - Raymond James
Rayna Kumar - Evercore Partners
James Friedman - Susquehanna

Operator

Good day, ladies and gentlemen and welcome to Xoom’s First Quarter 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. As a reminder, this conference call maybe recorded.

I would now like to hand the conference over to Ms. Sharrifah Al-Salem, Director of Investor Relations. Ma’am, you may begin.

Sharrifah Al-Salem

Thank you, operator. Good afternoon, everyone and welcome to Xoom’s first quarter 2014 financial results conference call. On the call with me today are John Kunze, our President and CEO and Ryno Blignaut, our Chief Financial Officer and Chief Risk Officer. We will begin the call with some prepared remarks from John and Ryno and then we will open up the line for questions. A more complete disclosure of our results can be found in our press release issued about an hour ago as well as in our related Form 8-K furnished to the SEC earlier today. To access the press release and the financial details, please see the Investor Relations section of our website. As a reminder, today’s call is being recorded and the webcast replay will be available following the conclusion of the call.

During the call, we will be referring to both GAAP and non-GAAP financial measures. Reconciliation of our GAAP to non- GAAP financial information is provided in our press release, which is available on our website. All of the non-revenue financial measures we will discuss today are non-GAAP unless we state that the measure is a GAAP measure. The primary purpose of today’s call is to discuss our first quarter 2014 results. However, some of the information discussed during this call including any statements about our expected financial results, our markets and the implementation of our business strategy may constitute forward looking statements within the meaning of the U.S. federal securities laws. These statements are subject to risks, uncertainties and assumptions and are based on financial information available as of today.

We disclaim any obligation to update any forward-looking statements or outlook. Risks and uncertainties that would cause our results to differ materially from those expressed or implied by any such forward-looking statements include those summarized in the press release that we issued today. These risks and additional risks are described in our filings with the SEC including Xoom’s annual report on Form 10-K and any subsequently filed reports on Form 10-Q and 8-K, all of which are available on the SEC’s Web site and which I encourage you to read.

I will now turn the call over to John.

John Kunze

Thanks Sharrifah. Good afternoon everyone and thank you for joining our first quarter 2014 earnings call. We are pleased to announce the strong quarter with solid financial results, continued momentum on mobile channels and high quality additions to our payout networks. During the first quarter, GSP increased 49% year-over-year to $1.6 billion. We added more than 117,000 new customers to our active customer base and ended the quarter with over 1.1 million active customers, representing 34% year-over-year growth of our active customer base and revenue grew 48% year-over-year to $35.9 million.

We are pleased with our results and our continued emphasis on using technology to disrupt this very large and mostly offline industry. Our quarterly results were driven by simply offering the best consumer experience in money transfer. The easy to use seamless Xoom experience coupled with our risk management and high quality payout networks provide a compelling value proposition for our customers. For example, our quick send feature offers returning customers two click money transfer to existing recipients in seconds. In Q1, we continued to see more than 90% of our volumes sent by repeat customers, with the large majority sending using the quick send feature plus most exciting mode of quick send is on a mobile device which allows customers to send quickly from anywhere.

Mobile transactions also continue to grow with 45% of total transactions originating from a mobile device, representing 59% year-over-year growth. Our mobile customers defined as those customers who have sent one or more transactions from a mobile device in the last 12 months generally send more often than desktop only customers and our mobile cohorts have a higher lifetime value than their desktop only counterparts. If mobile, as a percentage of total transactions continues to increase, we believe we will see a lift in customer lifetime value or CLV across the whole business. Because we anticipate improved unit economics from mobile customers, we invested heavily in Q1 to market Xoom’s mobile app to our installed base.

While this spend mostly influence customer based loyalty, we put this spend into our CPA and direct marketing spend numbers, which Ryno will provide more details on shortly. In addition, we added a feature to our mobile app in January allowing customers to sign up for Xoom account directly in the app in both English and Spanish. This is one step closer towards our goal of acquiring customers through our mobile apps. And we anticipate launching fully functional apps for both Android and iOS in the next few months.

We ended the quarter with over 1.1 million active customers, defined as those customers who have sent one or more transactions in the last 12 months. The active customer numbers derived from several inputs including the number of new customers added, retention levels of our existing customer base plus win backs from churn customers who have come back to try Xoom again. As a reminder a customer can only ever be classified as new once. The active customers grew 34% year-over-year with 7% year-over-year new customer growth. On our lowest ever quarterly churn rate of 4.4% we believe our mobile offerings and improved network speed are increasing retention rates generally, plus and especially in the more mature markets we are seeing win back rates materially improving. As you know risk management is a critical differentiator for Xoom. With our industry best loss management we are still able to ensure a seamless consumer experience while always striving to deliver a better quality experience at faster speeds on great margins.

During the first quarter our customers continued to find more than 90% of GSV directly from their bank accounts through the ACH system and we continue to instantly process more than 95% of this volume on world class loss rates. While we’re very proud of our risk management which allows us to quickly get recipients their money at acceptable loss rates. The high quality of our payout networks is just as important for our business.

This quarter we improved the speed of delivery to key countries like India, the Philippines and the Dominican Republic. At the end of March we launched an instant deposit service to our new Indian partner HDFC Bank. HDFC Bank is one of India’s premier banks with more than 28 million customers across India. Importantly HDFC Bank provides network redundancy in our Indian corridor but the more exciting news is the service level which is the first of its kind. This new service is instant to rupee denominated HDFC Bank accounts in India and available 24/7 every day of the year including bank holidays.

Also during the first quarter we launched instant bank deposit services to Pilipino banks Metro Bank and PNB. Metro Bank and PNB joined BDO which we launched in December 2013 giving Xoom customers 24/7 365 instant deposit service levels to three of the top five banks in the Philippines.

Lastly in the first quarter, Xoom partnered with a Dominican Republic Bank, Banco Popular Dominicano to offer deposits to Banco Popular Dominicano accounts in usually less than 15 minutes and expanded Xoom’s cash pick up services by more than 200 locations bringing the total to 576 cash pick up locations across the island.

As we have said before, we believe the quality of our disbursement networks provide service differentiation and competitive advantage. Therefore we relentlessly work on our own as well as our partners processing latencies to achieve our goal of an instant or as nearly instant as possible 24/7 365 money transfer experience. We believe that the instant experience especially when applied to bank funded transactions that are deposited into bank accounts; anchors are differentiation from the incumbent industry.

In summary, we have had a strong start to the year including revenue and active customer growth instant deposit service launches and the major partnership announcement with HDFC Bank in India. As the leading disruptive online pure play, we are well positioned in the attractive and growing international money transfer market. Our fundamentals are strong and we continue to expect secular growth and the movement to mobile to provide a positive tail win for the business.

With that I will now turn the call over to Ryno.

Ryno Blignaut

Thanks John and good afternoon everyone. Let’s start with an overview of our Q1 2014 results followed by some more color on our guidance for Q2 and full year 2014. Revenue for the first quarter of 2014 was $35.9 million, an increase of 48% from the same quarter a year ago. We continue to see good year-over-year growth in all major corridors with India and Latin America being the top two performers this quarter.

The quarter continues to be driven by a loyal repeat customer base with active customers growing 34% year-over-year to over 1.1 million customers as of the end of Q1 2014. In Q1 2014, each of these active customers stand on average 2.6 transactions compared to 2.4 from the same quarter a year ago. Our mathematical quarterly churn rate calculated as opening act of customer balance plus new customers acquired, less closing active customer base was historically low 4.4% in Q1 2014.

This illustrates the rising tide of retention we’re experiencing in the business which we believe is causing hot body increased mobile adoption of our customers. You should however expect this churn rate to be higher in Q2 2014 due to our trailing 12 month active customer definition lapping the big quarter we experienced in Q2 2013 as a result of these dramatic movement of the Indian rupee.

Speaking of the Indian rupee, we did experience some GSV upside in March from the vulnerability created when the rupee strengthened to below 60 against the U.S. dollar. Gross profit for the first quarter of 2014 was $26.4 million, an increase of 57% from the same quarter a year ago. Gross margin for the quarter was 73% up materially from 69% in Q1 2013 and above our target at range of 65% to 70%.

This increase was primarily due to transaction losses coming in at 17 basis points of GSV for the quarter compared to the more usual range of 25 basis points and 30 basis points in recent quarters. Due to the inherently volatile nature of these losses you should continue to expect some variability in gross margins from quarter-to-quarter.

GAAP operating expenses for Q1 2014 totaled $26 million, an increase of 56% from the same quarter a year ago. Some of the incremental expense items worth noting with regards to this increase are $400,000 in Q1 2014 operating expenses relating to BlueKite, our recently acquired Guatemala-based subsidiary which many shows up in the technology and development line item on the P&L. This is in line with the 3 million annual expectation, we mentioned on the last earnings call. It is also important to point out that the integration of the BlueKite and Xoom teams has been a great success so far and from now on you will hear us refer to our Guatemala operations as Xoom Guatemala City or XGC.

We also had $200,000 in depreciation and amortization relating to the technology acquired as part of the BlueKite transaction. $600,000 in rent expense for us near San Francisco headquarters we allocate really internally based on headcount so this will impact all OpEx line items but the largest impact is in technology and development. And finally a $1.1 million increase in stock compensation for which the largest contributors are G&A and technology and development.

The $56 cost per acquired customer of CPA in Q1 2014 was above our usual targeted average range of $40 to $50. Mainly as a result of the mobile app installed program John mentioned earlier on this call. For simplicity, we allocate all direct marketing expenses only to new customers when calculating the CPA while in reality many marketing programs like the app installed program are designed to also drive win backs and repeat usage. The 56 result in Q1 however does not change the $40 to $50 range we continue to use to calculate our full year 2014 guidance.

Adjusted EBITDA for the first quarter of 2014 was $3.5 million compared to $1.6 million for the same quarter a year ago. GAAP net income for the quarter was 400,000 compared to a loss of 79,000 in Q1 2013. GAAP diluted earnings per share was $0.01 compared to $0.00 for the same quarter year ago. Non-GAAP diluted EPS for the quarter was $0.06 on a weighted average number of shares of 41.7 million. Full reconciliation tables between all GAAP and non-GAAP metrics are included in our earnings press release issued earlier today.

We ended the quarter with $243 million in cash, cash equivalents, disbursement prefunding and short term investments and have no outstanding borrowings under our line of credit. During the quarter we also completed the purchase accounting for the BlueKite acquisition which resulted in the $15 million purchase price being split on our consolidated balance sheet into $9 million for goodwill and $6 million for acquired technology.

Now let’s move onto our Q2 and updated full year 2014 guidance. For Q2 2014 we are targeting the following; revenue to be between $38 million and $40 million with the midpoint of this range representing 60 year-over-year growth. However, if you take into account the estimated $6 million in incremental revenue we experienced as a result of the dramatic Indian rupee movement during Q2 2013, the growth numbers remains over 40%. We continue to plan the business as if the Indian rupee is boring in the eyes of our customers. As a quick reminder some of our Indian customers tend to send more when there are fluctuations in the USD rupee exchange rate and the rupees therefore perceived as more exciting.

Adjusted EBITDA to be between $2 million and $4 million, it’s important to note that in estimating EBITDA range we continue to use our previously stated target gross margin range of 65% to 70%. GAAP diluted net income or loss per share to be between a loss of $0.04 and income of $0.01 and non-GAAP diluted earnings per share to be in the range of $0.02 to $0.06. For the full year 2014, we are now targeting the following; revenue to be between $157 million and $162 million; adjusted EBITDA to be between $12 million and $15 million; GAAP diluted net loss per share to be in the range of $0.09 to $0.02 and non-GAAP diluted earnings per share to be in the range of $0.15 to $0.22.

Thank you very much everyone. I’ll now turn it back over to John for final comments before we move on to Q&A.

John Kunze

Thank you, Ryno. We had a successful start to the year with strong results, growth across all four of our major corridors and several high quality additions to our payout network. The industry is changing as more and more customers move to online and mobile based money transfer and we are succeeding in our mission to deliver the highest quality experience with the technology that’s both disruptive and that provides a compelling value proposition for our customers.

Before I turn the call over for questions I would like first to thank our employees, customers and partners for their ongoing support and commitment to Xoom. With that let’s open the line for questions. Operator?

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from Darrin Peller from Barclays. Your line is open. Please go ahead.

Darrin Peller - Barclays

Great job in the quarter. Just want to start off first with the fraud losses we're seeing, and obviously the gross margins. Just Ryno, if you could talk a little bit about what went behind the 17 basis points this quarter, anything unusual here? Obviously you said it fluctuates, but 73% gross margins, I think, is about the best we've ever seen. Then just a quick follow-up I'm going to have on some of the volume metrics.

Ryno Blignaut

Darrin, yes on the loss rates no there is nothing unusual going on there. As you know loss rates really for Xoom just us constantly balancing for big variables which are loss rates, customer friction the ACH speed and collections. And we’re constantly working on those and you just have a couple of those moving together in the right direction and it’s going to actually move the number a lot. So, no, it will continue to be variable but there obviously was a great result.

Darrin Peller - Barclays

All right. And just another quick question. You've mentioned before, at least in the past, what percentage of your revenue and your transactions are coming from active customers right now versus new customers coming on. Obviously, the volume growth being 49% is pretty substantial, despite not having any real help from the rupee this quarter. I just want to know a little bit more about what you're seeing from a behavioral standpoint from your active customers. Is that going to keep getting better in terms of driving more and more of your volume? Is mobile helping that quite as well, just given how high the percentage of mobile is? How high can your mobile percentage actually get to?

John Kunze

Yeah what we’re seeing the mobile trends down and then you remember we’re always a little nervous calling this out because some of it could be self-selection. But we’re seeing our customers that have the mobile app downloaded send more transactions. So it shows up in that 2.6 average transactions per active customer that’s obviously up from 2.4 last year. And it’s been trending up, and then on the follow-on question of how big can a mobile customer base get? Really I mean we think is just gated by the percentage of customers that have a smartphone.

Darrin Peller - Barclays

Yes, it's impressive. All right. Just last question from me, and then I'll turn it back to the queue. Some of the new areas of growth you have been focusing on, whether it's Vietnam, can you just give us a little more color on any traction you're seeing there, or where we would start to expect some transactions in that area, as well as, really, what you're doing with BlueKite right now in regard to both sort of using the personnel there for more development work for new corridors potentially along with the potential for bill-pay business?

John Kunze

That was a lot of question Don. So specifically on Vietnam it’s as we expected where we’re not seeing material volume from Vietnam we wouldn’t expect it for a while to build business although, we were right on our expectations for the quarter. We are as far as the Guatemala city question, we are staffing up as fast as we can there and we’re seeing very exciting synergies across the two offices on both new technology related to the bill pay integration but also related to just the general infrastructure overall and our ability to more quickly build software across the two teams. So it’s very, very exciting.

Operator

Thank you. And our next question comes from Mayank Tandon from Needham. Your line is open please go ahead.

Mayank Tandon - Needham & Company

Thank you. Congratulations, John and Ryno, on a very clean quarter. I wanted to ask a big picture question first. Did you notice any pricing promotions through the quarter? I know this quarter there's been a lot of concerns about emerging competition from some of the online-centric competitors. Maybe you could just be to what is really going on in the market, who are you competing with, and what is real versus what is maybe just investor concerns around the potential for increased competition?

John Kunze

Thanks Mayank. We haven’t seen any changes in Q1 relative to the short-term history as a reminder in our Latin American and Philippines businesses. About half of our customers are acquired from Western Union and most of those are coming from the offline Western Union experience with an increasing number about 10% coming from wu.com or there are digital experience followed by corridor specific players, lesser known names but very important in the corridors they serve and followed by MoneyGram, those are the three tranches of competitors in those two corridors.

In India the main competitor is ICICI Bank, and in our developed world corridor the competition there is retail bank wire transfers. And across the board we did not see much change in Q1; we certainly didn’t see any price promotions that were of note. So everything seems to be fairly smooth, fairly business as usual in the quarter.

Mayank Tandon - Needham & Company

Great. Thank you for the color. Just a follow-up. Ryno, you mentioned the rupee had some impact in the March period. Could you maybe quantify the impact in the quarter?

Ryno Blignaut

It wasn’t really that material Mayank it was probably less than $1 million, it did happen towards the end of March because the rupee traded in the tight range of 61 to 63 for most of the quarter and then suddenly at the end of March it kind of started strengthening and it broke 60 on the low end briefly and remember this is what we’re talking about here is that third or our customer base that kind of motivated by their perception of where they think the rupee is going. So we call this the kind of panic stand whereas I am going to think it’s going to go to 55 let me quickly say now at 60 because it might even get worse.

Mayank Tandon - Needham & Company

Sure, understood. One final question before I get back in queue. On the marketing side, with the World Cup coming up in Brazil, I thought maybe you could provide some insights into the marketing campaigns around that specifically, and are there any other large campaigns that you have planned for the June quarter? And does that mean the number will be skewed towards $50, at least in Q2, on the CPA front?

Ryno Blignaut

I think the only thing worth mentioning about Q2 is the Mother’s Day peak season and we generally invest heavily into that peak. So I think that will likely put us at the higher end of the range rather than the lower end of the range $40 to $50. As far as the World Cup is concerned we don’t plan on participating much in World Cup specifically because it’s such a mass media event the cost are prohibitive.

Operator

Thank you. And our next question comes from Colin Sebastian from Robert Baird & Company. Your line is open. Please go ahead.

Colin Sebastian - Robert W. Baird

Thanks, guys. Congratulations on the quarter. I guess first off a follow up on the customer acquisition cost. If I heard correctly, John, a portion of this cost was actually to drive installs of the mobile apps, if that's right. Could you provide some normalized CPA for the real new customers to the Xoom platform?

John Kunze

Yes, we did spend money material money for the first time on app installed programs. And if you were to normalize it out the CPA would have come in around $50 for the quarter.

Colin Sebastian - Robert W. Baird

Okay, great. Thanks. And on those app installs, was that primarily through Facebook, or was that broadly through different online platforms?

John Kunze

It was primarily the Google environment and the Facebook environment.

Colin Sebastian - Robert W. Baird

Okay, great. Thanks. On the competitive landscape, there've been also some headlines from Walmart and Facebook in terms of money transfer. If you could address any implications of that, if there are any?

John Kunze

The Walmart announcement doesn’t have a direct impact on us as it’s the U.S. domestic offer only. It’s really not surprising that this was announced because the Walmart have this flexibility for a while to do this. The new service really isn’t that price disruptive we don’t think because those are the big U.S. domestic incumbents have $50 offers for domestic money transfer without any network exclusions. I think it’s a pretty good indicator that U.S. exclusivity could be dying in the money transfer industry going the same direction is the non-U.S. exclusivity has gone which is practically now extinct.

We don’t believe in exclusive deals ourselves we think they’re anti-consumer and bad for the industry so we don’t do them. And I guess on a side note it might be worth mentioning with Walmart after 2.5 years have trying hard we both have mutually decided to wind down the Xoom Walmart co-branded site because of the immaterial results so we’re just going to wind it down and get out of that business.

Colin Sebastian - Robert W. Baird

And on the Facebook side is there anything we should read into plan to the money?

John Kunze

Well we read the same press as you probably have and since Facebook didn’t comment officially there is not much for anyone really to say here we’re just going to sit and watch what happens.

Operator

Thank you. Our next question comes from Andrew Jeffrey from SunTrust. Your line is open. Please go ahead.

Andrew Jeffrey - SunTrust

Thanks for taking the question, guys. I apologize if there's any background noise, its spring break at Seaworld. I guess, Ryno, if you could give us, and you mentioned it sort of quantitatively, but maybe give us a little insight into the relationship between the new customer growth numbers at 7%, and then that 34% installed base. It sounds like there's a growing number of return customers. I know one of the questions we get is great growth, terrific outlook, but how can Xoom sustain its growth rate if the new customer growth is slowing, recognizing that it's a subscriber model. At some point it becomes important to -- it sounds like perhaps there is a dynamic that is more than meets the eye, vis-a-vis the relationship between the existing customer growth and the active customer growth, namely these returning customers.

Ryno Blignaut

Yes, Andrew, hope the weather is good in Seaworld. It’s really is I think you asked a good question it really is this one back concept which we fairly recently started really tracking internally and that’s also why you remember we referred to our churn as a mathematical churn because of course we’re not in real subscription business so there is not a notion if you subscribing and then officially going away we just think this 12 months definition. So you do have quite a number of customers and in fact that pool is growing very very quickly of customers that might have used Xoom 15 months ago that were now again attracting back to the service and they don’t show up in the new customer number because of the risk engines basically they’ll show back in the active customer number.

So that is why a lot of the marketing has obviously also targeted those customers and they do come back and to the active which make that active number grow very quickly. But with all that being said of course we’re always going to try to add as many new as we can with better products and more and more marketing campaigns.

Andrew Jeffrey - SunTrust

Okay, but it sounds like that new customer metric is at the margin, maybe becoming a little less important than it might have been in the past.

Ryno Blignaut

Yes I think as our penetration in our time gets bigger and bigger of course that ratio is going to start changing.

Andrew Jeffrey - SunTrust

Okay, that's helpful, and actually a good sort of segue, John, into a big picture question. Another question I seem to get a lot, especially from potential investors who are new to this story, is look; Xoom's got say 20% penetration in India, how big can they be? I know your answer is, but I wonder just philosophically or conceptually, you can weigh in a little bit on why Xoom should ultimately gain disruptive share, recognizing better technology than your primary competitor, et cetera. Is there some way to help investors get comfortable with how you get from 20% to whatever the disruptive number is, 50%-plus?

Ryno Blignaut

Yes, you’re referring to the majority share number of that I am often referring back to as our internal objective where we believe to be a disruptor you should get to majority share in your markets. And in order to get there first you have to believe in secular trend of majority of the offline business moving to digital channels, that’s a good starting point and if you believe in the secular trend then we want you to take a hard look at our value proposition and our long-term capability to differentiate ourselves from all other players in the business which primarily rests on the shoulders of a seamless money transfer experience for our customers because of our risk management technology and our ultra-fast pay out networks delivering the single best experience possible. Now to replicate the experience you would have to have equivalent risk management capabilities and equivalent pay out pipes in layering on top of that fantastic customer service to keep these customers very happy on such an important used case.

So this is all we do all day and all night is work on improving the products, improving the payoff price and layering in great customer ops and we think we can get there.

Andrew Jeffrey - SunTrust

Do you have any estimates as to what the digital share is today in your markets?

John Kunze

We’re the leader the digital share in the Philippines and Latin America and in India we share the digital environment with ICICI who does all their money transfer from the U.S. online.

Andrew Jeffrey - SunTrust

That’s good for digital subscriber. Thanks a lot guys I appreciate it.

Operator

Thank you. (Operator Instructions). And our next question comes from Wayne Johnson from Raymond James. Your line is open, please go ahead.

Wayne Johnson - Raymond James

Hi, yes. Good afternoon. Quick question on the apps that are soon to be released. Could you just remind us what's going to be the functional difference of the apps that you're going to release, you said, I think in a few weeks or a couple months, versus what's available today? Thank you.

John Kunze

Today we have a mobile website experience that you can browse to from any phone that has a browser, that’s fully functional and closely proximate, our Xoom.com web site for large screens. And we also have native apps for iOS and Android which are the ones you’re asking about which provide experience to returning customers and essentially gives them that quick send money transfer experience to existing recipients and the way to track status of their transactions, we will be rolling out fully functional native apps for iOS and Android which will closely proximate Xoom.com web site in the next couple of months, hopefully Q2. And of not then than certainly early Q3.

Wayne Johnson - Raymond James

That’s terrific I appreciate it. Good quarter guys thank you.

Operator

Thank you. Our next question comes from Rayna Kumar from Evercore Partners. Your line is open, please go ahead.

Rayna Kumar - Evercore Partners

Could you please discuss your strategy in competing against Western Union when it introduces an instant ACH product later this year?

John Kunze

Well I think the question of how and when they launch instant ACH is probably worth studying, because there really isn’t a concept of instant in the ACH world. It’s a matter of risk management and the degrees to which a merchant excepting ACH requests provides instant products or services. So we’re going to wait and see if and when it’s ever offered by competitor and if and when we will deal with that the way we always do with better technology, better products, better payout pipes. And I think so far they have been Western Union that has been at us for as long as we have and we haven’t seen many signals in fact recently they have actually said that ACH will probably continue to be slower rails and card based processing, so we’re not quite sure if they are ever going to launch this.

Rayna Kumar - Evercore Partners

Okay. One housekeeping question. Could you just call out the incremental costs from BlueKite in the quarter and how you expect the remainder of acquisition costs to trend the rest of the year?

John Kunze

Yes, we spend $400,000 on call it other OpEx on BlueKite in the first quarter and this is basically headcount mainly head count and obviously the office down in Guatemala City. As we said on the last earnings call we’ve budgeted 3 million for that piece of it for the year. So we’re basically on track, we’re going to try and stop off that facility with as many engineers as we can. And then there is also the $200,000 that of amortization on the intangibles we acquired that gets written off every quarter, on the balance sheet.

Operator

Thank you. And our next question comes from James Friedman from Susquehanna. Your line is open, please go ahead.

James Friedman - Susquehanna

Hi. Thank you. Either John or Ryno, my first question, if you could talk about how to think about the commission difference between a bank-to-bank transactions versus a bank-to-agent transaction. And how do you see those trending as a percentage over time.

John Kunze

The commission on the originating side de minimis as you know because most of the volume originates from the ACH rails with very little interchange. So that would remain the same, both disbursement mode they’re asking about on the disbursement side bank deposits are generally cheaper than cash pick up the average between the two is about just over $2. That should give you I think enough directional support.

James Friedman - Susquehanna

Okay, thank you. I'm just jotting that down. John, if I could ask more philosophically, it sounds like ACH initiatives, Western Union notwithstanding, without naming any specific competitor. It sounds like there is some movement domestically to accelerate ACH as a mandate by the Federal Reserve and NACHA. How should we think about the tools that you have that enable you a competitive advantage, assuming acceleration on the rails of that network?

Ryno Blignaut

Jamie this is Ryno. So I think you’re referring to some of the NACHA announcements recently more the studies that actually weren’t that new that been doing them for years. And remember the NACHA so called same day ACH settlement is just that its settlement and maybe we should be very careful here to explain how ACH actually works because same day settlement is not good fun. And now I’ll explain the difference between the two so day if you remember on ACH it’s already next day settlement so you batch today the next day you get all the physical cash in your payment processing account. But then over the next four business days your payment process is going to start taking that cash back out of your account because the return goes and start coming in from the actual customers’ accounts. Be it insufficient funds or payment stopped or invalid account or charge back so it’s really no different than call processing. So all NACHA is talking about today with same day settlement is spending up that next day cash settlement to same day cash settlement. It’s nothing or everything we’ve seen it’s not going to change the risk profile of the four day good funds. It is going to be a big cash flow advantage which is great but it’s not it shouldn’t change the risk profile. But even that being said I think we should also keep in mind that ACH is a big margin driver which is why we operate at the margins we do it’s not necessarily a new customer driver, customers don’t come to Xoom saying I’d love to pay with my bank account let me pay by bank account. We give them a discounted fee to pay with their bank account. Now a lot of our competitors have already made card pricing cheap. So I think it’s a question that is fairly often misunderstood.

James Friedman - Susquehanna

Okay. Last thing in that regard is, correct me if I'm wrong, but if you do get the collapse in the timing, presumably your cash flow would actually improve, correct?

Ryno Blignaut

Yes, it would be definitely a positive impact in our cash flow because as you remember today what happens on a Thursday is on a big Thursday we’d borrow against our line of credit because we instantly release transactions to pay up that we essentially have to front at one day, one business day full.

Operator

Thank you. I am showing no further questions at this time. I would like to hand the conference over to Mr. John Kunze for closing remarks.

John Kunze

Thank you very much everyone for joining our call today and we look forward to continued dialog with all of you. Thank you and good day.

Operator

Ladies and gentlemen, thank you for participating in today’s conference. This concludes our program for today. You may all disconnect and have a wonderful day.