Q3 2019 Earnings Call
Thank you for standing by you on hold for the Moneygram International Inc. third quarter 2019 earnings release Conference call. At this time, we are still admitting additional participants and plan to be underway. Shortly we appreciate your patience and ask that you. Please continue just standby.
Good morning, and welcome to the Moneygram International Inc. third quarter 2019 earnings release Conference call Today's conference is being recorded.
Time, all participants have been placed in listen only mode and that's why will be opened for your questions. Following the presentation.
It is now my pleasure to transfer over to your host Wendy Sharp head of corporate Communications. Please go ahead.
Good morning, and thank you for joining us today on the call with near Alex Holmes, Chairman, and Chief Executive Officer, and Larry Ingenuity, Chief Financial Officer on.
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.
We will refer to non-GAAP metrics on the call.
non-GAAP financial measures provided and 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 eight investors and further understanding the company's quarterly performance. In addition to the impact that these items under that had on the financial results.
Please note that today's call is being recorded during this call we want to 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 defleur differ because of factors discussed are in today's earnings press release in the comments made during this conference calls and in the risk factor section of our Form 10-K forms 10-Q, and other reports and filings with Securities Exchange Commission.
It does not undertake any duty to update any forward looking statement and with that I'll turn the call over to out.
Great. Thank you Wendy.
Good morning, everyone and thank you for joining us today I'd like to begin by highlighting just a few of our key accomplishments thus far in 29 team.
First and foremost our business transformation continues to accelerate this has largely been driven by the continued success of our digital transition our customer service experience improvements and the geographic diversification of our revenue.
Well total company revenue was down year over year basis on a sequential basis reported revenue has stabilized.
At the same time for the quarter, excluding the U.S.U.S. business, we reported positive transaction growth for told them money transfer transactions led by strong growth outside the United States.
For the quarter, our non U.S. money transfer transactions reported a 7% year over year growth rate, while also delivering a return to revenue growth.
Operational efficiencies across the company continue to drive positive returns and enabled us to report $57.5 million a favorability year to date for adjusted non Commission expense.
Finally, we're proud to lead the industry and innovation, becoming the first money transfer company to launch visa direct and also the first to utilize block chain capabilities that scale through our strategic partnership grip.
Much on both of these partnerships in greater detail shortly.
But before we dive into the detailed updates for the quarter I'd like to take a quick step back to highlight the key tenets of our transformation and show how our business has changed significantly over the past couple of years as we focused on diversifying our revenue mix and delivering a differentiated customer experience.
First.
We focused on diversifying our leading position in the cash business I rapidly expanding our capabilities and partnerships to enable consumers around the world to conduct digital transactions to do so we've built a new app redesign or Moneygram branded website and delivered this simple user friendly experience directly to consumers and 25 countries on top of.
That we've entered digital partnerships with leading companies around the world. So that customers can now stand or receive money and over 60 countries.
This effort I'm excited to share with you that digital transactions now account for 20% of total money transfer transactions.
Second we focus on diversifying our revenue mix geographically to align with the global remittance market growth rates pursue higher margin core doors and concentrate on serving our core customer segments, 60% of total money transfer revenue now comes from business generated outside the United States and as I mentioned in this area we report.
At a 7% year over year growth rate and transactions for the quarter.
Third as we increasingly shift to a direct to consumer business, we want to compete and win by providing a differentiated best in class experience that delivers a seamless connection between senders and receivers.
As such we've invested initiatives to improve the customer experience.
Features such as transaction notifications promote codes enhance customer care, a revamp loyalty program and the simple an elegant user interface design of our new App and website have all been delivered to market in the past 20 months.
All these initiatives that led to a significant improvement to the customer experience, which has in turn enabled us to acquire new customers and retain an increasing percentage of existing customers.
Furthermore, it's important to highlight that another key part of our digital transformation has been to modernize our back office operations and digitize each customer touch points, whether online in store or through our customer care teams.
On this front, we continue to make great strides as well for example, we're now sending over 100 transaction notifications per minute to our customers as such they no longer need to call moneygram to check on their transactions and as a result call store call center have been cut in half.
On slide five you'll see another view that highlights our transformation as a business and that is the continued growth in moneygram online, which grew nearly 20% overall in total transactions. If you exclude the U.S.U.S. court or the business grew by 50%.
Over the past six months, we've focused on repositioning our online U.S. outbound business to reduce prices and enhanced marketing. The changes we implemented are already demonstrating success results is our U.S. outbound business reported an almost 30% year over year increase in transaction growth for the quarter.
In the U.S.U.S. online space. We've also taken significant steps to change the business and better compete by changing our pricing strategy and launching visa direct these actions along with the strength of our digital assets are also starting to turn this business around.
For example, Moneygram U.S.U.S. online volume exclusive of any Cobranded sides reported sequential transaction growth for the second consecutive quarter. After previously reporting four quarters of flat or declining transactions. Furthermore, since the beginning of the year new customers have increased by nearly 20% and we've also seen our return.
Current customer rate increased by 40%.
The most significant growth in our online business is still coming from outside the U.S., where we've achieved 109% year over year transaction growth for the quarter with 42% revenue growth.
This strong growth has been powered by our expansion into new countries, where reaching a net new customer who has in most cases never used moneygram before.
These customers once they try Moneygram online are also more likely to stay with their brand due to the simple experienced in the numerous receive options available to their friends and families.
Now a large part of our online success. It has also been driven by the overwhelming positive enthusiasm for our new App. The app continues to exceed expectations and deliver a strong return on investment.
Since its launch at the end of 2018 over 1.2 million consumers have downloaded the app and it's now one of the highest rated consumer apps in the industry.
Last month, we saw an all time high and the number of customers, who returned to send money by the App and new customer retention rates continue to exceed expectations.
This app is live in 25 countries and is attracting a new younger customer segment largely never used our walk in services before.
In fact, the combination of growth in new customers and higher customer retention rates have led the app to double its contribution to total online transactions in less than nine month.
Today, 80% of total online transactions are done on a mobile device, which is great news because mobile customers are stickier.
Again, we couldn't be more pleased with the success of the App and we're preparing to focus on enhanced digital marketing efforts in 2020, including launching a referral program to help bring our leading have capabilities to more people across the globe.
As you know in a quarter, we launched our new partnership with visa.
This partnership is another example ever innovative work to improve the customer experience by seamlessly connecting senders and receivers with instant transfers. The partnership provides consumers with additional choices on how to receive funds and when fully rolled out the capability enables us to push payments to over 1 billion cards worldwide.
Tumor adoption has been strong so far and we're particularly excited to see that over half of the customers our net new to Moneygram.
We're proud to be the first money transfer company to go live with visa direct and we're working quickly to expand the partnership to additional core doors in the fourth quarter.
Furthermore, in the coming weeks, when making additional exciting announcements about the latest innovation to our visa direct service they will enable customers to send money much faster and easier than they're able to today.
Overall, we believe these new capabilities will enable us to continue to disrupt the industry accelerate U.S. outbound growth in better compete in the U.S.U.S. market for the service that is as good or better than any of the other existing options.
Now as you can see on this slide loyalty program continues to build momentum.
The number of loyalty members is increasing and the average number of transactions per loyalty member is also increasing these two factors are a powerful combination that will be key to our ongoing success. This chart also illustrates that point by showing how our loyalty members contribution to our business continues to increase at the beginning of year loyalty members.
Accounted for about 21% of total transactions today, they account for 27% which is outstanding.
Due to our success in the U.S., we've expanded the program to four more countries during the quarter and international expansion of the loyalty program to more markets will be a key focus as we move toward the end of this year and into 2020.
I'm pleased that Moneygrams amazing servicing global brand continue to lead to both key contract renewals and exciting new signings and both the walk in and digital space.
First and foremost we're pleased to announce the extension of our agreement with Walmart into 2021.
This contract extension serves as a testament that Walmart recognizes the high quality of the Moneygram service and network, we continue to align and partner on the future the industry and have innovated to not only off of the world's leading money transfer service, but to also protect consumers from fraud.
As always I think Walmart for their ongoing partnership and I'm excited about the next stage in our relationship.
During the quarter. We're also very excited to sign a contract renewal with Cvs.
Yes, it's been a longstanding partner in a pioneer in this space of the launch of our innovative solutions several years ago.
As we enter the next stage of our relationship with Cvs, We're excited to collaborate on ideas and initiatives to further improve the customer experience.
At their great Jane.
In addition to these key renewals were also launching many new exciting partnerships around the world.
During the quarter.
We launched inside a new partnership with agricultural Bank of Egypt. This relationship will help expand our presence in the fifth largest remittance market globally, a market, where remittances account for a significant portion of the country's GDP.
In the U.S., we signed with Brightwell, where we've been integrated into the company's payroll solution for cruise ship workers. This partnership enables crew members to send money digitally straight from their paychecks to friends and family and over 200 countries and territories. The partnership also highlights an opportunity move upstream and the remittance space, which is something we'll continue to explore.
Anyway.
And lastly through our direct bank partnership team, we signed a new agreements bank off a lot to enable account deposits in Pakistan.
Our deposits are increasingly popular Steve option for consumers and we're very excited about the growth in this channel and the potential to accelerate our business in Pakistan.
Turning now to our other very exciting news in the quarter and that of course is our partnership with ripple.
To date, we've integrated ripple into our standard treasury process to execute foreign currency trades 24 seven.
Over the quarter, we've continued to increase our usage of ripples on demand liquidity product for a portion of our daily funding needs in Mexico.
As a result of this success, we're working to expand the partnership to Nucor doors before the end of year.
Furthermore, we're also in the process developing a roadmap on potential new use cases to improve our digital payments offering.
So this will take some time to achieve we believe that will lead the industry in accomplishing this vision and that our partnership with ripple will be a competitive differentiator in the months in years ahead, but Larry will talk more about that in a few minutes.
Now lastly, before I turn the call over to Larry I'd like to briefly discuss it prevailing misperception various stakeholders continue to ask me we plan to remove any of our compliance controls specifically, our I'd requirement because some competitors continued to complain that is an unnecessary to collect I'd now let me.
That's a record straight the compliance controls that we put in place are working as designed where preventing consumers from being defrauded and we're turning away bad actors.
A recent experience with one of our non exclusive agent partners. That's a perfect example.
In agent reach out to us with a list of names of individuals that he described as his best customers customers that he had diverted to the competition because he believe the moneygram had incorrectly block them from transacting.
So we went through those names one by one review the attempted transactions and found that our controls were accurate. We had successfully prevented good customers are being defrauded. We successfully screened out known fraudsters and we had blocked individuals to on local government watch list.
Unfortunately, many of these individuals ended up transacting with one of our competitors.
I'm proud that we've de risked their customer base. We continue to report the lowest fraud rates in industry, and there were leading and protecting our agents and customers with that I'll turn the call over to Larry.
Thanks, Alex.
Results for the third quarter represent another important step in the stabilization of the company's revenue and EBITDA as well as a return to growth in most of our major markets and corridors outside of the United States.
As we anticipated revenue and adjusted EBITDA were down year over year.
However, on a sequential basis Q3 revenues of 325 million, so slight improvement to the 344 million of Q2.
The driver of this trend is the growth of our digital properties and then.
Just walk in business.
Offset by declines in the U.S market.
Adjusted EBITDA was approximately 52 million versus approximately 54 million last quarter.
As you can see on the chart, we grew 2% in revenue year over year outside the U.S. on higher transaction volume of 7%.
Diversification of the company outside the U.S. that continue to positively impact our results now that are to U.S.U.S. business is less than 7% of our total revenue.
As you know the U.S. market is becoming increasingly competitive.
And our competition large and small.
Not only pricing aggressively the consumers.
But also importantly, increasing agent commissions and their intensify growth.
We believe that buying growth as a shortsighted strategy and with margins in the west that are increasingly.
Profitable growth will be harder to come by not just for us but for all those were targeting the U.S. walk in remittance market.
As I mentioned adjusted EBITDA was 51.7 million on a reported basis for the quarter down from 59.5 million a year ago and 54.3 million sequentially.
We had expected this trend of an increasingly competitive pricing and commission environment that was beginnings of pressure on margins.
Yes that part of that lower gross margin with continued success in our operating cost reduction efforts.
Adjusted non commission expenses were 399 million for nine months down 13% year over year.
As has been the case this improvement is independent of declines in volume and the company continues to improve its competitive position with increasingly scalable expenses further enhancing our ability to benefit from a return to growth.
Total compensation of benefits for nine months decreased 38 million or 19% from last year as Weve completed important milestones in our digital transformation, we continue to discover new opportunities to become more efficient and scalable.
We believe that we will still have opportunities to reduce cost on a sequential basis, which will enable us to maintain margin if pricing pressure and commission pressure continues.
I'm examples for future savings include our migration to cloud computing.
And our continued success in reducing inbound phone calls as Alex mentioned, which is evidence of an improving customer experience.
Ever since we announced ripple through investment in the Moneygram. We've had many questions on the impact of this partnership both from a financial and operational perspective.
I'd like to take this opportunity to describe how we are using the boxing and its benefit to moneygram.
The ripple block chain enables moneygram to achieve what we're calling real time settlement.
Currently moneygram is using ripple to facilitate what are almost instant foreign exchange trades.
In Mexican peso for example, we purchased the cryptocurrency X RP on a U.S. exchange transfer it to an exchange in Mexico and sell the XR for you on the exchange in Mexico for pesos, all within about 60 seconds.
Essentially we're using cryptocurrency as a unit of measure through the ripple block chain.
This means that we can reduce our inventory pesos and reduce our exposure to volatility during the shorten time that we need to hold them.
This is just like just in time inventory for currency position, reducing our working capital needs as well as matching the timing of our sense on the settlement with our agents.
The majority of these benefits will come with scale in the future.
In addition to those benefits were compensated for developing and bringing liquidity these markets as well as providing a reliable level of foreign exchange trading activity.
Really basis.
Third quarter was the first time, we recorded revenue from this agreement.
Today, we are driving about 10% of are doing Mexican peso volume through this technology.
Through our partnership with ripple as we develop new markets and bring our liquidity into these markets.
Trading volume are being significant scale to the foreign exchange markets using this block chain technology.
Expect to add new currencies in the fourth quarter and develop new currency pairs that don't include the U.S. dollar over the coming months.
On top of that we believe that we can develop new digital products that would benefit from real time settlement as XR few markets become more established and more liquid.
We expect a general increase I mean, I'm, sorry, a gradual increase and the impact on the company as we pilot new markets and bring them to scale with rubles assistance.
And finally with the visibility that we have today on the rest of the year.
We're providing outlook for the fourth quarter 2019.
For the fourth quarter the company anticipates total revenue of approximately $330 million and adjusted EBITDA of approximately 50 million.
And now I'll turn the call back to Alex Great. Thank you Larry.
In summary, our business transformation is progressing increasingly digital increasingly diversified and increasingly differentiated by customer experience. We've achieved overall strong performance outside the United States and continue to work hard to turn the U.S. business operational efficiencies are driving expense reductions and our innovative partnership with visa arena.
I made a partnership with ripple are both progressing and we're beginning our journey towards our future vision of global real time settlement now I'll turn it over the operator and we're ready for your questions. Thank you.
Thank you if you would like to ask a question. Please press star one on your telephone keypad.
I guess speakerphone. Please make sure immune function is turned off signal taste. The equipment again that is star one.
We'll go first the Ramsey south at Barclays.
Hi, guys and thanks for taking my question so on the ripple technology.
We should consider that is really more on on the cost side theres not a a revenue generating opportunity that might come from the technology at some point in time or are you maybe a broader we'd ask that question is are you.
Imagine doing are experimenting with potential revenue generating opportunities from distributed ledger or ripple or is it really more just sort of that something that we should help you in terms of the.
The cost structure the business.
I think in the short term a they'll be a revenue piece to this.
Right now it's a relatively minor it's included in other revenue, but there will be revenue associated with the referral agreement and then over the longer term.
Have a cost benefits as well so that we're looking at it from both the short term and long term perspective, yeah, I think to add to that if you. If you think about what the what the potential is is to really.
Utilize the technology to.
Matt.
Almost perfectly match consumer transfer is with the settlement processes because as you know those processes are very different today right, we prepositioned cash all around the world.
And so the more real time, we can make that the more efficient that will become in the better revenue opportunities. There are I think right now we're using the on demand liquidity platform, but there are opportunities through triple net to begin to move money.
Directly into accounts.
With other partners inside of ripple so.
Those are all there and those are conversations that we're having and excited to ramp those up and get those going which shows what you'll all be new revenue opportunities for us.
And I wanted also then to ask about visa and your visa direct relationship can you kind of give us more commentary flesh that out a little bit in terms of what's driving the consumer adoption is it just a broader reach of the product means they're more customers that have a use case for it is there a particular chat.
No that's proven.
Important in terms of rolling out new customers, just a little more granularity on that partnership and the product itself would be great.
Yeah, No left is great question.
Visas.
An amazing product an amazing service all around the world and I think what they've created with with visa direct is really interesting and super compelling.
You know, we've said for a long time or [laughter].
At least in the last couple of years that I think that the U.S. to U.S. domestic walk in products.
Is.
Under a lot of pressure obviously the results of our competitors with let's say the same and I think thats largely.
Been driven by not only the cost of the service and the walk in space, but I think also the alternative solutions that consumers have in the PDP space.
I was really pushing that team hard to get this or is live as soon as possible to this little bit longer than than we wanted but.
Right now we're using it domestically.
And you can go online and send money directly to visa cards.
As a debit cards in the United States in the the adoption of that from our consumer base in from new consumers I think we said about 50% or new suits and moneygram.
It's just been remarkable I think the it brings a value added service at a reduced fee.
That we can still.
Make nice margin on obviously lower revenue per transaction, but the profitability is great. So.
It's really Super Super interesting and I think for the first time Moneygram has as a product that's relevant in the PDP space domestically that with allows us to compete with some of the other services that are out there what we want to do with it and what we're going to do with a very shortly.
Does expand that that cross border and really be the first company that is doing.
Real time account to account movement.
Through visa.
Direct to multiple countries cross border. So if you think about what what is elsewhere or potentially even like a venmo competitive product domestically looks like this is sort of that cross border, which I think is.
Really interesting and definitely very compelling for a number of consumers out there first and foremost consumers that we have today, but I think more importantly, consumers that don't utilize the moneygram service today. So from an expansion perspective is.
It's really it's really very interesting we're also.
Can't really tell you exactly what it is but we also have a couple of enhancements to the service when we begin to move it.
Cross border and enhancements to the domestic service as well as or they are going to be really exciting to see and we'll be excited talking about those in the in the coming weeks as we get those live in market, because they're going to really kind of changed the way the experience works, which I think will be super additive to growth for that service.
That's really helpful color. Thanks, so much.
Well go next to Kartik Mehta Northcoast research.
Hey, good morning, Alex and Larry.
Alex as you look out to 2020, and I know, you're not giving guidance, but it's I look at kind of each quarter you reported in 2018. It seems like if revenues are stabilized or on 330 million and I know you and Larry in the passive said you kind of we have to be our revenue stabilized do think those $330 million.
As a stable level of revenues a quarter for you guys going forward.
You know seasonality aside.
It's certainly in the ballpark I think the question for me continues to be the efforts here to turn around.
The U.S. walk in business, particularly sends to Latin America.
That has been.
A frustrating.
I think portion of the story here and something that we continue to work extremely hard on but getting getting or us outbound growth factor, where we needed to be is is going to be kind of critical too.
Staying ability of those numbers I think is we highlighted the non U.S. business.
Is doing is doing well, it's a bigger piece of the business and continued to.
To show some good improvements we saw some work to do in a number of areas I still think we're we're a little soft in Asia Pac.
Region, but middle East Africa are good Europe can do better it's been performing well, but Europe needs to.
Kicking up a little bit more but.
Started just come back to to the U.S. market.
And we got to get that go on.
And again, we've talked about a lot in you know this year and last year, just some of the challenges there but.
We get that going I think I think that those numbers will be.
Definitely where we can be.
And then.
Alex It seems like the business for you as you said is changing more online.
Do you have your half this potential visa direct using cross border.
Into the agent base seems like it's.
You are going to use it last either from a sense standpoint to receive standpoint, depending on what the consumer does does that.
Ultimately help you from a commission standpoint or does that change maybe how you structure you agreements with your agents.
It's a good question I think the message that I think we're trying to.
Trying to send maybe more succinctly is that the walk in business and the and the in a digital business are just different.
I think where they overlap is that the vast majority of digital sense are still picked up in cash, but there is a growing.
Opportunity.
For sense to account since the wallets in these things, which are which are picking up a lot of momentum, particularly from.
An online to online perspective, if you will so.
I think that there is.
I think that Theres.
A lot of momentum.
In a number of different places, but I think the walk in business.
You know is is super strong and just so many markets around the world I mean, if you go through Africa Middle East parts of Asia, Latin America, even in the U.S. retail space for example.
The cash business is a super critical piece and I think it's as competitive as it's ever been it is hard to.
You know to turn those markets and win business were being more aggressive.
With agents and in fact, I think probably a little bit in contrast to your question I think we're being more aggressive on commission more aggressive on incentives and trying to do more at the point of sale too.
To show a better value added product and that's where some of the digital overlay comes in as well because I think consumers are looking for digitize experience that doesn't mean, they need to transact digitally like with the bank account, but that doesn't mean that they're looking for that better customer experience, which is where the loyalty program transaction notifications promotion codes.
You know online registration to do walk in sends in these types of things are pretty critical so.
Listen I think it into the day I think.
Our commission rates are probably going to be.
You know able to to be flex down in some markets in it but I think in general there are a little probably be stretch a little bit and others. As we look at incentives I mean, the reality of a nonexclusive world is that you have to compete not only for the customer but also for the agent share of mine. So at the same time I think our digital assets in the consumer direct side of that will grow.
And grow extremely quickly.
And today I think about 80% of those customers are all new to Moneygram. So.
I think it's a mix, but I do think that the walk in business in the digital business.
Have some overlap.
Feature functionality, but just in terms, if we that consumer pick on this end side as I think it's just it's a different market right now.
Alright, Thank you very much appreciate it.
We'll go next to Bob Napoli at William Blair.
Thank you.
Good morning, guys.
The.
Operating margin in your global funds transfer business I think is probably running far below where you want it to be I mean, obviously you need to get your your profitability up your EBITDA margins up in order to given.
Yes to generate a reasonable level profitability, especially given your balance sheet is any what is the right margin for that business and how do you get there and how long does it take.
Especially since it sounds like you're.
You don't feel like I mean, you're hoping to hold revenue and stop shrinking as opposed to growing in the near term.
I think that is the that is the biggest challenge when you're you're giving sort of inverse economies of scale, which is shrinking.
Great.
It's really a mix issue globally, our our fastest growing properties are.
At a lower margin than the traditional us business was.
And I think that changes overtime as we get to scale on some of those.
Products, we're also starting to see now.
Kind of as we speak some of other global markets that have more traditional markets returning to growth. So I think this year was a case, where we were declining and some of our where more traditional.
Margin businesses, and then as we returned to growth in some international markets that have more normal markets and get to scale on our digital stuff. It will bring those margins back ultimately just like any other business I think.
Revenue growth Weve, some margin expansion and I don't think are exempt from that.
But the U.S.U.S. market is really the biggest driver at this point.
Okay.
And then you're.
Online transactions were up substantially I guess transaction growth of 100% and looking chart in revenue growth of 40%. What is the so there was what is going on with the pricing and what is the.
Yes, I mean, the revenue the problem I guess, maybe what the outlook for profitability on that business sounds like I mean, it suggests that you had a major price cut.
Yes.
I would say a couple of things on that Theres definitely a blend.
In that business.
Listen I mean, just pausing on that before I answer that specific question I would say just generally speaking.
No I think we've been consistent for quite a while saying we fundamentally believe that pricing.
In our business across the board needs to needs to come down number markets and needs to be flex to be relevant to consumers we've done a lot with.
Pricing experimentation not only launching new markets at very low introductory prices, but but also.
Aging prices and traditional markets like the U.S.U.S. business and in the U.S. outbound market I mean, we've taken prices in the U.S.U.S. example from.
13, 14, $15 online down as low as 99 cents and then back around again.
And then settling in us and different prices, we've played with prices in the us out by market. What we're doing is looking for that inflection point, where we can find the right number of consumers.
Shifting that price, bringing a new consumers, but then also bringing our weaker returning customers back in I think we've done a very nice job of that it's obviously put some pressure on revenues in the U.S. business and it's also.
Put some pressures in the international business as well when we've changed the prices and some of our legacy markets over there like the UK and Germany, but the net result of those changes has been a material shift in the number of customers and transactions coming in.
And our growth continues to accelerate even against the backdrop of what continues to be a lot of noise from.
New or legacy competitors entering those those markets at the same time so I.
I think pricing is sensitive I think it's an important aspect of what we do.
But pretty much when you look at the that non you as the revenue growth, it's really related to introductory price points, but also just isn't.
Prices in the UK, and Germany, which are markets that we've been in for a long time.
Again, we are seeing kind of.
Nice margin, but relatively slow growth.
Change those price points and suddenly the growth is is fantastic.
From a from a profitability perspective as as Larry said.
It's not going into profitability a bit but I think.
The margin on it is quite good and I think that the growth that we're going to see from customers and repeat customers one more than pay for itself over time. That's why we're also spending so much of our time focusing on how do we make our business more efficient from back office perspective and streamline.
Our operations get more efficient on go to market strategies and kind of how we operate.
So that we can actually better compete in the low price environment.
We're driving transactions consumer adoption to repeat customers is really critical to long term success.
Great. Thank you appreciate the answers.
Okay.
Well move next to Rayna Kumar of Evercore ISI.
Good morning, Thanks for taking my question.
We put out an 8-K, indicating an extension of your Walmart agreement, but also commented that it is an exclusive what's your strategy is Walmart add the second money transfer provider to the cross border contract.
Yeah listen I think that the Walmart is not really just similar to a lot of the rest of the market, which is non exclusivity is becoming.
More of the norm I think than than not I think that.
Competing in that environment really requires you to have.
You know best in class product with with best in class service and pricing and Thats exactly what we're focused on I think that between.
Moneygram and I guess I'd add western Union, where the only ones. It run a really dynamic what we call we'll call service, which basically gives customers access points to.
All of our network and those foreign markets I think we've done a very nice job with with.
FX management.
In the last couple of years I think we've done a nice job, adding a lot of service enhancements things like the loyalty program that we've talked about transaction notifications et cetera. So it's really going to be Oh, and also I suppose I should add the compliance side as well that consumers.
I think the changes that we've made and the adoptions that consumers are seeing in our fraud prevention.
Is adding a lot of value to the service. So listen I think we know Walmart is a great partner.
They have visions of how they want to run their business longer term and if that involves.
You know competitive services at the point of sale than I think were more than ready to compete.
Got it is very helpful and what's your early outlook on 2020 do you continue to expect EBITDA to grow next year.
We're going to.
Pass I think I'm trying to guide anybody to 2020 at this point.
Okay fair enough. Thank you.
Well go next to David Scharf JMP Securities.
Hi, good morning, Thanks for a thanks for taking my questions as well.
A couple couple of things one.
Just a little more granular Lee can you comment on us to Mexico trends given that it.
Significant corridor still I believe I think last quarter, Alex you mentioned that Latin America.
Aggregate was a bit lower than expected.
Given compliance constraints, but directionally as us to Mexicos, turning the corner in terms of re accelerating.
The answer to that question is a bit mixed I'd say in.
Certain areas I would say that the growth is turning an accelerating in aggregate no were still we're still.
Facing significant challenges in the in the walk in space around the Latin American business and.
Mexico in particular.
We were we've had a couple of months that have been.
Good and sort of encouraging and others that have been.
Continually frustrating so we have some work to do in the U.S. retail space.
The smaller mom and Pops, we have a lot of initiatives underway there to to.
Begin to reposition when that when that business back I would say the online business looks very good to Latin America right. Now so it's really kind of that that that U.S retail space. So yeah, I know, Mexico is down and Thats definitely a drag on the on the U.S. outbound numbers.
Got it got it and in can you refresh my memory on it was helpful that the comments about.
The companys.
Requirements of collecting I'd.
No I believe about.
Maybe it was a year ago.
You may have talked about how.
For U.S. out now.
Obviously anonymity has always been.
Something that a lot of remittance providers in place to premium on it and I think it was.
You know for for all transfers below $3000 they didnt.
You know a lot of competitors didn't collect anything can you remind us sort of what the.
Benchmarks are.
Now I think at that point, you said that.
You know you would been collecting I'd for any transaction under $900, but are you collecting it for every single transaction Im just trying to get a sense for.
At ASCO in May be.
Sandage of transactions that fall under the collection.
Yeah.
No. That's it's a good question no problem, yes, so standard standard B.S.A. requires a lot of information to be collected at $3000, including I'd.
Below that there really is no standard I would say in the state of Arizona. They do have a strict dollar one I'd requirement everybody else.
It doesn't really have one I would say the industry has kind of defaulted to this eightnine hundred dollar range.
I don't know why but that's just kind of legacy.
Sensitivities of transactions over 1000 I guess.
And below that there really are no I'm I'd requirements is actually really not any requirement on data you talked about a consumer in general.
You need their name obviously.
But beyond that it's a there really aren't any specific strict guidelines. So we try to do.
Standardize that obviously weve.
Had a lot of changes to our compliance systems and our compliance controls and in order for those systems to work properly you need to know who who a customer is.
The data that we collect is basically your name your address your phone number you data birth, and we do quite your idea dollar one on both.
Both sense and receives and I think thats pretty standard practice and any financial industry check Cashers all do it.
Pretty much.
All banking.
Has that requirement I think probably really maybe the prepaid space enough and money transfers are probably the last place in the world.
You can do financial transactions without without showing that type of information I think yeah. As I've said, a few times that we have absolutely no problem conducting business with consumers that are willing to give us that information and most consumers have no problem, giving us that.
That information I certainly understand you know if you are.
The country.
As a non registered.
You know citizen or maybe a little.
In the country or if you're maybe legal but just concerned about giving that information yeah. Clearly you have alternative choices.
And you'll go to those I think that the information that we've gathered and that we get from the question to that information.
Has been absolutely phenomenal.
When we try to.
Prevent fraud, when you try to.
Make sure that consumers aren't spending too much at your aggregating properly for reporting purposes on.
Volume sent in these types of things having that type of information is absolutely critical the knowing your customers are and quite honestly, if you're not collecting that data.
It's really hard.
You know, who a customer is and whether or not you're doing the right things from a compliance perspective so.
The requirement Friday, the other thing I'll just mention here is that we put that in ourselves we were not hold to put that in we were not required to put that in.
It did get added subsequently to the extended.
Okay, and FTC order that we signed they added that in there because we were already doing it not because they deem to that we had to do it.
But no the value of it is incredible and in fact.
One of the things you face in the fraud World is fake I'd.
So actually a lot of our algorithms and rules run against.
Ideas as well so that we can stop and block sake ideas.
Which is which I think is probably.
Unique.
In the industry right now so.
It's resonating well every every compliance officer I meet with it every bank in every.
Provider, but unfortunately, a lot of our competition.
Sales really really hard against that and tried to create the perception that said, we're blocking people on necessarily or stopping.
Good people from transacting or whatever it may be that's that's a pretty pretty highly utilized sales pitch for almost all of the competition right now and I would say that that's probably one of our one of the harder things to overcome and the nonexclusive market right. Now is the misperception that the competitors are spreading.
Right right now that said that's helpful color.
Switching to I guess ripple, maybe following up on one of the previous questions on understanding.
For the long term.
Community.
To the extent that.
Yes.
Its scale the opportunity here is is savings on settlement costs, that's how I sort of read this.
First of all.
This is show up in that.
Transaction in ops support line, I mean, I'm trying to sort of quantify.
What the.
Not that but I guess the cost is today.
Of settling in currencies, which my understanding is.
Most you're just taking a 24 hour position.
Currency.
Typically something like the peso, which is fairly liquid tradable currency.
Wouldn't seem like there's a tremendous amount.
Of risk in that 24 hours settlements. So as we think about real time settlement with ripple.
Can you help us really understand just how much cost savings opportunity there is because you obviously.
So 10% of the company.
For for.
Part for this partnership.
Yeah.
Hello.
It's in the quarter.
Theres nothing material and so you know there is some.
In addition of an immaterial amount in revenue.
And the long term to get into your specific questions about like.
Okay. So for example.
Okay. So even though it's a very good recurrences very volatile it can be 2% today.
And what we're really talking about theres basis risk is that we.
We have an instant product customers can pick up that money within minutes.
We have to settle their agents.
Generally within hours.
And we have a position in Mexican peso the can reprice on a real time basis.
So when you think about that and then you think about all the currencies that we have.
Closure to.
Well, we've been adding basis risk.
Doesn't show up in European out what you really have as a.
A mismatch that impacts margins, but without really in a line item.
And the other thing that doesn't show up specifically is the amount of capital that's required to essentially prefund all of our foreign exchange.
It's all over the world and that's the point, we're making about the future state requiring scale I don't think you know in one quarter doing 10% of our Mexican peso volume through this product it didn't really material change the amount of working capital that we needed it didn't materially change.
The basis for us that we experience on Mexican pay so.
But you can think about the the future state where when this does speak.
A a meaningful part of our currency pairs and when you're taking that timing and matching it to the settlement of a transaction and then actually designing products that can benefit from that that's where we think it does start to resonate and it and so it really you know it's a hard question to answer because.
I can't tell you O.T.N.O. is going to go down you know, 2% because we're using ripple. It has all these you know interest rate you know interest expense could be impacted the you know and margins in general so it's.
It's really a long term it is to it it changes the way we can operate.
And in the near term, it's it's favorable to the company and its development Phase and then it's favorable the company in the long term.
Yeah, I mean, I think <unk>, adding to that get anything.
<unk> sent very very well I mean, I I think the deal is not about you know the you know foreign exchange you know U.S. dollar Mexican pay so right I mean, it's more Larry was going it's it's about how do you fundamentally change the way that settlement work globally and how do you fundamentally create real time settlement.
Real time in in market and I think that that once so so interesting and so compelling about this right. If you think about.
You know 20000, plus corridors all over the world that money moving from you know 0.8 point be you know, we'll we're always kind of doing is running you know a book that bringing that back to the U.S. dollars in many ways and I think is we've talked about in in different ways over the years, you don't conceptually need to do that you have to do that because of the way that you know.
Systems in banking work today, but in in a <unk>, that's really not necessary and I think the the scale and efficiency you can create with that and that sort of the permutations of value created through losing money into bank accounts wallets, you know keeping it in market as and liquid as as possible from.
A real time basis I is just so compelling and it's not like you can do that in the morning, but you know over over the next several years I mean that that opportunity is just sitting there and I think the accompany they can take advantage of that and monetize it.
Is going to do exceedingly well and that's what we're that's what we're running hard against and hard at because I think it's it's it's an awesome opportunity to just fundamentally rethink how.
Money really moves around the world than how you actually offer and provide service and value to customers.
No no that that's it that's that's great context, a one last cleanup question for for for Larry The Delta between the cash and non cash interest you know about five minutes five and a half million should should we interpret that as pick interest on on the junior notes should we add 5 million down.
Dollars to the balance of those.
Notes, Yeah, I think that forever to calculation.
Okay got it.
Thank you.
Yeah.
Okay next to my at my plans security.
Yeah Guy just following up on the Whipple questions.
Could you spend a minute in maybe the revenue opportunity with ripple I'm still having a little bit a hard time understanding it could you go over that one more time.
Yeah, I mean, I'll I'll take it <unk>.
Maybe here new voice on the same topic. That's interesting is my calling is you know teasing anyway. The no I mean, there's a couple of things going on so first and foremost right we get efficiencies on on the F.X. trading and management. We also have an arrangement with ripple, where you know as we've as we.
Volume and liquidity too.
To market, we we share in the benefit of that so there is upside to us as we as we grow and provide liquidity to those those platforms the way that that.
Actually calculated and and how we're in essence compensated for that is.
Probably not something we want to we want to get into from a competitive perspective, but suffice to say is is we bring liquidity to those markets in and we and we push volume across.
Cross the platform, we do get we didn't get compensated for that and that is recorded as revenue.
You want to add to that now [laughter], which was.
Hmm, which has a really shown up in revenue, yes, yes, yeah, and that's kind of the base agreement now as we expand into more core doors and then we start to utilize things beyond the on demand liquidity platform and begin to think use things like grip on that now we're talking about like real time account deposit type services.
Utilizing X.R.P. and block Shane into partners on the ripple net.
<unk>.
Exchange or service or whatever you want to call. It and that that is also revenue for us as well as we you know begin to utilize that or [noise] Ah for money movement as well. So there's revenue coming from that we don't have any specific to that yet but that is on the road map and pipeline for for the coming.
<unk>.
Yeah, Okay that was a little bit helpful.
Then just lastly, Ah, but it's better than not [laughter].
Sure.
The the loyalty membership you know going from 21% touching transactions, they 27% [laughter], how do you see that developing and 2020 and 2021.
Well, if I had my way it would go to 100%, but I'm gonna get to my roles from from the marketing Department, because it's probably not practical but I think it's going to continue to.
To expand I mean, it'll certainly expand as a percent of the business simply as we roll it out to more and more market but.
There's really two pieces there I I think one is how much of that is from new customer enrollment and new customer transactions and then how much of that is actually from repeat customer utilization in in increases in transactions per customer and right now most of it is well actually me pause on that the the there's.
Obviously, a piece of it from rolling out than you program and then there's a large piece of it from rolling it into a new markets, but the where we've roll it out the increase in transactions per customer is is been I'm very very strong and so that's exactly what you want in a loyalty program, which is not only more people on rolling in it but also stronger retention rates of.
Of customers and and getting you know repeat customer utilization. So we're seeing strong it option.
In both until I'd expect that number to continue to go up.
Got it okay.
Thank you.
Thank you.
<unk>.
Point like J.P. Morgan.
Oh great.
Yeah. He thinks we're getting Maionica, hey, guys. The <unk> I think the Walmart. We know question was asked already so I won't let's all go there, but how about C.B.S. and just.
Your your traditional you know, it's just I know you mentioned commissioned a little bit but any change in pricing term, how does that generally conversation going outside Walmart.
No generally speaking I think it's gone you know quite well I think that the you know the larger the larger agents I would say that the the commission's associated with those have been I've been very consistent by market. So I'm around the world I don't think those are.
Those have changed a tremendous amount and and no C.B.S.C.B.S.. We know it was great. The Walmart renewal was great. So no concern from a cost perspective on on either of those and I think we're gonna have some some good advantage to to grow both those businesses going forward, which is nice.
I think the rest of the the World I would say you know when we talk about commissioned rates are being a little more challenged and maybe some incentives that largely outside the U.S. in the non exclusive market and then it's in the small mom and pop U.S. retail and then European retail space, where competing for share of mine from the.
<unk> is more more aggressive and that's where we have seen permission to go up or we've kind of had normalized commissions with what we call incentives on top of that for particular corridors or or particular.
Amounts of business, where we'll pay incremental for those and that's pretty standard in trying to keep up with some of the smaller niche competitors, who tend to focus on hi commissions to to drive I'm sure if mind at the point is out.
The other major renewals to watch and a short term.
Very you know right now we have I think nine nine out of 10 of our top agents are renewed through at least early 21. So you know, we're always kind of working on one or the other but I think that.
That's a that's good to see and we actually have I think of a pretty good pipeline of of agents that you know what kind of finalizing contracts with which will hopefully be putting press releases out in the coming weeks, which would be exciting and then we have a a couple I'm in the hopper that if we can we can get signed and brought on by.
Word I think will be will just be awesome for us and a number of markets round. The world. So hopefully I'll be able to share that with you in the coming weeks in some press releases and you know that would that would bode well for continuing growth next year.
Strays left click one just on the back side not a revenue question here not looking for 20 guidance either just line of sight into backs and if there any potential here for.
Even more savings I know, you're you're doing a lot of hard work here to to get me as a direct integrated ripple work before the savings to still work I think on a tech side plus everything else, you're you're talking about I mean do you see relief from some of that work or is now is that more the the near normal what's your tech spending.
No I think we're going to be able to continue to.
Reduce.
Our our operating expenses even sequentially. Okay. We are we thinking 2020, there'll be an opportunity partly due to continue.
Improvements to the user experience and just the reduction in some of the drags. It usually comes with a phone calls et cetera, and then also as we re position in the company.
The more of a consumer direct orientation, and we think there's additional cost savings there too so I were.
Can't give a order of magnitude, but we think there's still room to go on reducing dollars a sequential basis throughout bucks. Okay. That's what I was looking for thank you.
What other things just while I'm still on the record real everybody. We've you know just a refinement to a previously ask questions.
About pavement.
One of the things I forgot to mention part of the nine cash interest expenses and amortization of our upfront costs, which is the normal kind of thing that you know the way we account for a any kind of transactions. So about two thirds of it actually is payment unkind it.
Another third of it is a amortization about fronts just <unk>.
[noise] and that does good thing today I <unk> they session I'll tend to coffins back off like a management for any closing remarks.
Great. Thank you no appreciate as always everyone's interest in in the company and we look forward to follow up with you in the next couple of weeks. So thank you very much is always.
And that definitely today's conference again, thank you for your participation.
Hmm.
Oh.