Q3 2020 MoneyGram International Inc Earnings Call
[music].
Hey, and welcome to the Moneygram International Inc. third quarter 2020 earnings release today's conference is being recorded.
At this time, all participants have been placed in a listen only mode and the floor will be opened for your questions. Following the presentation.
My pleasure to turn the floor over to your host Stephen Wright head of corporate Communications. Please go ahead Sir.
Great. Thank you good morning.
Thank you for joining us today.
On the call with me, Alex Holmes, Moneygram, Chairman and Chief Executive Officer.
Charlie Chief Financial Officer.
<unk>, Chief operating officer, and leader of the company's digital business.
No money down Investor Relations website, you can find the earnings press release and presentation, which is intended to supplement to our prepared remarks during today's call and provide the reconciliations between GAAP and non-GAAP financial measures.
We will refer to non-GAAP metrics on the call today.
Non-GAAP financial measures provided should not be considered as a substitute for or superior to those prepared in accordance with GAAP. They are included as additional clarification guidance to investors in further understanding the company's performance and it does.
Thank you the impact that these items that at that time.
The financial results.
Please note that today's call is being recorded during this call, we'll be making forward looking statements, which are predictions projections or other statements about future events.
These statements are based on current expectations and assumptions that are subject to risks and uncertainties.
Actual results could materially differ because the factors discussed in today's earnings press release and the comments made during this conference call and the risk factor section of our form 10-K form 10-Q, and other reports and filings with the Securities Exchange Commission, we do not undertake any duty to update any forward looking statements that culture and they called <unk>.
Great. Thank you Stephen good.
Good morning, everyone and thank you for joining us today.
The amazing performance of our digital business drove yet another impressive quarter. The company continues to build upon its gradual growth trajectory.
A customer centric strategy and growing active customer base helped deliver year over year money transfer revenue growth for the quarter.
The strength of our adjusted EBITDA and cash flow demonstrate how our our investments to build a scalable infrastructure are paying off.
Through our customer centric strategy and digital transformation, we've made numerous targeted strategic investments over the past few years to build modernize and de risk our business through these combined efforts you mean grading an agile mobile driven consumer centric organization.
Ever inconsistent results.
Our digital transformation began with investments to build the leading fintech powered by our trusted brand okay.
Consumer direct channel Moneygram online the largest component of our overall digital business has got a catalyst for new customer acquisition.
Zimmer demand for our Apis that skyrocketing and 85% of our online transactions are now done.
Yes.
This business continues to be a significant driver of growth and profitability as we quickly scale.
In a similar vein our investments to deliver the best customer experience has not only impacted our consumer direct channel, but they have also impacted each customer touch points initiatives, such as a better Pos experienced digitized customer service capabilities to personalized communications to the redesign and rapid expansion of our loyalty program are all resolve.
Thing and a growing tax its customer base, but higher customer retention rates.
As we prioritize digital growth. We've also selectively invested in a targeted global network overall, particularly in major receive markets and their corresponding corridors.
Network overhaul is covered both physical and digital partners.
Never focused on improving our account deposit capabilities and adding mobile wallet partners the details of which Camillo will discuss in a few minutes.
Another key aspect of this strategy has been to renew and add key strategic partners, thereby improving throughput and ensuring the stability and longevity of our physical market presence. We continue to make great strides against this pillar, adding post offices and retailers like markets around the globe faults are renewing post office is large format grocery chains and of course.
<unk> entering into a three year extension with Walmart.
The benefits of our strategy are clear to see and our particular importance today as we continue to navigate these fast changing an incredibly uncertain times.
Turning now to slide five despite the global uncertainty our execution and Adam as you know the company has positioned us to navigate the current environment capture market share and deliver strong results, notably for the quarter.
We reported a 5% year over year money transfer revenue growth, which was led by an increase in global active customers.
After returning to growth in June and then reporting a record breaking July for transactions. Our momentum continued into August and September, resulting in 10% transaction growth for the quarter.
Excluding the U.S.U.S. market, our transaction growth was even more impressive at 14%.
Importantly, this momentum has also continued through the first 29 days of October.
Growth in the quarter was once again driven by our digital business on the strength of a 140% year over year increase in active Moneygram online cross border customers.
It's a tender NGL recorded a ninth consecutive bought the triple digit cross border growth, which is truly incredible.
Growth in the quarter was also supported by the continued recovery of our walk in business, while not every market as bad debt recovery levels in general we've continued to see improvement in our active customer base from April lows.
This improvement was led by increased active walk in customers and markets across the world, including Africa, the Middle East and Europe.
That's causing here for a minute I'm often asked about our view of the industry, how we see our business moving forward.
It really is a remarkable time for our company and we're seeing a tremendous shift in where transactions originated.
You know digital transactions represent 27% of our total money transfer transactions you might not realize though is that our global NGL business is by far our largest single originator of transactions.
Back if you take our individual country websites and compare them to our agents three of them would now be on our top 10 list with several other countries sites, having quickly moved into the top 25.
Our business mix is increasingly shifting to digital and my view is that this will continue even as the walk in business recovers.
The UK market as an example is illustrative of the trends you're seeing in many countries around the world.
As the COVID-19 pandemic. It we saw a surge in our direct to consumer digital business and a slowdown in our retail walk in business. That's.
That's the starting the pandemic or digital business has continued to deliver a triple digit year over year growth rates. This is a direct result in an increase in new active customers in the strong demand for our happen.
As a result, our online business in the UK has doubled.
At the same time 'cause restrictions have been used to be have also seen an improvement in our retail walk in business at the end of September our UK retail walk in business that not only returned to growth that had surpassed pre job at levels.
As I mentioned in the past, we view our online consumer direct channel and retail walk in channel is very different businesses with largely different customer segments under normal economic conditions. We believe both channels will grow but the increasing demand for our digital capabilities will continue to shift to the overall business mix to digital.
Yeah. In addition to our strong top line results I'm also extremely pleased to report that our operating income for the quarter increased 123% and adjusted EBITDA increased 33% on a year over year basis. These results were driven by one the ongoing operational efficiencies achieved results of our digital transformation.
To the profitability of our fast growing digital business and three the continued focus on financial discipline, while navigating through the crisis.
Given our improved results in the quarter, we paid back our employees for the amount of salary that was set aside earlier this year to ensure the financial stability of the company.
In addition, we have extended our flexible work from home policy until June 32021, providing certainty to our hard working parents, particularly all of them others out there and ensuring the stability of our workforce I'm grateful to our amazing employees for their continued hard work and support during these unprecedented times.
It's clear that our digital transformation is proving to be a catalyst for sustainable and profitable growth. We've talked with you now for a number of quarters about our strategy to build a digitally enabled organization ready for sale and Excitingly This quarter, you're seeing the benefits of these efforts.
To provide more color on the key components driving the tremendous results, we're seeing in our digital business and to share some insights into the benefits of our digital transformation I'd like to turn the call over to our COO added digital cable.
Thank you Alex it's great to be here today.
You have seen from the headlines recently, our digital business is delivering incredibly strong growth shown here on slide six we.
We continue to prioritize investments in digital capabilities and user experience improvements to further enhance our consumer focused digital transformation.
You can see again today.
Our investments are paying off and delivering strong results.
On a transaction basis, our overall digital but not nearly tripled since the third quarter EBITDA why keep 17, each component adds up to create a winning formula for our business and then the third quarter. We once again drove amazing performance across each channel.
In our direct to consumer channel Moneygram online, we delivered 111% year over year transaction growth and 114% revenue growth its a.
September we announced our ninth consecutive month triple digit cross border transaction growth.
And for the quarter. It grew an impressive 176% with 174% year over year revenue growth let.
Let me pause here quickly as you may have noticed the narrowing gap between transaction and by the way the growth rate, which is an important theme for the quarter.
I didn't run transactions are now largely growing in parallel and our customer direct channel.
We're focused on driving optimization at the company level, well Excitingly as Alex mentioned earlier, three MTO countries have surpassed physical agent and on the company's top 10 aging partner, but.
And turning now to the second component of our digital business digital partnerships ever.
Every day, we are fielding numerous calls from companies around the world who are reading about are impressive results and want to access our customer centric capabilities and global platform, our leading <unk> our neighborhood, enabling quick integration and we're continuing to drive results.
On both new and existing digital partners over the quarter digital partnerships deliver transaction growth at 79%.
And finally as a result of a rapid acceleration of new account deposit and mobile wallet partners and key you receive markets around the world transaction sent to bank accounts increased 157% in.
In fact in India, the business has more than doubled.
Further these efforts during the quarter, we announced a new partnership with air tell to Intouch at MFS Africa to give us access to mobile wallets in 28 markets in Africa.
We also continue to expand our partnership with visa direct lending a faster more convenient way for consumers to transfer money. It's September transferred using visa direct sales grew over 1000% compared to the prior year quarter.
All that together has led to 106% year over year digital transaction growth for the quarter with 95% revenue growth.
Turning to slide seven.
Digital performance in the quarter, but led by Moneygram online direct to consumer channel. This channel has been on an incredibly strong growth trajectory. These past few years as evidenced by the increase in our total active customer base.
And often asks where these new customers are coming from especially since our cannibalization rates continue to be striking like low.
We analyze our growth we are finding that most of the customers that previous users of competitors started that these customers are coming from referrals and word of mouth marketing as customers tell their family and friends about our services capabilities.
Additionally, customers are increasingly coming from online search it lets people comparison shopping this economic environment when they search they find our simplified pricing and that's the facts right.
They also prefer a more trusted brands during these uncertain times.
And this brings me to why customers are choosing us and why we are winning the word cloud you see here highlights the results of recent research what customers told us why they choose moneygram online over other options if.
A few words really standout convenient easy fast and affordable. This is why customers are choosing us and why we are capturing market share.
Excitingly excitingly once customers choose that they do not leave our customer retention rates are around 80% and that number continues to ramp our loyalty program has had a profound effect on the consumer direct business a members account for 55% of MTR transaction. This isn't it.
Amazing stacks and its meaningfully higher than the percentage of sales even companies like Starbucks report from their loyalty members.
All this has come together to drive 140% year over year increase access cross border customers for Moneygram online.
On slide eight you can see how consumer demands for the had blessed with an amazing 221% year over year increase in transaction through the up in the third quarter and now 85% of Moneygram online transaction on a mobile device.
Our MTO customers have a 52% higher customer retention rate when the average retail customer and their spending 37% more transactions on average we have more customers who are more loyal transacting more often.
As discussed last quarter the profitability of this business continues to be accretive to the bottom line, we have less commissions less support cost and less infrastructure costs.
This business grows at our transformation like celebrate this will be an increasingly strong contributor to the bottom line.
And now before I turn the call over to Larry I'll briefly touch on other aspects of our digital transformation that are more behind the scenes and have led the way to the new modern mobile and CPI driven moneygram.
Turning now to slide nine.
The benefits of our modernization efforts in our overall cultural shift across the enterprise cannot be understated, our digital shifted fueled by a comprehensive approach everything from enhancing our analytics engine to building out to Microservices and migrating to the cloud do you eliminating paper and heavy back office processes, the developing digitally enabled.
Excellent scalable infrastructure for future new business model and revenue streams.
All of these initiatives are driving our bottom line results for example, when I started at Moneygram five years ago approximately one in four transactions resulted in a phone call, but now after moving our call center technology to the cloud, enabling local language like chat support and creating transaction notifications among other.
Her and that should at less than one in 15 transactions results in a phone call there.
This equates to tens of millions of dollars in savings the.
To modernize the process, even reduce our environmental footprint. We're also moving paper wherever possible part of an overhaul to digitize documentation and reduce costs. We're also working with our partners to do the same.
Another example, a critical component of our new and improved company DNA is our cloud transformation, which is in process and has already resulted in significant savings up information technology said.
I'm also particularly excited about our meeting Apiay driven platform.
Not only improve our time to revenue, but also reduce the amount of resources needed for partners to integrate your boss.
We have also been on the forefront of implementing next generation technology.
It's important to remember that we are the first company to utilize blockchain technology at scale. Additionally, we've also implemented robotics process automation to drive efficiencies and have deployed artificial intelligence and multiple company functions to identify action oriented insights and of course, you can't fully lovely.
Leveraging analytics engine. If your data is in multiple formats in places. So we spent a lot of time and resources over the past two years and enriching our data and making it usable for business decisions like putting it into a centralized repository.
We have chosen and fully implemented the Google cloud solution to gain insights to better understand and respond to customer behavior that has been cited throughout this earnings call.
Data analytics effort has been a critical component of the evolution of our company culture. Our digital transformation has fueled a huge cultural shift for the company impacting the way, we hire train budget communicate internally and with our partners and also addressed all of our processes around an agile methodology with a customer centric mindset to drive.
Right.
Together this comprehensive digital transformation has enabled us to build an agile digitally focused organization that can quickly adjust to changes in the market as evidenced during the pandemic. Our efforts have also enabled us to achieve over $200 million in savings over the last four years, which funded investments into customer.
Experience that are now driving our strong financial performance.
And Larry will take you through that now Larry.
Thanks, because I will.
The results for this quarter not only demonstrate.
But our money transfer business has returned to revenue growth with the quality of our revenues also improved.
As our digital properties continue, though triple digit extract you're right they.
They contributed to a significant improvement movie books were catching up on revenue as well as improving operating margins.
First as Alex mentioned, our global Jokers, that's just by far our largest.
Larger single originator of transactions.
In the third quarter or U.S. moneygram by Mark Douglas.
I'd become virtually equivalent to the size of our Walmart money transfer business and third as we're just girls. We now have three on one country, including included on our list of top 10 agents.
Significantly reduce the risks associated with both agent and geographic concentration of revenue and demonstrates important progress in the transformation to moneygram into the consumer direct financial technology company.
I'm, sorry to love them, we're showing sequential quarterly revenue for this year.
Total revenue was 323 million for the quarter up slightly from last year, but up 43 million sequentially from the second quarter.
This is inclusive of a 78% decrease in investment income on a year over year basis.
The direct result of lower interest rate change the onset of the traveler that's.
It's also include continuing declines in the U.S.U.S. business, which was down 4% of our total revenue was actually was less than 4% of our total revenue.
Another important aspect of our money transfer revenue growth was or newish themselves just drug business was profitable.
A couple of they could not have been able to improve its operating margins. If our digital revenue would sort of lower profit margin or loves alluded too though.
Characteristics of online and mobile products, including <unk> dropped your boots, because our margins are significantly higher on repeat customers.
She customer loyalty rates that are higher individual stage.
Your proportion ever digital transaction and that's coming from repeat customers as a result.
Expect to see that.
Chief sustainable margin expansion going on mobile and on board products.
You can see on slide 12, adjusted EBITDA on an as reported basis.
68.8 million for the third quarter, an increase of 33% over last year.
The lower value of the U.S. dollar against major currencies constant currency number jump or lower than reported bookings last year or so as a result, adjusted EBITDA was up 29% on constant currency basis.
However, this also means that the value both for base revenue was higher on a cash basis, which has been contributing to our improved cash flow.
Entering adjusted EBITDA margin increased 533 basis points year over year to 21%.
The margin improvement resulted from permanent efficiency gains as well as some cost containment efforts induced by the pandemic.
Have you been predicting we've also been able to scale expenses with a return to growth.
Well. It's also included significant foreign exchange gains in the quarter, which in part represent a currency fluctuations brought on by the up but your mom at GIMSA of the pandemic. So far this year. These.
These gains offset a portion of the decline in investment income that I'm not sure earlier.
In addition, we improved profitability at Moneygram, even without the currency valuation gains was also evident in our pre tax income, which improved $22 million and generated a fully diluted earnings per share of 12 cents for sure.
As shown on slide 13, the increased profitability of the company translated into a threefold increase in adjusted free cash flow over last year and an increase in our cash balance of 32 million over the last three months or something.
Companys cash balance increased even after higher interest expense players signing bonuses the last year and capital expenditures.
In turn the company was able to significantly improve its credit metrics.
Well just liquidity position moneygram widen its Christian on its financial covenants, showing both lower leverage and improve interest coverage.
We improved our interest coverage ratio, even though we elected not to pay interest rate card for the second.
Consecutive quarter.
And this will permanently improved credit metrics on a go forward basis.
Well first of all this is the growing increasingly diverse and sustainable profitable revenue generation.
Bogged with improving balance sheet strength and de leveraging has improved the credit profile moneygram.
Ports or ability to expand our network of digital properties as well as our range of network into the future.
I'm trying to get a sign new and significant large agents as well as bring new customers to our allies.
Also regarding our capital structure Moneygram close the chapter in its history that dates back to the financial crisis in 2008.
That's a previously disclosed T.H. Lee distributed its controlled stock position last year in the fourth quarter.
This October Goldman Sachs completed its liquidation of its convertible series D preferred stock position through a series of trades.
The market.
Well been completed their sales process. This month, so presently <unk> position is down to zero.
This marks the end of control stock positions on Moneygram.
And adding 8.9 million shares to the basic shares outstanding.
First off there's no more broadly though and.
<unk>.
And lastly.
Our outlook for the remainder of 2020 continues to be mindful of the EMM security that still exist around the global economy.
In fact, our customers throughout the world.
Well the strength of a couple of residual business is driving improved performance. The global pandemic continues to create economic uncertainty in the world.
Countries continued to maintain restrictions on travel and over the last few days.
Major countries have reinstituted box zones.
Given all these new restrictions ours is difficult to predict their duration or the resulting impact on our troubling. However.
We're assuming the global economic environment will be fairly consistent with the third quarter.
Fourth quarter and the company is providing the phone call.
For the fourth quarter, the company anticipates supporting global revenue growth of approximately 1%.
The continued strength of the money transfer business offset by lower investment income.
Based on these revenue trends coupled with the continued expense benefits up which digital transformation. The company anticipates reporting adjusted EBITDA growth of approximately 10% year over year.
And now I'll pass the call back over to Alex.
Hey, Larry Thank you very much.
In summary against the backdrop of the global pandemic, we've been able to consistently deliver strong results there.
Exceeded expectations.
We've now posted three consecutive quarters of adjusted EBITDA growth returned to revenue growth on the strength of our digitally powered global money transfer business.
We had nine consecutive months of Triple digit cross border online direct to consumer growth and we continue to drive increased profitability and cash flow as.
As we discussed on the last call I think this performance and our continued momentum more than warrant revaluation of the company.
And with that I think we're ready to turn it back to the operator open for questions.
If you would like to ask a question. Please signal by pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment again press star one to ask a question.
Well go to our first question from Kartik Mehta with.
Northcoast research.
Hey, good morning, or you Allison.
Larry and Hello.
Oh, Oh like they need to ask you a little bit about the success, you're having on the digital side and I know your prepared remarks, you alluded to a little bit to it but I'm interested in understanding maybe where all this market share is coming from is it just traditional retail companies money transfer companies that just can't meet the needs of their customer.
<unk>.
Or is it other digital customers could.
Customers of other digital companies.
Yeah, No. It's a great question card again, all Oh like a few comments and then I'll turn that over to you.
Let me give you some more detail on insights on that but it really is a combination of all the above we've been doing a lot of consumer surveys are having conversations than it really is.
A number of different things right. It's it's consumers that are used traditional methods, but obviously for a number of years and they're looking for a new alternatives people that have become.
Become digitized over last couple of years and look into times easier more fishing and it's usually it's a sense and then obviously you know there's always a new customer spending into a into the mix and so it really is coming from a variety of different different places, but obviously primarily from you know try.
Michelle channels I think in the last quarter here and maybe in the second we're also seeing some benefit from.
You know the travel I travel lock down and I think as we all know a lot of consumers typically take money home with them when they travel and visit family Ah you know, particularly out of.
The middle East here from the U.S. back down into Latin America, and obviously, you know with a lock down the travel restrictions that has not occurred so I think you're saying your customers coming into a into the mix that way as well and I think one of the benefits of that or or great to see because obviously longer term, that's gotten us tend to be stickier and stay with us yet but all.
<unk> electrical that's more tolerable.
Yeah. Thanks, Alex Yeah, you covered it are the only one that secretary that I could not hear you mention where bank. So kartik. We are studying to understand exactly where consumers are coming from and we have identified our traditional competitors fintech competitors and that also.
Banks that we clearly don't compete with directly but we are also gaining market share from consumers that traditionally such cross borders with the banks.
Yes, and Alex it up thoughts on quite the you know as the digital business is growing and there are a lot of digital competitors out there.
Are you seeing any pressure on pricing, while at all or do you anticipate that being an issue as you move forward.
Yeah look I think that you.
You know I don't think I've long.
My view is very competitive just across the board and obviously pricing is.
One of the main areas of focus for a lot of online competition for number of years and obviously in the walk in space on the retail side, it's been very price competitive for sure.
For a very long time, and I think that when.
When we launched our NGL business and began to expand it we went in with a low price point for that very reason, we wanted to be able to attract consumers be disruptive to what was happening in the market and we want to capture.
Capture as many consumers as possible. So I feel like we're very well positioned in our pricing generally speaking, we've taking prices down and.
In a number of places like we've talked about in the UK and Germany in the U.S. outbound market, which requires higher for a long time and they brought prices down to capture consumers and gain market share you know I think that the online space continues to be competitive I mean, it's going to continue to be competitive in the walk in space will.
Will be the same you know the business is shifting.
The non exclusive as we've talked about a bit and I think that that's also driving the.
The need for not just a better customer experience, but also more sensitivities around pricing.
Pricing.
And some others and some of our largest competitors are lowering online prices have then lowering online prices I think to be competitive with us and so you know we have to be sensitive to that react to it but I feel like it's an area that we're going to win I think we know.
The factors that drive the consumer behavior, and what we need to do to continue to to keep maintain our growth accelerate growth and bring a more active customers, but that yeah. I do think it's it's competitive and we'll continue to do so but I feel like we're extremely well positioned to compete.
Okay I really appreciate it.
Our next question from Janssen.
Okay can you hear me.
Yes, Sir.
Hey, Thanks, good to talk to you guys because results for.
For sure here.
Wanted to ask if just thinking about the walk in business, which did rebound.
As you called out do you have.
Oh just came on if you have a view here do you think that that the overall book of business can get back to.
You know pretty covet levels in the mid terms, just thinking structurally here or knowledge I think it too you know my body shop, less or a travel less.
You got for work down the road post Cove. It same thing for a full walk him as you see that getting back to.
Hi levels.
Given what you think you.
Right exactly know when.
When you when you look at the the market. It is a question as you said the mid term is it longer term.
You know what happens in the short term and it was a very interesting quarter for US we did see.
A lot of recovery and the number of markets in certain cases individual.
Retail outlets or individual agents themselves performed better than.
Then others Europe had a very good.
Quarter and saw some some really nice bounce back the U.S. recovered you know very very well, but it didnt get back to pre treatment levels I would say that parts of the world.
Sort of got but others I think Latin America continues to lag pretty significantly and there's a certain number of markets across Asia, which you don't really havent, yeah come back to where they were so.
It is an interesting.
Question and I do think it is one that everyone is is focused on and thinking through its nice to see the GDP recoveries across Europe. The strong recovery of GDP in the U.S. and I think also.
Well there are some new lock down as Hum aiming restrictions you know I think will be kept in place. It does seem that the customers in our business mix, our resilient and they continue to to find ways to.
I'd like to make the money flow back so yeah, I do think that in time, we will see the business recover I do think you know for us personally that as a as a player in the industry, we're going to be looking for that shift to digital continuing I think just the stats you see around.
Customer acquisition active customers the number of transactions that they do they're sticking as it just outpaces the walk in space, It's a different competitive environment in your life to position your products I think they much more dynamic and visible way today's consumer so.
I guess, you know I'd answer that two ways. One is I do think that the business or walking space can recover what those greater growth rates look like long term it.
Difficult to.
Say at this point, because I think in some ways. It is a new normal, but what kind of walking into and not you know nobody wants things shifts you don't really ever go back to where you were I think James always change a little bit, but anyway yada I'm book on I continue to be so.
Be bullish on the industry and very favorable long on both the walk in business, but obviously the digital business is sort of speaks for itself and I think we'll continue to be the driver.
Yeah, no it's really a it's.
It's really interesting my my quick follow up just like.
Your digital transaction and revenue growth is tracking very nicely and tightly as you've.
Called out here I guess some of the digital players have been.
Starting to lose some pricing we've observed I think ER Western Union boss night mentioned, they're going to do some selective price changes as well I'm curious sort of the price elasticity debate here and and.
And your thinking around pricing now given the customer acquisition is so important from a LTV standpoint.
No I think that is.
There's a lot in that question and there's a there's a few things that Oh super encouraging I mean, one is it does appear that you know across the board, there's a lot of favorability and growth talk radio.
Competitors out there right. So the digital shift does seem to be picking up customers from.
You know more for those methods or from banks and from other areas as as we talked about earlier and so you know I think that there's a lot of market share to capture in the online space just just across the board and competitively.
I feel like research and started.
Started our prices in a in a very competitive coin I think that we've taken.
A lot of opportunity with Opex management, and I can do things that we're trying to do.
Word of mouth loyalty referral programs. You know these things are all additive to get benefit to consumers get fees and the product they get discount they get money back money off et cetera, and we're also partnering with a lot of players.
You know partners and then receive markets for wallets on the top deposits that are also providing incentives to consumers as well in a variety of ways right. So benefiting by putting the money into the wallet versus picking up cash and these types of things. So yeah. I think we're very well positioned to compete from a price perspective, yes that wasn't going to talk about that.
So for example, you know Western Union all the same got very aggressive on a U.S. the Mexico on loan pricing and I think that's a direct response to you know our performance there and you know it doesn't give me much concern that we'll be able to continue to compete.
I don't know if you want to add anything to that.
Yeah, I think Salix and and hike and then I guess, one thing I would add is that transparency of price, it's really critical to their customer base you know we have and.
Experimenting a few well and trying different things in this channel for about 15 months now and one thing that we see its consistency consistency and transparency. It's really critical so customers now trust that that we will get the absolutes.
That's possible price with the best experience and that's why our retention rates are at 80%.
Well. They are you know fully able to comparison shop, we are seeing that their comparison shopping but they are still choosing moneygram over some of the other competitors that you mentioned while at the same tax. So we're really confident in the formula that we have developed over the last 15 months or so and it's really paying off.
I mean, I really want it and I'm glad you noted the major narrowing rapidly on transaction growth because that really speaks to the fact that.
We are so much more consistent and what type of customers are coming to life and the fact that they're staying with us and we're getting more of their share of wallet up their transaction.
And then if I could just.
I had one other point to the this was a quarter where it was really the first time that you started to see a return under economies of scale and so.
So you know when you start to grow you can scale your cost, which means your ability to handle approached contract compression, which is actually better. So it's also the beginning of that trend to where we were in a position to handle.
Our approach compression, if we start to see that happen.
Got it.
Great point, thank you.
Thanks Daniel.
And well go next to Bob.
William Blair.
Thank you and good morning.
Congratulations on a very intensive try.
Trends and how persistent good to great to see.
Just a quick Dave do you have that number of digital active users for your <unk> or you can share with us.
And the growth rate of that yeah, we're not.
Well not quite at the point of of sharing the the actual to actual but numbers I mean, we've talked in the past about you know millions of okay a follow customers.
You know we look at customers variety of ways, we look at customers. Obviously in total for Moneygram on focus on University of sidewalk in and then we have obviously the customers are kind of the digital partnerships.
We have the customers that are direct moneygram online.
And then we have.
You know I view those customers across a variety of different cuts and so you can look at them sort of on a 12 month three.
Three months current month active basis, and how you kind of look at that so.
Yeah, I think it's your minimum pointed out we are a definite.
Definitely learning a lot about our business and our customers. We are doing a lot with data analytics and enhancing guidance. So we are extremely focused on the customer base, how do we acquire customers retain them and that's where their their patterns of behavior.
And it's something that we're learning a lot about.
At least [laughter] definitely more more so during the pandemic than before because obviously patterns have changed and so we're pulling all that together. So it is something that we're looking at doing longer term, but not quite ready to talk about that straight up just yet.
Military.
Well, we did disclose that we had 140% year over year increase and our access cross border customers for Moneygram online and that those are you know got segment is one where we're seeing the highest gross thought they are the ones that are contributing the most transaction, they're the ones that continue to come back to us.
Stopped and so while we're not.
Releasing absolute numbers as Alex mentioned, they are high and die and they are growing very very fast.
Thank you then maybe they are winners every once in a while were moneygram being a it's an M&A target.
Part of the piece.
Thesis there is doing well the public shot there your balance sheet is a very highly leveraged with very expensive debt and they can reduce the cost of that debt well with your improvement in.
<unk> financial performance is there.
His ability to being able to refinance that are very high cost debt.
Sorry, Larry you might want to jump in arm yeah sure. So.
This quarter really made a marked improvement them or.
Cushion under all our financial covenants when Youre absolutely right.
Very very.
Very comfortable jumpsuits called them and so it is.
According to the ability to help.
Appropriately priced and structured credit agreement.
I think you know our expectations would be but.
We could with a couple of more quarters like this and also getting closer to the.
The other part D. P. I would would take a look at the capital structure a job. So everything is pointing in the right direction, but I don't think it's something that.
We would do this year.
Okay, and then gifts he you know that.
He's a direct 1000% how vectrus NHL.
Your business is done with either a draft of your online everything seems to be talking about the online business or <unk> or what is the benefit of these it left how important is that to your product.
And I guess my understanding.
Thanks, Bob So these interactions is.
It's really important because it does deliver fun to receive bank accounts or debit card that are linked to bank account and essentially real time, Oh, we were the first company that actually integrated whether it be that the rack and they actually have the ability to push to mastercard to.
So that encompasses both brands under one rail if you well.
Centers like it a lot because debit card you know pants are so common and often times easier to enter than for example, a very long I bad numbers right or an account number. So we have found that it's that it's a channel that centers like we've also changed some.
Options and how you can grow see the bonds that sometime.
Consumers can enter the information themselves than ever see bonds, which again makes the senders information even easier and we advertise it as a direct to debit card side. So it's been great for us it's growing very very fast we've just expanded over the last quarter into a multitude of core doors. So of course they started.
Highlighting what the last you know over a year ago, we went live over a year ago and then we started adding additional countries. We have a lot more coming out of the Frac sand market. In addition to the U.S.
So its continuing to ramp and scale again, it's not something that we break out our specific numbers, but it is becoming an important method that's growing very quickly and that the transactions are certainly adding up the crop the corridors.
Hi, Thank you are you able to price for that for you, but it had.
Because it could they be real time payment option.
Yeah. Good question, we are pricing for that yeah.
We have been we have price control. If that's your question and then yes, yes, we are able to again make it attractive to the consumer because of the fact that a good going direct to a debit card and that we don't have received commission right. So it's one of the product and that's really access.
Celebrating our our digital adoption and that's all so more lucrative for moneygram than pricing to agents condition.
Great. Thank you very much appreciate it.
Thanks Bye.
So next to David Scharf with JMP Securities.
Hey, good morning, and thanks for taking my questions.
Uh huh.
You there.
Oh, you faded out there and I apologize on other than just I'm, sorry can you hear me.
So now we can yes.
Okay. Good you know, let Larry you had referenced it you.
So.
Reemergence of actual scale.
This quarter with the.
It's back and.
I'm I'm wondering you know a lot of a lot of companies often published sort of a slide at their long term operating model.
We are ultimately they see among other things the other operating margins.
Eventually, reaching peaking are maturing and you know what's in that context, I mean, given given this significant shifts in business mix can you give us a sense.
And how we ought to be thinking about how.
How would you view your target EBITDA margins, a couple of years down the road.
Well, that's a that's a hard question to answer without giving some sort of guidance. So I'll have to.
Outside of them, but you know this is a guidance but.
We've always said and like their traditional your sub that we feel comfortable that might change with them a job to do the golf are doing I think.
This quarter was 21% I don't think that's a little bit more and more like a more high teens number is.
As appropriate.
And you know I really do think it's going to be a function of the mix or what were seeing evolving is that.
We can get higher gross margins and operating margins in the digital space, but it's still.
You know.
A little over a quarter of our of our love it so yeah.
If we get to where digital slugs, we'll be talking about much more.
Meaningful part of our.
Total transaction flow of revenues you should see some margin expansion come with it but.
It's a little bit after a deductible because its still.
Relatively small compared to the legacy business. So the emergence of the new business is going to be the driver of that and I think it's a little early for us to make that call but.
You know, we're getting scaled down in our walk in business too so you're you're going to get some.
The lift from both of those.
In the near term, but as I said I think a high teens adjusted EBITDA margin, that's what we're targeting.
Got it got it and I know that that's helpful. I mean, obviously lot of moving pieces HM.
Just quickly yes.
Looking at the word.
Map.
Was tossed out on slide seven and.
Yeah, I'm wondering you know, there's always a little bit of an unwritten rule on these calls you're not supposed to talk about specific competitors.
If at the end of the day, you would western Union to global providers and they obviously have been providing a lot more disclosure and emphasis on.
Their digital penetration in shift as well on these calls and I'm wondering in a vacuum you know convenient easy fast affordable really don't.
Hey, a lot when we don't have it something to compare it to and I'm wondering.
You know if you can maybe provide either well maybe just some qualitative commentary on how you think.
Your online offerings stacks up to western Union Dot com, whether whether there are some meaningful points of differentiation.
You would highlight or and ultimately kind of what underlies the.
Yeah.
You know.
Feedback from these surveys.
Yeah sure.
I'm happy to happy to do so and and as you noted. These are our customers words. These are not our words, they're the ones that are telling US you know why they switched or why they are picking moneygram.
So, but you're right. There's definitely a you know a huge western union presence in the online market I think they disclosed yesterday some of that third party data that shows they have a lot of downloads and that's certainly true, but we are taking share there's no doubt about it.
Correct.
We have some features that are significantly different in our program a number one we have a much more successful loyalty program. So once we win that customer they come back to Moneygram. We don't offer any type of points. You know that are difficult to redeem our program actually has a discount on subsequent transaction.
That's the right number of transaction, so that's very attractive to our customers because they are essentially giving us more transactions every single time burst as a you know just doing it when the rate is better or the price is lower so they're essentially converting to lessen saying it again that 80% retention rate and climbing.
So that's one major point of differentiation and then the other thing that I wanted to really point out it it's convenient and fast so weve introduced a variety of product features that allow our customers to complete their stuff because that's a quite transfers much faster, they're able to do it but just a few clicks, they're able to set up recurring payment.
They're able to you know not have to worry about Oh, we entering the information with products such as visa direct with our account deposit products that actually remember all of that information. That's it's also just a point of friction that eliminated from the customer experience and we're finding that that's really.
What it is about it's about friction we had a very clean you why.
We have a very clean design that makes a difference and the demographic right. They don't want to have to search they want to trust that youre price today, the Bath and if that you why it's clean and it's fast and they don't have to re enter the information and the price stayed consistent that doesn't dynamically move up and down consist constantly.
And they they always come back.
Got it no that's great and that kind of color is very very helpful. And then aegis lastly can though.
How how is retention rate actually calculated when you referenced it 80% retention rate.
So like over what period.
Customers that have been online for.
One month active or six months Im just trying to get a handle on what this metric actually refers to.
Yeah. Good question, so we actually calculate a three month active retention rates, we do calculate it in a variety of ways right. So we we overall and the customer is a customer if they spend with us for for a 12 month that they don't transact within 12 months, we no longer count them as a customer.
Which you know is parent kinda covered the the holiday secondaries or that break they centers, but beyond that we don't report. These massive numbers that you know a lot of the other fin tech support if somebody who's ever registered or somebody who would ever done a transaction. These are very active very sticky customers. So we look at them over a three month period.
And when we win that customer if they come back to us within that monthly three month period, we count them as a as a retail customer and then again remember our productivity rates are so much higher some boats customers give us more than one transferred more than two transfers per month. So.
It's a pretty pretty sticky number.
Got it and then lastly head on.
Well, so do you want to add to that if nothing else I think it's very interesting a little bit back to Bob's question, you know I'm not every consumer that's you know in the online space. It behaves the same way right. So they have a lot of different patterns of behavior. So customers are sending you know multiple times a week summer selling multiple times a month than others are you know.
Maybe once yeah, once a month or once every two or three months. So you really have to.
Categorize the customers as well and it's very different by channel and very different by send markets. So I mean that that all comes back to again you know how do you define a customer at active and had you aggregate that altogether and that's the kind of thing that we're going through we're looking at but there. It's not you know it's simple this is assuming every test.
Transacts consistently twice a month and every corridor. So it does have a lot of complexity to it.
So clearly perfect well, thank you very much.
Thank you.
Next to Mike Grondahl with Northland Securities.
Yes, Thank you and congrats on the quarter guys and in what you're seeing that leverage for the first time is pretty cool too.
Two questions. One I think you have answered a question on ripple a little bit earlier, but.
Maybe as a follow up.
Do you feel like that's working for both parties and that you can extend that relationship.
But secondly, if you could spend a minute just on the Walmart we knew all how you got three years out of them.
And maybe lastly, just what are you thinking about debt today and going after that refinancing it or seen what you can do there. Thank you.
Yes, Thanks, Mike and it's good to hear from you Yeah, Let me take the first two and I'll pass the debt going down too.
To learn what got you know the report relationship has been a great relationship I think very positive for both both companies I think you have to you know.
Step back for a minute and really try to appreciate what ripple is really looking to do you know, which is you know they don't like they were just rough and I kind of agree with that they're trying to really recreate.
And come at it from a very different angle, you know solving some of the world's global payment problems in terms of Trup acquity anything money in different markets and these types of things that.
No one who is one of the biggest inhibitors to doing that is actually getting you know people on your network in Texas, all using the platform and so yeah that is something that that we've been actively doing about money and I think that relationship has done.
Very positive for both parties that contract does extend.
Two military minimum right, but I think for at least another 18 months or couple of years. So and you know we've been doing a deal with them are focused on expansion that ripple that you know service as well. So there's there's more to do with more to come in but you know I can't speak on behalf of them, but I would say that it's a good benefit beneficial too.
Oh, the both companies we've learned a lot they continue to to pivot the model and Ah you know, it's it's certainly been a beneficial to us.
At Walmart I think you know is is always a and ongoing.
Evolving relationship we've been with them for a number of years and obviously to continue that that business unit for any period of time going forward I mean, that's something that we're very excited to do and proud of.
You know it is not obviously relationship you take for granted something you have to work yet every day you know, but that has really migrated to you know nonexclusive and I think Walmart, it's become more comfortable with.
With consumers, making a choice at the point of sale about which service and product. They want to use I think we provide a very competitive service. There obviously with the changes to Walmart to world. This year, we've had to reduced prices and bring down some FX rates and that's obviously been a headwind for us all year on growth, but to put up the numbers were putting out when that happens.
Hey, Dan to retain the number of customers. We've retained is very positive for for that relationship and so you know.
Well, we'll push it for the next couple of years and and see where that can go so very pleased with that and very thankful to Walmart and their team for all their support is obviously, a very challenging six months for them and for us with all the changes with coated and everything else. It was happening so to be able to get that done yet in the quarter was.
It was very Ah was very nice, but Larry I'll, let you I'll, let you talk a little bit more about the debt question.
Yeah, and I I think there's no question the.
Credit metrics dollar put us and put us in a differently from where we were when we did that.
A refinancing HM.
One of the speed bumps here you know there's two tranches here, we have a first lien and second lien debt.
I don't think it's a question of if it's just a question of when and when you have to refinance your entire capital structure. I think we want to go and do that when we get best execution, and maybe you know waiting a little bit till we get.
Well sort of the resolution of certain other things, it's the time to do it.
We are definitely focused didn't have a priority.
Delevering the company in reducing our financing cost and so both of those with the refinancing but I just I. Just think you know we have to figure out when is the best time to do that and that's I think that's where we're characterizing it today.
Good to hear that had shifted.
To win so congrats on that thanks, guys.
But.
Excellent.
And yeah, I think we have time for one more.
Well go next to Ramsey El Assal with.
<unk> of Barclays.
Hi, guys. Thanks, so much for taking my question today.
And if you could give us a little bit of color or commentary or background on the digital partnerships part of your business.
What extent do they sort of white label, what's the mix between sort of white label and Moneygram brand it or.
Solutions that are in the marketplace and how how should we think of the economics relative to the rest of the business on the partnership side of things.
Well, let's say a excellent question because it it is a a one of the more complicated one because I think the answer to your question is yes.
It's a variety of of all of the above it and you look at the end of the day digital partnerships began for us.
Had a couple of different ways, a number of years back and so it really started with.
Entering into agent partnerships.
With you know agent that just simply were not in the walk in space right. They create a digital platforms are they were a bank or with a different albitar service or a telco or some of the wallet and so you know I would say many years ago, we entered into those as more traditional type agent relationships with kind of a traditional you know sens.
Commission it labeled Moneygram and that's really sort of a a throughput service. If you you know kind of fast forward and look at the evolution of that over the last.
You know really three to five years and particularly in the last 18 months two years, that's changed quite a bit and it is now becoming a.
A much more of a of a combination of you know per transaction flat fees, it's become a white label.
And it's becoming a little bit of what we call 'em as a service and so what we're trying to do is really.
Do you have a lot of partners now have the opportunity to either become part of the receive side network and part of the distribution of our service. So people can krish funds into that or.
We're looking at the ability for.
For others to pull farms and.
And so there is an evolution there and we are starting to.
Enter into a much more of the white label as a service type relationship.
And I think it's one that we'll continue to to evolve and it'll probably be a be a little bit of both what's nice about it for.
For the most part or whether it's you know labeled moneygram or or White label services that most of these providers are bringing.
Bringing the customers themselves because it's you know it could be a a telco or wallet or somebody who is.
Created a business model for different application and.
And they have a customer base, who now want to utilize.
Their cross border offset and sometimes they might have a couple of direct channels that they do themselves that are adding moneygram for the global distribution and expansion of our channels and capabilities and so it's a.
It's really a a hodgepodge and in certain cases, where what we're starting to do as well it really turned over the pricing to them and looking at you know who pay US a flat service fee you can control pricing and then change pricing to see how you want as long as we make X per unit per transaction or per customer as it may be so that.
That is evolving I'd say the profitability of it has been a very.
Very much in line with our traditional business and probably shifting.
More to the digital model, where you're picking up you know flat transaction for.
Sorry flat fee per transaction.
And moving its looking it that way.
That's a sort of a managed service model almost nothing that's interesting.
One follow up for me. They obviously represent a small portion of total revenues that you generate income from a couple of other sources Bill pay money order is check processing interesting can you give us just a little bit of your thinking on the impact of Cove. It on these lines as opposed to your long term strategic thinking on that sort of noncore parts of your business that Paul in that.
Yeah, I think that's a that that is an aggregate group of businesses that have been under pressure.
Pressure for a couple of years for a variety of reasons.
I think even if even pre kobin.
You know weve seen a shift in the way that you have to take the.
The out service processing business for.
For you know official checks and cashier's check somebody that has been a business that's been under pressure as.
You know it and obviously shifts as well related to what's happening in the industry. So you know if they want to revise or less you know mortgages going on most carloads et cetera people are you know not not taking those checks on the flip side.
You know the market.
There's always opportunity to take share, but that has become a bit more digitized. So it's a business that we continue to believe we'll we'll will taper off over time, but it is a very profitable business at least in a normalized interest rate environment. So it's been unfortunate what's happened I mean I think.
You look at the quarter and there we had a headwind of 10 million I would ask them revenue its not.
Not any not any fun because you know that should be in a normal interest rate environment actually additive to our cash you know the money order business. Similarly is you know I'm extremely popular you know still you know.
For better or for worse, a lot of the population and the U.S. you know still relies on money orders I think if you look at kind of our business plus all the other players out there the post office or still you know hundreds of millions half a billion money orders et cetera are getting processed every year. So again, you know that that has changed a bit but.
You know, particularly an uncertain financial times, you know when credit is tight and other things to be checked become very popular. So again I think like like the official check business I think it'll continue to taper off over time, but certainly not.
Spiraled down in any way, but more or less just continued to.
Ah to slowly erode.
Okay. It was a little bit different you know it is a product that weve long offered to our agency partners across the U.S. as a value added service.
I would say the popularity of walk and bill payment has been under pressure for.
For a variety of reasons or whether that is you know the drillers themselves are going direct a lot of people are paying bills online.
Online you know there has been an increase in competition prices have come down so you.
You know that business I believe that will continue to be acquired at the rate of data and probably you know continue down that way into kind of like a much less important piece of.
What we do and and.
You know it is it does have a nice profit margin to it. So obviously, we'll continue to get to cash flow. It does that as that occurs but not anticipating yeah, hey, real growth from that anytime soon it has shifted to digital which as you know some of it which I can base.
You know, but not enough to to keep that really long term I think I think competitive as the industry consolidates.
Great that's all Super helpful. Thanks.
Thank you all thanks Ramsey, thanks, very much and thank you all for joining us today.
Great call. It's good to talk to everybody and look forward to a follow up discussions. So thanks, we'll talk to you all in the new year stay safe.
Today's call. Thank you for your participation you may now disconnect.
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