Q2 2021 MoneyGram International Inc Earnings Call
Yeah.
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Hello, Ladies and gentlemen, who are currently on hold for today's conference call. We are just waiting on the arrival of additional participants.
Starting on the next couple of minutes. Thank you for your patience and please continue to hold.
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Okay.
Good morning, and welcome to the Moneygram International second quarter, 2021earnings release.
Conference call today's conference is being recorded at this time all participants have been placed in a listen only mode and the floor will be opened for your questions. Following the presentation. It.
And it's now my pleasure just tried to flow over to your host Steven.
Stephen Reiff head of corporate Communications. Please go ahead.
Great.
Good morning, Thank you for joining us on the call with me of Alex Holmes, Moneygram, Chairman and Chief Executive Officer, and Larry and Jr. Chief Financial Officer on the Moneygram Investor Relations website, you can find our earnings press release and presentation, which is intended to supplement our prepared remarks during today's call and provide the reconciliations between GAAP and non-GAAP.
<unk> financial measures, we will refer to non-GAAP metrics on the call and 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 items to aid investors and further understanding and the company's performance and addition to the impact that these items and events had on financing.
<unk> results.
Please note that today's call is being recorded during the call we will be making forward looking statements, which are predictions projections or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainty.
Actual results could materially differ because of factors discussed in today's earnings press release.
Financial comments made during this conference call and the risk factors section of our form 10-K form 10-Q, and other reports <unk> filings with the SEC, we do not undertake any duty to update any forward looking statements and with that I'll turn the call over to you Alex Alright, great. Thank you Steven and good morning, everyone and thank you all for joining us today.
It's hard.
To imagine a more impactful quarter as we not only delivered strong financial results.
But also successfully closed out 2 of our largest legacy challenges by exiting our DPA and overhauling our capital structure, So let's get to it.
This performance and our second quarter exceeded expectations as we delivered revenue growth of 18% on the strength of a record number of digital.
Customers, a 20% increase and both money transfer revenue and transactions and a 41% increase and cross border volume total money transfer transactions and volume both represented record numbers for the company and perhaps equally impressive to note when comparing this quarters money transfer numbers to the second quarter of 2019 priority.
Covid, we delivered strong transaction growth of 17% and revenue growth of 8%.
Gross this quarter was once again driven by the incredible performance of our digital business led by the largest component Moneygram online.
And the quarter Moneygram online delivered record highs for customers' transactions volume and revenue.
Now a fun fact and note here if you aggregate our top 10 Moneygram online markets Moneygram online has grown to account for 29% of all transactions in those markets. This is up approximately 3 times from just 2 years ago and demonstrates a significant diversification of our business and these markets that collectively represent over 70.
75% of our total sense.
And the second quarter digital partnerships also continued to accelerate and transactions received digitally reached record highs.
Total digital transactions now account for 33% of all money transfer transactions. This is up sequentially from the first quarter, 31% and up 13.
Percent from just 2 years ago.
Our strong financial results were also driven by the continued stabilization and recovery of our retail business and markets around the world.
Though much of the world is still reporting softness due to renewed lockdowns and the continued impacts from the ongoing COVID-19 pandemic.
Such as those situations that we see and Asia.
Pacific and other areas, we continue to see some improvement emerging markets such as Central America and many countries in Africa are now beginning to show signs of turning the corner.
And Europe, we saw strong growth across both digital and retail with our retail channel reporting transaction growth of 25% year over year and 14% when compared.
Third to the second quarter of 2019.
And the Middle East total transactions increased 26% year over year, and 41% when compared to 2019.
And the U S and reported double digit U S outbound growth and successfully manage the initial impact of the Walmart marketplace expansion and the quarter.
New competition.
Marketplace with some extremely aggressive price points, which among others include a $6 fee and a zero FX rate to Mexico.
Against that backdrop, our focus has been on positioning our offering to ensure we retain our customers and transactions. While we were quite successful on this point and materially outperformed against our worst.
Case projections.
Given our need to match the aggressive competitive pricing, we did incur about a 65 basis point headwind on money transfer revenue growth and the quarter.
Of which the vast majority of directly impacts EBITDA.
Assuming competitive prices remain the same and considering a full quarter of impact.
We anticipate about a 250 basis point impact on money transfer revenue from competitive Walmart pricing and the third quarter.
We continue to actively manage this business and are actually pleased with our performance, thus far and since I know some of you will probably ask me later anyway, Walmart represented about 8% of revenue and the month of June.
On.
And as we reported we were notified by the court of our official exit from our GPA and this was a huge milestone for our company and for that matter closed out we began the process of significantly improving our capital structure, which Larry we will discuss in more detail on just a minute.
Thanks to the success of our refinancing our cost of funds is now the lowest it's been in years and we plan to use the cash savings to invest and key growth initiatives and support further improvements to our capital structure and the months and years ahead and.
I've never been more excited about the business, particularly now as we enter a new era of improved cash flow and growth.
So turning to slide for the entire company remains focused on executing our growth strategy, which is positioning the company to win with consumers and capture market share and.
Maintain our leadership position and offering the best customer experience and the industry, we continue to invest and our loyalty program personalized communications and the streamlining of transaction flow is on both our app and for retail partners at the point of sale.
Customers also report that they value our instant transfers and real time payout capabilities, which remains a competitive advantage. Additionally, recent surveys highlight that our customers are switching from our competitors, because we're more convenient and more affordable.
In fact, I'm quite proud to report that our average cost to consumers or or take rate is about 2.9%, which is significantly lower than the industry average reported by the world Bank and in line with the target set by the UN sustainable development goals, we are able to offer these rates to our customers as a result of the competitive advantages provided by our lower cost structure.
Taken together consumers recognize that we offer affordable prices and a differentiate and experience across each step of the customer journey and remained remarkably loyal to moneygram.
We also continue to execute our strategy to scale, the digital business by investing and our app expanding our digital receive market presence and targeted efforts to appeal to a broader consumer segments, the specifics of which I'll discuss in more detail shortly.
And third on global partnership network with our brand recognition and our ability to transfer over 120 currencies real time to both account and to cash and we.
Remains of core focus and and extremely valuable asset.
Now I'll spend some time discussing some of the drivers behind our incredible digital growth, which reached a record of $68 million and the second quarter.
On slide 5 the largest component of our digital business Moneygram online again delivered all time highs and customers transactions volume and revenue I'm excited to report that mgo delivered money transfer revenue of $47 million and the quarter with cross border transactions through this consumer direct channel growing and impressive 62% and.
And revenue growth exceeding transaction growth.
With and Mgo are leading and continues to drive amazing growth within 92% year over year increase and cross border transactions and the second quarter. As you can see from the chart on the right. Our customer acquisition initiatives are driving strong growth and monthly active cross border customers, which group, 54% and the second quarter can same to the compared to the same period.
Last year.
Turning to slide 6.
His growth rates are especially remarkable when you consider the record transactions that we delivered last year with 85% of new Moneygram on line customers new to the brand or digital marketing initiatives are enabling us to reach a new and younger consumer segment with over 80% customer retention rates and approximately 3 X customer lifetime van.
Q compared to the retail channel, we're excited about the value of creating and the ability to deliver sustained profitable growth.
It's also noteworthy that our growth rates meet or exceed even the rates of other fintechs, which currently have much higher valuations a message that I will continue to reiterate given our outstanding performance and the comparable competitive data.
And on slide 7 you can once again see the strong growth rates and transactions received digitally with 78% year over year growth and the quarter and a CAGR of 121% over the last 2 years.
Even though we continue to report strong growth over record transactions from last year, we expect to continue to report double digit growth rates through this channel as customers and specific markets continue to shift towards the convenience of receiving money directly to an account.
This point is highlighted by our customers and India, where this evolution has happened even faster their transactions received digitally represent nearly 50% of all transactions received this is an incredible shift with the number of transactions to account up about 6 times from just under 10% 2 short years ago.
We have a strong roadmap and the second half of the year to launch new wallet partners and enable over 20, new countries with the capability to send directly to a recipient's bank accounts through their debit card visa and their visa direct product remain a strong partner across these initiatives as we focus on country expansion and informing consumers about our real time capabilities and the quarter our visa direct.
Transactions hit new highs and also delivered over 230% year over year growth.
No beforehand, and the Covid, Larry I would like to take a minute to highlight a couple of key points on slide 8 with respect to our network and our business model as both continued to evolve.
So as we highlighted on on Q1, we believe we can achieve 50% of our business coming from digital transactions and 2024. This is extremely exciting obviously for a variety of reasons, while we look at the data of our of our senders and we continue to see very little overlap between new digital senders and our traditional retail customers again 80.
5% of all new online customers and new to the brand. They are also younger and bring a higher <unk> all of which highlight that there is very little cannibalization between our walk in and our online businesses. These are truly very different customers with different preferences.
On the receive side of the transaction and things are even more interesting as we discussed our digital received business has shown incredible growth almost doubling and the past year at the same time, however, the value and convenience of our cash received network really can't be understated.
Even more importantly, the demand for each of these services continues to be a market specific story. So.
Let's take 2 of our largest received markets and India and Mexico as I mentioned today, and India about 50% of our transactions. They received digitally however, when I compare that to Mexico, the differences staggering and Mexico about 95% of transactions are still picks up and cash. This remains the case. Despite the fact that both markets have incredible real time digital and incredible cash.
Options available for our customers thus.
Thus, while digital receives are critical and some markets are global retail network provides a tremendous amount of value and others and the and consumers choose the option that best meets their unique needs.
So when you put it altogether. We are excited to have 2 very different customer groups and business offerings that are both unique and extremely valuable and their own ways and with that I will turn on the call over to Larry to discuss our very strong financial results for the quarter.
Thanks, Alex.
The actions taken by the company and the second quarter, where transformational and we will have a lasting impact on both earnings and cash flow well into the future as Alex mentioned the dismissal. The DPA enabled moneygram to address weaknesses, and it's capital structure improvements credit profile and ultimately completely refinances.
Entire outstanding debt as reported and June through and ATM offering we issued approximately $100 million and new equity, which took less and 2 weeks and we immediately reduced our second lien debt.
This improved our credit ratings, which led through our issuance of 2 tranches of 5 year senior debt on $400 million floating rate term loan and a 450 million 5 years, 5 and 3 eighths fixed right now.
These notes were part of our refinancing that materially reduced our interest expense, while also improving the assets and sort of nature of our balance sheet.
Dispositions us well for a rising rate environment over the next 5 years.
Even though it was our first time accessing the high yield market. The issuance was vastly oversubscribed and it opened up an entirely new institutional investor base for the company, while greatly improving our access to the capital markets.
The result of all of this is on an annual reduction and cash interest expense of $36 million and and approximately $47 million reduction and accrued interest when compared to our prior across the front.
This translates into cutting are accrued interest expense and half on a go forward basis.
And for the first time Moneygram has a more permanent capital structure consistent with a truly independent company that allows for prepayment optionality as well as the maturity profile that reduces liquidity risks for the long term and.
A combination of lower debt outstanding lower cost of funds and the elimination of expenses from the GPA will increase moneygram free cash flow by approximately $51 million annually and.
Top of that all things being equal, we anticipate generating positive EPS, starting and the fourth quarter of this year.
The second quarter was also transformational from and operating perspective.
Revenue was $329 million and increase of 18% over last year, but also 2% over the pre COVID-19 second quarter of 2019, which demonstrates that we return to top line growth even with the current effects of Covid.
Excluding investment income revenue grew 6% over 2019.
Revenue growth exceeded expectations on the continued strength of digital growth and outperformance at Walmart.
This growth has also taken place even after factoring in the lower pricing on our digital and mgo products as our revenue per transaction can be up to a third lower than the walk and business.
Also.
The diversification of the business continued its trend with Mgo is the single largest source of revenue and 9 countries, including the United States.
Gross margin also expanded and the quarter, primarily driven by our online business, which is carrying higher margins even at lower price points.
As you can see on on Slide 12, adjusted EBITDA was approximately 55 million and while down 3% from last year. If you adjust that for the impact of ripple and investment income it was up 22% over last year and 15% vs 2019.
This also included the impact of lower price thing at Walmart, which Alex is just discuss.
As a reminder, and the third quarter, we will have debt extinguishing costs, which represent all on amortized deal costs <unk> expense and call premiums associated with the debt that we repaid and the quarter.
Looking forward there will be a significant convergence between EBITDA and adjusted EBITDA. This is simply from the fact that our DPA costs are gone and a restructuring costs have already been recorded as a result, we will begin to not only see significantly higher free cash flow, but also and increasing correlation and.
Between cash flow and EBITDA.
We finished the quarter with $117 million in cash and equivalents. This was after paying the Doj our final payment on $55 million and April raising approximately $100 million and new equity and paying off $100 million, a subordinated debt plus call premiums a $4 million.
Subsequent to quarter and our debt issuance was essentially cash neutral on covering its interest issuance costs call premiums and principal payoffs, which in turn is kept on liquidity position and its normal range.
This was also instrumental and the decision by Moody's to upgrade our ratings to be too as well as improving the outlook.
As a result, we find ourselves with the lowest risk capital structure and more than a decade and the ability to build liquidity reinvest and our business and delevers going into the future.
Looking to the third quarter, we expect business conditions to remain consistent with the second quarter, which takes into account normal seasonality ongoing digital growth Walmart pricing reductions and the continuing uncertainties from Covid with these factors and mind and including July performance.
We anticipate total revenue and the range of $323 million to $333 million.
Consistent with the revenue outlook, we anticipate adjusted EBITDA to be and the range of $52 and $57 million when.
Share to last year. This reflects that ripple incentives will be zero vs $9 million last year, and we don't anticipate a repeat of the 6 million and foreign exchange gains that we recorded and the third quarter last year.
In addition, we are normalized certain expenses vs. The COVID-19 impacts of last year, and we continue to reinvest and the business.
From a free cash flow perspective, given the reduction and our funding costs and the elimination of DPA related expenses, we anticipate increasing our liquidity position and the third quarter as well as for the remainder of this year.
So in summary, we expect the continuation of the progress that we've made and the first half of 2021 and with that I'll turn the call back over to al excellent. Thank you Larry low.
Looking back of this incredible quarter, and it's clear that Moneygram has turned the corner as we delivered record money transferred transactions record money transfer volume record online customers record digital revenue and record transactions received digitally.
And we've consistently delivered upon what we said, we're going to do or change and the narrative and the industry and everything is coming together.
And 1 recent article Moneygram on line was referred to as a hidden Fintech Unicorn and I think that's a great moniker that notion is further supported by the consistent multiple expansion we've seen over the past several months as we increasingly begin to unlock the incredible value of this business.
And we're looking at any of the competitive multiple comps public or otherwise there are significant valuation upside when you further consider that our digital businesses on a $300 million annual revenue run rate and that our consumer direct channel Mgo is on a run rate of $200 million. The analysis quickly shows that the valuation potential is even more significant it's easy to make the case that.
Our online business alone should be valued and the billions.
As we continue to execute our customer centric strategy deliver incredible digital results and increase free cash flow I am confident that will be increasingly value by consumers and shareholders alike.
I am so proud of everyone who works for this great company and I Hope you can all take a little time this week and to celebrate our well earned success. Thank you all very much and with that I'll turn the call over the operator to take your questions Daniel over to you.
Thank you very much sir.
You would like to ask a question today, Please price star 1 on your telephone keypad.
Star 1 on your telephone keypad, we will pause for just a moment to the low everyone and opportunity to signal and our questions. Thank you.
We can now take our first question comes from can I take a matter of North Coast Research and your line is open and please go ahead and.
Good morning, Alex and Larry Hopefully this is the last time I ask you a DPA question, but hafnia and now that now that the DPA is gone obviously, you'll have monetary savings, but just from a business standpoint, what else does this.
Do anything else to help you in terms of running the business or helping move the business forward.
Yeah, there's a there's a couple of different ways to look at that question I think it's a.
Great 1 and extremely relevant and I think Larry did highlight.
The ability to go out and execute.
Both are equity offering and refinancing and a much more.
Positive light I think there was.
Definitely significant amount of overhang with respect to the capital markets associated with with and EPA. So I would say from from that side of the business and it's.
Certainly.
Freed us up quite a bit in terms of flexibility and and I guess, just the risk profile of the company generally speaking on.
On top of that I think it goes without saying that in order to move on instantly around the world you need a lot of bank partners.
And clearly.
And.
The increase and focus on on AML risks fee increase and focus on fraud terrorist financing and the risks associated with that coming from central banks, obviously with cyber security on the risk on the rise as well and all these things are considered not only from our everyday business partners, but also the banks and we partner with on the on.
On the back and and it definitely has helped change.
The dialogue with them as well clearly.
And a DPA.
Is manageable, but having a DPA also creates risk, which I think and and have a very low risk power and environment is something you don't want to have.
And the hanging over you I'd say separately from that.
I think that.
The flexibility that all that creates really then translates back into.
And the decisions at the point of sale around consumers and I think we've highlighted but it goes I think again and important to highlight that the data collection standards and we put in place.
And basically the profiles will be available creator on all of our customers.
And have been instrumental really and helping us completely shifts are marketing focus and how we look at consumer data and analytics around that.
And it plays a role very consistently across both.
And what we do from managing customers interacting with customers, making decisions from a credit perspective, making decisions.
Around compliance and then obviously from investments and growth and marketing they all fit really really well together so.
We feel very good about the standards that we have we feel very positive about the growth profile of the company around those pieces. So I.
I think that the capabilities that we built and or something and we will continue to scale and and grow into and continue to manage dynamically as possible, but it.
It definitely feels very very different and and I think there's a lot of recognition and acknowledgment coming and now about the program that we've put in place. So I think the entire.
Compliance organization should be extremely excited about that.
Thanks, Alex and just a question on your digital business obviously.
You said, it's on a $300 million run right business and I think Larry said on the margin and the transactions are profitable and I'm wondering I don't know if you've ever looked at it this way, but if it was a stand alone business would it be a profitable business or.
Would that be a difficult.
Just $300 million and revenue.
Yeah, and that's a hard question because you have all the overheads associated with the rest of the company.
It tends to ride the rails, we use our settlement engine. So it's hard to break it out almost like a a separate subsidiary because it shares the underpinnings of the operation. What we do is we look at it from a gross margin perspective, and say are the other transactions.
More profitable from a gross margin and then if you could basically allocative and Ah.
A proportional and.
Relative amount of expenses and would be more profitable but.
Actually like line it out as a separate subsidiary repeat difficult to do.
Alright, Thank you both very much.
Thank you we can now move along to our next question. It comes from Ah Rumsey, a huddle of Barclays'. Your line is open and please go ahead.
Hi, guys. Thanks for taking my question today. It looks like this is the first quarter and a while where where the digital revenues outpaced transactions I'm. Just curious if you can talk about that drivers. There is it taking price is it related to mix and <unk>.
Lapping incentives to customers and and just sending to call out there.
Yeah no it's.
A variety of different factors.
So there's a couple of things going on I would say simultaneously I think.
This this business at the end of the day, I mean that and easy answer is always it is about mix where.
Where the transactions are coming from.
But importantly, I think within that same same concept around mix is really the bands as well we have continued to see increasing face values being sent.
On the on line and and the digital platforms and obviously.
As we've talked about they are lower per transaction face amounts on each transaction sent but as compared to the retail walk in business, but they have been <unk>.
Trending upward a little bit so that certainly helped I also.
And have highlighted and.
And would continue to highlight that we've done a bit on.
Pricing and and number of areas and if you remember our story the.
And when we relaunched all of our platforms.
And we did a lot on price from a low entry point, we've done a lot with price tests and a variety of market.
And continue to really think about where the value trade is in terms of competitive pricing vs are offering and and what they can potentially look like and so we've continued to.
Look at opportunities to and.
To shift pricing and in some cases, we've had income down a little bit and other cases, we've been able to to move them up. So it's been a combination of all of those factors and we continue to see.
The accelerated growth.
Across pretty much every platform so it's been exciting and definitely.
Something that we think will be at least sustainable and not necessarily that 1 will completely outpaced the other but they should be very comparable as we go forward and.
Okay.
And and the second 1 from me is could you comment on some of the media chatter that we've been hearing around and sort of struck strategic alternatives for the company and know how much you can comment on things like that but what is your latest and view on on pursuing those types of outcomes.
Yes.
So is is always something going on at and Moneygram, which does make it extremely exciting I think that.
We certainly anticipated that once the DPA was lifted there will be a very different sentiment and view of the organization, which I think has been obviously compounded by.
The amazing success of the digital growth and counted the acceleration.
Of the business generally speaking across the board so it doesn't surprise me.
At all.
From that perspective and.
Probably and the strongest position that we've been and and a very very long time and rumors.
Came into the market over the past several years and I think we're probably reflective of opportunistic.
Buying type scenarios, where people felt like we were in a week and position and could maybe potentially take advantage of that we just refinanced the debt. We just raised equity the stock has been definitely moving and a very positive direction for a number of months now so.
We feel like we are in a position where we're just getting started.
We have been freed from a lot of the baggage that we've.
Been carrying and unloaded and and I think it is.
And awesome opportunity to reinvest and the business and and push for growth.
And really see what.
And we can do from an unknown unencumbered environment. So.
I expect that there'll be people interested in the business I think that there is a tremendous amount of opportunity.
To partner to think differently about.
In other business models, we go forward and I think there's going to be a lot of a lot of things happening and a specific too.
And.
Any direct rumor or press statement that comes out we don't really directly comment on on that type of on that type of language, but.
It is.
Think a great opportunity right now in front of the company and and as I said being and the strongest physician we've been from both the capital structure and a growth trajectory at the moment. We are really really excited to go execute our strategy.
Sure enough. Thanks, so much.
Thank you we cannot move along to our next question comes from 10.10 <unk> of J P. Morgan. Your line is open and please go ahead.
Hey, thanks, so much and.
Good morning to LD guidance I'll also follow up on <unk> question, and Alex I totally hear your frustration on on valuation.
And a million dollars.
And with some private equity investors and the past before but.
Just to put you on the spot why not go private then if there is frustration on on value and and we can not too.
From a from a business or cultural perspective at this point of the recovery.
And if you don't mind me, putting you on and start to ask you that.
No I don't mind, and putting me on the spot was all about right.
I would.
Look I'll I'll look at it and a couple of different ways.
I think at the end of the day.
I simply feel like the business the value of the business has not been completely on lot and indefinitely.
I would say.
Frustration may not be exactly the right word I think that there's just a lot of excitement on my part to really get Moneygram.
View.
From a public market perspective, the way that.
It could and should be and I believe will be I think that clearly when we were trading at.
And bankruptcy type levels way back and.
Okay, and Ah way back a year ago, and I was kind of ridiculous. We've obviously rallied a long way from there and then I think the execution around both the refinancing and and the execution around.
The equity offering that we did I think are indicative of the value that shareholders are that are coming into the stock.
<unk>.
And it's pretty much the question and we get all the time right, which is why this looks like and incredibly undervalued story and.
And something.
And that we want to be part of so I think there's a lot of excitement around it.
And I think that there is plenty of opportunity I don't really feel like.
Shopping the company or taking a private.
Right now is really the right thing to do I think there's always optionality and capital markets I think there's always optionality around.
The things that they can happen with with the business but.
I think sometimes there's opportunity around.
Private equity style transactions, but I also think that there is often time.
Opportunity.
As well to go continue to to deliver and execute when you look at some of the valuations that new guys entering the public markets are getting.
I think it is illustrative of the value of what we do and look we had a lot of overhang and that overhang is spring away. So I think we'll go we'll go and execute and and see what we can do.
And and kind of drive it forward. So it's not at the top of the board mind right now that is something that needs to happen.
We've created a tremendous amount of value and a very very short period of time and I think given some more time, we're going to continue to unlock that and it's going to it's going to move forward of course and of the day.
A lot of a lot of components have to come in to that and I think that I think the buy side with all due respect is getting the story I think the bond market and I think the.
The debt markets get the story, but I'm not sure exactly what's wrong with the sales side, but.
Think that when they start to put pen to paper I think we'll see the value of their as well.
Yes, yes, and while we can be a little slept on but Java is by valuation.
No like I said, we can be a little slow, sometimes I know, but look value side and jokes is outage.
And I know a lot of hard work has gone into this and you've address on the headboard.
So yeah definitely acknowledge that so and my follow up and it's just on the on.
On the cultural side of things and.
A lot of.
Traditional or let's call. It legacy companies Medicare has been around for a while.
Are going through digital transformation it feels like you've got 2 and inflection here on the digital side, but how about on the on the retail business and it seems like it has bounced back and you'll get a little bit of visibility on on.
On on the Wall Mart Peace and then just culturally and you feel like that the firm has transitioned and a little more towards digital and having balance that against the.
The traditional book of the retail.
The other things yeah, no. It's a great. It's a great question, because I think it's as relevant and a variety of different ways and and 1 of the 1 other ways. It's very relevant is around the way you phrased it which is.
The company really shifting to the digital mindset and I would say probably if you drop back maybe 5 years. There was a lot of I would say consternation and concern about the cannibalization or look like you're competing with your agent partners or.
Trying to drive sort of a wedge and the organization and thinking differently I'd say.
What we did extremely well and what I think at this point is differentiated us quite dramatically from really anybody else's day, we shifted to a consumer focus away.
Away from transactions and and really away from just thinking purely about.
The agent model and I think that's really changed the paradigm because it doesn't at the end of the day become as important about where a transaction.
And was initiated and where it was received as long as you're thinking about the customer and the customer experience associated with that and that has really been I think the main the main shift and the mindset of the organization going forward and it's really become.
And much more neutral factor I think the market is simultaneously have also shifted.
Quite a lot and it's hard for me to think of anybody outside of maybe are pure.
Retail feet on the street mom and pop sales force across Europe, and the U S.
On that are still really competing head on and the street, but the rest of the organization that has been dealing with key partnerships and post offices and bank partners and big retailers and markets all around the world I would say, they're probably spending as much of their time, focusing on digital sends and receives new digital partners coming in new receive partners.
That are looking at bank receives and wallet receives and these types of things and so.
The teams that really had to shift.
Around the world from a sales organization perspective to get that mindset around it's not about a walk in customer walk and business, it's about where customers are going and how do we partner and the right ways to execute.
Across that and then and the backdrop, we've had to shift.
We've looked at our structures around financially and go on compliance, but I really think it's come together.
And a much more homogenous way now and so I'd say from and organization perspective, we're all pretty aligned on where we want to go our strategy that we continue to lay out for all of you is really the strategy that will use internally and the pillars of that have been very consistent and we always tweak it a little bit but that consistency I think has helped quite a bit as well so it's.
It's a lot of people here with a with a with a lot of motivation a little bit of a chip on their shoulder to go prove everybody.
Wrong over the last couple of years, and so it's exciting and Ah.
Yeah, no doubt thanks for the answer and congrats on getting the and we find that.
Thank you.
Thank you and we can now move along to our next question and it comes from Davis Sharp of JMP Securities. Your line is open and please go ahead.
Hi, good morning.
Thanks for taking my questions and.
Kind of reiterate the congratulations on.
Checking off so many boxes, obviously, a lot of milestones and we're a long time and they're making.
8.2.
2 things.
I wanted to ask about Alex.
First is.
Reflecting on markets that I think India, you had mentioned.
Mr <unk>, 50% digital receive.
Thank you had a slide last quarter, then mentioned there are a handful of countries where it was over 40%.
And can you talk a little about how just agent relationships kind of at the store based agent.
Model has evolved over the years and those markets I mean, it almost feels like those countries or maybe the leading window and what this industry might look like and 5.7 years and.
And I'm curious.
And what the role of the agent and those types of markets has become and how.
How commission rates have trended and and ultimately if there's just any lessons that we can learn about.
And what the receive side of this industry is going to look like if we even by looking at those particular markets, where the digital receive is so high.
Sure.
And there's a variety of different ways to look at that I would say that the.
I'd say the receive agents are probably as as motivated as ever and I would probably enhanced that with a couple of thoughts about.
Their business models generally speaking there are very few receive agents anywhere in the world debt only do money transfer is most of them have.
More <unk>.
Dynamic business models, and whether that's kind of the the.
The chains of pawn shops across the Philippines or whether that's.
You know and.
Travel agents or.
Retailers et cetera across various aspects of Asia Pacific.
If you look at.
Africa, it's a lot of banks right and it's a variety of other.
Entities out there post offices et cetera, and all of them have have a different operating different business model and so I think money transfers as a service and that sense has always been additive to what they do and I would say that.
The business has has shifted digital.
And many markets are digital has become and additives piece of that business.
And a lot of them are recognizing that and thinking that way, but at the same time, they've also gone non-exclusive right they've added other brands and they've added other.
A variety of number of payout opportunities and and so that I think has been.
Additive to to their business models, and I think that they've they've all begun to drive through that I can't think of really any.
That have.
<unk> shifted their business model or thought differently about the industry and I'd say, they're all probably as as.
As positive as ever on it.
And generally speaking it's also hard to find any of these entities, where this would be the predominant form of revenue for their business right. So again, it's an additive piece of it but I don't think it necessarily changes the business model.
Around their mindset associated with it.
But that being said if prices continue to come down and I think if there.
Their costs go up if things like Covid.
Covid and other environmental factors impact their ability to kind of maintain their stores and locations. We could continue to see.
See a shift I'd say also just keep in mind right that the market itself.
Goes down a little bit once and awhile and sideways, sometimes but generally speaking the remittance market continues to increase and.
Every year and so even if you're seeing shifts the digital you.
You continue to see more transactions coming through every year and then obviously from the competitive and mix.
There's a lot of volume out there to be had so I do think it is going to continue to be.
On a shift and I think there is going to continue to be pivotal and business models here and there, but I'd say the model works because it always has been a value added service and it always has been something that is additive to to these business models of these entrepreneurs or banks out there and and not necessarily their core bread and butter. So.
And from that perspective, it creates opportunity and flexibility for them is even if business models change over time.
Got it got it.
Understood and.
Maybe just just a follow up on health.
I'll pile on as well I guess, maybe a little different and crowded.
Obviously hear the frustration loud and clear.
On some of your evaluation observations and I guess.
Maybe the question has to do with.
Sort of some of the barriers to segment reporting and.
Point being.
There's some inconsistency with frustration over perhaps the digital business not being appreciated or valued reflected in your stock.
Net responding to and add a question about.
Can you talk about the profitability and digital business, and saying well, we can't give you that and.
And.
You know to the extent that it's.
Moneygram on suddenly digital and total and even Moneygram on line is over 10% of revenue.
Alright, capably passes and materiality threshold.
Can you just talk about.
What.
Reporting barriers are challenges fixed cost allocations is the river road map to potentially.
According walk in and digital is 2 different segments, because I think and the absence of being able to answer that question.
It creates a bit of a challenge too.
Initial frustration related to valuing additional business.
Mhm no I think those are those are those are certainly fair statements I think to some degree.
I'll make a comment and then I'll hand, it over to Larry to comment directly on yours I think at the end of the day.
I think that there is.
You know there's always these comments about some of the price is always these comments about.
You know.
Blood competitors are doing and are they going to take your share and blah blah blah blah blah and I think the point of all that is like look I think we're chewing all the things to address those issues and so my point is I think more broadly not just the value of the digital business because I think it deserves.
A huge value component.
That is being given to others and and not necessarily to as you say kind of legacy businesses.
That have been around for a while that are shifting to digital and it's kind of the same comment engine made so I guess my point is that we're doing the things that we need to do to shift the business to consumer direct we're doing the things that we need to do to create more value and and to put and grow through through the network and and grow through the business model, we remain competitive and lead the industry and.
And a lot of innovative and interesting things.
And I think that deserves a lot more value than is being recognized does that give us 300 times revenue, probably not and that's really not what we're asking for I just think.
Trading at 6.7 times EBITDA multiple and when you've got other public company comps out there.
That are trading at 12 to 15 times and I, just think is a little bit I don't know if I want to use the word misplaced or if it's just getting people motivated again to come back and actually spend some time on the story. So that's probably more with the French durations coming from.
I think in terms of what you need to see from from a value perspective.
You don't get that from a lot of the other public companies that you actually have higher multiples on at the moment. So that's I guess, where I think it's just sort of an inconsistency. If I was going to argue that point, but.
Look at that being said, we are trying to create more transparency and we are excited about all of that and from that perspective on Larry MC few comments on and and as we disclosed and Ah we are.
And.
SIDERIS.
Segment reporting here, we did disclose revenue for Mgo and I think we can say that from a gross margin perspective, it's accretive or above.
The average for the rest of the company.
You have issues like this like we have on compliance department at those both we have 1 settlement department and that those both.
So if you wanted to just say Oh, you know on a proportional basis and I am going to take your allocations of expenses and you are starting out with a higher gross margin and theoretically you would have.
A profitable business that moves above.
Above average vs. The rest of the company or vs. The legacy walk and business, but in reality you do have separate expenses and some cases and so this is where.
It's sort of like and.
Kenya, K Chevy other general Motors, and say to suffer company I mean, it's really hard to do and so.
That's where we're going with this is that I think when we look at the product individually and other ones when a customer sense money.
Is that transaction more or less profitable, we can say that on.
And a percentage basis, it's more profitable even at lower price points and that's.
And right now that's a very precise calculation that doesn't have allocations and and and allocations of overheads. So that's the challenge that we have David I Don.
And and I'm not sure there is moving.
And the answer to that.
We can be precise in terms of calculating.
The.
EBITDA margin or the or the operating profit of that company.
And and have it is the precise number that doesn't have an allocation methodology and that's that's the challenge.
We're dealing with on this from a disclosure perspective.
No I I understood clearly, it's there's no easy answers and but and a lot of ways. It's good from to have and the sense that.
And you grow and what you want to grow great well. Thank you very much cash.
Thanks, David Boxing.
Thank you we can now move on to our next question and it comes from Bob Napoli of William player. Your line is open and please go ahead.
Hello, Thank you and.
Good morning interesting call congratulations on getting a lot of what you want and 1.
And it has been really.
Really choppy number of years.
Where moneygram and it seems like you guys certainly has all her on.
On the right on the right path now.
And.
And and important question is we just.
And the growth and on line has been.
Really really strong and.
Certainly help.
By the pandemic, but I don't think it's going backwards from there but.
It's still early and acceleration.
And just some color on your thoughts and and what the right long term growth rate is for that part of your business and maybe breaking it into 2 pieces, but importantly.
Yes, the valuation forward and some of your highly valued peers are coming from that part of the business and.
And a more pure place without onion and.
Understand the benefits and beyond the channel and I'm, a big believer and net.
But anyway, here's some thoughts on the the growth of the on line business.
Over the next 3 to 5 years.
And again, some pretty tough Holmes.
Yeah no. Thank you for that now that's a good question and.
And something that we've we've been looking at quite a bit and and really thinking through and again I think your point is excellent around COVID-19 and it has made.
Financial planning, a little bit unique and intense because it.
It really is hard to get a bead on exactly where the the retail walk and business is.
And how much of.
Some of the shift and digital particularly on the receive side is.
Really.
Permanent vs temporary and.
All those factors that go into kind of making that decision, but look and I think and Ah normalize environment, we definitely feel like the the walk and business at least at the size and scale. It is today.
Should and totality be counted growing and the.
Low mid single digits.
And I think if that were a sustainable growth rate with the cash flow that that business has been generating and.
Vastness of it across the world I think that would be.
That would be quite successful.
I think that the the digital.
Partnerships associated with the business.
Also tend to ebb and flow a little bit and probably more.
Mirror.
Going on and those markets more to the walk in and probably the pure the pure online.
Side alone and and what I mean by that is that we have a lot of digital partners that are doing sins and.
And in those markets and I think that.
Day of other business model and some of them are trying to step into riminton. So some of them are better at it and others and so I think that the results there.
Have been excellent.
But very market specific and and a little bit also <unk>.
Dependent upon.
What's been happening with with the walk and peace of the business and those countries, meaning that there's been a little bit of the ebb and flow and sort of vacillating.
Growth rates, there, but I do think that digital partnerships as a as a double digit growth.
And business for the seeable future and 1 that I think will be.
And increasingly important and a variety of market that.
Where licensing and and and other direct service type models are more difficult to to.
To create or perhaps less profitable and sustained in that sense.
I think that those are kind of 2 big components and then.
The mgo itself, we firmly believe is.
A 2030% type grower for the foreseeable future.
And I think it's just it's going to be a little bit.
Quarter dependent and our month, depending on depending on exactly what's happening from.
From economic flow is I mean, it's obviously quite a big business across 37 different markets and so you are always going to get the same thing you get and the walk and business which is different.
And different shifts and what's happening.
In terms of economic.
What's happening with.
And currency rates and other things that migration patterns and these types of things that influence the business generally speaking I think are always going to be.
As fact is factored and and impactful and the online space, but I.
I think the exciting part about the online businesses is that that.
Consumer direct side of it.
We're getting.
A much more frequent transactor you are getting a much more.
Repeat customer base, and and increasingly loyal customer base from that sense, it's creating.
A lot more opportunity to.
To speak to them to go direct to them to offer.
Increasing amounts of services and that's something that we're going to do more of as we go forward as well in terms of thinking about who those consumers are looking at that that dynamic mix and then looking also in terms of what other customers and we not getting and how do we pivot the model and add those types of services that are that are more on demand.
Dollars vendors and and these types of things as well so.
Yes, I think that.
And a 20, 20% grow 30% growth depending on the quarter is probably the right number for that business as we go forward and and something that we should be able to to execute on.
And the coming quarters.
So the combined business sounds like on.
And you get 10% ish type of top line grower with margins and.
The 20% I think those margins and the current margins at 20%, you think 20% EBITDA margins delight margin and that business.
We have been consistently saying hi teens for EBITDA margin and I don't think we can get through it and 20.
Okay and they just last question I, just think that it's viewed that the tech stocks, where some of the newer competitors are fresher younger.
And more flexibility and to build on whether that's right or wrong.
Not easy to tell at the moment, but I think that.
You've done a lot of work obviously on your tech stack and how you are able to build off of your platform and expand the business.
And I think it's going to be interesting to watch, but I think that some loans W.
Q.
As well.
Oh.
So I.
I guess last question visa direct what percentage of your businesses visa direct on.
And what how important is that to your business.
Well first of all let me just say I don't think there's anyone younger fresher than this group of people here, we have more fun, I think and anybody and.
[laughter] alright excited excited to grow the business and I, just said that and I remember now I've known you quite a while so.
I guess, we're not as young as we used to be but look I mean, we still have a ton of energy around the business and and.
Actually it's funny, how other according to the people by the way and to be clear.
And I understood.
Understand but but the point being look we have.
And it's like you get a little bit older and it's like people, but we were fairly really focus I mean, I think everything that we're doing across the board is really based on trying to build a business that is younger pressured and appeals and that's kind of the point of the.
And a little Pie chart, and we showed were 63% of our customers are under the age of 40, and that's a nice mix of.
Of <unk> and millennials coming in there and I think it's it's pretty.
It's pretty remarkable.
1 of my sons is 17, now and I fell on the App and he'll make comments and tell me things and it's pretty interesting to be and that that stage of development and I do think that from that perspective.
There's a lot that we're trying to do with the tech stack. There's a lot that we're trying to do to keep it fresh relevant.
Improve the customer experience kind of every day.
Gamification, making it more fun and change and the paradigm on that and I think you'll see a lot of that coming.
And the next year that is something we pride ourselves about in terms of.
The rating of our App and the performance of it and so that is an important aspect of what we're doing and I think equally important is kind of how how you're viewed and the mindset of of your customers and when you look at our social media.
Campaigns and you look at the ads that were doing when you look at all of the things that the marketing organization overhauling and changing.
We are.
We are definitely.
Focused on ensuring that there's a lot of excitement around it and that were perceived differently and that is important and.
So I know you are.
Talking more specifically on the on the tech side, but we feel like are the tech stack, we have and kind of where we're going and the next year with it will ensure that or not.
Displaced in any way at all as we go forward and continue to lead.
On the forefront there the.
Those online customers or something and the neighborhood of 43% more productive 20% higher retention rates and.
And lifetime value of creating there is huge so we're excited about that and it's something we will keep focusing on and then visa direct.
It is it is still.
Relatively small and in terms of its total.
<unk> on the business.
When you look at the.
Markets, where it's growing and the excitement around it the U S. Domestic market is 1 of those.
And I think it's made its way from nonexistent to something like 15% or so of our digital receives right now so it's definitely moving up the curve and we're not and every market that we want to be and yet but.
But it is creating some unique capabilities and again I think part of part of expansion and learning and investing for innovation is.
Admitting when you are wrong and and pivoting to the to the right model and.
I've shared the story, but and I had this amazing idea I thought at least where we're going to send directly to people's phone numbers and that product was like a total dud.
And visa direct comes along and says will send directly to a debit card and I was like no one's going to do that but everybody does it apparently so.
Again, I was wrong and others are right and that's what businesses are all about and how you invest for growth and so I'm excited about what visa directors brought to us and it's been very added at the portfolio. So.
Inc. Will continue to see those accelerated growth rates and will continue to see it become a bigger part of the business and we go forward.
Thank you all thank you and I appreciate it.
And excellent.
Thank you and we cannot move on to our final question and comes from Mike Ground total of Northland Securities and line is open and please call at.
Hey, Thanks, guys hopefully just a couple of quick questions.
When you gave revenue guidance for 3 Q, what sort of and embedded in there for digital gross and maybe to walk and business, which we're all trying to see when he gets back to growth.
Yes.
It's an interesting quarter and that sense I would say that we are definitely going through some pretty strong comps from.
A lot of the accelerated growth we saw last July and August and even September of last year was.
Was really pretty good I would say that the.
On the walk and businesses 1 where.
We've got really obviously, if you've got the Walmart factor, which I gave you kind of the 250 headwind on which again is not really about transaction growth. It's really much more focused on pricing because once you. Once you cut effects rates and once you lower prices that sort of a permanent effect and.
And even if you stay and sustained your transactions are obviously, just pulling and less revenue, which is kind of what we saw on the and the second quarter.
And.
And the.
The rest of the business I think there is an interesting question around from a walk and perspective, what's going on with with with Covid right, we had some opportunity and some expectations that.
Several markets good examples being like Australia, and Malaysia, et cetera, where we're going to be reopened and actually performing better and they are today, but yet you continue to see lockdowns.
And increases and risk Thailand's and other 1 and so those who put a lot of.
I don't want to say damper on on growth, but I would say.
Temporary and temporary expectations I suppose as we tried to figure out exactly what's going to happen I think on there.
Reading yesterday, the state and Nevada is putting masks requirements back in and.
I'm not sure it's going to.
Slow things down again, but there is a little bit of I would say.
Concern on my side that.
Any more surges delta very and talk et cetera, et cetera, and lack of vaccinations is going to continue to lead to some slowdown and reopenings and so that's definitely factored into that on the digital side I think you'll you'll continue to see the 20% to 30% type growth rates. So we feel very positive.
About what's going on there and I think maybe maybe.
Maybe slightly more importantly is that we're seeing good customer growth and good customer.
Acquisition on both the new customer side and on a monthly active users and <unk>.
To the month of July here. So I think that's that's very positive as well as we kind of look at the.
Look at the quarter.
But definitely slightly muted growth rates from kind of where we were now and I think that'll kind of normalised through as we get into the fourth quarter.
Got it and then.
I guess, a little bit more strategically when you see transfer y value that double digit times revenues does it make you want to separate moneygram out like selling the walk and business you're splitting off digital is any of that possible.
Yeah, I mean, I think broadly speaking that's kind of been.
Thematic Lee a lot of the a lot of the questions and <unk>.
And different ways that have kind of come through.
Look it doesn't it doesn't make me want to or not want to.
Split off the business I think we own on the business and I think it's performing.
Extremely well clearly moneygram has had some other.
Choppiness and as I think is Bob kindly said that have made it difficult to get a pure view of the company.
Look I think I think capital market transactions, I think whether the company.
Is sold to somebody whether it goes private whether we spend things off I think that those are always possibilities those are always on.
Options that are out there and I think that those are all things that are doable and.
Opportunities.
On the Horizon, if you don't get the proper value unlocked and with the current structure that we have I mean, we just completely overhaul of our capital structure, which I think is worth a lot we get out and the DPA, which I think is worth a lot we're putting up.
Nice growth rates, which I think is worth a lot and we're growing through.
And some noise around Walmart and we've got a little bit of noise from from the ripple Grover.
And.
There'll be a little bit of Lumpiness for the next couple of quarters, but I think as Larry said.
Putting that is not going to have $50 million on improving free cash flow and we're going to be and and EPS gross.
Orientation, as we kind of get into the fourth quarter and to the first quarter.
And it would be a very very different moneygram, so and.
The end of the day, our responsibilities around shareholders are responsibilities unlock.
Value and create that value and I think we're we're doing all the right things to do that and and at the end of the day.
If we get to a point, where we look back where we feel like we're just stock and we're just not getting that for whatever reason, there's always possibilities to do to do new things I. Just don't think it's necessary right now and I think that the value has been increasing and the stock I think the story is resonating extremely well and I think the opportunity.
So unlike value as a company that we are and today is there and we're going to go execute that and if if we can't and then there's there's always optionality, which I think is exciting.
Got it and then just standard quick follow up to that.
Would you be open to offers today at the right price.
Would have are you open to offers of the right well I may and look at the end of the day I have I have a responsibility.
Ability to consider any offer that comes and that's real and.
And at the rate at the right valuation so yeah absolutely.
And.
Just I don't I don't think that the board is and a position where they feel like the company needs to go shop itself Anybody's book and the call with ice and does anybody is always welcome to to come in with thoughts on how to create value and and if it's the right thing for shareholders and absolutely.
Fair enough.
Hey, good luck with second hand, and take care of guidance. Thanks, Sir.
And I think we are a little bit over so we will go ahead and probably wrap it up Daniel Thank you everybody for your time attention for all the calls it was.
Good dialogue, good quarter and much appreciate and everyone's interest as always.
[noise] cash will conclude today's conference call. Thank you for your participation data and settlement you may now disconnect.
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