Q3 2021 MoneyGram International Inc Earnings Call
Ladies and gentlemen, you are currently on hold for today's Moneygram International third quarter 2021 earnings release Conference call. At this time, we are assembling today's audience and plan to be underway. Shortly thank you for your patience and please remain on the line.
[music].
Yeah.
Yes.
Good morning, and welcome to the Moneygram International third quarter 2021 earnings release Conference call Today's conference is being recorded.
All participants have been placed in a listen only mode and the floor will be opened to your questions. Following the presentation. It is not my pleasure to turn the floor over to your host Steve <unk> head of corporate Communications. Please go ahead Sir.
Great.
Good morning, and thank you for joining us on the call with me you have Alexandre Moneygram, Chairman and Chief Executive Officer, and Larry Angelilli, Chief Financial Officer.
On the Moneygram Investor Relations website, you can find our earnings press release and presentation, which is intended to supplement 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 are non-GAAP financial measures provided should not be considered as a substitute for or superior to that.
As prepared in accordance with GAAP. They are included as additional clarification items to aid investors in further understanding the company's performance. In addition to the impact that these items and events had on financial results.
Please note that today's call is being recorded during this call we will be making forward looking statements, which are predictions projections or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties.
Actual results could materially differ because of factors discussed in today's earnings press release and the comments made during this call and then the risk factors section of our Form 10-K forms 10-Q, and other reports and 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 your ox great. Thank you Steven.
Morning, Good afternoon, good evening everyone.
Consumers are increasingly valuing our digital first strategy as we delivered another incredible strong quarter of digital growth and cross border payment innovation and direct to consumer channel Moneygram online continued to excel reporting exceptionally strong revenue growth in the quarter of 34%.
Digital which includes Moneygram online digital partners and digital receives delivered record revenue in the quarter of $70 million, putting our digital business on a $300 million revenue run rate as we exit 2021.
Digital transactions now represents 34% of overall money transfer transactions and we are on pace to achieve our goal of 50% of transactions being digital in 2024. This marks an incredibly rapid transformation of our company.
As we enter the next stage of our digital expansion. We are focused on meeting broader consumer demand with a more expansive set of direct to consumer offerings. Our recently announced partnership with stellar development Foundation and circles USD stable coin for block chain based payments is a bold step in this direction, which we will discuss in more detail. Shortly we're excited to meet the dim.
<unk> have a new fast growing global consumer base with this transformative offering providing further evidence of our leadership in pioneering innovative digital payment technologies.
Now turning to slide four Moneygram online the largest component of our digital business delivered strong results in the third quarter reporting a record high in volume with cross border revenues and transactions growing at an accelerated pace.
This phenomenal growth continues to be driven by our industry, leading moneygram app given the strong customer lifetime value of App users. We're excited that 88% of Moneygram online transactions per performed on a mobile device in September. Additionally.
Additionally, the average number of customers, who transact with Moneygram any given month continues to grow.
This quarter, our active customer base increased 31% compared to the third quarter of last year and as a reminder, we define an active customer is a person that has transacted at least one time in the quarter given our success. We will continue to increase the investments we've made in digital marketing and social media as we move forward.
Whether online solutions, continuing to resonate with more and more consumers were excited to announce that five moneygram online country sites now account for over 50% of their respective country's total money transfer transactions Australia. In particular is a wonderful example, three years ago, we didn't even have an online presence in the market today Moneygram online rep.
Presents more than 50% of our transactions and revenue in Australia.
In addition, if we look at individual countries sites three sites are in our top 10 list of revenue and transaction sources with U S. Moneygram online as our single largest source of revenue and transactions.
And as I've mentioned before strong Moneygram online growth will be a key driver of realizing our goal of 50% of our transactions being digital in 2024.
With Moneygram online revenue of $47 million in the third quarter and our expectation of sequential growth in the fourth quarter Moneygram online will exit 2021, and a $200 million revenue run rate and this is before considering any of the new initiatives that we have in store for 2022.
As we continue to focus on innovation and expansion of our offerings in October we announced our most recent moneygram as a service partnership with the stellar development Foundation. This partnership has two main benefits first it increases the interoperability and liquidity of digital assets, while also enabling more consumers to participate in that.
Digital economy by building a bridge between digital assets and local currencies for consumers utilizing the USD stable coin and the Moneygram network.
With about $5 7 million, while it's already connected to the stellar network and a strong pipeline of partners. We're excited about the revenue growth potential with this partnership.
This integration will provide consumers with a seamless experience for funds in and funds out between USD and local currency.
The second benefit is that this partnership revolutionized the settlement flows enabling for the first time, what is effectively real time settlement between Moneygram and any participating wallet through the stellar in circle connection leveraging the USD stable coin.
This will create an accelerated collection of settlement funds for moneygram, improving efficiency and reducing risk.
This partnership is truly transformational for both the world of Crypto blockchain and our industry.
Given our expertise and global payments blockchain and compliance.
And cross border men's is we're extremely well positioned to continue to be the leader in building bridges to connect digital currencies with local currencies with a market value of about two trillion dollars digital assets and their appeal to consumers around the world. We will continue to play an important role in the future economy and simply cannot be ignored innovation in this space will remain an important component.
Of our ongoing strategy.
In the quarter. We also signed a partnership agreement to provide business disbursements for a leading tech company, which will be launched and announced in the next few months.
The total addressable market for cross border business disbursements to consumers is estimated at $1 six trillion and we're focused on leveraging our API driven infrastructure and global network to meet market demand and diversify our revenue streams to capture new growth.
Now turning to slide six as we've discussed the Digitization of our received network through our unique combination of account deposit wallet in visa direct offerings for consumers is a core component of our growth strategy and we continue to report exceptional results.
Total transactions received digitally reached a new all time high with growth of 63% year over year up an astounding, 332% compared to pre COVID-19 in 2019.
As part of the success of digital receives.
We have been focused on expanding our geographic footprint with visa direct.
Excited to announce that 49 countries are now enabled with visa direct marking a rapid expansion in just a year visa direct transactions reached a new all time high in the quarter growing 144% year over year.
We now have over 100 digitally enabled countries with digital receive options covering over 90% of the remittance market. We're proud to have built one of the largest digital receive networks in the world, enabling consumer access to $3 8 billion bank accounts, and 510 million wallets as consumer preferences shift towards receiving transfers digitally moneygram is clearly well positioned.
<unk> to meet this demand.
As we've been saying Moneygram is all in on digital and it is clear that our strategy and positioning in this fast growing market is creating tremendous value for our consumers, saying.
Saying that however, does not mean that we do not value our cash network in fact, nothing could be further from the truth, we believe maintaining a global cash network is important for a variety of reasons first in many markets. The cash network will continue to provide benefits for those consumers that need to send cash. In addition, we will continue to maintain the most robust cash received network available.
As countless numbers of receivers around the world rely on cash to support the urgent needs of their families.
The cash received network is also a critical component of our strategy to scale, our digital send business as cash received continues to be a valued service even for digital centers.
Having the benefit of operating one of the best known and recognized networks in the World also means we have opportunities to leverage our network for new use cases and partner more broadly through.
Through Moneygram is a service we will partner with businesses across industries to offer cross border disbursements and of course, we will continue to work with blockchain to create bridges to this new and dynamic growth of crypto.
<unk>, our seamless integrations for funds in and funds out as a truly transformational and incredibly unique offering.
Importantly, we will not maintain our network at any cost in the network must return value as I've said, many times, maintaining our network for the sake of size alone is a futile and costly exercise and you will see us continue to focus on maintaining the network with an eye towards margin and cash flow optimization.
All that being said, we believe the future growth as industry and our company will come from digital the amazing growth in benefits provided by digital sends and receives to our customers around the world can simply not be understated.
We've come extremely far in a very short period of time and I cannot be more excited about our growth and future innovation in this space.
As we all know consumer demand and expectations are rapidly changing to address this new and evolving digital consumer we must continue to invest in product and marketing innovation. This means that in the coming months, you will see us transform our consumer direct business, even more as we go deeper and wider in our consumer direct digital offerings and continue to innovate with blockchain and crypto.
Going deeper and wider means we will further expand to new regions and bring our digital solutions to more and more customers for both digital <unk>.
And digital receipts.
We will expand mgo to new countries will add new digital send partners and we will add more wallets and more account deposit offerings.
We will also expand our demographic reach offering a compelling solution for high dollar centers that easily meets their fast changing needs in.
In addition, we are assessing opportunities to offer a broader suite of financial services to our customers. So stay tuned for more updates on that in the coming months.
All of this of course means we will continue to drive innovation and cross border payments. It means more use cases, it means more customers. It means new revenue streams and all of that means new growth and with that I'll turn the call over to Larry to discuss our financial results for the quarter.
Thanks, Alex.
Our performance in the third quarter reflects the trends that we've been describing throughout this year.
First the continuing growth of our online digital business was accompanied by margin expansion as well moneygram saw growth of its highest margin businesses, while experiencing being revenue headwinds and it's lower margin businesses. This accounts for our improved adjusted EBITDA margin versus last quarter and looking forward, we see this trend.
<unk> ended the fourth quarter.
Revenue was $320 million in the quarter down about 1% from last year. This included the impact of $1 1 million and lower investment income as prevailing interest rates continue to hover near zero and reductions in our Walmart revenue as pricing at Walmart continues to be reduced due to the Walmart market.
Place.
We estimate that these pricing declines at Walmart are responsible for a reduction in our growth rate of about two and a half points. Neither of these two impacts our new and are the are the continuing <unk> of trends that began earlier this year.
In addition walk in revenue was below our expectations with a late summer weakness in Europe, the temporary closure of our Afghanistan business and Covid related closures in the Asian markets.
Mgo, our largest single source of revenue and transactions in the world grew 34% year over year to $47 million for the quarter.
Gross margin from Mgo exceeded 50%, which helped improved total company gross margin to 46, 7% from 46% last year.
The increasing scale and improvements to our cost structure, we're expecting further increases in <unk> gross margin going into 2022.
Adjusted EBITDA was $56 5 million at the high end of our expectations for the quarter last year had two items included in adjusted EBITDA that were not included this year, which are ripple incentives of $8 9 million and a $6 3 million valuation gain on foreign exchange position that was driven by the economics.
The impacts of Covid.
This quarter's adjusted EBITDA was up approximately 3% sequentially and approximately 5% versus last year when factoring out those nonrecurring items.
Adjusted EBITDA margin in the quarter was 17, 7% a sequential increase of 110 basis points from the second quarter.
A particular importance, though free cash flow was $33 5 million for the quarter, our conversion rate of 59%.
Factoring in the timing of interest payments and in a steady state Moneygram has a run rate of approximately $100 million in annual free cash flow.
As we've discussed in the past, we're continuing to deemphasize signing bonuses at a mark as a marketing tool and signing bonuses were only $3 5 million in the third quarter, a decrease of over $11 million from the third quarter of last year.
And while the amount of signing bonuses will be higher in the fourth quarter. We expect they will decline over time and have a lower impact on our annual free cash flow over the next couple of years.
Another item of note is the $34 million of debt extinguishment costs associated with our transformational refinancing in July.
Disproportional impact on EBITDA with this not recurring there will be a significant convergence between EBITDA and adjusted EBITDA in the fourth quarter.
Moneygram is improving free cash flow conversion rate can also be seen through the increase in cash and cash equivalents at September 30, our cash position increased approximately $36 million since the end of the second quarter ending at $152 6 million.
We didn't see the full benefit of our new debt structure in the third quarter. So interest expense will be lower in Q4, and we don't expect material remaining adjustments from legacy issues.
And finally before I provide our outlook I'd like to just expand upon our description of the stellar partnership.
Unlike the technology used by Facebook and their novae wallet pilot.
Our integration with stellar and circle uses blockchain technology as Alex mentioned and not only does this utilization of the stellar blockchain create the ability to accelerate our settlement collection. It also provides the underpinnings for transforming the way we settle our transactions around the world.
We've taken extra care to de risk the way, we have a crypto and provide a highly secure flow to protect both moneygram and our customers.
In addition transactions will be recorded as revenue and this will be additive to EBITDA in 2022 and beyond.
When we look at the fourth quarter and assume the current economic conditions and the impact of Covid remains similar to today.
We anticipate total revenue of approximately $325 million.
Embedded in this projection is an assumed revenue growth rate of 30% plus for mgo we.
We anticipate adjusted EBITDA to be approximately $60 million, which implies an adjusted EBITDA margin of 18, 5%, which will be another sequential quarter improvement from 17, 7% in Q3.
This reflects the continued gross margin expansion, we are delivering from our mgo and digital properties as they become a larger percentage of our business and also includes normalized expenses ever we've restored certain spending that was curtailed last year due to COVID-19, including marketing expenses this outlook.
So continues to assume a competitive pricing environment.
Regarding pricing in contrast to the perception and claims made by new competitors that moneygram customers pay up to 8%, we're actually known for being among the best value options for consumers and are below the target benchmark set by the UN and the World Bank.
Our take rate or the average cost to send money cross border is less than 3% of transaction value. In addition, with customers loving our offerings speed of service and dynamic experience, we still have plenty of pricing power to execute our growth plans.
With all of that we anticipate fourth quarter free cash flow after interest expense of approximately $24 million delivering growth of about 24% year over year.
This includes a normal seasonal increase in committed signing bonuses, which we project to be approximately $16 million and capital expenditures remaining on track for.
For 2021, signing bonuses will be about $42 million down significantly from $59 million in 2020.
And one last item.
As has become our practice for competitive reasons, we will continue to limit our reporting on mgo digital transactions and growth statistics to quarterly on an ongoing basis.
In summary, the third quarter continued to reflect the enduring strength of our digital business and as we look ahead, we see market opportunities as large as they've ever been.
And with that I'll turn the call over to the operator to take your questions.
Thank you very much Sir ladies and gentlemen, if you would like to ask a question over the phone today. 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 just to allow your signal to reach our equipment. So once again that is star one to queue for questions on today's call I will pause for.
A brief moment just to give everyone an opportunity to signal for questions.
Well now move to our first question over the phone which comes from Mike Grondahl from Northland Securities. Please go ahead. Your line is open.
Yeah, Hey, guys Hey, the first question, Alex you mentioned, a new business opportunity doing it I think it was business transactions for it.
<unk>.
And you said that may be coming in the next I think you said couple of months.
Could you kind of just what youre doing there and maybe how big that could be it seems like a new use case, but a little bit on that and then I have a follow up.
Yes, it's actually.
What we are starting with is continuation of what we've been doing which is which is partnering with businesses for consumer disbursements actually so.
Utilizing our cross border rail to enable businesses that have customers or clients or employees in foreign markets.
And which is difficult for them to operate to actually connect to them and send the money. So it's actually a relationship for we're calling a business dispersements, but it's primarily business departments to consumers.
I think it.
It's a super interesting opportunity I think as the US economy has continued to change this gig economy workers continue to expand as there's more and more.
Contractors working from home as you know.
Becomes much more commonplace to have distributed employees in <unk>.
Many markets around the world as more and more companies become.
More global.
Operating and distributing disbursements and payments is obviously difficult and can be complicated and so we believe we have a solution that will that will simplify that so.
Really a continued expansion of our as a service offerings and I think the market opportunity there is quite substantial so.
Fortunately we can.
We can discuss in further detail right now at least that particular relationship, but we're super excited about it and we will talk about it obviously when we can.
Got it and then.
Maybe just in general the Moneygram as a service pipeline how does that look.
It looks good actually.
We continue to see more and more use cases and honestly since we've more or less promoted the service and its availability we've received.
A number of.
Inbound calls that you mean, so we have a sales force is kind of looking at it.
In terms of what we think of the opportunities, but we've had a lot of.
Unsolicited calls really coming in directly to us asking about it I would say, it's it's an exciting opportunity I think there's a lot there.
It's one of those where it's a little bit new for everybody.
And so it's going to take a little bit of time to get them all sort of lined.
Lined up and going I think once it becomes a little bit more mainstream are commonplace for for businesses to be doing this types of disbursements I think it'll be.
Easier and then it will ramp from there so it's a little slow in the beginning here as we kind of.
Get people on board and begin to do test transactions and look at it because again.
It's a little bit of us doing it but it's also the business is getting.
Comfortable with it as well because it is a new way of <unk>.
Distributing payments, but.
It's got a lot of interesting.
Prospects out there and given sort of the global nature of what we do.
The prospect list is clearly global from that perspective.
Got it and then just lastly, whats your outlook for the for the walk in business.
You kind of called out Europe, Afghanistan, Covid and in Asia, I mean can you get this back to flat or how should we think about it.
Yes, I mean that is the.
That is the intention and obviously the goal.
Clearly the outlook for the fourth quarter doesn't anticipate that we return to flat just yet and.
And again, I think theres a lot of moving parts there clearly the <unk>.
Transition with Walmart.
<unk> to be a lot.
Little bit influx. It that continues to perform quite well to be honest with you, but given the competitive nature of what.
Western Union actually brought in in terms of no FX rates on several countries, which is.
Still don't quite know why they're doing that but.
That's taken out.
Yes substantial chunks of revenue, which is disappointing because actually from a consumer perspective, we're actually doing quite well on retaining our customers and continuing to push transaction growth. So we have to continue to look at that Covid is.
Covid has created an interesting environment out there right.
Theres not a lot that we can do.
Some of the markets that we've talked about across Asia, where lockdowns.
And restricted your restrictions on movement continued impact people I think there is continues to be a feeling that COVID-19 is sort of.
At the back end here, but yet when you get out into the market.
It's still a lot of restrictions on movement. It's a lot of requirements to have vaccination passes it's a lot of mask wearing right. So I think people are still.
Not quite out the way they used to be and that's really impacting I will say honestly around the world a lot of our key partnerships right. What we consider to be a bigger partners in terms of larger retailers are larger banks or post offices.
You're just not seeing the foot traffic that you would otherwise anticipated to be the offset to that obviously has been wonderful growth and continued expansion of <unk>.
Digital products and digital offerings, and so that's incredibly exciting so.
I think in a normalized environment I have absolutely no.
No thoughts about not getting the walk in business.
That to low single digit and that's something that we continue to believe.
Will occur at the appropriate time, it's just in the interim period here as just continues to be uncertainty. We just haven't seen that resurgence and return to growth that you would otherwise expect I would say in certain markets and some of the smaller retail.
We're seeing that return people seem more comfortable but again at some of the larger chains post offices in particular.
Continuing to be challenged with Covid and then obviously you've got <unk>.
Continued challenges around the world with employment.
Jobs migration still isn't quite back where it needs to be either so there's a lot of.
Things that are still hanging over that are kind of residual from COVID-19 and I think it's still going to just take some some months here before that sorts itself out.
Okay, Hey, thank you.
Thanks, Mike.
Thank you, we'll now move on to our next question over the phone which comes from Kartik Mehta from Northcoast Research. Please go ahead.
Hey, Larry Alex how are you guys.
Good.
Alex you talked about.
Maybe more financial products for your customers and I'm wondering is that a solution that is going to be an online solution, a retail solution or something where you can offer in both places.
Yes, the primary focus is going to be an online.
On the NGL App I think Thats, obviously, the easiest way to provide ancillary services to consumers clearly.
Trend is on.
Financial services needing to be more fulsome financial suites of products.
Creation of wallets in these types of applications continue to provide a lot of affinity too.
Different consumer demographics, and it's an area that we think will be beneficial to us, particularly as you think about.
Interoperability.
Between between different world. So it's an important I think.
Expansion of our service and enhancements of what we're doing in the online space and I won't I won't give you exact specifics on exactly what suite of products will be there because we're still kind of going through that assessment and looking at the timeline to bring that to market, but I do think it's an important part of the of the evolution and the expansion of our service and I do think it will.
Increase throughput and stickiness with customers and give us an opportunity to scale and some in some different ways.
Bringing that to the walk in space I think continues to be a challenge because again most of our partners out there whether they are a bank or a post office or a retailer or a small mom and pop oftentimes they already have their own service of their own.
Concepts around this in terms of the services that they're trying to sell.
They continued obviously believe in many ways that the customers there not just for the Moneygram service, but also because they are a customer of the local.
Store or the retailer so.
Again, I think that.
These types of services.
Well in our consumer direct environment, they've become a little bit.
More complicated I think in the at the point of sale. So this will be primarily focused on on the online experience for our customers.
And then Larry.
You, obviously talked about crypto and blockchain and obviously there is a lot of conversations surrounding that but from a moneygram perspective.
What does that do if youre able to successfully use it what does it do in terms of cost for the company.
And how do you see that playing out if it works.
It can be transformational and thats one of the issues about using a stable coin is that we are unchanged.
It actually takes a lot of the cost of out of the settlement engine.
And Thats one of the things that we're excited about is that.
This is still obviously in its infancy.
But there is an operating cost of moving money for our settlement Theres operating costs associated with foreign exchange.
And there is also something we've talked about in the past with crypto currencies.
Cost of capital in terms of the size of our balance sheet. This this has the opportunity to address all of those I don't think it shows up in our numbers in the near term, but thats. The one of the other reasons, it's not just the potential revenue opportunity.
But.
If this.
Lives up to its potential it does have.
Operated cost efficiencies, mainly in the settlement flow.
On a go forward basis.
Well. Thank you both I appreciate it.
Thanks Scott.
Thank you very much we'll now move onto our next question over the phone which comes from Tien Tsin Huang from Jpmorgan. Please go ahead.
Okay.
Thanks, Good morning, everybody just.
I wanted to ask on the walk in business also.
Did you did you size those three areas and what the impact was in the quarter.
And I'm curious did you see or did you market to for example, some of those Asia.
Locations or regions.
Two.
Identify sort of alternatives from a digital or mobile perspective, just what's the general strategy around around that trying to pick off some of that business on the digital side to the extent that you have presence their online.
Yes, I think.
About half of the impact.
As we mentioned was was Walmart and the other the other half of the impact was really a combination of those factors I think the Asia Pac one was not particularly surprising in terms of how that played out although I will say that we had expectations that some of that would have softened and eased up than we would have had.
Better growth in those markets I'll come back to that in a second.
Europe was a little bit surprising to be perfectly honest with you.
We had a very good July and then suddenly we saw quite a bit of a slowdown in August and September across the European markets and it does turn out that there was a lot of.
Holidays that were taken which surprised us a bit and it slowed down and pulled quite.
Quite a bit of money out of the market and in fact, there was a program that the Moroccan government promoted two actually.
Enable moroccans to come back to the country for free and so.
That's anecdotal of one large corridor, but out of France, Spain. Several other markets Morocco is a very important aspect of that in that market kind of kind of dried up now we're seeing recovery now but.
So that one was that one is fairly surprising in a bit unexpected.
And then ask Afghanistan is obviously, a large country for us and to have that closed for a month.
Was was challenging and then when it did reopen.
Interestingly, we're not seeing the funds flows that we saw before despite kind of the managing price is concerned we're actually only seeing about half the amount of principal being sent per transaction that we saw prior to the.
So the closure now that may be largely because the U S dollars in Afghanistan dried up and now they are only paying out local currency, which is not as valued as the dollars were.
And that's not really on our end its on the difficulties of actually getting dollars into the market.
From the banks in the country to pay out so.
The combination of those factors.
Really what kind of knocked us off of where we were on our guidance trajectory. After a strong July.
And I guess when you go back to Asia markets, Yeah, absolutely.
The the.
The digital piece is an important part of.
The expansion there and we did see.
Good growth across those but just given the.
The vast divestments I suppose of kind of the market for a number of markets and the amount of cash based.
Trade going on within those markets. It was half of it was hard to offset that so.
Asia.
<unk> continues to be a little bit frustrating and hopefully, we'll see that continuing to.
We continue to hope it will seem to start to improve.
In the front of next year, but we're not anticipating much of a change in the fourth quarter.
Yes, that's good detail ox. Thanks for sharing all of that just my quick follow up.
Just on the on the pricing front with Walmart.
You call. It competitive obviously is there any knock on effect from that have you have you seen.
Other pressure points as a result of some of the changes coming out of Walmart or is there still pretty.
Pretty isolated.
Yeah.
I'd say the two the two are isolated although I will say that in the in the.
What I would call more of the retail.
And the mom and pop market, we have seen a lot of negative FX, meaning that.
Ending with with a variety of our of our customers.
Should get more you get more than <unk>.
Kind of based on some negative FX, that's been put in place and so I would say that from and Thats, particularly to.
Mexico in the northern triangle, So I would argue that there's a lot of competitive FX going on.
Extremely competitive Fedex going on in that.
Smaller retail channel, but then when you get into the.
Key partnership side and some of the Walmart impact, we haven't really seen it shift to the other key partners. It continues to be largely isolated to.
Two Walmart, which is which is good from a pricing perspective that being said.
I think that the.
Some of the corridors that we have been selected to go with zero FX just I don't think is.
Needed or required and actually is a little bit costly since trading FX and foreign markets is not free so.
Buying and selling pesos is not does not is not is not a free expense and so not charging and FX for that EMEA continues to not make a lot of sense. So anyway that is the environment that we're in and continues to be how that products that are competitive product anyway is being positioned and we're doing what we need to do to maintain our customer base and again I think we're doing extremely well on.
On that on that front, but given sort of that impact Walmart is now below 8% of revenue which is positive.
Trend as well, but unfortunately, it kind of getting thereby reducing prices.
<unk>.
We've had to do to be competitive.
Yes.
Thanks for all that thank you so much.
Thanks.
Thank you, we'll now move on to our next question over the phone which comes from Ramsey El <unk> from Barclays. Please go ahead. Your line is open.
Hey, guys. This is Ben on for Ramsey. Thanks, So much for taking the question I wanted to follow up on the Walmart question that was just asked.
You mentioned that the impact was about two five points from pricing, which I think was in <unk>.
Line with your expectations you talked about in the last call was there any impact on share shift as well like any impact of volume or was the impact of revenue purely related to pricing.
Yes, it's a good question I think that volume given a full quarter versus a partial quarter back in the second year of volume impact was higher than it has than it had been.
We are seeing.
Good new customer retention I would say actually that's the wrong word I apologize we're seeing good.
Acquisition of new customers still coming in the door I would say a lot of the transition.
Has been on some of the repeat customers and so what we're trying to balance or at least understand is whether those customers.
Dropped out of the market in the sense that they didn't return or if they shifted to one of the competitors in store.
It's a little bit.
Difficult to do unless we actually do direct follow up with the customer. So we're trying to we're trying to trace that because we did see some softness.
As we went forward. So there has been a larger impact on transactions and obviously there was in the first or excuse me in the second quarter, which was the first quarter, where we had the new competitor Western Union in there but.
We've again, we've lowered prices, we've matched whats happening and I think that's enabled us to retain the vast majority of our customers. Although yes in the third quarter the impact was bigger than it was in the second.
Okay. That's helpful. Thank you.
And then just a question on like the margins and the agent signing bonuses, which are I suppose somewhat related.
I guess I'll ask these two questions right here on the agent signing bonuses are there any particular drivers I know one of your competitors has been talking about.
Lower signing bonuses as a as a driver of cost reductions next year from renegotiating with agent partners is that the reason or is there perhaps something else going on there and then the second question.
On kind of on longer term margins, you mentioned that youre getting a gross margin benefits.
From the NGL business, what are the implications for your adjusted EBITDA margins in 2024, when you hit that target of 50% transaction and digital.
I'll start with the signing bonuses first.
Actually.
We haven't seen evidence that our competitors have soften their view on signing bonuses in.
It was really something that we've been talking about.
And our own modeling we've.
As Alex mentioned in his.
In his remarks I mean, we're basically focused on return in our walk in business in.
On a net present value or internal rate of return basis signing bonuses.
We've raised our.
Our bar in terms of what we expect return on those investments.
So these have been declining gradually over time and thats lumpy because the ones, we're paying now tend to be.
Stuff that we're already committed to do and so it isn't going to just move in a straight line but.
I think that there has been a.
Our risk transfer was signing bonuses and are our competitors are probably seeing it too and if youre not growing or if your growth rate slows in your prepaying for volume.
Makes the math pretty difficult so.
General sense.
We still think they are going to be around or certain.
Relationships that justify it but.
It's not as if.
<unk> and when we think about what we could do with that capital in terms of investing in.
And more profitable business or in the digital space It seems to make a lot of sense, but.
Can't speak for the others, but that's definitely the way we've been looking at it for the last couple of years.
In terms of margin expansion.
So.
Yes, there is a couple dynamics here one is the percentage of.
Digital as a percent of.
Our business in getting the 50 50 the other is.
That.
That is also on an upward trajectory.
Part of it is just economies of scale when we.
In terms of new customer acquisition is more expensive than customers that are transacting for.
Multiple times and so as the percentage of customers who are repeat customers increases.
As a natural tendency for that margin to improve.
The other aspect of it is that we're able to start taking advantage of scale and reduced.
Certain direct transaction expenses, which are starting to show up in our numbers. So.
When you start doing the math on a weighted average basis and just.
Sumit that maybe our margins are going to be consistent in the walk in space and our margin improvement in the digital space, both mgo and digital transactions.
That's where that migration comes from.
And it does suggest that even at lower price points by 2024 Youre.
Youre going to see water gross margins potentially improve EBITDA margins as well.
But that's how we're getting to that number.
Okay very helpful. Thanks, so much for taking the questions.
Thank you, we'll now move onto our next question over to <unk>, which comes from David Scharf from JMP Securities. Please go ahead.
Hey, good morning, Thanks for thanks for taking my call.
Hey, Alex I'd like to switch gears.
If you can expand little more on.
On the on the stellar in circle announcement, because I know you and I had a.
Talk a couple of weeks ago, and you kind of set me straight on maybe some misperceptions I had and it's.
It seems like any time words, like blockchain or stable coin or crypto appear in our press release by a company like Moneygram.
The initial reaction is that this is somehow related to the traditional remittance business.
And it sounds like at least initially this is an entirely different.
Customer use case.
And potentially business model.
Can you talk more specifically about and I realize it's in its infancy.
But at least in the first couple years.
Who do you really envision to user being I mean, because it sounds like it's just somebody that might have some currency in either a custodial or non custodial wallet.
Some use case needs to convert.
The yard into U S D C and the reverse in gist.
Help us understand kind of moneygram as role who they use it really is what you envision.
Sort of the pricing model.
Distribution system for signing up customers because.
It seems like an incredibly.
Kind of innovative approach, but it also seems like something that's entirely incremental to sort of your traditional money transfer business.
Yes. Thanks.
So really really good question.
There's a couple of different different ways to approach that I think Larry definitely discussed earlier, the kind of the back end settlement side of it and we can kind of come back to that later, but yet from the front end consumer at this point in time. It really is at least in this initial stage as you've pointed out this is really about creating interoperability.
Four.
Unchain activity basically to get it off.
Fiat currency and for those of you who are.
Participate in crypto.
Crypto and block chain in a big way you understand as well for those of you done it can be a little little bit confusing but.
Conceptually there are literally millions of.
People around the world that are.
In blockchain and crypto either theyre getting paid in it theyre doing some mining work their developers theyre trading in it they are sending it to other people et cetera.
Blockchain is an incredible incredible tool and crypto is incredibly unique in its own right.
Yes.
And it's kind of infant state here as it continues to mature all most of the activity occurs in what they refer to as sort of unchanged right. So anything that stays on the blockchain anything that moves crypto to crypto.
Just sort of in a parallel world to the traditional financial system in one of the most difficult things to do is inter operate.
Between those two systems I think for those of you familiar with it. The most the easiest example would be to say hey, I want to open an account with coinbase.
And I want to load $1000 in decline base, well, you've got a couple of options there.
Can you can link to your bank account you can load it with.
Mastercard visa debit credit.
Can use apple pay et cetera, there's a variety of ways to get it in there.
I myself I loaded $1000 decline base. The other day and the first thing is telling me is that you've loaded $1000. Thank you and this is you can get back to $28. Today, if you want or you can get a $1000 back in seven days, so they've definitely tied up the money.
Once it's in you can buy and sell crypto and it's pretty easy, but the first thing you notice is that you pay 115% to 2% to buy your crypto.
And then once you're on it there's a lot you can do because now youre on Jane you can move it around you can send it to people who can do a variety of things, but then you decided you wanted to get your money back.
You push sell the coins are sold do you want that into some Fiat currency.
Costs again, 1% to 2% to convert it back.
It's going to take you a couple of three days to get the cash in fact, if you do a domestic transaction on novae right. Now you can easily move money through USD P. But it'll tell you it's going to take you three days to get your cash back and for those of you who understand our industry and understand most financial transactions waiting three days seven days in the case of getting your dollars back.
Out of your wallet is really not a timeline that's acceptable I mean, our entire industry exists for the sole purpose of moving money instantly in real time.
So.
That is what that is what we do and it's amazing to me.
As these blockchain startups and others have have evolved the misperception of the current financial system is starting and it's <unk>.
Quite remarkable I mean, I can't tell you many people think that we move money.
On a per transaction basis have been asked what do you do just send an acre and a wire every time someone since $300 to Mexico and it just it.
It's hilarious to me that that's what they think is happening and that's where they think the cost is and so.
This idea that you can move money through crypto rapidly fast it's easy it's seamless.
And a lot of ways Thats true, but you can do the same thing in the world today. So the question becomes the interoperability and the question becomes the speed at which you could settle that and so what we've done is integrated with stellar through USB C and so anyone who wants to convert their crypto into USD C. And then ask for that cash out they can receive that cash instantly to the Moneygram network.
And that's pretty remarkable and transformational because most crypto is in essence stuck on chain in getting at Alpha chain is incredibly expensive.
And slow and complicated and so for us it's a very straightforward effectively we can turn <unk> into a money transfer for purposes of the consumer collecting those funds.
Effectively real time and instantly the way that we send money today right. We run a net settlement engine and we settled with with many currencies all around the world across many different borders and across.
Many different banks.
Working with exchanges working with crypto in essence is really not any different and so.
As long as you have the right the right product set toward it as long as you have the right systems and the right capabilities.
You can drive a lot of efficiency and again cross border is complicated it's expenses buying and selling foreign currencies is complicated and expensive compliance is expensive, but we have all of those pieces built into our systems and into our rail today and so interacting with with blockchain and crypto is simply a transition across and the other thing I think is important to remember.
Two is that simply because youre doing things in blockchain and crypto. It doesn't preclude you from traditional moving and doing things in the traditional financial way they don't have to be mutual exclusive and they can inter operate together so.
That's a long way to come back to there are literally millions of customers, who have crypto and wallets those continue to grow in size every day, but the interoperability the ability to get money.
<unk>.
Off of that and into the hands of consumers and into cash.
Is.
Difficult and so this is a new consumer this is a different use case. This is not a traditional remittance customer at this point in time now you are seeing more and more companies that are promoting.
Cross border through crypto for the purposes of remittance, but I think it's super important to pause on that and remember as well that you've got a cost of moving of getting the crypto in the first place maybe.
Maybe moving the crypto as free cross border, but then you've got to pay the exchange or whomever owns the crypto or the wallet to get it off chain once youre down in the foreign market that involves foreign exchange costs that involves having exchanges that involves compliance that involves.
Partners, who are willing to do that and pay out the cash so there's cost there as well. So this idea that suddenly things are become free of the idea that something is getting displaced couldn't be further from the truth I think moneygram has an incredibly strong position to sit in the middle of it.
Actually help it happen and enable it and we won't be displaced theyre going to be extremely relevant in this future.
Transition in the future model, so very excited about that and I do think over time remittance will become a much more important part of the.
And the chain and the interoperability between <unk> and crypto will become even more important is that gain scale and becomes important down the road in the interim period, adding new customers and simply enabling an as a service capability for customers to buy and sell crypto and get it off their their wallets and into Fiat in the currency and then a country.
They needed and is an important part of the evolution of <unk>.
Our financial system going forward. So we're in a good place for that.
Got it no that's really helpful. Because as I said I think there is some.
Maybe some misinterpretation that somehow this is primarily an announcement about.
Just a new form of digital.
Cross border with me, yes, but it's a different use case, but maybe just a follow up to that and I apologize for getting in the weeds here.
It sounds like the value add that you're describing obviously the interoperability.
To convert.
Basically pull crypto off the blockchain into Fiat.
It's a cost savings for the consumer and as you noted.
I got the same email fax when I tested.
Base account as well.
But it seems like in some respects does this put you into competition with the custodians like coinbase.
Point basis, basically charging a fee for expedited.
Expedited access to your funds just.
Just like Paypal or Venmo does.
Change for sort of acting as a custodian and.
Does does the service you envision with.
All of these wallets that stellar is blockchain has is this just catering to sort of non custodial wallets is that the trade off that.
Because I'm still trying to get my arms around who's getting paid in crypto and if you are getting paid in crypto who's willing to kind of put assets in the non custodial wallet.
Yes, well I mean again, it's a great question and I think Theres a couple of different ways to look at it I mean first and foremost.
There are literally millions of people around the world that are that operate in non custodial wallets and primary reason for that is that they are either developers in the blockchain world.
Or they're doing some sort of mining activity.
Or there are simply.
Consumers that.
Have wallets and kind of buy and sell in a non custodial way I mean, it's very common in the blockchain world in the crypto community for consumers to want to keep their own keys.
Custodial in some respects I find it all quite fascinating, we talk about exchanges and we talk about custodians and non custodians, but custodial custodial having custody at an exchange is basically like putting your money in a bank.
So at the end of the day all you've done is you've taken the concept of taking Fiat and putting in the bank and you replace it with putting crypto into an exchange.
And of course, they want to make money and of course, they're going to charge a fee for that that's what they do.
And so this whole idea that somehow.
All of this is free and fast and inexpensive is really not true what they are really actually trying to say is that I am going to displace banks and traditional financial systems that I'm going to make the money over here in my new mining World. So I think that gives us a huge opportunity to play there and I also think too that if you look at an exchange.
Nothing more than.
A new a new vote type of bank.
Certainly I would think that they would want to partner with Moneygram, even a custodial sense to actually help facilitate funds in and funds out in a more rapid and dynamic way, particularly considering.
How much money is going into crypto I mean youre into the world of two trillion now some of Thats been created on simply the the value creation, but also consumers are willing to put that much money into it and by itself.
Then values are going to be there and theres a lot of money that needs to get eventually exchanged back.
Back so I think we can play a huge role for both custodial non custodial and I think look I think for for mainstream consumers I think custodial as kind of the go to environment for people that are much more in.
In blockchain and crypto globally around the world and again, it's millions of millions of people that are doing this I mean they are.
Studying their own keys, and that's where these mall to non custodial has come in.
To play.
Got it got it.
So a lot of.
A lot of nuance and complexity, but.
It sounds like at some point and has the ability to scale into an entirely separate business line item great. Thank you.
Thanks.
Alright, and then we would take a couple more.
Thank you very much I will now move onto our next question over the phone which comes from Bob Napoli from William Blair. Please go ahead. Your line is open.
Thank you.
Good morning I appreciate.
Paul the question.
So just I guess.
I competitively.
When you hear wise talk about aggressively reducing pricing and I think you've touched on this.
Has there been have you seen.
In line with the new competition, you've had some some ipos, obviously, but those companies had been around it's not like they need companies, but.
What is your feeling on the competitive environment for the digital business.
And the pricing game, when you hear pricing conversations out of.
Somebody like a wise that talks about aggressively reducing pricing.
Is there has there been a change in that market with some of those players like.
Blake Wise, if you would.
Yes, it's a great question, Bob good to talk to listen I think first and foremost.
Since they've gone public we haven't seen any material change in there.
Positioning in the marketplace I would argue that what moneygram has been trying to do for the past really three years since since 2018.
Be disruptive in the online world and actually try to figure out how to grow and scale digital business, while expanding margin and putting through.
More cash flow and I think we've done that extremely well.
That being said one of the things we have learned is the incredible amount of money that companies like <unk> are putting into marketing expense.
And obviously they are on their own.
On a war path to acquire customers and I think the single biggest way to do that is to spend money on marketing and then also positioned yourself as being cheaper and better and faster. If you spend a lot of time on the wise website, one of the things that they do is they.
They put a list of.
Who their prices better than Moneygram is not on there anymore. It used to be but it's dropped off and we're not on there anymore, because we're extremely price competitive.
With what Theyre doing and I would argue that most of the prices that <unk> is doing other than.
Their first transaction, which they give a big discount on and by the way they put into their marketing expense.
Other than that our pricing is super competitive so.
I feel very very good about that and actually I think as Larry said in his script, we feel like the way that consumers are coming to the Moneygram app the way that they are adopting the way they are sticking around I think we have.
A lot of pricing power in that to do a variety of new things and we also touched on.
Moving more fulsome into high dollar, sending which is really where wise makes most of their profit and does most of their business and that's an area of expansion for us in the coming months and so I think thats going to continue to help with our.
Cash flow and the other thing too to remember in our industry and this is where a lot of the misperception comes in is that oftentimes the less money you send the more expensive. It is on a relative basis and so the more money you send the lower it tends to be on a percentage of face some transactional view so.
I think we're very competitive I haven't seen prices move around too much in the online world I think what we're doing.
<unk> is extremely relevant and I think our marketing team is doing an amazing job and I think the pricing team is doing a good job as well so feel very competitive there and feel like we can continue to not only grow that business at the rates that are expected, but also expand margin.
And then just a follow up thank you Alex.
No at that pricing levels, the margins that you're targeting the unit economics are sufficient to support the types of EBITDA margins and gross margins.
That you've discussed here today, 20% EBITDA margins or in that range.
Okay, driven in part by expanding gross margins.
Yes, Sir.
Yes.
Yes, we don't see a change to the I think you said it well I don't want to I don't want to ruin.
Thanks.
Thank you really appreciate it appreciate the question. Thank you.
Okay.
Alright last question please.
Certainly we'll now take our last question over the phone which comes from Bryan Keane from Deutsche Bank. Please go ahead.
Hey, Thanks for taking my question. So this is Ethan on for Brian So how come the firm purchased two cloud Hashmat Ts I'd number $13 4900, $82 37 for roughly $80000 to represent you from corporate identity.
I asked is because im wondering the rationale for jumping into that if T space in purchasing those specific assets.
Okay.
We're not aware of that.
I really cant respond.
Quite honestly I don't even understand what you just said.
I understand the question.
Can you rephrase the question.
Yes.
Yes.
So to kind of tease of clouds. So I'm just wondering why you guys want with those comments.
So youre not from not from Deutsche Bank or Bryan Keane is office is what I'm guessing, but that was nice of you to use their name I'll be sure in past, but regards onto MSP to them I'm not really sure. What you are asking us so.
Thank you to our speakers as there are no further questions queue, ladies and gentlemen. This does conclude today's call. Thank you very much for your participation you may now disconnect.
Okay.
Okay.