Moneygram International, Inc.

Good morning, and welcome to the MoneyGram International second quarter 2021 earnings 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 open for your questions following the presentation. It is now my pleasure to turn the floor over to your host, Stephen Reif, Head of Corporate Communications. Please go ahead.

Great, thank you. Good morning. Thank you for joining us. On the call with me, you have Alex Holmes, MoneyGram Chairman and Chief Executive Officer, and Larry Angiolilli, 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. The 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 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 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 risk and uncertainty. Actual results could materially differ because of factors discussed in today's earnings press release, in the comments made during this conference call, and the risk factors section of our Form 10-K, Form 10-Q, and other reports and filings with the SEC. We do not undertake any duty to update any forward-looking statement. And with that, I'll turn the call over to you, Alex.

All right, great. Thank you, Stephen. 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 two of our largest legacy challenges by exiting our GPA and overhauling our capital structure. So let's get to it. Business performance in the second quarter exceeded expectations as we delivered revenue growth of 18% on the strength of a record number of digital customers, a 20% increase in both money transfer revenue and transactions, and a 41% increase in cross-border volumes. Total money transfer transactions and volume both represented record numbers for the company, and perhaps equally impressive to note, when comparing this quarter's money transfer numbers to the second quarter of 2019, prior to COVID, we delivered strong transaction growth of 17% and revenue growth of 8%. Growth this quarter was once again driven by the incredible performance of our digital business led by the largest component, MoneyGram Online. In the quarter, MoneyGram Online delivered record highs for customers, transactions, volume, and revenue. Now, a fun fact to 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 three times from just two years ago and demonstrates a significant diversification of our business in these markets that collectively represent over 75% of our total sends. In 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% from just two years ago. Our strong financial results were also driven by the continued stabilization and recovery of our retail business in 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 in Asia Pacific. In 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. In 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 to the second quarter of 2019. In the Middle East, total transactions increased 26% year-over-year and 41% when compared to 2019. In the U.S., we reported double-digit U.S. outbound growth and successfully managed the initial impact of the Walmart marketplace expansion in the quarter. New competition entered the marketplace with some extremely aggressive price points, which, among others, includes 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 in the quarter, of which the vast majority directly impacts EBITDA. Assuming competitor 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 in 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 in the month of June. On June 10th, as we reported, we were notified by the court of our official exit from our DPA, This was a huge milestone for our company, and with that matter closed out, we began the process of significantly improving our capital structure, which Larry will discuss in more detail in 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 in key growth initiatives and support further improvements to our capital structure in the months and years ahead. 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 four, the entire company remains focused on executing our growth strategy, which is positioning the company to win with consumers and capture market share. To maintain our leadership position and offering the best customer experience in the industry, we continue to invest in our loyalty program, personalized communications, and the streamlining of transaction flows 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 our take rate, is about 2.9%, which is significantly lower than the industry average reported by the World Bank and in line with the targets set by the UN Sustainable Development Goals. We're 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 differentiated experience across each step of the customer journey and remain remarkably loyal to MoneyGram. We also continue to execute our strategy to scale the digital business by investing in our app, expanding our digital receive market presence, and targeted efforts to appeal to broader consumer segments, the specifics of which I'll discuss in more detail shortly. And third, our global partnership network, with our brand recognition and our ability to transfer over 120 currencies real-time to both account and to cash, remains a core focus and an 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 in the second quarter. So on slide five. The largest component of our digital business, MoneyGram Online, again, delivered all-time highs in customer transactions, volume, and revenue. I'm excited to report that MGO delivered money transfer revenue of $47 million in the quarter, with cross-border transactions through this consumer direct channel growing an impressive 62% and revenue growth exceeding transaction growth. Within MGO, our leading app continues to drive amazing growth with a 92% year-over-year increase in cross-border transactions in the second quarter. As you can see from the chart on the right, our customer acquisition initiatives are driving strong growth in monthly active cross-border customers, which grew 54% in the second quarter compared to the same period last year. Turning to slide six, these growth rates are especially remarkable when you consider the record transactions that we delivered last year. With 85% of new MoneyGram Online customers new to the brand, Our digital marketing initiatives are enabling us to reach a new and younger consumer segment. With over 80% customer retention rates and approximately a 3x customer lifetime value compared to the retail channel, we're excited about the value we're 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. On slide seven, you can once again see the strong growth rates in transactions received digitally with 78% year-over-year growth in the quarter and a CAGR of 121% over the last two 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 in specific markets continue to shift towards the convenience of receiving money directly to an account. This point is highlighted by our customers in India, where this evolution has happened even faster. There, transactions received digitally represent nearly 50% of all transactions received. This is an incredible shift, with the number of transactions sent to account up about six times from just under 10% two short years ago. We have a strong roadmap in 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 account 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. In the quarter, our Visa Direct transactions hit new highs and also delivered over 230% year-over-year growth. Now, before handing the call over to Larry, I'd like to take a minute to highlight a couple of key points on slide eight with respect to our network and our business model as both continue to evolve. So as we highlighted on Q1, we believe we can achieve 50% of our business coming from digital transactions in 2024. This is extremely exciting, obviously, for a variety of reasons. When we look at the data of our senders, we continue to see very little overlap between new digital senders and our traditional retail customers, again, 85% of all new online customers are new to the brand. They are also younger and bring a higher CLV, 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, things are even more interesting. As we discussed, our digital receive business has shown incredible growth, almost doubling in the past year. At the same time, however, the value and convenience of our cash receive 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 two of our largest received markets, India and Mexico. As I mentioned, today in India, about 50% of our transactions are received digitally. However, when I compare that to Mexico, the difference is staggering. In Mexico, about 95% of transactions are still picked up in cash. This remains the case, despite the fact that both markets have incredible real-time digital and incredible cash payout options available for our customers. Thus, while digital receives are critical in some markets, our global retail network provides a tremendous amount of value in others. In the end, consumers choose the option that best meets their unique needs. So, when you put it all together, we are excited to have two very different customer groups and business offerings that are both unique and extremely valuable in their own ways. And with that, I'll turn the call over to Larry to discuss our very strong financial results for the quarter.

Thanks, Alex. The actions taken by the company in the second quarter were transformational, and we'll have a lasting impact on both earnings and cash flow well into the future. As Alex mentioned, the dismissal of the DPA enabled MoneyGram to address weaknesses in its capital structure, improve its credit profile, and ultimately completely refinance its entire outstanding debt. As reported in June, through an ATM offering, we issued approximately $100 million in new equity, which took less than two weeks, and we immediately reduced our second lien debt. This improved our credit ratings, which led to our issuance of two tranches of five-year senior debt, a $400 million floating rate term loan, and a $415 million five-year 5-3A fixed rate note. These notes were part of our refinancing that materially reduced our interest expense, while also improving the asset-sensitive nature of our balance sheet. This positions us well for a rising rain environment over the next five 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 this is an annual reduction in cash interest expense of $36 million and an approximately $47 million reduction in accrued interest when compared to our prior cost of funds. This translates into cutting our accrued interest expense in 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 a maturity profile that reduces liquidity risk for the long term. The combination of lower debt outstanding, lower cost of funds, and the elimination of expenses from the DPA will increase MoneyGram's free cash flow by approximately $51 million annually. On top of that, all things being equal, we anticipate generating positive EPS starting in the fourth quarter of this year. The second quarter was also transformational from an operating perspective. Quarterly revenue was $329 million, an increase of 18% over last year, but also 2% over the pre-COVID second quarter of 2019, which demonstrates that we returned 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 our performance 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-in business. Also, the diversification of the business continued its trend, with MGO as the single largest source of revenue in nine countries, including the United States. Gross margin also expanded in the quarter, primarily driven by our online business, which is carrying higher margins even at lower price points. As you can see 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% versus 2019. This also included the impact of lower pricing at Walmart, which Alex has just discussed. As a reminder, in the third quarter, we will have debt extinguishing costs, which represent all unamortized deal costs, OID expense, and call premiums associated with the debt that we repaid in 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 our restructuring costs have already been recorded. As a result, we will begin to not only see significantly higher free cash flow, but also an increasing correlation 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 of $55 million in April, raising approximately $100 million in new equity and paying off $100 million of subordinated debt, plus call premiums of $4 million. Subsequent to quarter end, our debt issuance was essentially cash neutral on covering its issuance costs, call premiums, and principal payoffs, which in turn has kept our liquidity position in its normal range. This was also instrumental in the decision by Moody's to upgrade our ratings to B2 as well as improving the outlook. As a result, we find ourselves with the lowest risk capital structure in more than a decade. and the ability to build liquidity, reinvest in our business, and deliver 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 in mind and including July performance, We anticipate total revenue in the range of $323 to $333 million. Consistent with the revenue outlook, we anticipate adjusted EBITDA to be in the range of $52 to $57 million. When compared to last year, this reflects that Ripple incentives will be zero versus $9 million last year, and we don't anticipate a repeat of the $6 million in foreign exchange gains that we recorded in the third quarter last year. In addition, we have normalized certain expenses versus the COVID impacts of last year, and we continue to reinvest in the business. From a free cash flow perspective, given the reduction in our funding costs and the elimination of DPA-related expenses, we anticipate increasing our liquidity position in the third quarter as well as for the remainder of this year. So in summary, we expect the continuation of the progress that we have made in the first half of 2021. And with that, I'll turn the call back over to Al.

Excellent. Thank you, Larry. Looking back at this incredible quarter, it's clear that MoneyGram has turned the corner as we delivered record money transfer transactions, record money transfer volume, record online customers, record digital revenue, and record transactions received digitally. We've consistently delivered upon what we said we're going to do. We're changing the narrative in the industry, and everything is coming together. In one recent article, MoneyGram Online 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. When looking at any of the competitive multiple comps, public or otherwise, there is significant valuation upside. When you further consider that our digital business is 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 in the billions. As we continue to execute our customer-centric strategy, deliver incredible digital results, and increase free cash flow, I am confident that we'll be increasingly valued by consumers and shareholders alike. I am so proud of everyone that works for this great company, and I hope you can all take a little time this weekend to celebrate our well-earned success. Thank you all very much. And with that, I'll turn the call over to the operator to take your questions. Daniel, over to you.

Thank you very much, sir. If you would like to ask a question today, please press star 1 on your telephone keypad. That's star 1 on your telephone keypad. We will pause for just a moment to allow everyone an opportunity to signal for questions.

Thank you.

We can now take our first question. It comes from Kartik Mehta of North Coast Research. Your line is open. Please go ahead.

Hey, good morning, Alex and Larry. Hopefully this is the last time I ask you a DPA question, but 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 couple different ways to look at that question. I think it's a great one and extremely relevant. I think Larry did highlight the ability to go out and execute both our equity offering and the refinancing in a much more positive light. I think there was definitely a significant amount of overhang with respect to the capital markets associated with the DPA. So I would say from that side of the business, it certainly freed us up quite a bit in terms of flexibility and, I guess, just the risk profile of the company, generally speaking. On top of that, I think it goes without saying that in order to move money instantly around the world, you need a lot of bank partners. And clearly, the increase in focus on AML risk, the increase in focus on fraud, terrorist financing, and the risks associated with that coming from central banks, obviously with cybersecurity on the risk on the rise as well. All these things are considered not only from our everyday business partners, but also the banks that we partner with on the back end. And it definitely has helped change the dialogue with them as well. Clearly, having a DPA is manageable, but having a DPA also creates risk, which I think in a very low-risk power environment is something you don't want to have hanging over you. I'd say separately from that, I think that the flexibility that all that creates really then translates back into the decisions at the point of sale around consumer's And I think we've highlighted, but it goes, I think, again, important to highlight that, you know, the data collection standards that we put in place, basically the profiles that we'll be able to create around all of our customers have been instrumental, really, in helping us completely shift our marketing focus and how we look at consumer data and the analytics around that. And it plays, you know, a role very consistently across both what we do from managing customers, interacting with customers, making decisions from a credit perspective, making decisions around compliance, and then obviously from investments in 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 think that the capabilities that we've built are something that we'll continue to scale and grow into and continue to manage as dynamically as possible. But it definitely feels very, very different. And I think there's a lot of recognition and acknowledgement coming in 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, as you said, it's on a $300 million run rate business. And I think Larry said on the margin, 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 standalone business, would it be a profitable business or would that be difficult with just $300 million in revenue?

Yeah, 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 as 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 transactions more profitable from a gross margin? And then if you could basically allocate a proportional relative amount of expenses, it would be more profitable. But to actually line it out as a separate subsidiary would be difficult to do.

Thank you both very much.

Thank you. We can now move along to our next question. It comes from Ramzi El-Assal of Barclays. Your line is open. Please go ahead.

Hi, guys. Thanks for taking my question today. It looks like this is the first quarter in a while where the digital revenues outpaced transactions. I'm just curious if you can talk about the drivers there. Is it taking price? Is it related to mix? I don't know, lapping incentives to customers? Just anything 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, you know, this business, at the end of the day, I mean, the easy answer is always it is about mix, you know, where the transactions are coming from. But importantly, I think within that same concept around mix is really the bands as well. We have continued to see increasing face values being sent in the online 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 trending upward a little bit. So that's certainly helped. I also have highlighted and would continue to highlight that we've done a bit on pricing in a number of areas. And if you remember our story, the when we relaunched all of our platforms, we did a lot on price from a low entry point. We've done a lot with price tests in a variety of markets and continue to really think about where the value trade is in terms of competitive pricing versus our offering and what that can potentially look like. And so we've continued to look at opportunities to shift pricing. And in some cases, we've had to inch them down a little bit. In other cases, we've been able to to move them up. So it's been a combination of all 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 one will completely outpace the other, but they should be very comparable as we go forward.

And the second one for me is, could you comment on some of the media chatter that we've been hearing around sort of strategic alternatives for the company? I don't know how much you can comment on things like that, but what is your latest view on pursuing those types of outcomes?

Yeah, you know, there's always something going on at MoneyGram, which does make it extremely exciting. I think that, you know, we certainly anticipate it. that once the DPA was lifted, there would 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 kind of the acceleration of the business, generally speaking, you know, across the board. So, you know, it doesn't surprise me at all from that perspective. And, you know, we're probably in the strongest position that we've been in a very, very long time. And, you know, rumors have came into the market over the past several years that I think were probably reflective of opportunistic buying type scenarios where people felt like we were in a weakened position and could maybe potentially take advantage of that. We just refinanced the debt. We just raised equity. The stock has been definitely moving in a very positive direction for a number of months now. So we feel like we're in a position where we're just getting started. you know, we've been freed from a lot of the baggage that we've been carrying and unloaded. And I think it's a, you know, it's an awesome opportunity to, you know, reinvest in the business and push for growth and really see what, you know, we can do from, you know, an unencumbered environment. So, you know, I expect that there'll be people interested in the business. I think that there's, you know, a tremendous amount of opportunity, you know, to partner, to think differently about, you you know, the business models we go forward, and I think there's going to be a lot of things happening, you know, specific to, you know, any direct rumor or, you know, press statement that comes out, you know, we don't really directly comment on that type of language. But, you know, it is, I think, a great opportunity right now in front of the company and, you know, as I said, being in the strongest position we've been from both the capital structure and a growth trajectory at the moment, we're really, really excited to go execute our strategy.

Fair enough. Thanks so much. Thank you.

We can now move along to our next question. It comes from Tianxin Huang of JPMorgan. Your line is open. Please go ahead.

Hey, thanks so much.

Good morning to all of you guys. I'll also follow up on Ramsey's question. And Alex, I totally hear your frustration on valuation. And I know you've been with some private equity investors in the past before, but just to put you on the spot, why not go private then if there is frustration on value? Any reason not to from a business or cultural perspective at this point of the recovery? if you don't mind me putting you on the spot to ask you that.

No, I don't mind you putting me on the spot. That's what it's all about, right? I would, you know, look, I'll look at it a couple different ways. You know, I think at the end of the day, you know, I simply feel like the business, the value of the business has not been, you know, completely unlocked. And definitely, I'd say, you know, 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 viewed 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 bankruptcy-type levels way back a year ago, You know, it's kind of ridiculous. We've obviously rallied a long way from there. And then I think the execution around, you know, both the refinancing 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, you know, see. And it's pretty much the question we get all the time. Right. Which is, wow, this looks like an incredibly undervalued story and, you know, something that we want to be part of. So I think there's a lot of excitement around it. And I think that there's, you know, plenty of opportunity. I don't really feel like, you know, shopping the company or taking a private, you know, right now is really the right thing to do. You know, I think there's always optionality in capital markets. I think there's always optionality around, you know, the things that can happen with the business. But, you know, I think sometimes there's opportunity around, you know, private equity style transactions. But I also think that there's, you know, oftentimes, you know, opportunity as well to go, you know, continue to deliver and execute. When you look at some of the valuations that new guys entering the public markets are getting, you know, I think it just is illustrative of the value of what we do. And look, we had a lot of overhang and that overhang is freeing away. So, you know, I think we'll go execute and see what we can do. and kind of drive it forward. So it's not at the top of the board's mind right now that it's something that needs to happen. We've created a tremendous amount of value in 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 move forward. Of course, at the end of the day, a lot of components have to come into that. And I think the buy side with all due respect, is getting the story. I think the bond markets, I think the, you know, the debt markets get the story. I'm not sure exactly what's wrong with the sell side, but, you know, I think that when they, you know, start to put pen to paper, I think they'll see the value there as well. Yes, sir. Yeah. No, we can be a little slow sometimes.

Valuation. No, like I said, we can be a little slow sometimes, I know, but look, value aside, jokes aside, it's, I know a lot of hard work's gone into this and you've addressed a lot of the headwinds. So, you know, do I definitely acknowledge that? So my follow-up is just on the, you know, on the cultural side of things. And, you know, a lot of traditional or let's call it legacy companies, money grants been around for a while, you know, are going through digital transformation. It feels like you've got, you're through an inflection here on the digital side, but how about on the, on the retail business, you know, it seems like it has bounced back and you're getting a little bit of visibility on, on, on the Walmart piece. And then just culturally you feel like that the firm is, you know, transitioned a little more towards digital and how do you balance that against the, you know, the traditional book of the retail side of things?

Yeah, no, it's a, it's a, it's a great, it's a great question because I think it's, It's relevant in a variety of different ways. And one of the ways it's very relevant is around the way you phrased it, which is, is the company really shifting to the digital mindset? And I would say probably if you drop back maybe five-ish 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 in the organization and thinking differently. I'd say What we did extremely well and what I think at this point has differentiated us quite dramatically from really anybody else is that we shifted to a consumer focus away from transactions 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 was initiated or 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 mind shift and the mindset of the organization going forward. And it's really become a much more neutral factor. I think the markets then simultaneously have also shifted quite a lot. And it's hard for me to think of anybody outside of maybe our pure retail feet on the street, mom and pop sales force across Europe and the U.S., that are, you know, still really competing head-on in the street. But the rest of the organization that's been dealing with, you know, key partnerships and post offices and bank partners and big retailers and markets all around the world, I'd 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, you know, bank receives and wallet receives and these types of things. And so, you know, the teams have really had to shift around the world from a sales organization perspective to get that mindset around, you know, it's not about a walk-in customer or walk-in business. It's about where customers are going and how do we partner in the right ways to execute across that. And then, you know, in the backdrop, you know, we've had to shift, you know, how we've looked at, you know, our structures around, you know, finance, legal, and compliance. But I really think it's come together in a much more homogenous way now. And so I'd say from an 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 we use internally. And the pillars of that have been very consistent. You know, we always tweak it a little bit, but that consistency I think has helped quite a bit as well. So, you know, it's a, 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, you know?

Yeah, no, no doubt. Thanks for the answer and congrats on getting the refi done. Thank you.

Thank you. We can now move along to our next question. It comes from David Scharf of JMP Securities. Your line is open. Please go ahead.

Hey, good morning. Thanks for taking my questions and kind of reiterate the congratulations on checking off so many boxes. Obviously, a lot of milestones that were a long time in the making. Hey, two things. I wanted to ask about Alex. The first is, reflecting on markets that I think India, you had mentioned, is close to 50% digital receive. I think you had a slide last quarter that mentioned there are a handful of countries where it was over 40%. Can you talk a little about how just agent relationships kind of the store-based agent model has evolved over the years in those markets. I mean, it almost feels like those countries are maybe the leading window in what this industry might look like in five, seven years. And I'm curious, you know, what the role of the agent in those types of markets has become and, you know, how commission rates have trended and ultimately if there's just any lessons that, you know, we can learn about you know, what the receive side of this industry is going to look like by looking at those particular markets where the digital receive is so high?

Sure.

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 motivated as ever, and I would probably enhance that with a couple of thoughts about, you know, their business models, generally speaking. You know, there are very few receive agents anywhere in the world that only do money transfers. Most of them have more, you know, dynamic business models and whether that's kind of the, you know, the chains of pawn shops across the Philippines or whether that's, you know, travel agents or, you know, retailers, et cetera, across, you know, various aspects of Asia Pacific. If you look at, you know, Africa, it's a lot of banks, right? And it's a variety of other, you know, entities out there, post offices, et cetera. And, you know, all of them have a different operating, different business model. And so I think, you know, money transfers as a service in that sense have always been additive to what they do. And I would say that, you know, the business has shifted digital in many markets or digital has become an additive 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 a variety of number of payout opportunities. And so that, I think, has been additive to their business models. And I think that they've all begun to drive through that. I can't think of really any that have really shifted their business model or thought differently about the industry. And I'd say they're all probably 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, I think if their costs go up, if things like COVID and other environmental factors impact their ability to kind of maintain their stores and locations, we could continue to see a shift. I'd say also just keep in mind that the market itself goes down a little bit once in a while and sideways sometimes. But generally speaking, the remittance market continues to increase every year. And so, you know, even if you're seeing, you know, shifts to digital, you continue to see more transactions coming through every year. And then obviously from the competitor mix, there's a lot of volume out there to be had. So, you know, I do think it's going to continue to be a shift. I think there's going to continue to be, you know, pivots in 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, you know, is additive to these business models of these entrepreneurs or, you know, banks out there and not necessarily their core bread and butter. So, you know, from that perspective, it creates opportunity and flexibility for them even if, you know, business models change over time.

Got it. No, understood. And maybe just to follow up, I'll pile on as well, I guess. Maybe a little different angle. You know, I 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 I guess the point being there's some inconsistency with frustration over perhaps the digital business not being appreciated or valued, reflected in your stock, yet responding to a question about can you talk about the profitability of the digital business and saying, well, we can't give you that. And, you know, to the extent that it's, you know, MoneyGram, certainly digital companies, in total, and even MoneyGram Online is over 10% of revenue, it certainly arguably passes the materiality threshold. Can you just talk about what reporting barriers or challenges, fixed cost allocations, is there a roadmap to potentially reporting walk-in and digital as two different segments? Because I think In the absence of being able to answer that question, it creates a bit of a challenge to, you know, your initial frustration related to valuing the digital business.

No, I think 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, you know, I think that there is – you know, there's always these comments about some of the parts, there's always these comments about, you know, what competitors are doing and, you know, are they going to, you know, take your share and blah, blah, blah, blah, blah. And I think the point of all that is like, look, I think we're doing 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, you know, a huge value component. that is being given to others and not necessarily to, as you say, you know, kind of, you know, legacy businesses that have been around for a while that are shifting to digital. I mean, it's kind of the same comment Tingen 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 to put growth through the network and grow through the business model, remain competitive and, you know, lead the industry in a lot of innovative and interesting things. And I think that deserves a lot more value than is being, you know, recognized. Does that give us 300 times revenue? Probably not. And that's really not what we're asking for. I just think, you know, trading at a, you know, six, seven times EBITDA multiple, when you've got, you know, other public company comps out there that are trading at, you know, 12 to 15 times, I just think is a little bit, I don't know if I want to use the word, you know, 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 where the frustration is coming from. I think in terms of what you need to see 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 You know, look, that being said, we are trying to create more transparency. We are excited about all that. And from that perspective, I'll let Larry make a few comments on that.

Yeah. And, you know, and as we disclosed, you know, we are considering, you know, segment reporting here. We did disclose revenue for MGO. And I think we can say that, you know, from a gross margin perspective, it's accretive or above the average for the rest of the company. You know, you have issues like this, like we have one compliance department. It does both. We have one settlement department. It does both. So if you wanted to just say, oh, you know, on a proportional basis, you know, I'm going to take your allocations of expenses and you're starting out with a higher gross margin, then theoretically you would have a profitable business that was above average versus the rest of the company or versus the legacy walk-in business. But in reality, you know, you do have separate expenses in some cases. And so this is where, you know, it's sort of like, you know, can you take Chevy out of General Motors and say it's a separate company? I mean, it's really hard to do. And so that's where, you know, we're going with this is that I think when we look at the product individually, in other words, when a customer sends money, is that transaction more or less profitable? we can say that on a percentage basis, it's more profitable even at lower price points. And that's, you know, and right now that's a very precise calculation that doesn't have allocations in it and allocations of overheads. So that's the challenge that we have, David. I don't, you know, and I'm not sure there's an answer to that, that we can be, precise in terms of calculating the EBITDA margin or the operating profit of that company and have it as the precise number that doesn't have an allocation methodology. And that's the challenge that we're dealing with on this from a disclosure perspective.

No, I understood. Clearly, there's no easy answers. But in a lot of ways, it's a good problem to have in the sense that you're growing what you want to grow. Great. Well, thank you very much, guys.

Thank you.

Thank you. We can now move on to our next question. It comes from Bob Napoli of William Blair. Your line is open. Please go ahead.

Thank you. And good morning. Interesting call. Congratulations on getting a lot of what you've gotten done. It has been a really choppy number of years for MoneyGram, and it seems like you guys certainly are on the right path. Now, I think an important question is the growth in online has been really, really strong, certainly helped by the pandemic, but I don't think it's going backwards from there. But It's still early in that acceleration. And just some color on your thoughts on what the right long-term growth rate is for that part of your business and maybe breaking it into two pieces. But importantly, the valuation for some of your highly valued peers are coming from that part of the business, more pure plays. I mean, I understand the benefits of the omni-channel. I'm a big believer in that. But anyway, just some thoughts on the growth of the online business over the next three to five years as you lap some pretty tough comps.

Yeah. No, thank you for that. No, it's a good question and something that we've been looking at quite a bit and really thinking through. And, again, I think your point is excellent around COVID, and it has made – you know, financial planning a little bit unique in that sense because it really is hard to get a, you know, a beat on exactly where the retail, you know, walk-in business is and how much of, you know, some of the shift in digital, particularly on the receive side, you know, is, you know, really, you know, permanent versus temporary and, you know, all those factors that go into kind of making that decision. But Look, I think in a normalized environment, we definitely feel like the walk-in business, at least at the size and scale it is today, should in totality be kind of growing in 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 the vastness of it across the world, I think that would be quite successful. I think that the digital... partnerships associated with the business, you know, also tend to ebb and flow a little bit and probably mirror what's going on in those markets more to the walk-in than probably the pure online, you know, side alone. And what I mean by that is that we have a lot of, you know, digital partners that are doing, you know, sends in those markets. And I think that you know, they have other business models. Some of them are trying to, you know, step into remittances. Some of them are better at it than others. And so I think that the results there have been excellent, but very market-specific and a little bit also dependent upon what's been happening with the walk-in piece of the business in those countries, meaning that there's been a little bit of ebb and flow and sort of vacillating growth rates there. But I do think that, you know, digital partnerships is a is a double-digit growth business for the foreseeable future and one that I think will be increasingly important in a variety of markets that, you know, where licensing and other direct service type models are more difficult to create or perhaps less profitable to sustain in that sense. So, you know, I think that those are, you know, kind of two big components. And then You know, the MGO itself, you know, we firmly believe is, you know, a 20, you know, 30% type grower for the foreseeable future. And I think it's just, you know, it's going to be a little bit, you know, quarter dependent or month dependent, depending on, you know, exactly what's happening from economic flows. I mean, it's obviously quite a big business across 37 different markets. And so you're always going to get the same thing you get in the walk-in business, which is, you know, different, different shifts in what's happening in, in terms of economic, you know, what's happening with 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 factored in and impactful in the online space. But, you know, I think the exciting part about the online business is, you know, that That consumer direct side of it, you know, we're getting, you know, a much more frequent transactor. You're getting a much more, you know, repeat customer base and an increasingly loyal customer base in that sense. It's creating a lot more opportunity to speak to them, to go direct to them, to offer increasing, you know, 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 dynamic mix, and then looking also in terms of what other customers are we not getting and how do we pivot the model and add those types of services that are more in demand, like high-dollar senders and these types of things as well. So, yeah, I think that a 20% growth, 30% growth, depending on the quarter, is probably the right number for that business as we go forward and something that we should be able to execute on. in the coming quarters.

So the combined business sounds like a, you know, like a 10%-ish type of top line grower with margins in the 20%. I think there's margins in the current margins at 20%. You think 20% EBITDA margins, the right margin for that business?

We've been consistently saying high teens for EBITDA margin. I don't think we get to 20%.

Okay. And then just last question. I do think that it's viewed that the tech stacks for some of the newer competitors are fresher, younger, you know, have more flexibility and to build whether that's right or wrong, it's 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 were able to build off of your platform and expand the business, you know, I think is going to be interesting to watch. But I think that some of the view as well. So just last question, Visa Direct, what percentage of your business is Visa Direct? And what, you know, how important is that to your business?

Well, first of all, let me just say, I don't think there's anyone younger or fresher than this group of people here. We have more fun, I think, than anybody. And we're, you know, excited.

That's very fair.

I'm excited to grow the business. Now, 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, you know, I'm actually – you know, it's funny how – I wasn't referring to the people, by the way, to be clear. No, I understand. I understand. I understand. But the point being, you know, look, we have – you know, I guess, geez, you know, it's like you get a little bit older, and it's like, you know, people – but we're really, really focused. I mean, I think – everything that we're doing across the board is really based on trying to build a business that is younger, fresher, and appeals. And that's kind of the point of the little pie chart we showed where 63% of our customers are under the age of 40. And that's a nice mix of Gen Zs and millennials coming in there. And I think it's pretty remarkable. One of my sons is 17 now, and I show him the app, and he'll make comments and tell me things. And It's pretty interesting to be in 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, changing the paradigm on that. And I think you'll see a lot of that coming in the next year. That is something we've proud ourselves about in terms of you know, the rating of our app and the performance of it. And so, you know, that is an important aspect of what we're doing. And I think equally important is kind of how you're viewed in the mindset of your customers. And when you look at our social media campaigns, when you look at the ads that we're doing, when you look at all the things that the marketing organization are overhauling and changing, we are – we are definitely focused on ensuring that there's a lot of excitement around it and that we're perceived differently. And that is important. And so I know you were talking more specifically on the tech side, but we feel like the tech stack we have and kind of where we're going in the next year with it will ensure that we're not displaced in any way at all as we go forward and continue to lead on the forefront there. Those online customers are something in the neighborhood of 43% more productive, 20% higher retention rates, and the lifetime value we're creating there is huge. So we're excited about that, and it's something we'll keep focusing on. And then Visa Direct, it is still relatively small in terms of its total value on the business. But when you look at the markets where it's growing and the excitement around it. You know, the U.S. domestic market is one of those. And, you know, I think it's made its way from, you know, non-existent to something like, you know, 15% or so of our digital receives right now. So it's definitely moving up the curve. And, you know, we're not in every market that we want to be in yet. But it's creating some unique capabilities. And, you know, again, I think part of expansion and learning and investing for innovation is you know, admitting when you're wrong and then pivoting to the right model. And, you know, I've shared this story, but, you know, I had this amazing idea, I thought at least, where, you know, we were going to send directly to people's phone numbers, and that product was like a total dud. And, you know, Visa Direct comes along and says, we'll 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 Direct has brought to us, and it's been very added at the portfolio. So I think we'll continue to see those accelerated growth rates, and we'll continue to see it become a bigger part of the business as we go forward.

Thank you, Alex. Thank you, Larry. Appreciate it.

Thanks, man.

Thank you. We can now move on to our final question. It comes from Mike Groundhall of Northland Securities. Your line is open. Please go ahead.

Hey, thanks, guys. Hopefully just a couple of quick questions. When you gave revenue guidance for 3Q, what sort of embedded in there for digital growth and maybe the walk-in business, which we're all trying to see, you know, when gets back to growth?

Yeah, it's an interesting quarter in 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, August, and even September of last year was really pretty good. I'd say that the walk-in business is one where – You know, we've got really, obviously we've got the Walmart factor, which I gave you kind of the 250 headwind on, which again, it's not really about transaction growth. It's really much more focused on pricing because once you cut FX rates and once you lower prices, that's sort of a permanent effect. And even if you sustain your transactions, you're obviously just pulling in less revenue, which is kind of what we saw in the second quarter. The rest of the business, I think, There's an interesting question around from a walk-in perspective, you know, what's going on with COVID, right? We had some opportunity and some expectations that several markets, you know, good examples being like Australia, Malaysia, et cetera, were going to be reopened and actually performing better than they are today. But yet you continue to see lockdowns and increases in risk. Thailand's another one. And so, you know, those have put a lot of – I don't want to say damper on growth, but I would say tempering expectations, I suppose, as we try to figure out exactly what's going to happen. I think, as I was reading yesterday, the state of Nevada is putting mask 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 variant talk, et cetera, et cetera, 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 continue to see the 20 to 30 percent type growth rates. So we feel very positive about what's going on there. And I think, you know, maybe slightly more importantly is that, you know, we're seeing good customer growth and good customer acquisition on both the new customer side and on the monthly active users. at least through the month of July here. So I think that's very positive as well as we kind of look at the quarter, but definitely slightly muted growth rates from kind of where we were now. And I think that'll kind of normalize through as we get into the fourth quarter.

Got it. And then, you know, I guess a little bit more strategically, when you see transfer-wise, you know, value to double-digit times revenues, Does it make you want to separate MoneyGram out, like selling the walk-in business or splitting off digital? Is any of that possible?

Yeah, I mean, I think broadly speaking, that's kind of been, you know, thematically a lot of the questions, you know, in various different ways that have kind of come through. Look, it doesn't make me want to or not want to split off the business. I think we own the business, and I think it's performing extremely well. Clearly, MoneyGram has had some other choppiness in it, I think, as Bob kindly said, that have made it difficult to get a pure view of the company. Look, 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 those are always possibilities. Those are always 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 with the current structure that we have. I mean, we just completely overhauled our capital structure, which I think is worth a lot. We got out of the DPA, which I think is worth a lot. We're putting up, you know, nice growth rates, which I think is worth a lot. We're growing through, you know, some noise around Walmart. We've got a little bit of noise from the Ripple Grover. And, you know, there'll be a little bit of lumpiness for the next couple of quarters. But I think, as Larry said, you know, we're a company that's not going to have, you know, 50 million of improving free cash flow. We're going to be in an EPS growth orientation, you know, as we kind of get into the fourth quarter, into the first quarter. You know, so it's going to be a very, very different money, Graham. So, you know, at the end of the day, you know, our responsibilities around shareholders, our responsibility is to unlock, you know, value and create that value. And I think we're doing all the right things to do that. And, you know, at the end of the day, you know, if we get to a point where we look back, where we feel like we're just stuck and we're just not getting that for whatever reason, there's always possibilities to do new things. I just don't think it's necessary right now. And I think that the value has been increasing in the stock. I think the story is resonating extremely well. And I think the opportunity to unlock value as a company that we are today is there. And we're going to go, you know, execute that. And, you know, if we can't, then there's, you know, there's always optionality, which I think is exciting.

Got it. And then just as a quick follow-up to that, would you be open to offers today at the right price?

Would I be open to offers at the right price?

Well, I mean, look, at the end of the day, I have a responsibility to consider any offer that comes in that's real and at the right valuation. So, yeah, absolutely. And, you know, I'm just – I don't think that the board is in a position where they feel like the company needs to go shop itself. You know, anybody is always welcome to call with ideas. Anybody is always welcome to – to come in with thoughts on how to create value and, you know, if it's the right thing for shareholders, then absolutely.

Fair enough. Hey, good luck with the second half. Take care, guys.

Thanks, sir. All right. And I think we are a little bit over, so we'll go ahead and probably wrap it up, Daniel. Thank you, everybody, for your time and attention for all the calls. It was good dialogue, a good quarter, and much appreciate everyone's interest, as always.

That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.