Earnings Transcript for MGI - Q2 Fiscal Year 2021

Operator: Good morning, and welcome to the MoneyGram International Second Quarter 2021 Earnings Release Conference Call. Today's conference is being recorded. . It is now my pleasure to turn the floor over to your host, Stephen Reiff, Head of Corporate Communications. Please go ahead.

Stephen Reiff: 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 Angelilli, Chief Financial Officer.

Alexander Holmes: 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 2 of our largest legacy challenges by exiting our DPA 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 volume. 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 18%. 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 3x from just 2 years ago and demonstrates a significant diversification of our business in these markets that collectively represent over 75% of our total lens.

Lawrence Angelilli: Thanks, Alex. The actions taken by the company in the second quarter were transformational and will 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 refinanced its entire outstanding debt. As reported in June, through an ATM offering, we issued approximately $100 million in new equity, which took less than 2 weeks, and we immediately reduced our second lien debt. This improved our credit ratings, which led to our issuance of 2 tranches of 5-year senior debt, a $400 million floating rate term loan and a $415 million 5-year fixed rate now. These notes were part of our refinancing that materially reduce our interest expense while also improving the asset-sensitive nature of our balance sheet. This positions us well for a rising rate environment over the next 5 years. Even though it was our first time accessing the high-yield market, the issuance was vastly over-subscribed 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.

Alexander Holmes: 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 1 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 increased free cash flow, I am confident that we'll be increasingly valued by consumers and shareholders alike. I'm so proud of everyone who 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.

Operator: . We can now take our first question. It comes from Kartik Mehta of North Coast Research.

Kartik Mehta: Hopefully, this is the last time I asked 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?

Alexander Holmes: Yes. There's a couple of 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, terrace financing and the risk 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 tower 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 consumers. And I think we've highlighted, but it goes, I think, again, important to highlight that the data collection standards that we put in place, the -- basically, the profiles 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 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 acknowledgment coming in now about the program that we've in place. So I think the entire compliance organization should be extremely excited about that.

Kartik Mehta: And just a question on your digital business. Obviously, as you said, it's a $300 million run rate business. And I think Larry said on the margin, it's -- 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?

Lawrence Angelilli: Yes, 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 it's 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 like line it as a separate subsidiary would be difficult to do.

Operator: We can now move along to our next question. It comes from Ramsey El-Assal of Barclays.

Ramsey El-Assal: 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?

Alexander Holmes: Yes. No, it's a variety of different factors. So there's a couple of things going on, I would say, simultaneously. I think this business, at the end of the day, I mean, the easy answer is always, it is about mix, 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 on the -- 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 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 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 l completely outpace the other, but they should be very comparable as we go forward.

Ramsey El-Assal: Okay. 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 type of outcomes?

Alexander Holmes: Yes, there's always something going on at MoneyGram, which does make it extremely exciting. I think that we certainly anticipated 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, across the board. So it doesn't surprise me at all from that perspective. And we're probably in the strongest position that we've been in a very, very long time, and rumors 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're 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. We've been free from a lot of the baggage that we've been carrying and unloaded. And I think it's an awesome opportunity to reinvest in the business and push for growth and really see what we can do from an unencumbered environment. So I expect that there'll be people interested in the business. I think that there's a tremendous amount of opportunity to partner, to think differently about the business model as we go forward, and I think there's going to be a lot of things happening. Specific to any direct rumor or press statement that comes out, we don't really directly comment on that type of language. But it is, I think, a great opportunity right now in front of the company. And as I said, being in the strongest position we've been from both the capital structure and the growth trajectory at the moment. We're really, really excited to go execute our strategy.

Operator: We can now move along to our next question. It comes from Tien-Tsin Huang of JPMorgan.

Tien-Tsin Huang: 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 a cultural perspective at this point of the recovery, if you don't mind me, putting you on a spot there, to ask you that?

Alexander Holmes: No, I don't mind if you put me on the spot. This is what it's all about, right? I would -- look, I'll look at it in a couple of different ways. I think at the end of the day, I simply feel like the business -- the value of the business has not been completely unlocked. And definitely, I'd say frustration may not be exactly the right word, I think that there's just a lot of excitement on my part to really get MoneyGram 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, it's kind of ridiculous. We've obviously rallied a long way from there. And then I think the execution around both the refinancing and the execution around the equity offering that we did, I think, are indicative of the value that shareholders, that are coming into the stock, 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 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 plenty of opportunity. I don't really feel like shopping the company or taking a private -- right now is really the right thing to do. I think there's always optionality in capital markets. I think there's always optionality around the things that can happen with the business. But I think sometimes, there's opportunity around private equity-style transactions, but I also think that there's often time opportunity as well to go continue to deliver and execute. When you look at some of the valuations that the new guys entering the public markets are getting, 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 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 market, I think the debt markets get the story. I'm not sure exactly what's wrong with the sell side, but I think that when they start to put them to paper, I think they'll see the value there as well.

Tien-Tsin Huang: Yes, sir. Yes. Now we can be a little slow sometimes. Valuation -- no, I guess we can be a little slow sometimes. I know, but look, the value side, not to joke about it, a lot of hard work has gone into this, and you've addressed a lot of the headwinds. So do I definitely acknowledge that. So my follow-up is just on the cultural side of things and a lot of traditional or let's call it, legacy companies, Medicare's been around for a while, are going through digital transformation. It feels like you've got through an inflection here on the digital side. But how about on the retail business, it seems like it has bounced back and you get a little bit of visibility on the Walmart piece. And then just culturally, do you feel like that the firm has transitioned a little more towards digital? And how do you balance that against the traditional book of the retail, the other things?

Alexander Holmes: Yes. No, it's a great question because I think 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 5-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 market 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 still really competing head on in the street. But the rest of the organization that's been dealing with key partnerships and post offices and bank partners and big retailers in 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 bank receives and wallet receives and these types of things. And so the teams have really had to shift around the world from a sales organization perspective to get that mindset around. It's not about a walk-in customer 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 in the backdrop, we've had to shift how we've looked at our structures around 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. We always tweak it a little bit, but that consistency, I think, has helped quite a bit as well. So it's a lot of people here 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.

Operator: We can now move along to our next question. It comes from David Scharf of JMP Securities.

David Scharf: Kind of reiterate the congratulations on checking off so many boxes, obviously, a lot of milestones that were a long time in the making. 2 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 the markets? I mean it almost feels like those countries are maybe the leading window in what this industry might look like in 5, 7 years. And I'm curious what the role of the agent in those types of markets has become and how commission rates have trended and ultimately, if there's just any lessons that we can learn about what the receive side of this industry is going to look like if we -- by looking at those particular markets where the digital receive is so high.

Alexander Holmes: 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 their business model, generally speaking. There are very few receive agents anywhere in the world that only do money transfers. Most of them have more dynamic business models. And whether that's kind of the chains of pawnshops across the Philippines or whether that's travel agents or retailers, et cetera, across various aspects of Asia Pacific. If you look at Africa, it's a lot of banks, right, and it's a variety of other entities out there, post offices, et cetera. And all of them have a different operating -- different business model. And so I think money transfers as a service, in that sense, have always been additive to what they do. And I would say that 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 nonexclusive, right? They've added other brands, and they've added other -- 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 is 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, right, 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 even if you're seeing a shift 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 I do think it's going to continue to be a shift. I think there's going to continue to be pivot in business models here and there. But I'd say the model works because it always has been value-added service, and it always has been something that is additive to these business models of these entrepreneurs or banks out there and not necessarily their core bread and butter. So from that perspective, it creates opportunity and flexibility for them even if business models change over time.

David Scharf: Got it. No, understood. And maybe just a follow-up, I'll pile on as well, I guess, maybe a little different angle. But obviously, I hear the frustration loud and clear on some of your valuation 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 value 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 to the extent that it's -- MoneyGram, certainly, Digital 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, I mean is there a road map to potentially reporting walk-in and digital as 2 different segments? Because I think in the absence of being able to answer that question, it creates a bit of a challenge to your initial frustration related to valuing the digital business.

Alexander Holmes: 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, I think that there is -- there's always these comments about some of the parts, there's always these comments about what competitors are doing. And are they going to take your share and blah, blah, blah, blah, blah? And I think the point of all that is like, look, I think we're 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 a huge value component that is being given to others and not necessarily to, as you say, kind of legacy businesses that have been around for a while that are shifting to digital. I mean it's kind of the same comment Tien-Tsin 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 growth through the business model. We remain competitive and lead the industry in a lot of innovative and interesting things. And I think that deserves a lot more value than is being recognized. Does that give us 300x revenue? Probably not. And that's really not what we're asking for. I just think trading at 6x, 7x EBITDA multiple, when you've got other public company comps out there that are trading at 12 to 15times, I just think is a little bit -- I don't know if I want to use the word misplaced or if it's just getting people motivated again to come back and actually spend some time on the story. So that's probably more 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 look, with 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.

Lawrence Angelilli: Yes. And as we've disclosed, we are considering segment reporting here. We did disclose revenue for MGO. And I think we can say that from a gross margin perspective, it's accretive or above the average for the rest of the company. You have issues like this, like we have on compliance department, it does both. We have 1 settlement department, and it does both. So if you wanted to just say, "Oh, on a proportional basis, 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, versus the legacy walk-in business. But in reality, you do have separate expenses in some cases. And so this is where it's sort of like 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 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 -- 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 -- it's -- 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.

David Scharf: No, understood. Clearly, it's -- there's no easy answers and -- but in a lot of ways, it's a good problem to have in the sense that you're growing, which you want to grow.

Operator: We can now move on to our next question. It comes from Bob Napoli of William Blair.

Robert Napoli: 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 has -- are on the right path. Now I think an important question is we've just -- the growth in online has been really, really strong. It's certainly helped by the pandemic, but I don't think it's going backwards from there. But it's still early and 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 2 pieces? But importantly, the valuation for some of your highly valued peers are coming from that part of the business, more pure plays without -- I mean I understand the benefits of the omnichannel, and I'm a big believer in that. But anyway, just some thoughts on the growth of the online business over the next 3 to 5 years as you lap some pretty tough comps.

Alexander Holmes: Yes. 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 financial planning a little bit unique in that sense because it really is hard to get a beat on exactly where the retail walk-in business is and how much of -- some of the shift in digital, particularly on the receive side, is really permanent versus temporary and 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 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 side alone. And what I mean by that is that we have a lot of digital partners that are doing since -- in those markets. And I think that they have other business models. Some of them are trying to 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 in sort of vacillating growth rates there. But I do think that digital partnerships 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 where licensing and other direct service-type models are more difficult to create or perhaps less profitable to sustain in that sense. So I think that those are kind of 2 big components. And then the MGO itself, we firmly believe is a 20%, 30% type grower for the foreseeable future. And I think it's just -- it's going to be a little bit quarter dependent or month dependent, depending on 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 different shifts in what's happening in terms of economic, 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 is factored in and impactful in the online space. But I think the exciting part about the online business is that, that consumer direct side of it, we're getting a much more frequent transactor, you're getting a much more 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 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 tenders and these types of things as well. So yes, 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.

Robert Napoli: So the combined business sounds like a 10%-ish type of top line grower with margins in the 20%? I think those margins -- the current margins, 20%, you think 20% EBITDA margin is the right margin for that business?

Lawrence Angelilli: We've been consistently saying high teens for EBITDA margin. I don't think we can get through it 20%.

Robert Napoli: Okay. And then just last question. I do think that it's viewed that the tech stack for some of the newer competitors are fresher or younger and 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're able to build off of your platform and expand the business, 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 -- how important is that to your business?

Alexander Holmes: 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 excited...

Robert Napoli: That's very fair.

Alexander Holmes: We're 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 I'm actually -- it's funny how things...

Robert Napoli: For the people, by the way, to be clear...

Alexander Holmes: No, I understand, I understand, I understand. But the point being, look, we have I guess, geez, it's like you get a little bit older and it's like 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. Over 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 showed 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 proud ourselves about in terms of the rating of our app and the performance of it. And so that is an important aspect of what we're doing. And I think equally important is kind of how 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 of the things that the marketing organization are overhauling and changing, we are definitely focused on ensuring 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 our -- 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 like 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, the U.S. domestic market is one of those. And I think it's made its way from nonexistent to something like 15% or so of our digital receives right now. So it's definitely moving up the curve, and we're not in every market that we want to be in yet, but it's creating some unique capabilities. And again, I think part of expansion and learning and investing for innovation is admitting when you're wrong and then pivoting to the right model. And I've shared the story, but I had this amazing idea, I thought at least where we were going to send directly to people's phone numbers, and that product was like a total dud. And 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.

Operator: We can now move on to our final question. It comes from Mike Grondahl of Northland Securities.

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

Alexander Holmes: Yes. 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 we've got really -- obviously, we've got the Walmart factor, which I gave you kind of the 250 headwind on, which, again, is not really about transaction growth, it's really much more focused on pricing because once you 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 is an interesting question around from a walk-in perspective, what's going on with COVID, right? We had some opportunity and some expectations that several markets, good examples being like Australia, Malaysia, et cetera, where we're going to be reopened and actually performing better than they are today, but yet you continue to see lockdowns and increases in risk. Thailand is another one. And so 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 what well 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% type growth rates. So we feel very positive about what's going on there. And I think maybe slightly more importantly is that 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 will kind of normalize through as we get into the fourth quarter.

Mike Grondahl: Got it. And then I guess a little bit more strategically, when you see transfer-wise valued at double-digit x 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?

Alexander Holmes: Yes. I mean I think broadly speaking, that's kind of been thematically a lot of the questions in a variety of different ways that have kind of come through. Look, it doesn't make me want to or not want to split of 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 it 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 and 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 nice growth rates, which I think is worth a lot. We're growing through some noise around Walmart. We've got a little bit of noise from the Ripple grow over. And there'll be a little bit of lumpiness in the next couple of quarters. But I think as Larry said, we're a company that's not going to have $50 million of improving free cash flow. We're going to be in an EPS growth orientation as we kind of get into the fourth quarter into the first quarter. So it's going to be a very, very different MoneyGram. So at the end of the day, our responsibilities around shareholders, our responsibility is to unlock value and create that value. And I think we're doing all the right things to do that. And at the end of the day, 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, that 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 execute that. And if we can't, then there's always optionality, which I think is exciting.

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

Alexander Holmes: Would 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 yes, absolutely. And 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. Anybody is always welcome to call, anybody is always welcome to come in with thoughts on how to create value and if it's the right thing for shareholders, then absolutely. 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 a good dialogue, good quarter, and much appreciate everyone's interest as always.

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