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MoneyGram International (MGI)
Q2 2021 Earnings Call
Jul 30, 2021, 9:00 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Good morning and welcome to the MoneyGram International second-quarter 2021 earnings release conference call. Today's conference is being recorded. [Operator instructions] It is now my pleasure to turn the floor over to your host, Stephen Reiff, head of corporate communications. Please go ahead.

Stephen Reiff -- Head of Corporate Communications

Thank you. Good morning. Thank you for joining us. On the call with me, we have Alex Holmes, MoneyGram chairman and chief executive officer; and Larry Angelilli, chief financial officer.

On the MoneyGram Investor Relations website, you can find our earnings press release and presentation, which is intended to supplement our prepared remarks during today's call and provide the reconciliations between GAAP and non-GAAP financial measures. We will refer to non-GAAP metrics on the call. 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 have on financial results.

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Please note that today's call is being recorded. During the call, we will be making forward-looking statements, which are predictions, projections or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainty. Actual results could materially differ because of factors discussed in today's earnings press release and 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.

Alex Holmes -- Chairman and Chief Executive Officer

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 DPA and overhauling our capital structure. So let's get to it. Business performance in the second quarter exceeded our expectations as we delivered revenue growth of 18% on the strength of a record number of our 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 17% and the 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. And 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 since. In the second quarter, digital partnerships also continue to accelerate, and transactions received digitally reached record highs. Our total digital transaction is now up for 33% of all money transfer transactions.

This is up sequentially from the first quarter's 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 10, as we reported, we were notified by the court of the 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 at the lowest it's been in years, and we plan to use the cash savings to invest in key growth initiatives and to 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 4.

The entire company now remains focused on executing our growth strategy, which is positioning the company to win with consumers and capture market share. And 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 highlighted 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 also significantly lower than the industry average reported by the World Bank and in line with the target set by the UN Sustainable Development Goals. We'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 to 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 then 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 5, the largest component of the 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 in cross-border transactions through its 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 about the same period last year. Turning to Slide 6. 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 three x 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 of the higher valuations, a message that I will continue to reiterate, given our outstanding performance in the comparable competitive data. On Slide 7, 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 toward 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 really strong road map 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 the 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 8 with respect to our network and our business model as both continue to evolve.

So as we have highlighted in 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 centers, we continue to see very little overlap between new digital centers and our traditional retail customers. Again, 85% of all new online customers are new to the brand.

They are also in the 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 that has shown incredible growth, almost double 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. Let's take two of the largest receive 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 of our 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 really 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.

Larry Angelilli -- Chief Financial Officer

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 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 five and three-eights fixed rate note. 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 five 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. 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 return to top-line growth even with the current effects of COVID. Excluding investment income, revenue grew 6% over 2019.

Revenue growth exceeded expectations on the continued strength of digital growth and outperformance at Walmart. This growth has also taken place even after factoring in the lower pricing in 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 extinguishment 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 interest issuance costs, call premiums and principal payoffs, which in turn has kept our liquidity position in its normal range. This is 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 de-lever 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 million to $333 million. Consistent with the revenue outlook, we anticipate adjusted EBITDA to be in the range of $52 million to $57 million. When compared to last year, this reflects that Ripple incentives will be 0 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 Alex.

Alex Holmes -- Chairman and Chief Executive Officer

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 increased free cash flow, I'm 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.

Questions & Answers:


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

Kartik Mehta -- Northcoast Research -- Analyst

Hey. Good morning, Alex and Larry. 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?

Alex Holmes -- Chairman and Chief Executive Officer

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 this 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 really helped us 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, and 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 that -- in 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.

I also think there's a lot of recognition and acknowledgment coming in now about our program to -- we've in place. So I think the entire compliance organization should be extremely excited about that.

Kartik Mehta -- Northcoast Research -- Analyst

Thanks, Alex. And just a question on your digital business, obviously, as you said, today 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 stand-alone business, would it be a profitable business or would that be difficult with just $300 million in revenue?

Larry Angelilli -- Chief Financial Officer

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 line it as a separate subsidiary would be difficult to do.

Kartik Mehta -- Northcoast Research -- Analyst

Thank you both very much.


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

Ramsey El-Assal -- Barclays Investment Bank -- Analyst

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, lapping incentives to customers? I think just anything to call out there?

Alex Holmes -- Chairman and Chief Executive Officer

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 just 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 -- retail of our 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. And we've also 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 it can potentially look now.  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 very much every platform. So it's been exciting and definitely something that we think will be at least sustainable and not necessarily that is, one, completely outpace the other, but they should be very comparable as we go forward.

Ramsey El-Assal -- Barclays Investment Bank -- Analyst

OK. 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?

Alex Holmes -- Chairman and Chief Executive Officer

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, and 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. So we're really 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 this.

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 [Inaudible] 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 this 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 so as I said, being in the strongest position we've been from both the capital structure and this is the growth trajectory at the moment. We're really, really excited to go execute our strategy.

Ramsey El-Assal -- Barclays Investment Bank -- Analyst

Fair enough. Thanks so much.


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

Tien-Tsin Huang -- J.P. Morgan -- Analyst

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 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?

Alex Holmes -- Chairman and Chief Executive Officer

No, I don't mind if you're putting 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 get MoneyGram be 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 this 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 and 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 -- so 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 also 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 the we -- 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 really 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 that's the story. I think the bond market, I think the debt markets get the story. I'm not sure exactly what's wrong with this side, but I think that when they start to put them to paper, and I think they'll see the value there as well.

Tien-Tsin Huang -- J.P. Morgan -- Analyst

Yes, sir. Yes. Now we can be a little [Inaudible] sometimes. Valuation -- no, I guess we can be a little slow sometimes, I know.

But look, value side, not to joke about it. I know 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 -- you're 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 toward digital? And how do you balance that against the traditional book of the retail, the other things?

Alex Holmes -- Chairman and Chief Executive Officer

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 just  the look -- 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 so then 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. This then 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 the 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, and 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 such organizational 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 also think that 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. And we always tweak this -- and a little bit, but that's consistent and I think it 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.

Tien-Tsin Huang -- J.P. Morgan -- Analyst

Yes. No, no, that's -- thanks for the answer and congrats on getting the refi done.

Alex Holmes -- Chairman and Chief Executive Officer

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.

David Scharf -- JMP Securities -- Analyst

Hi. Good moring. 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 aging relationships, kind of the store-based aging 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 five, seven years.

And I'm curious just 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.

Alex Holmes -- Chairman and Chief Executive Officer

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 of the 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 that'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 really 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 just 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. And 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 such revenue for the 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 these 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. So 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 clean 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 and that is additive to these business models of entrepreneurs or banks out there and not necessarily their core bread and butter. So from that perspective, and it creates opportunity and flexibility for them even if business models change over time.

David Scharf -- JMP Securities -- Analyst

Got it. No, understood. And maybe just a follow-up, I'll pile on as well, I guess, maybe a little different angle, of course. But obviously here, the frustration is 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 some 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 two 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.

Alex Holmes -- Chairman and Chief Executive Officer

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 our competitors are doing. And are they going to take your share and 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 value component that is really given to others and then not necessarily to, as you say, legacy businesses that have been around for a while that are shifting to digital, and 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 just 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 also 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 300 times revenue? Probably not. And that's really not what we're asking for. I just think trading at six times, seven times EBITDA multiple, when you've got other public company comps out there that are trading at 12 to 15 times, 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 we need to see 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 so from that perspective, I'll let Larry make a few comments on that.

Larry Angelilli -- Chief Financial Officer

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 one settlement department, and it does both. And so if we 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 this rest of the company versus our 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 which is less profitable? And 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.

And I don't -- it's just -- and I'm not sure there's an answer to that, that we can be precise in terms of calculating the EBITDA margin or our operating profit of that company and have it as the precise number that doesn't have this allocation methodology. And that's the challenge that we're dealing with on this from a disclosure perspective.

David Scharf -- JMP Securities -- Analyst

No, I 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 what you want to grow. Well, thank you very much, guys.

Thank you. Talk to you soon.


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

Bob Napoli -- William Blair -- Analyst

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, but it seems like you guys certainly has -- hung 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 in the 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 without -- I mean, I understand the benefits of the omnichannel.

I'm a big believer in that. But anyway, just some thoughts on the growth of the online business like over the next three to five years as you lap some of these pretty tough comps.

Alex Holmes -- Chairman and Chief Executive Officer

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 and 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, so at least 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 really generating and the vastness of it across the world, I think that would be quite successful. I think that the digital partnerships associated with our business also tend to ebb and flow a little bit and probably mirror what's going on in such 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 the -- 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 I mean -- 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 have 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 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. And so I think that those are kind of two big components.

And the MGO itself, the MGO is -- 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 will 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 transaction, you're getting a very 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 in those types of services that we -- have 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 this 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.

Bob Napoli -- William Blair -- Analyst

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

Larry Angelilli -- Chief Financial Officer

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

Bob Napoli -- William Blair -- Analyst

OK. 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's -- 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 it's going to be interesting to watch, but I think that some of the view as well. So I guess last question, Visa Direct, what percentage of your business is Visa Direct? And what -- how important is that to your business?

Alex Holmes -- Chairman and Chief Executive Officer

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 [Inaudible]

Bob Napoli -- William Blair -- Analyst

That's very fair.

Alex Holmes -- Chairman and Chief Executive Officer

We're excited to grow the business. Now I just said that, and I remember that 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 [Inaudible]

Bob Napoli -- William Blair -- Analyst

I wasn't referring to the people, by the way. To be clear, I wasn't referring tot he people.

Alex Holmes -- Chairman and Chief Executive Officer

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 that we showed. And 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 really trying to -- and 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 our rating of our app and 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, and so 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 just a lot of real excitement around it and that we're perceived differently, and that is important. So I know you were talking more specifically on the tech side, but we also feel like our -- I guess, the tech stack we have and kind of where we're going in the next year with it will really ensure that what -- 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. And so we're quite excited 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 just creating some unique capabilities. And again, I think part of expansion and learning and investing for the 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 this directly to people's phone numbers, and that product was like a total dud. And so Visa Direct comes along and it says, we'll send directly to a debit card, and I was -- no one's going to do that, but everybody does it apparently.

So again, I was wrong and others are right, and that's businesses. They're all about 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. And so I think we'll continue to see those accelerated growth rates, and we'll also continue to see it become a bigger part of the business as we go forward.

Bob Napoli -- William Blair -- Analyst

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

Alex Holmes -- Chairman and Chief Executive Officer

Thanks, Bob.


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

Mike Grondahl -- Northland Securities -- Analyst

Hey, thanks, guys. 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?

Alex Holmes -- Chairman and Chief Executive Officer

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 this really -- and 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, 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 here, 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 this walk-in perspective, and 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 then -- these 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 the mask requirements back on, 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, etc., etc., 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 -- and 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 so I think that maybe and slightly more importantly is that we're seeing good customer growth and good customer acquisition on both the new customer side and on our 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 this just kind of -- we now, and I think that will kind of normalize through as we get into the fourth quarter.

Mike Grondahl -- Northland Securities -- Analyst

Got it. And then I guess a little bit more strategically, when you see transfer-wise valued at 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?

Alex Holmes -- Chairman and Chief Executive Officer

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, I don't -- 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. And 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 speed things off, I think those are always possibilities. Those are always options that are out there.

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 are on our 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, and 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 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 -- Northland Securities -- Analyst

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

Alex Holmes -- Chairman and Chief Executive Officer

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 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.

Mike Grondahl -- Northland Securities -- Analyst

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

Alex Holmes -- Chairman and Chief Executive Officer

Thanks, you too.

Larry Angelilli -- Chief Financial Officer

Thanks, Mike.

Alex Holmes -- Chairman and Chief Executive Officer

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 a good dialogue, good quarter, and we appreciate everyone's interest as always.

Duration: 69 minutes

Call participants:

Stephen Reiff -- Head of Corporate Communications

Alex Holmes -- Chairman and Chief Executive Officer

Larry Angelilli -- Chief Financial Officer

Kartik Mehta -- Northcoast Research -- Analyst

Ramsey El-Assal -- Barclays Investment Bank -- Analyst

Tien-Tsin Huang -- J.P. Morgan -- Analyst

David Scharf -- JMP Securities -- Analyst

Bob Napoli -- William Blair -- Analyst

Mike Grondahl -- Northland Securities -- Analyst

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