MoneyGram International (MGI) Q3 2021 Earnings Call Transcript

MoneyGram International (NASDAQ:MGI)
Q3 2021 Earnings Call
Oct 29, 2021, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the MoneyGram International third 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, sir.

Stephen Reiff — Head of Corporate Communications

All right. Good morning and 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 of the company’s performance in addition to the impact that these items and events had on financial results. Please note that today’s call is being recorded.

During this call, we will be making forward-looking statements, which are predictions, projections, or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could materially differ because of factors discussed in today’s earnings press release and the comments made during this conference call and in 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

Great. Thank you, Stephen. Good morning, good afternoon, and good evening, everyone. Consumers are increasingly valuing our digital-first strategy as we delivered another incredibly strong quarter of digital growth and cross-border payment innovation.

Our direct-to-consumer channel MoneyGram Online continue to excel reporting exceptionally strong revenue growth in the quarter of 34%. Total digital, which includes MoneyGram Online digital partners and digital receives delivered record revenue in the quarter of $70 million, putting our digital business on $300 million of new run rate as we exit 2021. Digital transactions now represent 34% of overall money transfer transactions, and we are on pace to achieve our goal of 50% of transactions being digital in 2024. This marks an incredibly rapid transformation of our company.

As we enter the next stage of our digital expansion, we are focused on meeting broader consumer demand with a more expansive set of direct-to-consumer offerings. Our recently announced partnership with Stellar Development Foundation and Circle’s USDC stablecoin for blockchain-based payments, is a bold step in this direction, which we will discuss in more details shortly. We’re excited to meet the demands of a new fast-growing global consumer base with this transformative offering, providing further evidence of our leadership and pioneering innovative digital payment technologies. Now turning to Slide 4, MoneyGram Online, the largest component of our digital business delivered strong results in the third quarter, reporting a record high in volume with cross-border revenues and transactions growing at an accelerated pace.

This phenomenal growth continues to be driven by our industry-leading MoneyGram app. Given the strong customer lifetime value of app users, we’re excited that 88% of MoneyGram Online transactions performed on a mobile device in September. Additionally, the average number of customers who transacted MoneyGram in a given month continues to grow. This quarter our active customer base increased 31% compared to the third quarter of last year and as a reminder we define an active customer as a person that has transacted at least one-time in the quarter.

Given our success, we will continue to increase the investments we’ve made in digital marketing and social media as we move forward. With our online solutions continuing to resonate with more and more consumers, we’re excited to announce that five MoneyGram Online country sites now account for over 50% of their respective country’s total money transferred transactions. Australia in particular is a wonderful example. Three years ago, we didn’t even have an online presence in the market.

Today, Moneygram Online represents more than 50% of our transactions and revenue in Australia. In addition, if we look at individual country sites, three sites are on our top ten list of revenue and transaction sources with US MoneyGram Online as our single largest source of revenue and transactions. And as I’ve mentioned before, strong MoneyGram Online growth will be a key driver of realizing our goal of 50% of our transactions being digital in 2024. With MoneyGram Online revenue of $47 million in the third quarter and our expectation of sequential growth in the fourth quarter, MoneyGram Online will exit 2021 on $200 million revenue run rate.

And this is before considering any of the new initiatives that we have in store for 2022. As we continue to focus on innovation and expansion of our offerings, in October we announced our most recent MoneyGram as a service partnership with the Stellar Development Foundation. This partnership has two main benefits. First, it increases the interoperability and liquidity of digital assets while also enabling more consumers to participate in the digital economy by building a bridge between digital assets and local currencies for consumers utilizing the USD stablecoin and the MoneyGram network.

With about 5.7 million wallets already connected to the Stellar Network and a strong pipeline of partners, we’re excited about the revenue growth potential with this partnership. This integration will provide consumers with a seamless experience for funds in and funds out between USDC and local fiat currency. The second benefit is that this partnership revolutionizes settlement flows enabling for the first time what is effectively real-time settlement between MoneyGram and any participating wallet through the Stellar and Circle connection leveraging the USD stablecoin. This will create an accelerated collection of settlement funds for MoneyGram improving efficiency and reducing risk.

This partnership is truly transformational for both the world of crypto, blockchain, and our industry. Given our expertise in global payments, blockchain and compliance and cross-border businesses, we’re extremely well-positioned to continue to be the leader in building bridges to connect digital currencies with local fiat currencies. With a market value of about $2 trillion, digital assets and their appeal to consumers around the world will continue to play an important role in the future economy and simply cannot be ignored. Innovation in this space will remain an important component of our ongoing strategy.

In the quarter, we also signed a partnership agreement to provide business disbursements for a leading tech company, which will be launched and announced in the next few months. The total addressable market for cross-border business disbursements to consumers is estimated at $1.6 trillion and we’re focused on leveraging our API-driven infrastructure and global network to meet market demand and diversify our revenue streams to capture new growth. Now turning to Slide 6, as we’ve discussed a digitization of our received network through our unique combination of account deposit, wallet, and Visa Direct offerings for consumers is a core component of our growth strategy and we continue to report exceptional results. Total transactions received digitally reached a new all-time high with growth of 63% year over year, up an astounding 332% compared to pre-COVID in 2019.

As part of the success of digital received, we have been focused on expanding our geographic footprint with Visa Direct. I’m excited to announce that 49 countries are now enabled with Visa Direct marking a rapid expansion in just a year. Visa Direct transactions reached a new all-time high in the quarter, growing 144% year over year. We now have over 100 digitally enabled countries with digital received options covering over 90% of the remittance market.

We’re proud to build one of the largest digital received networks in the world, enabling consumer access to 3.8 billion bank accounts and 510 million wallets. As consumer preferences shift toward receiving transfers digitally, MoneyGram is clearly well-positioned to meet this demand. As we’ve been saying, MoneyGram is all in on digital and is clear that our strategy positioning in this fast-growing market is creating tremendous value for our consumers. Saying that however does not mean that we do not value our cash network, in fact, nothing could be further from the truth.

We believe maintaining a global cash network is important for a variety of reasons. First, in many markets, the cash network will continue to provide benefits to those consumers that need to send cash. In addition, we will continue to maintain the most robust cash received network available as countless numbers of receivers around the world rely on cash to support the urgent needs of their families. The cash received network is also a critical component of our strategy to scale our digital send business as cash receives continues to be a valued service even for digital senders.

Having the benefit of operating one of the best known and recognized networks in the world also means we have opportunities to leverage our network for new use cases and partner more broadly. Through MoneyGram as a service, we will partner with businesses across industries to offer cross-border disbursements. And of course, we will continue to work with blockchain to create bridges to this new and dynamic world of crypto positioning our seamless integrations for funds in and funds out as a truly transformational and incredibly unique offering. Importantly, we will not maintain our network at any cost and the network must return value.

As I’ve said, many times, maintaining a network for the sake of size alone is a feudal and costly exercise. And you will see us continue to focus on maintaining the network with an eye toward margin and cash flow optimization. All that being said, we believe that future growth is industry and our company will come from digital, amazing growth and benefits provided by digital sends and receives to our customers around the world can simply not be understated. We’ve come extremely far in a very short period of time.

And I could not be more excited about our growth and future innovation in this space. As we all know, consumer demand and expectations are rapidly changing to address this new and evolving digital consumer. We must continue to invest in product and marketing innovation. This means that in the coming months, you will see us transform our consumer direct business even more as we go deeper and wider in our consumer direct digital offerings and continue to innovate with blockchain and crypto.

Going deeper and wider means we will further expand to new regions and bring our digital solutions to more and more customers for both digital sends and digital receive. We’ll expand MGO to new countries. We’ll add new digital send partners and we’ll add more wallets and more account deposit offerings. We’ll also expand our demographic reach, offering a compelling solution for high-dollar senders that easily meet their fast-changing needs.

In addition, we are assessing opportunities to offer a broader suite of financial services to our customers. So stay tuned for more updates on that in the coming months. All of this of course means we will continue to drive innovation and cross-border payments. It means more use cases.

It means more customers. It means new revenue streams and all of that means new growth. And with that, I’ll turn the call over to Larry to discuss our financial results for the quarter.

Larry Angelilli — Chief Financial Officer

Thanks, Alex. Our performance in the third quarter reflects the trends that we’ve been describing throughout this year. First, the continuing growth of our online digital business was accompanied by margin expansion as well. MoneyGram saw growth at its highest margin businesses, while experienced revenue headwinds in its lower-margin businesses.

This accounts for our improved adjusted EBITDA margin versus last quarter. And looking forward, we see this trend continuing into the fourth quarter. Revenue was $320 million in the quarter, down about 1% from last year. This included the impact of $1.1 million in lower investment income as prevailing interest rates continue to hover near zero and reductions in our Walmart revenue as pricing at Walmart continues to be reduced through the Walmart marketplace.

We estimate that these pricing declines at Walmart were responsible for a reduction in our growth rate of about two and a half points. Neither of these two impacts are new and are the continuation of trends that began earlier this year. In addition, walk-in revenue was below our expectations with the late summer weakness in Europe, the temporary closure of our Afghanistan business, and COVID-related closures in the Asian markets. MGO, our largest single source of revenue and transactions in the world grew 34% year over year to $47 million for the quarter.

Gross margin from MGO exceeded 50%, which helped improve total company gross margin to 46.7% from 46% last year. Through increasing scale and improvements to our cost structure, we’re expecting further increases in MGO’s gross margin going into 2022. Adjusted EBITDA was $56.5 million at the high end of our expectations for the quarter. Last year had two items included in adjusted EBITDA that were not included this year, which are ripple incentives of $8.9 million and a $6.3 million valuation gain on foreign exchange position that was driven by the economic impacts of COVID.

This quarter’s adjusted EBITDA was up approximately 3% sequentially and approximately 5% versus last year when factoring out those non-recurring items. Adjusted EBITDA margin in the quarter was 17.7%, a sequential increase of 110 basis points from the second quarter. A particular importance though free cash flow was $33.5 million for the quarter, a conversion rate of 59%. In factoring in the timing of interest payments and in a steady state, MoneyGram has a run rate of approximately $100 million in annual free cash flow.

As we discussed in the past, we’re continuing to deemphasize signing bonuses as a marketing tool and signing bonuses were only $3.5 million in the third quarter, a decrease of over $11 million from the third quarter last year. And while the amount of signing bonuses will be higher in the fourth quarter, we expect they will decline over time and have a lower impact on our annual free cash flow over the next couple of years. Another item of note is the $34 million of debt extinguishment costs associated with our transformational refinancing in July, and had a disproportional impact on EBITDA. With this not recurring, there will be a significant convergence between EBITDA and adjusted EBITDA in the fourth quarter.

MoneyGram’s improving free cash flow conversion rate can also be seen through the increasing cash and cash equivalents at September 30. Our cash position increased approximately $36 million since the end of the second quarter ending at $152.6 million. We didn’t see the full benefit of our new debt structure in the third quarter. So interest expense will be lower in Q4 and we don’t expect material remaining adjustments from legacy issues.

And finally, before I provide our outlook, I’d like to just expand upon our description of the Stellar partnership. Unlike the technology used by Facebook and their Novi wallet pilot, our integration with Stellar and Circle uses blockchain technology. As Alex mentioned, not only does this utilization of the Stellar blockchain create the ability to accelerate our settlement collection, it also provides the underpinning for transforming the way we settle our transactions around the world. We’ve taken extra care to de-risk the way we handle crypto and provide a highly secure flow to protect both MoneyGram and our customers.

In addition, transactions will be recorded as revenue and this will be additive to EBITDA in 2022 and beyond. When we look at the fourth quarter and assume the current economic conditions and the impact of COVID remained similar to today, we anticipate total revenue of approximately $325 million. Embedded in this projection is an assumed revenue growth rate of 30% plus for MGO. We anticipate adjusted EBITDA to be approximately $60 million, which implies an adjusted EBITDA margin of 18.5%, which will be another sequential, quarterly improvement from 17.7% in Q3.

This reflects the continued gross margin expansion we are delivering from our MGO and digital properties as they become a larger percentage of our business, and also includes normalized expenses ever restored certain spending that was curtailed last year due to COVID, including marketing expenses. This outlook also continues to assume a competitive pricing environment. Regarding pricing in contrast to the perception and claims made by new competitors that MoneyGram customers pay up to 8%. We’re actually known for being among the best value options for consumers and are below the target benchmark set by the UN and the World Bank.

A take rate or the average cost to send money cross border is less than 3% of transaction value. In addition with customers loving our offerings beat a service and dynamic experience, we still have plenty of pricing power to execute our growth plans. With all of that, we anticipate fourth quarter free cash flow after interest expense of approximately $24 million delivering growth of about 24% year-over-year. This includes a normal seasonal increased in committed signing bonuses, which we projected to be approximately $16 million and capital expenditures remaining on trend.

For 2021, signing bonuses will be about $42 million, down significantly from $59 million in 2020. And one last item as it become our practice for competitive reasons we will continue to limit our reporting on MGO, digital transactions, and growth statistics to quarterly on an ongoing basis. In summary, the third quarter continued to reflect the enduring strength of our digital business. And as we look ahead, we see market opportunities as large as they’ve ever been.

And with that, I’ll turn the call over to the operator to take your questions.

Questions & Answers:

Operator

Thank you very much, sir. [Operator instructions] We’ll now move to our first question over the phone, which comes from Mike Grondahl from Northland Securities. Please go ahead. Your line is open.

Mike Grondahl — Northland Securities — Analyst

Yes. Hi, guys. Hey. The first question, Alex, you mentioned a new business opportunity doing, I think, it was business transactions for a tech company.

And you said that may be coming in the next, I think, you said couple months. Could you kind of describe what you’re doing there and maybe how big that could be? It seems like a new use case, but a little bit on that, then I have a follow-up.

Alex Holmes — Chairman and Chief Executive Officer

Yes. It’s actually what we’re starting with is continuation of what we’ve been doing, which is partnering with businesses for consumer disbursements actually. So, it’s utilizing our cross-border rails to enable businesses that have customers or clients or employees in foreign markets in which it’s difficult for them to operate to actually connect to them and send the money. So it’s actually a relationship for — we’re calling it business disbursements, but it’s primarily business disbursements to consumers.

I think it’s a very interesting opportunity. I think as economies continue to change as gig economy workers continue to expand as there’s more and more contractors working from home as it becomes much more commonplace that distributed employees and many markets around the world as more and more companies become more global, operating and distributing disbursements and payments is obviously difficult and can be complicated. And so, we believe we have a solution that will simplify that. So it’s really a continued expansion of our as a service offerings.

And I think that the market opportunity there is quite substantial. So, unfortunately, we can’t discuss in further detail right now at least that particular relationship, but we’re super excited about it and we’ll talk about it obviously when we can.

Mike Grondahl — Northland Securities — Analyst

Got it. And then maybe just in general, the MoneyGram as a service pipeline how does that look?

Alex Holmes — Chairman and Chief Executive Officer

It looks good actually. We continued to see more and more use cases and honestly, since we’ve more or less promoted the service and its availability, we’ve received a number of inbound calls. So we have a sales force is kind of looking at it in terms of what we think of the opportunities, but we’ve had a lot of unsolicited calls really coming in directly to us asking about it. I would say, it’s an exciting opportunity.

I think, there is a lot there. I think it’s one of those where it’s a little bit new for everybody. And so, it’s going to take a little bit of time to get them all sort of lined up and going. I think once it becomes a little bit more mainstream or commonplace for businesses to be doing these types of disbursements, I think, it will be easier and then it will ramp from there.

So it’s a little slow in the beginning here as we kind of get people on board and begin to do test transactions and look at it because again it’s a little bit of us doing it, but it’s also the businesses getting comfortable with it as well because it is a new way of distributing payments. But I think it’s got a lot of interesting prospects out there and given sort of the global nature of what we do. The prospect list is clearly global from that perspective.

Mike Grondahl — Northland Securities — Analyst

Got it. And then just lastly, what should our outlook be for the walk-in business? You kind of called out Europe, Afghanistan, COVID in Asia. I mean, can you get this back to flat or how should we think about it?

Alex Holmes — Chairman and Chief Executive Officer

Yes. I mean, that is the intention and obviously the goal. Clearly, the outlook for the fourth quarter doesn’t anticipate that we returned to flat just yet. And again, I think, there’s a lot of moving parts there.

Clearly, the transition with Walmart continues to be a little bit of influx that continues to perform quite well to be honest with you, but given the competitive nature of what Western Union actually brought in, in terms of no FX rates on several countries, which is still don’t quite know why they’re doing that, but that’s taken out substantial chunks of revenue, which is disappointing because actually from a consumer perspective, we’re actually doing quite well on retaining our customers and continuing to push transaction growth. So, we have to continue to look at that. COVID has created an interesting environment out there, right. There’s not a lot that we can do in some of the markets that we’ve talked about across Asia where lockdowns and restrictions on movement continue to impact people.

I think there is continues to be a feeling that COVID is sort of at the back end here, but yet when you get out into the markets, it’s still a lot of restrictions on movement. It’s a lot of requirements to have vaccination passes. It’s a lot of mask wearing. Right? So I think people are still not quite out the way they used to be.

And that’s really impacting I will say honestly around the world. A lot of our key partnerships, right, what we consider to be a bigger partners in terms of larger retailers or larger banks or post offices. You’re just not seeing the foot traffic that you would otherwise anticipate it to be. The offset to that obviously has been wonderful growth and continued expansion of digital products and digital offerings.

And so, that’s incredibly exciting. So I think in a normalized environment, I have absolutely no thoughts about not getting the walk-in business at the flat to low single digit. And that’s something that we continue to believe, will occur at the appropriate time. It’s just in the interim period here as just continues to be uncertainty.

We just haven’t seen that resurgence and return to growth that you would otherwise expect. I would say in certain markets and in some of the smaller retail, you are seeing that return. People seem more comfortable, but again at some of the larger chains, post offices in particular, continuing to be challenged with COVID. And then obviously you’ve got continued challenges around the world with employment.

Jobs migration still isn’t quite backward. It needs to be either. So, there is a lot of things that are still hanging over that are kind of residual from COVID. And I think it’s still going to just take some months here before that sorts itself out.

Mike Grondahl — Northland Securities — Analyst

OK. Hey. Thank you.

Alex Holmes — Chairman and Chief Executive Officer

Thanks, Mike.

Operator

Thank you. We’ll now move on to our next question over the phone, which comes from Kartik Mehta from Northcoast Research. Please go ahead.

Kartik Mehta — Northland Securities — Analyst

Hi, Larry and Alex. How are you guys?

Alex Holmes — Chairman and Chief Executive Officer

Good.

Kartik Mehta — Northland Securities — Analyst

Alex, you talked about — have maybe more financial products for your customers. And I’m wondering is that a solution that is going to be an online solution or retail solution or something where you can offer in both places?

Alex Holmes — Chairman and Chief Executive Officer

Yes. The primary focus is going to be in online on the MGO app. I think that’s obviously the easiest way to provide ancillary services to consumers. Clearly, the trend is on financial services needing to be more fulsome financial suites of products.

Creation of wallets and these types of applications continue to provide a lot of affinity to different consumer demographics than it’s an area that we think will be beneficial to us, particularly as you think about interoperability between different worlds. So it’s an important, I think, expansion of our service and enhancements like what we’re doing in the online space. And I’m won’t give you exact specifics on exactly what suite of products will be there because we’re still kind of going through that assessment and looking at the timeline to bring that to market. But I do think it’s an important part of the evolution and the expansion of our service.

And I do think it will increase throughput and stickiness with customers and give us an opportunity to scale in some different ways. Bringing that to the walk-in space, I think continues to be a challenge because again most of our partners out there whether they’re a bank or a post office or a retailer or a small mom and pop, oftentimes they already have their own service or their own concepts around this in terms of the services that they’re trying to sell. And they continue to obviously believe in many ways that the customers there not just for the MoneyGram service, but also because they’re a customer of the local store or the retailer. So, again, I think that these types of services sell well in a consumer-direct environment.

They become a little bit more, more complicated, I think, at the point of sale. So this will be a primarily focus on the online experience for our customers.

Kartik Mehta — Northland Securities — Analyst

And then, Larry, you obviously talked about crypto and blockchain, and obviously, there’s a lot of conversations surrounding that. But from a MoneyGram perspective, what does it do — if you’re able to successfully use it, what does it do for in terms of costs for the company? And how do you see that playing out if it works?

Alex Holmes — Chairman and Chief Executive Officer

It can be transformational. And that’s one of the issues about using a stablecoin as that we’re on chain and it actually takes a lot of the costs out of the settlement engine. And that’s one of the things that we’re excited about is that this is still obviously in its infancy, but there’s an operating cost of moving money for our settlement. There’s operating costs associated with foreign exchange.

And there’s also something we’ve talked about in the past with cryptocurrencies. There’s a cost of capital in terms of the size of our balance sheet. This has the opportunity to address all those. I don’t think it shows up in our numbers in the near term, but that’s one of the other reasons.

It’s not just the potential revenue opportunity, but if this lives up to its potential, it does have operating cost efficiencies mainly in the settlement flow on a go-forward basis.

Kartik Mehta — Northland Securities — Analyst

All right. Well, thank you both. Appreciate it.

Larry Angelilli — Chief Financial Officer

Thanks.

Alex Holmes — Chairman and Chief Executive Officer

Thanks, Kartik.

Operator

Thank you very much. We’ll now move on to our next question over the phone, which comes from Tien-Tsin Huang from JPMorgan. Please go ahead.

Tien-Tsin Huang — JPMorgan Chase & Co. — Analyst

Thanks. Good morning, everybody. Just I wanted to ask on walk-in business also. Did you size those three areas and what the impact was in the quarter? And then I’m curious, did you see or did you market, for example, some of those Asia locations or regions to identify sort of alternatives from a digital or mobile perspective just or what’s the general strategy around that trying to pick off some of that business on the digital side to the extent that you have a presence there online?

Alex Holmes — Chairman and Chief Executive Officer

Yes. I think about half of the impact as we mentioned was Walmart and the other half of the impact was really a combination of those factors. I think the Asia-Pac one was not particularly surprising in terms of how that played out although I will say that we had expectations that some of that would have softened and eased up, and we would have had a better growth in those markets. I’ll come back to that in a second.

The Europe one was a little bit surprising to be perfectly honest with you. We had a very good July and then suddenly we saw quite a bit of a slowdown in August and September across the European markets. And it does turn out that there was a lot of holidays that were taken, which surprised us a bit and it slowed down and pulled quite a bit of money out of the market. And in fact, there was a program that the Moroccan government promoted to actually enable Moroccans to come back to the country for free.

And so that’s anecdotal of one large corridor, but out of France, Spain, several other markets, Morocco is a very important aspect of that, and that market kind of dried up. Now we’re seeing recovery now, so that one was fairly surprising and a bit unexpected. And then Afghanistan is obviously a large country for us and to have that closed for a month was challenging. And then when it did reopen, interestingly we’re not seeing the funds flows that we saw before, despite, kind of the humanity crisis concern.

We’re actually only seeing about half the amount of principal being sent for a transaction that we saw prior to the closure. Now that may be largely because the US dollars in Afghanistan dried up, and now they’re only paying out local currency, which is not as valued as the dollars work. And that’s not really on our end. It’s on the difficulties of actually getting dollars into the market from the banks and the country to pay out.

So the combination of those factors is really what kind of knocked us off of where we were on our guidance trajectory after a strong July. When I get — when you go back to Asia markets, absolutely, the digital piece is an important part of the expansion there. And we did see good growth across those, but just given the vastness, I suppose kind of the markets, the number of markets, and the amount of cash-based trade going on within those markets, it was hard to offset that. So Asia continues to be a little bit frustrating.

And hopefully, we’ll see that continue to or not continue to hope — we will see it to start to improve in the front of next year, but we’re not anticipating much of a change in the fourth quarter.

Tien-Tsin Huang — JPMorgan Chase & Co. — Analyst

Yes. That’s good detail. Thanks for sharing all of that. Just my quick follow-up, just on the pricing front with Walmart, I know you call it competitive obviously.

Is there any knock on effect from that? Have you seen other pressure points as a result of some of the changes coming out of Walmart? Or is this still pretty isolated?

Alex Holmes — Chairman and Chief Executive Officer

I’d say the two are isolated, although I will say that in the what I would call more of the retail mom and pop market, we have seen a lot of negative effects meaning that sending with a variety of our customers. You actually get more of — you get more than you send kind of based on some negative effects that’s been put in place. And so I would say that from — and that’s particularly to Mexico and the Northern triangle. So I would argue that there is a lot of competitive FX going on – extremely competitive FX going on in that smaller retail channel.

But then when you get into the key partnership side and some of the Walmart impact, we haven’t really seen it shift to the other key partners. It continues to be largely isolated to Walmart, which is good from a pricing perspective. That being said, I think that some of the corridors that have been selected to go with zero FX just I don’t think is needed or required. And actually, it’s a little bit costly since trading FX and foreign markets is not free.

So buying and selling pesos is not a free expense. And so not charging an FX for that to me continues to not make a lot of sense. So anyway that is the environment that we’re in. It continues to be how that the competitive product anyway is being positioned and we’re doing what we need to do to maintain our customer base.

And again, I think, we’re doing extremely well on that front, but given sort of that impact Walmart is now below 8% of revenue, which is a positive trend as well, but unfortunately kind of getting there by reducing prices, which we’ve had to do to be competitive.

Tien-Tsin Huang — JPMorgan Chase & Co. — Analyst

Yes. Thanks for all that. Thank you so much.

Alex Holmes — Chairman and Chief Executive Officer

Thanks.

Operator

Thank you. We’ll now move on to our next question over the phone, which comes from Ramsey El-Assal from Barclays. Please go ahead. Your line is open.

Ben Budish — Barclays — Analyst

Hi, guys. This is Ben on for Ramsey. Thanks so much for taking the question. I wanted to follow up on the Walmart question that was just asked.

You mentioned that the impact was about 2.5 points from pricing, which I think was in line with your expectations, you talked about on the last call. Was there any impact on share shift as well like any impact of volume or was the impact of revenue purely related to pricing?

Alex Holmes — Chairman and Chief Executive Officer

Yes. It’s a good question. I think that volume given a full quarter versus a partial quarterback in the second, volume impact was higher than it had been. We are seeing good new customer retention.

I would say, actually that’s the wrong word, I apologize. We’re seeing good acquisition of new customers still coming in the door. I’d say a lot of the transition has been on some of the repeat customers. And so what we’re trying to balance or at least understand is whether those customers dropped out of the market in the sense that they didn’t return or if they shifted to one of the competitors in store.

That’s a little bit difficult to do unless we actually do direct follow-up with the customer. So we’re trying to trace that because we did see some softness as we went forward. So there has been a larger impact on transactions than obviously there was in the first — or excuse me, in the second quarter, which was the first quarter where we had the new competitor Western Union in there. But again, we’ve lowered prices.

We’ve matched what’s happening. And I think that’s enabled us to retain the vast majority of our customers, although yes in the third quarter, the impact was bigger than it was in the second.

Ben Budish — Barclays — Analyst

OK. That’s helpful. Thank you. And then just a question around like the margins and the agent signing bonuses, which are, I suppose, somewhat related.

So I guess I’ll ask these two questions right here. On the agent signing bonuses, are there any like particular drivers? I know one of your competitors has been talking about lower signing bonuses as a driver of cost reductions next year from renegotiating with Asian partners. Is that the reason or is there perhaps something else going on there? And then the second question kind of on longer-term margins. You’ve mentioned that you’re getting a gross margin benefits from the MGO business.

What are the implications for your adjusted EBITDA margins in 2024, when you hit that target of 50% transaction from digital?

Larry Angelilli — Chief Financial Officer

I will start with the signing bonuses first. Actually, we haven’t seen evidence that our competitors have softened their view on signing bonuses. And it was really something that we’ve been talking about in our own modeling. And as Alex mentioned in his remarks, I mean, we were basically focused on return in our walk-in business.

And on a net present value, internal rate of return basis, signing bonuses, we’ve raised our bar in terms of what we expect return on those investments. So these have been declining gradually over time and it’s lumpy because the ones we’re paying now tend to be stuff that we’re already committed to do. And so it isn’t going to just move in a straight line, but I think that there has been a risk transfer with signing bonuses and our competitors are probably seeing it too and if you’re not growing, or if your growth rate slows and you’re prepaying for volume makes the math pretty difficult. So in a general sense, we still think they’re going to be around.

There are certain relationships that justify it, but it’s not as effective. And when we think about what we could do with that capital in terms of investing it in a more profitable business or in the digital space, it seems to make a lot of sense. But I can’t speak for the others, but that’s definitely the way we’ve been looking at it for the last couple of years. In terms of margin expansion, so there’s a couple dynamics here.

One is the percentage of digital as a percent of our business then getting to 50-50. The other is that is also on an upward trajectory. Part of it is just economies of scale when we, in terms of new customer acquisition is more expensive than customers that are transacting for multiple times. And so as the percentage of customers who are repeat customers increases, there’s a natural tendency for that margin to improve.

The other aspect of it is, is that we’re able to start taking advantage of scale and reduce a certain direct transaction expenses, which are starting to show up in our numbers. So when you start doing the math on a weighted average basis, and just assuming that maybe our margins are going to be consistent in the walk-in space and our margin improvement in the digital space, both MGO and digital transactions that’s where that migration comes from. And it does suggest that even at lower price points by 2024, you’re going to see why our gross margins and potentially improved EBITDA margins as well. That’s how we’re getting to that number.

Ben Budish — Barclays — Analyst

OK. Very helpful. Thanks so much for taking the questions.

Operator

Thank you. We’ll now move on to our next question over the phone, which comes from David Scharf from JMP Securities. Please go ahead.

David Scharf — JMP Securities — Analyst

Hi. Good morning. Thanks for taking my call. Hey, Alex.

I’d like to switch gears and see if you can expand a little more on the Stellar and Circle announcement, because I know you and I had a talk a couple of weeks ago, and you kind of set me straight on maybe some misperceptions I had and it’s – it seems like anytime words like blockchain or stable coin or crypto appear in a press release by a company like MoneyGram, the initial reaction is that this is somehow related to the traditional remittance business. And it sounds like at least initially this is an entirely different customer use case and potentially business model. Can you talk more specifically about, and I realize it’s in its infancy, but at least in the first couple years, who you really envisioned the user being, I mean, because it sounds like it’s just somebody that might have some currency in either a custodial or non-custodial wallet that for some use case needs to convert Fiat into USDC in the reverse and just help us understand kind of MoneyGram’s role who the user really is, what you envision sort of the pricing model, distribution system for signing up customers, because it seems like an incredibly kind of innovative approach, but it also seems like something that’s entirely incremental to sort of your traditional money transfer business.

Alex Holmes — Chairman and Chief Executive Officer

Yes. Thanks. That’s a really, really good question. And there’s a couple of different ways to approach that.

I think Larry definitely discussed earlier as kind of the backend settlement side of it, and we can kind of come back to that later. But yet from the front-end consumer, at this point in time, it really is at least in this initial stage, as you pointed out, this is really about creating interoperability for on-chain activity basically to get it off chain into Fiat currency. And for those of you who are participate in crypto and blockchain in a big way, you understand this well, for those of you who don’t, it can be a little bit confusing. But conceptually, there are literally millions of people around the world that are in blockchain and crypto either they’re getting paid in it.

They’re doing some mining work, they’re developers, they’re trading in it. They’re sending it to other people, etc. And blockchain is an incredible tool. And crypto is incredibly unique in its own right.

Yet in its kind of infant state here, as it continues to mature, all, most of the activity occurs in what they refer to as sort of on chain. Right? So anything that stays on the blockchain, anything that moves crypto to crypto, exists sort of in a parallel world to the traditional financial system. And one of the most difficult things to do is inter-operate between those two systems. I think for those of you familiar with it, the most, the easiest example would be to say, hey, I want to open an account with Coinbase.

And I want to load a $1,000 into Coinbase. Well, you’ve got a couple of options there. You can link your bank account. You can load it with MasterCard, Visa, debit, credit.

You can use Apple Pay, etc. There’s a variety of ways to get it in there. Myself I loaded $1,000 to Coinbase the other day. And the first thing it told me is that you’ve loaded a $1,000.

Thank you. And it says you can get back $28 today if you want, or you can get a $1,000 back in seven days. So they’ve definitely tied up the money. And once it’s in, you can buy and sell crypto and it’s pretty easy.

But the first thing you noticed is that you pay 1.5% to 2% to buy your crypto. And then once you own it, there’s a lot you can do because now you’re on chain. You can move it around, you can send it to people, you can do a variety of things, but then you decide, you want to get your money back. You push, sell the coins are sold.

Do you want that into some Fiat currency? It costs again, 1% to 2% to convert it back. And it’s going to take you a couple of three days to get the cash. In fact, if you do a domestic transaction on Novi right now, you can easily move money through USDP, but it’ll tell you, it’s going to take you three days to get your cash back. And for those of you who understand our industry and understand most financial transactions waiting three days, seven days in the case of getting your $1,000 back out of your wallet is really not a timeline that’s acceptable.

I mean, our entire industry exists for the sole purpose of moving money instantly in real time. And so that is what we do. And it’s amazing to me. As these blockchain start-ups and others have evolved, the misperception of the current financial system is starting and it’s quite remarkable.

I mean, I can’t tell you how many people think that we move money on a per transaction basis. I’ve been asked what do you do just send an ACH and why every time someone sends $300 to Mexico. And it just, it’s hilarious to me that that’s what they think is happening and that’s where they think the cost is. And so, this is idea that you can move money through crypto rapidly fast, it’s easy, it’s seamless.

And in a lot of ways, that’s true, but you can do the same thing in the Fiat world today. So the question becomes the interoperability and the question becomes the speed at which you can settle that. And so what we’ve done is integrated with Stellar through USDC. And so anyone who wants to convert their crypto into USDC and then ask for that cash out, they can receive that cash instantly to the MoneyGram network.

And that’s pretty remarkable and transformational because most crypto is in essence, stuck on chain and getting at off chain is incredibly expensive and slow and complicated. And so for us, it’s a very straightforward. Effectively, we can turn USDC into a money transfer for purposes of the consumer collecting those funds effectively time and instantly the way that we send money today, right. We run a net settlement engine and we settle with many currencies all around the world, across any different borders and across many different banks working with exchanges, working with crypto in essence is really not any different.

And so as long as you have the right product set toward it, as long as you have the right IT systems and the right capabilities, you can drive a lot of efficiency. And again, cross-border is complicated. It’s expensive, buying and selling foreign currency is complicated and expensive. Compliance is expensive, but we have all of those pieces built into our systems and into our rails today.

And so interacting with blockchain and crypto is simply a transition across. And the other thing I think is important to remember too, is that simply because you’re doing things in blockchain and crypto, doesn’t preclude you from traditional moving in and doing things in the traditional financial way. They don’t have to be mutually exclusive and they can inter-operate together. So that’s a long way to come back to.

There are literally millions of customers who have crypto and wallets. Those continue to grow in size every day. But the interoperability, the ability to get money, off of that and into the hands of consumers and into cash is difficult. And so this is a new consumer.

This is a different use cases. This is not a traditional remittance customer at this point in time. Now you are seeing more and more companies that are promoting cross-border through crypto for the purposes of a remittance. But I think it’s super important to pause on that and remember as well that you’ve got a cost of moving of getting the crypto in the first place, maybe moving the crypto is free cross-border, but then you’ve got to pay the exchange or whomever owns the crypto or the wallet to get it off chain once you’re down in the foreign market that involves foreign exchange costs, that involves having exchanges, that involves compliance, that involves partners who are willing to do that and pay out the cash.

So there’s costs there as well. So this idea that suddenly things are become free. The idea that something’s getting displaced, couldn’t be farther from the truth. I think MoneyGram is an incredibly strong position to sit in the middle of it and actually help it happen and enable it.

And we won’t be displaced. We’re going to be extremely relevant in this future transition in the future model. So very excited about that. And I do think over time, remittance will become a much more important part of the movement and the chain and the interoperability between Fiat and crypto will become even more important as that gain scale and becomes important down the road.

In the interim period, adding new customers and simply enabling, and as a service capability for customers to buy and sell crypto and get it off their wallets and into the Fiat and the currency and then a country they needed and as an important part of the evolution of our financial system going forward. So we’re in a good place for that.

David Scharf — JMP Securities — Analyst

Got it. That’s really helpful because as I said, I think there’s some maybe some misinterpretation that somehow this is primarily an announcement about just a new form of digital cross-border remittance, but it’s a different use case. But hey, maybe just a follow-up to that. And I apologize for getting in the weeds here.

It sounds like the value add that you’re describing, obviously the interoperability to convert basically pull crypto off the blockchain and into Fiat. It’s a cost savings for the consumer. And as you noted, I got the same email back when I tested a new Coinbase account as well. But it seems like in some respects, this does put you into competition with the custodians like Coinbase? I mean, Coinbase is basically charging a fee for expedited access to your funds just like PayPal or Venmo does.

In exchange for sort of acting as a custodian and does the service you envision with all these wallets that Stellar’s blockchain has? Is this just catering to sort of non-custodial wallets? Is that the trade off that, because I’m still trying to get my arms around, who’s getting paid in crypto, and if you are getting paid in crypto, who’s willing to kind of put assets in a noncustodial wallet?

Alex Holmes — Chairman and Chief Executive Officer

Yes. Well, I mean, again, that’s a great question. And I think there’s a couple of different ways to look at it. I mean, first and foremost, there are literally millions of people around the world that are – that operate in non-custodial wallets.

And primary reason for that is that they’re either developers in the blockchain world or they’re doing some sort of mining activity or they’re simply consumers that have wallets and kind of buy in and sell in a non-custodial way. I mean, it’s very common in the blockchain world in the crypto community for consumers to want to keep their own keys. Custodial in some respects, I find it all quite fascinating. We talk about exchanges and we talk about custodians and non-custodians, but custodial I think it’s having custody at an exchange is basically like putting your money in a bank.

So at the end of the day, all you’ve done is you’ve taken the concept of taking Fiat and putting in a bank and you’ve replaced it with putting crypto into an exchange. And of course they want to make money. And of course, they’re going to charge you fees for that. That’s what they do.

And so this whole idea that somehow all this is free and fast and inexpensive is really not true. What they’re really actually trying to say is that I’m going to displace banks and traditional financial systems, and I’m going to make the money over here at my world. So I think that gives us a huge opportunity to play there. And I also think too, that if you look at an exchange as nothing more than a nouveau type of bank thing, then certainly I would think that they’d want to partner with MoneyGram, even at custodial sense to actually help facilitate funds in and funds out in a more rapid and dynamic way, particularly considering how much money is going into crypto.

I mean, you’re into the world of 2 trillion. Now some of that’s been created on and simply the value creation. But also consumers are willing to put that much money into it and buy and sell. Then values are going to be there.

And there’s a lot of money that needs to get eventually exchanged back. So, I think we can play a huge role for both custodial non-custodial. And I think, look, I think for mainstream consumers, I think, custodial is kind of the go-to environment for people that are much more in blockchain, in crypto globally around the world. And again, it’s millions and millions of people that are doing this.

I mean, they are custodian their own keys and that’s where these wallets, non-custodials come in to play.

David Scharf — JMP Securities — Analyst

Got it. Got it. Yes. A lot of nuance in complexity, but it sounds like at some point it has the ability to scale into an entirely separate business line item.

Great. Thank you.

Alex Holmes — Chairman and Chief Executive Officer

Yes. Absolutely. Thanks. All right.

I think we take a couple more.

Operator

Thank you very much, sir. We’ll now move on to our next question over the phone, which comes from Bob Napoli from William Blair. Please go ahead. Your line is open.

Bob Napoli — William Blair — Analyst

Thank you, and good morning. Appreciate the question. So just, I guess with — competitively, when you hear, why talk about aggressively reducing pricing and I think you’ve touched on this a fair amount. Has there been — have you seen online with the new competition? You’ve had some IPOs obviously, but those companies have been around.

It’s not like they’re new companies, but if you — what is your feeling of the competitive environment for the digital business and the pricing, and when you hear pricing conversations out of somebody like a Wise that talks about aggressively reducing pricing and I think, has there been a change in that market with some of those players like a Wise if you would?

Alex Holmes — Chairman and Chief Executive Officer

Yes. That’s a great question, Bob. Good to talk to you. Listen, I think first and foremost since they’ve gone public, we haven’t seen any material change in their positioning in the marketplace.

I would argue that what MoneyGram has been trying to do for the past really three years since 2018 is be disruptive in the online world and actually try to figure out how to grow and scale a digital business while expanding margin and putting through more cash flow. And I think we’ve done that extremely well. That being said, one of the things we have learned is the incredible amount of money that companies like Remitly and Wise are putting into marketing expense. And obviously they’re on a warpath to acquire customers.

And I think the single biggest way to do that is to spend money on marketing and then also position yourself as being cheaper and better and faster. If you spend a lot of time on the Wise website, one of the things that they do is they put a list of who their price is better than and MoneyGram is not on there anymore. It used to be, but it’s dropped off and we’re not on there anymore because we’re extremely price competitive with what they’re doing. And I would argue that most of the prices that Remitly is doing other than their first transaction, which they give a big discount on and by the way, they put into their marketing expense is, other than that, our pricing is super competitive.

So I feel very, very good about that. And actually, I think as Larry said in his scripts, we feel like the way that consumers are coming to the MoneyGram app, the way that they’re adopting, the way that they’re sticking around. I think we have a lot of pricing power in that to do a variety of new things. And we also touched on moving more fulsome into high dollar sending, which is really where Wise makes most of their profit and does most of their business.

And that’s an area of expansion for us in the coming months. And so I think that’s going to continue to help with the cash flow. And the other thing too, to remember in our industry and this is where a lot of the misperception comes in is that oftentimes the less money you send, the more expensive it is on a relative basis. And so the more money you send, the lower it tends to be on a percentage of faith from a transactional view.

So I think we’re very competitive. I haven’t seen prices move around too much in the online world. I think what we’re doing is extremely relevant. And I think our marketing team is doing an amazing job and I think the pricing team is doing a good job as well.

So still very competitive there and feel like we can continue to not only grow that business at the rates that are expected, but also expand margin.

Bob Napoli — William Blair — Analyst

And then I just a follow up. Thank you, Alex. At that pricing levels, the margins that you’re targeting, the unit economics are sufficient to support the types of EBITDA margins and gross margins that you’ve discussed here today like 20% EBITDA margins or in that range. They’re driven in part by expanding gross margins.

Alex Holmes — Chairman and Chief Executive Officer

Yes, sir.

Bob Napoli — William Blair — Analyst

Yes. Yes.

Larry Angelilli — Chief Financial Officer

We don’t see a change to that.

Alex Holmes — Chairman and Chief Executive Officer

Yes. I think you said it well. I don’t want to ruin it, Bob.

Bob Napoli — William Blair — Analyst

OK.

Larry Angelilli — Chief Financial Officer

Thank you, really appreciate it. Appreciate the question.

Alex Holmes — Chairman and Chief Executive Officer

Thanks.

Bob Napoli — William Blair — Analyst

OK.

Alex Holmes — Chairman and Chief Executive Officer

All right. Last question, please.

Operator

Thank you. Certainly, we will now take our last question over the phone, which comes from Bryan Keane from Deutsche Bank. Please go ahead.

Unknown speaker — Deutsche Bank — Analyst

Hey. Thanks for taking my question. So this is Ethan on for Bryan. So how come the firm purchase to clown NFTs, ID number 13498237 for roughly $80,000 to represent your firm’s corporate identity.

I ask this because I’m wondering the rationale for jumping into that NFT space and purchasing those specific assets. Thank you.

Alex Holmes — Chairman and Chief Executive Officer

We’re not aware of that and really can’t respond. It was complete.

Larry Angelilli — Chief Financial Officer

Quite honestly, I didn’t even understand what you just said. Yes. We don’t really understand the question. Can you rephrase the question?

Unknown speaker — Deutsche Bank — Analyst

Yes. So it’s NFTs of clowns. So I’m just wondering why you guys want with those clowns?

Alex Holmes — Chairman and Chief Executive Officer

So you’re not from Deutsche Bank or Bryan Keane’s office is what I’m guessing. But that was nice of you to use their name. I’ll be sure and pass by regards on that when I speak to him. I’m not really sure what you’re asking us.

So I think we can probably move on from you. Thank you.

Unknown speaker — Deutsche Bank — Analyst

Yes. Thank you.

Operator

[Operator signoff]

Duration: 62 minutes

Call participants:

Stephen Reiff — Head of Corporate Communications

Alex Holmes — Chairman and Chief Executive Officer

Larry Angelilli — Chief Financial Officer

Mike Grondahl — Northland Securities — Analyst

Kartik Mehta — Northland Securities — Analyst

Tien-Tsin Huang — JPMorgan Chase & Co. — Analyst

Ben Budish — Barclays — Analyst

David Scharf — JMP Securities — Analyst

Bob Napoli — William Blair — Analyst

Unknown speaker — Deutsche Bank — Analyst

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