The Western Union Company

Good day and welcome to the Western Union Company first quarter 2020 earnings release conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Brendan Metrano, Vice President, Investor Relations. Please go ahead.

Thank you. On today's call, we will discuss the company's results for the first quarter of 2020, and then we will take your questions. The slides that accompany this call and webcast can be found at westernunion.com under the Investor Relations tab and will remain available after the call. Additional operational statistics have been provided in supplemental tables with our press release. Western Union is still following a work-from-home policy, so on our remote call today is our CEO, Hikmit Ersec, our CFO, Raj Agrawal, and Head of Treasury and Investor Relations, Brad Winbigler. Today's call is being recorded, and our comments include forward-looking statements. Please refer to the cautionary language in the earnings release and in Western Union's filings with the Securities and Exchange Commission, including the 2019 Form 10-K, for additional information concerning factors that could cause actual results to differ materially from the forward-looking statements. During the call, we will discuss some items that do not conform to generally accepted accounting principles. We have reconciled those items to the most comparable GAAP measures on our website. WesternUnion.com under the investor relations section. We will also discuss certain adjusted metrics. Although the expenses that have been excluded from adjusted metrics are specific to these initiatives, the types of expenses may be similar to types of expenses that the company has previously incurred and can reasonably be expected to incur in the future. All statements made by Western Union officers on this call are the property of the Western Union Company and are subject to copyright protection. Other than the replay noted in our press release, Western Union has not authorized and disclaims responsibility for any recording, replay, or distribution of any transcription of this call. I will now turn the call over to our CEO, Hikmet Ersec.

Thank you, Brendan, and good afternoon, everyone. We hope you and your families are safe and well. Our thoughts are with all of those who have been affected by COVID-19. Western Union has been determined to do its part by living up to our responsibilities as one of the most trusted global brands delivering essential services to millions of customers worldwide during this unprecedented and challenging time. We are grateful to all of the frontline heroes and essential workers as well as our employees and partners who are working tirelessly to combat this global health and economic crisis. During our call today, our CFO Raja Grewal and I will share how Western Union is navigating the current environment and discuss our first quarter results. We will also share our views on the market environment impacted by COVID-19 and provide our perspective on economic and customer trends. The COVID-19 pandemic has brought social and business life to a grinding halt. Stock markets have been in turmoil, global GDP growth projections have been plummeted to near-hysteric lows and unemployment rates in many countries have surged. The effects of this pandemic are likely triggering one of the greatest economic shocks of the past century. Our industry is no exception and we are experiencing the impacts of the COVID-19 pandemic. Besides migration flows, economic indicators like GDP growth and employment levels are indicative of consumer behavior and business activity. However, I'm glad to say that the strategic decisions and investment we made at Western Union during the past years have laid the foundation for us to navigate to this unprecedented crisis from a position of strength. We have one of the most trusted global consumer brands. Our strong corporate balance sheet and healthy financial position are supported by very strong annual operating cash flow and investment grade credit rating and an undrawn revolving credit facility. Our operating model and WuWei Lien management tools give us the necessary financial flexibility to support our operations as well as our capital allocation priorities. Further, the backdrop of COVID-19 has highlighted the importance of the new global strategy we laid out at our Investors Day in September of 2019. It has not only confirmed but accelerated the implementation of our strategic priorities for 2020 and beyond, including the expansion of our digital capabilities, the diversification of our global payments network, and the opening of our cross-border platform to new use cases and partners. These fundamentals, paired with the careful and diligent approach We have taken to navigate the first phase of COVID-19 will allow us to keep supporting our customers and clients as the world responds to COVID-19. While the timing for the recovery from the pandemic and rebound of the global economy is currently uncertain, we stay focused on best positioning our company for success both during and after the COVID-19 world. Let me now take you through the pillars of our COVID-19 response. As an organization, our top priority during the crisis is the safety and well-being of all our stakeholders. So here is what are we doing. For our employees, we are supporting the safety, health, and financial security of our global talent with measures like expanded employee assistance programs, a work from home policy, and the technology infrastructure that enables our teams to perform at the same high level while operating under business continuity plans. For our customers, we are accelerating the rollout of digital services and introducing new solutions to help customers transfer money and make payments around the world. For example, we recently launched WesternUnion.com in additional countries, enabling our customers to send funds digitally to the world now from more than 75 countries. We introduced a digital location service in 10 countries that helps customers complete digital transactions through assistant voice and video calls. Additionally, we are expanding our payout service by working with agents to provide home delivery of money transfer in select countries where curfews are restricting the movement of our receivers. We also fast-tracked the expansion of our real-time payout capabilities. For decades, we have been paying out transactions in minutes in approximately 130 currencies within our vast global retail network. Over the last years, we have diversified our payout network to include more than 4 billion accounts and wallets in over 100 countries. Recent enhancements to our payout network now enable customers to send funds into bank accounts and wallets in 50 countries in minutes. Further, we are working with our global agent partners to create a safe retail environment by implementing social distancing measures and safety procedures designed to protect frontline associates and customers. While the large majority of our agent locations remain open as essential services, we offer a global agent locator tool updated multiple times a day to keep our customers informed about availability of our agent network. For the communities, to support communities around the world, Western Union and the Western Union Foundation have pledged significant funds in the fight against COVID-19, which will support domestic hunger relief efforts and global healthcare systems. To show our appreciation to frontline euros, this week we will launch fee discounts on our digital channels for first responders and essential service workers across the world. Lastly, and importantly, We also continue to strive at being stewards of shareholder capital. We put an increased focus on cost discipline, efficiency, and prioritization of investments. The careful management of our financial position ensures that we are prepared to meet current challenges and succeed in long term. Our capital allocation priorities remain unchanged. Besides continuing to invest in our operations and in growth initiatives, we plan to continue to return cash through quarterly dividends to our shareholders. Let me now move into recap of our first quarter performance. Our first quarter started out solid and through mid-March, our business performed well and in line with our objectives. In the second half of March, our transactions dipped significantly due to impact of COVID-19 global spread. In light of the observed performance trends and the rising uncertainty caused by COVID-19, we withdrew our 2020 financial outlook on March 27. First quarter revenues declined 1% on an adjusted constant currency basis, including healthy digital revenue growth of 22%. Our adjusted operating margin expanded to 20.5% and adjusted EPS grew 7% year-over-year to 44 cents. As uncertainty regarding COVID-19 remains high and global economic implications are starting to unfold, we are not reinstating a 2020 outlook at this time. On a positive note, in recent days, We are encouraged to see some indications that customers and transactions trends are stabilizing, even turning positive in few outbound markets like Germany and Switzerland. We are also seeing positive developments in some key receive markets where lockdowns policies are loosening. I would now like to discuss some perspective on the global market environment we currently operate in and the customer trends we observe. Early on, a number of industries that rely on migrant workers were hit hard by the economic impact of COVID-19. As a consequence, some workers have less capacity to send support back to their home countries. At the end of April, the World Bank issued a forecast projecting a 20% decline for global remittances in 2020. While we think this forecast is too pessimistic, We are expecting remittance volumes to be done this year. As we triangulate projections from various institutions, it is of utmost importance to keep our focus on the needs and sentiment of our customers. Despite the future economic outlook and respective employment uncertainty, we know through panels and surveys that our consumers still have a strong desire to continue sending money. Our consumers are highly motivated to support families and loved ones back home and are typically resilient in their efforts to do so. We witnessed an example of this during the global financial crisis. COVID-19 has also accelerated a shift in consumer behavior and led to increased use of digital channels. Customers tell us that it is important to them to use a trusted brand when switching to digital send options. We think this is a factor that our digital transaction performing so well. A combination of channel shifts by some existing consumers and strong new customer acquisition. Turning to our payments business, our business solution segment was less affected by COVID-19 in the first quarter due to strong foreign exchange hedging revenue. and some key payments verticals like financial institutions performing well. While COVID-19 will also impact our payments business in near term, Western Union's strong franchise should be a benefit as the industry navigates through this economic downturn. Over the long term, we believe our business solutions operations will continue to prosper. To summarize, COVID-19 is having a significant impact on our business. However, we expect this impact to be temporary. Western Union as well as our consumers are proactively making adjustments to manage through this period of disruption. At the same time, we are getting ready to capitalize on opportunities emerging from when we expect to become a phase of accelerated industry transformation. Based on the very early signs we see from a few countries in the later part of April, We expect to be well positioned to capture these opportunities. Our vision to be a leader in cross-border cross-currency movement and payment has been underlined by a strong fundamentals, including a trusted global brand with over 90% brand recognition, a robust digital cross-border money movement platform and expanding unmatched global payments network consisting of 550,000 retail locations and billions of bank accounts and mobile wallets to serve a base of 150 million global consumers and thousands of global businesses. Our resilient business model delivering solid profitability has proven vital once more in times of growth and even more in times of crisis. When the world emerged from COVID-19 crisis, we believe West Union will remain well positioned to compete in the large and fragmented cross-border payments and remittance market. While we are one of the largest players in the remittance market, estimated at $700 billion of annual principal, our share is still small and we see lots of opportunities to grow. We also see opportunities to grow our share within the cross-border payments market. I would now like to provide you with a brief strategy update. We continue to execute well against the new global strategy we laid out at our Investors Day in September, enhancing our global network, driving our digital growth, opening our platform to new use cases, and optimizing our organization. Built on the strength of our vast global retail network, we increased our breadth of our bank account payout network in the quarter, which now includes over 100 countries. We see evidence of these actions starting to pay off. In the first quarter of account payout, network transactions grew over 90%. As part of our network optimization initiatives, we continued to generate commission savings through a combination of renegotiations and channel mix shifts. Also, our goal to optimize our organization and increase margins with our WuWei productivity program is progressing well. On the growth initiatives, our consumer digital business grew first quarter revenue 22% on a constant currency basis, and we are seeing accelerating transaction growth in recent months. In fact, for the month of April, approximately 30% of our total C2C transactions were generated by digital channels. We are very pleased with this growth and we are currently evaluating a number of initiatives to further enhance our digital business during this time when more consumers and partners are seeking reliable, high-quality digital services from trusted brands like Western Union. Business Solutions is also further advancing on its digital journey. We currently see about one-third of our business clients digital self-serve their needs to our online platform Edge. In the first quarter, we reached a significant milestone of 1 million transactions on Edge with over 90% repeat payment transactions rate. So overall, we are pleased with our long-term strategic initiatives. And before I pass over the Raj, to discuss the financial results in detail, let me once again recognize and thank the millions of our customers around the globe who place their trust in our services, many of whom are the frontline heroes. They are nurses, grocery store workers, or ambulance drivers. While they put their lives at risk and support millions of people that shelter in place around the globe, at the same time, They are supporting their loved ones, often far away from them by sending money home. I'm confident as a global community and strong company we will get through this challenging time together. I remain excited about long-term prospects and would like to thank all our shareholders for their trust and the Western Union team for their hard work and commitment. With that, I'll turn the call over to Raj.