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spk09: Good day and welcome to the Western Union Company fourth quarter and full year 2020 earnings release conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star 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 limit your questions to one per analyst. Please note this event is being recorded. I would now like to turn the conference over to Brendan Metrano, Vice President of Investor Relations. Please go ahead.
spk10: Today's call, we will discuss the company's fourth quarter and full year 2020 results, our financial outlook for 2021, 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. On our call today is our CEO, Hikmit Ersek, our CFO, Raj Agrawal, and Head of Treasury and Investor Relations, Brad Windigler. 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 gap measures on our website, westernunion.com, under the investor relations section. We will also discuss certain adjusted metrics. The expenses that have been excluded from adjusted metrics are specific to certain initiatives but may be similar to the types of expenses that the company has previously incurred and can reasonably expect to incur in the future. All statements made by Western Union officers on this call are the property of the Western Union company and 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 Ersek.
spk06: Thank you, Brendan, and thank you all for joining us this afternoon to discuss our fourth quarter results and our outlook for 2021. 2020 was an unprecedented year that brought significant changes in the world as well as within Western Unions. We became a more agile, efficient, and digitally-focused organization thanks to the successful execution of the global strategy we announced in September of 2019. I am proud of how well Western Union faced the crisis, quickly adapted and created solutions to help our customers provide critical economic support to families and communities around the world. I would like to thank our customers, especially the millions of migrants, many of them frontline heroes for their dedication and generosity that has helped ease economic hardship and support resiliency of people in need. Moving on to an update for our business. We began 2020 with strong momentum from our September 2019 Investors Day, where we unveiled our new strategy designed to advance our position as a leading cross-border omnichannel payments platform. While we continue to stay focused on our long-term strategy, towards the end of the first quarter, the global pandemic hit and caused a historic drop in global economic activity in the second quarter. This coupled with widespread lockdowns reduced consumer food traffic and negatively impacted our retail business. At the same time, There was tremendous demand for digital services broadly that drove significant growth for our digital business. In the third quarter, the uncertainty lessened and economic activity improved, and we saw a strong rebound in our C2C business led by better retail trends and continued digital strength. The global economy continued to recover in the fourth quarter, and we finished the year with our business and strategic initiatives getting back on track. Our digital business once again achieved new quarterly highs for customers, transactions, principal, and revenue of $240 million. WestUnion.com continued to lead its peer group for app downloads, with more than two times any other peers. and we had 49% growth in average active monthly users. Retail money transfer maintained the improved trends we saw in the third quarter despite additional waves of COVID-19, and business solutions and other segment trends improved sequentially. Putting the pieces together, total company revenue, margin, and EPS were all in line or better than expectations in our revised full year 2020 outlook. From a strategic standpoint, we accomplished a lot in 2020. Our agenda was centered on two sets of priorities. The first, continue getting the organization fit to grow. The second, implementing growth initiatives. Starting with getting fit. We made significant strides with the organization in 2020, essentially completing the WuWei changes that are expected to drive $100 million in annual cost savings in 21. We also renegotiated more than 250 contracts with agents globally, putting us well on track to achieve the additional three-year $50 million savings target from commissions and third parties. So by the end of 2020, we had completed a large portion of the actions that drive the $150 million of annual savings by 2022. Getting fit isn't just getting leaner. It is also adding strength in areas that will improve our competitive position and growth. We continue to improve the coverage and quality of our network, adding almost 100 new agents globally with nearly 20,000 potential new locations. We reduce inefficient locations and renewed relationships with certain key agents for five or more years. We also increased our account payout capabilities to approximately 120 countries, including hitting our goal of 100 new real-time payouts. So our industry-leading cross-border network got even better in 2020. Another important way we strengthened our position was upgrading our technology capabilities. We brought on a number of tech professionals and made good progress migrating applications to the cloud, making us more agile and able to scale efficiently. These moves have enhanced our progress for key initiatives, including front-end applications like Woo.com and dynamic pricing, as well as back-end applications like currency settlement and data management. In summary, we finish 2020 as a leaner, and stronger organization well positioned to support our strategy in 2021. Shifting to implementing growth initiatives, 2020 exceeded our expectations for some key growth initiatives and accelerated the pace of our evolution as a global digital centric payments company. Our overall digital money transfer revenues, which includes Woo.com and our digital partnership business increased 38% to more than $850 million, up from over $600 million in 2019, and are expected to grow to around $1 billion in 2021. So the profile of our business changed a lot last year with digital channels accounting for 29% of transactions, and 20% of revenue for our C2C business, up from 16% and 14% respectively in 2019. Woo.com had an amazing year and grew annual active customers almost 30% to 8.6 million, benefiting from significant investment in customer acquisition. Customer growth remained highly incremental, with more than 80% net new to Western Union And we saw engagement improve with a 12% increase in transactions per customer and a 25% increase in principal per customer. Importantly, Woo.com is enabling us to develop a more direct and sticky relationship with customers closer to an account-based relationship. In the fourth quarter, over 80% of Woo.com customers accessed our services through a mobile device. Woo.com customers transact more frequently and have less attrition than retail customers, and those trends are even better for heavy Woo.com users. With the strong growth and improving engagement trends, we think Woo.com has potential to serve as the centerpiece of a cross-border consumer ecosystem in the future. In addition to our strong Woo.com results, our digital partnership business was another big success for us in 2020. Opening our cross-border platform to third parties was a major shift in our operating philosophy that will enable us to become a more diversified payments company, adding incremental customers and expanding our addressable market. We highlighted this initiative at our investors' day. It started to ramp up in the second half of 2019, but it really took off in 2020, driving significant revenue and profit growth. It is still early days and we are encouraged by our progress, adding new partners in 2020 and in early 2021 and working on a large set of prospects. An exciting opportunity that arose from our digital partnership business is our recently announced minority investment in STC Pay, a key digital partner. This first transfer of the transaction is planned to close this quarter and would make us a minority owner of what could someday be a high-growth fintech company within the Gulf states. Winding up this discussion on 2020, I am pleased with how well we manage the business and execute the key objectives under challenging circumstances. Looking forward to 2021, we remain focused on how we can create long-term value for our shareholders, balancing opportunities, risks, and options for allocating our capital and strong cashflow generation. Digging into our plan for the year, I'll start with the big picture. According to the prevailing economic forecast, the global economy appears to be on a path of recovery, especially in the second half of the year, although uncertainty remains higher than normal due to pandemic. The World Bank currently forecast a 7% decline in remittances for 2021, which is the same as their latest 2020 remittance forecast from October. You may recall that we grew cross-border principal 12% in 2020 and gained share. A great example of this was seen in Banco de Mexico fourth quarter remittance data. Similarly, we believe we will continue to grow principal and gain share this year. Importantly, we want not only to grow principal and gain share, but to continue to do this profitably. This gives us confidence that we will achieve the 2021 outlook, including mid single digit constant currency revenue growth. Raj will provide additional details on our outlook in a few minutes. Our 2021 business agenda builds on the progress of 2020, but with emphasis shifting more towards growth initiatives. Our multi-channel network is still the cornerstone of our competitive advantage today, so we will continue to focus on improving the coverage, quality, and cost. Digital is clearly a top priority, and we have had some big recent additions within the last weeks, including the digital wallet of Alipay in China, and another social media company in China, and a new partner in UEA. We will continue to seek additional partners with account-based relationships that can broaden our network, notably financial institutions, digital wallets, or telecom companies. Speed is an increasingly important factor for cross-border payment networks that we can leverage with potential digital partners and under-prenudated customer segments. So we will continue to expand our lead in real-time payouts beyond the 100-country goal we reached in 2020. Lastly, we will continue to optimize our retail agent network. In an increasingly digital world, we want to connect with a broader set of customers, and we may consider different relationships and classes of trade to do this. Fortunately, the scale and quality of SC Union's cross-border network and capabilities are a big draw for retailers, illustrated by our recently announced partnership in the U.S. with the world's largest retailer, Walmart. This is an addition to our existing partnership with Walmart in Canada and Mexico. We will continue to develop our market-leading consumer money transfer business, especially digital. We will continue investing in marketing and customer acquisition to expand our customer base and adding additional digital partners. Last but not least, To expand growth opportunities in 2021, we need to start developing new services and enhancing capabilities, which makes our product and platform functions important areas of focus. We'll continue to upgrade and modernize our technology infrastructure, enhance our product portfolio, and build the right team to execute our objectives for our C2C, B2C, C2B, and B2B business, basically a unique and agile cross-border platform for multi-customer segments. In closing, despite the unprecedented times, I am proud of all we accomplished in 2020. In 2021, we are celebrating our 170th anniversary. West Union has always been a landmark of innovation, hope, and connection for millions of people and businesses globally. And as I think about where our business stands today and our agenda for 2021, I am convinced we are again in the early stages of some compelling developments and success. As usual, a big thank you to our business partners, agents, and consumers all over the world for your trust and loyalty. Stay healthy. With that, I'll turn the call over to Raj.
spk12: Thank you, Hikmet, and good afternoon, everyone. My comments today will focus on fourth quarter results along with our financial outlook for 2021, including color on quarterly trends. Information for full year results can be found in our press release and the attached financial schedules. Moving to fourth quarter results, revenue of $1.3 billion declined 3% compared to the prior year period, while constant currency revenue declined 1%. Currency translation net of the impact from hedges reduced fourth quarter revenue by approximately $22 million compared to the prior year, primarily due to the depreciation of the Argentine peso. In the C2C segment, revenue was flat on both a reported and constant currency basis, with transaction growth largely offset by the impact of NICs. C2C transactions grew 6% for the quarter, led by 83% transaction growth in digital money transfers. partially offset by transaction declines and retail money transfer. Retail trends held steady in the fourth quarter despite a recent acceleration of COVID-19 infections and newly introduced U.S. regulations limiting our ability to operate in Cuba for the time being. We believe retail will continue to improve, but the path of recovery may not be linear given the ongoing economic and public policy effects of the pandemic. Total C2C cross-border principal increased 24% on a reported basis or 23% constant currency, driven by growth in digital money transfer. Principal per transaction, or PPT, was up 14% or 13% constant currency, led by retail and Woo.com. Multiple factors contributed to higher PPT that can be characterized broadly as changes in consumer behavior and business mix. The spread between C2C transaction and revenue growth in the quarter was 6% on both a reported and constant currency basis. Similar to last quarter, excluding the mixed impact from the significant ramp-up of our digital white label partnerships, transaction growth would have been modestly above revenue growth. As a reminder, digital white label partnerships carry a lower revenue per transaction, or RPT, than Western Union branded transactions due to our role as a processor. It is important to keep in mind that these partnerships are highly profitable and incremental to the company. We anticipate the gap between transactions and revenue growth will continue in 2021 as channel mix and customer acquisition strategies are evolving. Digital money transfer revenues, which include Woo.com and digital partnerships, increase 36% or 35% constant currency. and accounted for 21% of total C2C revenue and 32% of total C2C transactions in the quarter. The spread between transaction and revenue growth was due to our pricing strategy targeting customer acquisition for Woo.com and Nix driven by the digital white label partnerships, which have a lower RPT. As noted previously, we expected the year-over-year impact of pricing investments made in Woo.com during the fourth quarter would be pronounced due to comping against targeted price increases we took in Q4 2019. Woo.com revenue grew 27% or 26% constant currency, with cross-border revenue up approximately 38%. Transactions increased 56%, improving sequentially from Q3 and demonstrating the effectiveness of our customer acquisition strategy. We continue to see the pricing environment is broadly stable. As noted earlier, we continue to see strong transaction and revenue growth from our digital partnership businesses. Turning to the regional results, North America revenue declined 3% on both the reported and constant currency basis, with transactions down 1%. Declines in constant currency revenue and transactions were primarily due to the steady decrease in U.S. domestic money transfer which was less than 5% of total company revenue in the quarter, and newly introduced U.S. regulations limiting our ability to operate in Cuba for the time being. U.S. outlying continued to have solid growth in the quarter. Revenue in the Europe and CIS region increased 3% on a reported basis or was flat constant currency, on transaction growth of 23%. Constant currency revenues were positively impacted by growth in Germany, Russia, and France. The primary factor driving the spread between transaction growth and constant currency revenue growth was the digital white label business in Russia. Revenue in the Middle East, Africa, and South Asia region increased 1% on a reported basis or was flat constant currency, while transactions grew 12%. Qatar led the region with solid constant currency revenue growth in the quarter, while the UAE continued to experience softening trends due to the ongoing impacts from COVID-19. The spread between transaction growth and constant currency revenue growth was driven by the impact of the incremental digital white-label business in Saudi Arabia. This lessened somewhat sequentially because the prior year comp ramped up from the third quarter to the fourth quarter in 2019. The Latin America and Caribbean region continued to steadily recover from the lows in the second quarter, with continued sequential quarterly improvements. Revenue decreased 9% on a reported basis or increased 2% constant currency. Fund transaction declined to 13%. The region continued to face challenges relating to the ongoing impact of COVID-19. Revenue in the APAC region increased 8% on a reported basis or 6% constant currency. Constant currency revenue growth was led by strength in Australia. Transactions declined 3%, primarily driven by the Philippines' domestic business, which has limited impact on revenue. Business Solutions revenue improved from Q3 and decreased 8% on a reported basis or 11% constant currency and represented 7% of company revenues in the quarter. Revenue declines with the results of the ongoing impact of COVID-19 on certain verticals like travel and tourism, small and medium-sized enterprises, and education, while the overall declining cross-border trade impacts payment volumes. Other revenues represented 5% of total company revenues and declined 29% in the quarter. Other revenues primarily consist of retail bill payments in the US and Argentina as well as money orders. The revenue decline was due to the ongoing impact of COVID-19 and the depreciation of the Argentine peso. Turning to margins and profitability, I will focus on consolidated margins as segment margins are not comparable with the prior year period due to expense allocation changes implemented in the first quarter of 2020. Consolidated gap operating margin was 17.9% in the quarter compared to 17.3% in the prior year period. The increase was primarily attributable to productivity savings, additional cost savings, and the timing of marketing investments compared to the last year, partially offset by declines in revenue. completed the restructuring program in the fourth quarter, incurring approximately $150 million in restructuring expenses over the course of the multi-year program and $12 million of restructuring expenses in the fourth quarter. The productivity program generated over $50 million in annual restructuring savings in 2020, and we expect to achieve the full $100 million in annual restructuring savings this year. In total, We continue to expect to generate approximately $150 million in annual cost savings by 2022, comprised of $100 million of restructuring savings and an additional $50 million from commissions and third-party spending. Adjusted operating margin in the fourth quarter was 18.8% compared to 18.7% in the prior year period, with expansion driven by the same factors stated previously and adjusted for restructuring and M&A costs. Note that in our business solutions segment, we incurred a one-time facility closure cost that remained in our adjusted results since it was not part of our initial restructuring program. This one-time cost impacted segment margin by around 1,000 basis points in the fourth quarter. Foreign exchange hedges had a negative impact of $4 million in the current quarter and a benefit of $7 million in the prior year period. The gap effective tax rate in the quarter was 11% compared to 31.4% in the prior year period, and the adjusted tax rate was 11.6% in the quarter compared to 24.5% in the prior year period. The decreases in the company's gap and adjusted effective tax rates were primarily due to higher prior period domestic pre-tax income associated with the sales of speed pay and pay map businesses, prior period one-time settlements in certain geographies, and discrete tax benefits in the current period. Gap earnings per share in the quarter was $0.43 compared to $0.32 in the prior year period. An increase in EPS was driven by a lower effective tax rate, productivity and cost savings, and lower share counts, partially offset by revenue declines. Adjusted earnings per share in the quarter was $0.45 compared to $0.38 in the prior year period, with an increase due to the factors stated previously and adjusted for restructuring and M&A costs. Turning to our cash flow and balance sheet, year-to-date cash flow from operating activities was $878 million. Capital expenditures in the quarter were approximately $51 million. At the end of the quarter, we had cash $1.4 billion and debt of $3.1 billion. In addition, we have an undrawn $1.5 billion revolving credit facility and no significant debt maturities until 2022. Our financial position continues to be among the strongest within our payments peer group. We returned $93 million in dividends to shareholders in the fourth quarter and had no share repurchases. Furthermore, we announced today that we increased the quarterly dividend by 4% and that we have resumed share repurchases this quarter. The outstanding share count at quarter end was 411 million shares and we had $783 million remaining under our share repurchase authorization, which expires in December 2021. Turning to our financial outlook for 2021. First, please note that our outlook assumes that there will be no material worsening in the COVID-19 pandemic. Also, consistent with the prevailing economic forecast, we believe the macroeconomic environment may begin to improve in the later part of this year as vaccines are more widely distributed. We expect gap revenues for the full year to be up mid to high single digits. On a constant currency basis, which excludes the impact of Argentine inflation, we expect revenues to be up mid-single digits. Operating margin is expected to be approximately 21.5%, benefiting from revenue growth and the remainder of the $100 million of annual restructuring savings we will realize this year. We expect an effective tax rate in the mid-teens range for 2021, and we expect to return a significant portion of our cash flow to shareholders through dividends, and share repurchases. EPS for the year is expected to be in a range of $2 to $2.10. While we expect solid full-year results, we anticipate quarterly variability in growth rates as we cycle through the impact that COVID-19 had on the business last year. So, I will provide some thoughts regarding the potential quarterly cadence for 2021. The first quarter of 2021 will be the softest from a year-over-year growth perspective The total company constant currency revenue growth may be in a similar range to the fourth quarter of 2020. Note that retail has not fully rebounded to pre-COVID levels. The second quarter of 2020 experienced the most significant declines of the year. Accordingly, the second quarter of 2021 should see the strongest year-over-year growth. The third and fourth quarter of 2020 had similar year-over-year growth trends, so looking at the back half of 2021, REIT spec trends will be generally stable. We expect business solutions trends will continue to be soft in the first quarter, but they should improve progressively over the remainder of the year with an expected recovery in broader cross-border trade. To recap, last year we delivered our adjusted full-year financial outlook and continued to make good progress on key strategic initiatives while maintaining our strong financial position during a period of profound disruption. As you heard from Hikmet, we have a full agenda this year that should position us well for the future. The strong 2021 financial outlook we issued today demonstrates confidence in our ability to execute against the initiatives we've outlined for the year, along with our expectation that the business should continue to rebound from the disruption caused by COVID-19 in 2020. Thank you for joining our call today, and operator, we are now ready to take questions.
spk09: We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. To give as many as possible a chance to ask, please limit your question to one per analyst. At this time, we will pause momentarily to assemble our roster. The first question comes from Tianxin Huang of J.P. Morgan. Please go ahead.
spk01: Hello, everyone. Happy to speak to you all. My daughter has her piano. Hey, guys, my daughter has her piano lesson going on, so forgive the music. The guidance was, I thought, encouraging. I know you've given the long-term outlook of 2% to 3% revenue growth at your investor day, but maybe... Would you mind unpacking your general assumptions on the relative performance between digital and traditional retail? Could we see some of those growth trends maybe converge? I'm just directionally curious what you're anticipating there, and I don't know if maybe some of these Asian additions like Walmart are also going to contribute in a meaningful way as well. Thanks. Thanks.
spk06: Hey, let me start here. Nice to hear your good questions. Obviously, we are very pleased with our performance and the recovery of the business, especially also our digital business growth has been exceptional. So we are very pleased on that. And that's going to continue to happen, right? We do see no reason that's going to not happen. And, you know, especially with the economy recovery in the later part of the year, I think that I'll, you know, we are convinced about our guidance and we are really happy how the customers are really sticking to us. And also looks like we are gaining really market share. Our people choosing us, Western Union, they trust us. and we are gaining market share. And then also the digital customer acquisition continue to happen. And we know that most, 80% of the customers are new, for the new customer, new to vestigium.com. So this is also huge. And once customers stay with us, they stay longer, they do more transactions, they use us more often. And so generally I would say that it's great. I'm also very excited about the Waldmer edition Walmart will definitely give us additional customers and, you know, in our retail business. By the way, the retail business is also recovering very well. And, you know, the lockdowns are getting less worldwide as the vaccines are really spreading. I see really good prospects. So saying that, though, you know, you never know. We don't think that... wave three or wave four or wave five won't happen. We hope all get vaccines, so it will help to all of us to grow this business and, you know, generally also for the industry. Raj, you want to add something?
spk12: I can just give you a little bit of color on the trends. You know, retail, we do expect the retail part of the business to grow this year, but it is going to be volatile. Q1, it's going to follow sort of the company path that I laid out. So Q1 is going to be the softest. Q2, because we had the lowest Q2 last year, will be probably the highest and then much more stable in the third and fourth quarter, but it should get growth for the full year. And then digital, you know, the Q2, 3, and 4 last year were very high growth for digital, so we're going to see the grow over impact of that. Q1 is likely to be the highest quarter there, and then we'll get some normalization after that. And then the B2B business is probably going to have a softer first quarter like the rest of the company and then improve as the economic conditions improve the rest of the year. So I don't see those pieces converging as you had asked, but they're certainly, you know, they're more normalizing versus what they did last year.
spk01: Terrific. Thank you both.
spk09: Thanks. The next question comes from Jason Kupferberg of Bank of America. Please go ahead.
spk02: Thanks, guys. Good afternoon. I wanted to ask about the spread between C2C revenue growth and transaction growth. I know you were at 6% in Q4. I think that was steady versus Q3, but I thought you would actually expect that it to widen a little bit in Q4. So if that was the case, I'm just curious where there may have been a little bit of a upside surprise, if you will, and then how should we be thinking directionally about that spread in 2021? Should it narrow versus this six-point gap we're currently observing, or do you expect it to stay at similar levels? Thanks.
spk12: Sure. Hey, Jason. It's Raj. Yeah, the fourth quarter was about the same as in Q3. I would say generally overall trends were similar. You know, retail was relatively stable between the two quarters. And then digital, we did start to see some of the grow over impact of digital both in Woo.com from the higher pricing from a year earlier and then digital white label as we had expected. And then we also got the benefit of some positive mix in other parts of the business, and that's why the spread ended up being similar. As we look at this year, we think there's going to continue to be a spread, but our focus really – has shifted Jason to really the top line growth. And that's why we're really happy that we could give a mid single digit consistency top line outlook and with the margin expansion, because there's so many moving pieces. It's a very complex exercise to try to boil it down to just a revenue and transactional spread because you have a white label business, you have Woo.com that's branded, you have retail, you have the geography is playing a part. So really focused on the top line growth outlook that we've given. And that's really what's our ultimate objective. And then, obviously, the margin expansion is also a big part of that.
spk06: Yeah, I just want to, you know, just general Jason, great question. But in our business model, nothing has changed, right? I mean, you know, we are going to continue to invest to get more customers, and that's going to continue. And we are very much focused on revenue growth and profit growth. I call that profitable growth. And that's also, you could see, also next year, the margin expansion is 21.5%. It's important. So it's really good results. And I like that, you know, how we acquire customers, how we go the revenue and the profit.
spk12: Yeah. And the last thing just to add to that one is that, you know, we said it, I think, on the call, but digital revenues were 20% of consumer revenues last year. And that's up 600 basis points from the year earlier. And we obviously expanded margins last year. And we're going to do that again this year. So two years in a row of expanding margins. while the digital business continues to track towards a billion dollars this year.
spk06: Right.
spk12: Okay. Good stuff. Thank you, guys.
spk06: Thanks, Jason.
spk09: The next question comes from Darren Heller of Wolf Research. Please go ahead.
spk03: Hey, Darren. Hey, guys. Hey, hey. Hey. Listen, I wanted to tone in on the WesternUnion.com monthly active customer growth, which I think was 49%, again, which compared to around 45% last couple of quarters. So clearly it's doing well. And I'd be curious to hear if you guys can give a little more color on what you think is the driving force, you know, in terms of that improvement in active users. What do you actually define as an active user, first of all, would be helpful. And then when we think about what that could mean for your business model when you have these active users, digital users that are more engaged in terms of, you know, strategic opportunities, well, you know, even above and beyond what you're doing now. I'd love to hear more thoughts on that, too.
spk06: Let me start strategically where we are going there and on that. Maybe, Raj, you can add more color on that later. I think, you know, I call it West Union's consumer ecosystem. WestUnion.com is an ideal platform to acquire customers and making them more sticky. And we know that the customers who are using Western Union, they are staying longer, they are stickier, and their use are more open. So that's a great acquisition opportunity to have a long-term opportunity here. Within the ecosystem, today we are using, the customers are using us for sending money, paying bills. But also, as we create this ecosystem, and we have about 8.6 million customers at Western Union, and these customers are coming from 75 different countries globally. It's a unique platform from multicultural, unique platform globally to really add additional services in long-term and could be, you know, banking services, financial services, or other services to build that ecosystem. So I'm very excited about that long-term strategy. Your question regarding the numbers, maybe, Raj, you can help me out here.
spk12: Yeah, yeah. Darren, how we define it is these are the uniquely active customers that in a month. And so it's sort of the average for the quarter, uh, that we're giving you. So 49% growth there. And the, the great thing is that this is really a sticky business, you know, because these customers have created an account relationship with us. And that's really where they became a repeat customer. They do more transactions. Um, you know, these are, um, you know, so these, these are good customers to have. And that's really been the strategy this year is to, continue to drive more customer growth because that will be the lifeblood of Woo.com over the next few years.
spk03: Okay. And so that active user group kind of metrics should be sustainable in your minds. I know I'm trying just to keep it in the same question. Thanks guys.
spk06: Oh yeah. Oh yeah.
spk03: Yeah.
spk12: I think, yeah, I think the, you know, just like the digital business is going to grow over and it's going to sort of second, third and fourth quarter, it's going to normalize more. We would probably see the same, things happen on the customer metric just because of the impact from last year. But the absolute numbers are going to continue to increase this year quite well. Great.
spk06: All right.
spk03: Thanks, guys.
spk06: And, you know, one other thing there, and also we do see at the vaccine.com also a little bit different customer segment, especially during the pandemic. Let me give you one example. People currently, you know, within the European Union or within Europe or within U.S. even can't travel, right? They used to use their MasterCard or Visa's going to, you know, flying and using their carts and picking up at the received country at the ATM the money and distributing within the families. Now they have chosen us because it's easier to send, and, you know, we really target that kind of customer. We do see additional to our existing customer segment, really new customer segment, and our marketing programs and our product program promotions are really packaged around that. So that's an exciting news.
spk03: Okay. That makes sense. Thanks, guys.
spk06: Sure.
spk09: The next question comes from Raina Kumar of Evercore. Please go ahead.
spk05: Good evening. Thanks for taking my question. Hi. So you make some very strong headway with white label partnerships in 2020. Can you talk a little bit about how your 2021 pipeline could look with new partnerships? And then I'll ask my second question up front. It's really nice to see the dividend increase plus return to share buyback. How aggressive could you potentially be with the buyback at current prices?
spk06: Well, let me say on the white label, Raina, I'll start with you. Hi, Raina. How are you? Let me start with the white label. I think that, you know, we have really a great success in 2020. We announced in 2019, late 2019, about our white label and started really, it's just the beginning of a new era of how we offer our platform to the third parties. As you know, the banks are currently sending money, you know, bank-to-bank transactions, account-to-account transactions, using SWIFT and other cross-border banking. It's a model, but it's painful, right? I mean, you know, the payments industries have a struggle there. So it's really some banks are choosing, especially when it comes to the exotic currency, are choosing us to replace their existing platform. That's why label is huge for us. It's a big opportunity for the future. And we did sign some banks. You know, we're going to announce also bigger ones when we have them. It takes some time, as you know, to implement our system in their system. And I'm very optimistic that we're going to grow this white label partnership also in the future.
spk12: And just on the capital return, we're also very happy that we could raise the dividend today by 4% or so. I think it's a significant use of our cash flow. In terms of our priorities, we continue to invest in the business to drive organic growth and expansion. Dividends is a significant use of our cash flow. It'll be almost $400 million today. this year. And then we're also looking for the right kind of acquisition opportunity that fits within the cross-border payment space. And then lastly, we're buying back stock. So I would just say, Raina, that to the extent there's not a material type of acquisition, we would expect to buy more stock than we did last year. As you know, we paused the stock buyback for three quarters of the year, but I expect that we'll be more active this year.
spk05: Perfect. Thank you.
spk09: Perfect. The next question comes from Jeff Cantwell of Guggenheim Securities. Please go ahead.
spk11: Hey, good afternoon. Thanks for taking my question. Nice results and hope you're all doing well. Yeah, thanks, Jeff. Thanks for all the detail in your prepared remarks and this presentation, which I'm increasingly enjoying. There's some great color in there. So the guidance for mid-single digit revenue growth sounds good. And underneath that, I thought slide six and eight drove home how your strategy in digital is working. And I just want to ask you to focus on your digital business. Can you talk some more about the pieces that we need to consider there this year? This is kind of on the back of Darren's question. I guess on the one hand, you're looking at some tough cops because of how many transactions migrated to digital during the pandemic last year. But then on the other hand, you know, we see your app downloads look really strong, right? So you're still getting the Alliance-shared app downloads, and that's been persisting since the pandemic. And Woo.com monthly active has now increased by 49% year-over-year. And so I think those are some data points that speak to the fact that you have some real strength on the digital side. And I think those are some nice leading indicators that you might potentially have a fairly positive outlook for digital this year. So could you just help us understand how we should be thinking about transaction growth and revenue growth in digital for this year, 2021? Thanks very much.
spk06: Thanks, Jeff. First of all, thank you for the compliments for the presentations. I'll give that to my team. They use nice PowerPoint presentations, but it's all about the results. I have to give compliments to my team, how they are executing, especially in digital. Great question. Look, we are very satisfied with our digital. We are going to achieve approximately $1 billion this year. It's a big number, and we are very pleased about that. If you look at our digital business, you have to see it from two parts. One is the Western Union business, WesternUnion.com business, which we are kind of an agent. We have direct access to the customers. And the other part is the white label where banks or financial institutions or business use our platform to move money cross-border for their digital customers. And both are having a big prospect opportunity. On the VOT.com business, we're going to continue to invest in the marketing. We're going to continue to invest on the customer acquisition, consumer acquisition, and the stickiness. That's a business model for the future, having that within our ecosystem, building that is a big opportunity. On the white label of digital business, digital third-party business, it's really the expanding, offering our platform to the banks and our salespeople are on the road as we talk. And we signed also some banks late 20 and early 21. I'm very excited about that. And so that's going to grow on that part. So I'm, you know, billion revenue target is something nice, which, you know, motivates all of us. And it's a great, great opportunity.
spk12: Yeah, I think, Jeff, that should give you a sense with Bart. You know, we did say that we expect the digital business to get to be approximately a billion dollars in revenue this year. And it ended at just over 850 last year. So that gives you a sense of the revenue growth. I do expect that transactions are going to be above that level of growth, just given the mix of business that we have. And digital white label partners, just to ground you again, last year it was largely a new business. So that's why the digital white label showed such extreme growth. So you can't really look at it as a new business anymore. Woo.com is going to be probably more stable year over year. from a transaction standpoint, you know, also growing over a little bit, but not as much as the digital white label. So I think just think of it that way. And so the data points we gave you are going to help you get to what we're thinking about, you know, from an overall revenue standpoint at least.
spk11: Okay, great. Thanks for all the color and congrats on the results.
spk09: Thank you. The next question comes from James Fawcett of Morgan Stanley. Please go ahead.
spk07: Thank you very much, and thanks for all the color and detail on both the results and how you're looking at 21. Just a quick clarifying question, and then I guess my real question, and the first is on the clarification, you talked about picking up the pace of buybacks in 21. How much is assumed in your EPS outlook? And then as far as a little more color on what you're seeing from a a behavior standpoint, any nuance or details you can give us in terms of you attracted a lot of new customers and a lot of customers outside of traditional demographics, especially during the pandemic. Anything you can share in terms of like how their repeat business or retention has looked like during the course of the rest of 20? And then what are you seeing in terms of impact from things like stimulus, etc.? ? coming on and fading off, et cetera. Just trying to understand a little bit the behavior of a lot of these new customers you added during the course of 20.
spk12: Yeah, let me start. And then Hikma, feel free to jump in wherever makes sense. On the share buyback, you know, last year, I'll just point you to what we bought in the first quarter. It was only, it was about $217 million for the full year. And that was all in the first quarter. The previous year in 2019, we were, you know, above the $500 million mark. I would just say that, you know, it's not going to be as high as 500. It's not going to be as low as 200. It's probably going to be somewhere in the middle of that range. And again, it depends on the other capital priorities, James, but that's roughly, you know, what we're thinking about and more than the amount of the timing of repurchase is also going to be important. So that's, that's what we're thinking there. And then I think we gave some metrics in terms of what we're seeing from a you know, retention standpoint, or at least, you know, I think we're getting 12% more transactions per customer in the dot-com business. We also increased the number of customers by about 30%. And then the principal per customer is also up, I believe, around 25%, we said, in the quarter in the dot-com business. And then, James, I'm sorry, I forgot your third question. It was the third question, I think.
spk07: Yeah. Yeah, just in terms of like what impact stimulus may be having on different aspects.
spk06: Yeah, let me try this one, James. Good question. I think stimulus programs do benefit our business, but it's hard to quantify. We don't think they have been significant so far to our business. Maybe, you know, the U.S. stimulus package was end of Q4, so it may have an impact in Q6. in Q1 2021 but in general I would say that the business recovery of the business really has to do with economical turnaround in different countries just a reminder as you know most of our business is out of the US and so distributed within the countries that you know as countries open or close have a positive impact to our business but we believe that as the global economy is performing and the lockdowns are getting less and the Vaccines are spread. Australia, New Zealand is a good example. Japan, Singapore is a great example. I think these are all we can see the first recovery. And as the U.S., in the U.S., millions of people get vaccine, that will also help our business. And then, you know, the people are choosing in the, really in the hard times, do choose us. They trust us. And they really, you know, use us and we believe they're going to continue to do so.
spk07: That's great. That's great. Thanks a lot. Thanks, Chris.
spk09: The next question comes from Ashwin Srigakar of Citi. Please go ahead.
spk06: Hi, Ashwin. Ashwin, we can't hear you. Ashwin, sorry, I can't hear you. Raj, can you hear Ashwin?
spk12: No, no, actually, we're not able to hear you if you're saying something. So maybe we'll go to the next question and maybe, Ashwin, you can come back again.
spk09: Just one moment. The next question comes from Brian Keane of Deutsche Bank. Please go ahead. Hey, Brian.
spk04: Hey, guys. How are you doing?
spk06: Good. How are you, Brian?
spk04: Good, good. Hanging in there. I want to talk a little bit about the pricing initiatives in Woo.com. It looks like successfully I'm seeing transaction growth continue to increase. I think it was up at 56%. Can you talk about what kind of pricing initiatives you'll do in Woo.com in 2021? And is there other places where it makes sense to maybe make some changes in price to maybe drive a faster transaction rate even in the retail business? Thanks.
spk06: Yeah, I think, you know, pricing, our pricing philosophy, Brian, generally has not changed. What has changed, though, we are more efficient on pricing with our dynamic pricing. And, you know, we get customers more and more on .com, and we know the customer behavior better. We use the artificial intelligence. We use the consumer dynamic pricing. That makes us, the customers, also very sticky. So generally, I would say that our pricing... has not changed. We are really focused on customer acquisition, especially in .com. But one thing is important, Brian, I always say that profitable growth, right? I mean, we are focused on the return. We are focused on profitable growth. So it may vary from quarter to quarter. It may really vary on the promotions we do with dynamic pricing. As you know, there are so many corridors. We are active in so many countries with so many currencies. And that's what we really, the different brands, we do that. In the past, we were doing more dynamic pricing on a corridor basis. We changed that in the swishing.com. We started to do dynamic pricing based on a consumer relationship, customer relationship. That makes the customer more stickier and our upgrade on our systems, upgrade on our platform had helped a lot of that. We also have our own department with data management companies And that helps a lot. And, you know, Khalid and Jay, who runs this .com business, is doing a great job. So on that, Raj, do you want to add something? Yeah, just a couple words.
spk12: I'll say, Brian, that, you know, we were quite active last year in driving for the customer acquisition, and maybe we have a little bit more to do this year. But a lot of what you'll see in the numbers will be more of the carryover impacts of the pricing strategies from last year. If you actually look at the yield, just comparing the yield between Q3 and Q4 for .com, they were quite similar. In fact, in our entire business, they were quite similar. So not a big change from quarter to quarter. Year over year, you can see it more, but from quarter to quarter, not much of a change. And I think you'll see more of that stability probably this year in terms of yield. A little bit more to do, but a lot of it was last year.
spk04: Yeah, you can really see the solid growth in digital, so congrats on that, guys. Thanks.
spk06: Thanks, Brian.
spk09: The next question comes from Andrew Jeffrey of Truist Securities. Please go ahead.
spk13: Hi, appreciate you taking the question. Lots of good information back and forth here. You know, my question is really high level, and I'm just trying to wrap my head around this dynamic and Maybe it's a simple answer. I'm looking at slide 11 with C2C transactions up 6% the last couple quarters and cross-border principal up north of 20. And I'm also thinking about a competitor's results this morning where revenue grew significantly faster than transactions. And I'm just trying to think about what has to happen at the margin given the really good volume growth for revenue growth to accelerate. I know you said retail is going to be up, Raj, this year, and maybe that's part of the answer, but I mean, is it mix? Is it price? Is there something else? I'm just trying to distill it down to its most basic components.
spk12: Yeah, I do think you're going to start to see the benefits of some of the groundwork we've been laying over the last year or so. Last year, Andrew, we had so many customers looking for ways of sending money, and we wanted to really back up the truck and take those customers in and engage them in our digital business. And that's really going to start to show up here. We're going to get a lot of revenue growth from digital. Our retail business is going to rebound, so that's going to be a piece of it. And that's why we were able to give the outlook I would just say that not only did we grow our digital business a lot last year, but we also grew margins. So this year we're really happy that we can actually drive revenue growth, which is ultimately our goal, and that's in the mid-single-digit range. We're also going to drive margins. We're taking the digital business up to about a billion dollars inside. So I do think that we're going to start to see more traction from a revenue standpoint now that we've sort of laid the groundwork from last year.
spk06: Yeah, I will just add also, Andrew, on that, you know, you mentioned competitive, but if you look at our base, $860 million, $850 million this year, and growing to a billion dollars, it's a good achievement, I believe. It's really very strong growth from this base. And, you know, we want to really achieve our approximate billion-dollar revenue this year. And that's also the downloads of apps has been huge. on the Western Union apps, on the mobile apps. You know, it's two times, I believe, bigger than the next competitor. And, you know, so we are pleased with the growth rates, and we are really targeting the billion-dollar. Hopefully, we can celebrate as early as possible.
spk13: Thank you. I appreciate it. Sure.
spk09: The next question comes from Timothy Chiodo of Credit Suisse. Please go ahead.
spk08: Great. Thanks a lot for taking my question. I just want to dig into the margin guidance a little bit. So operating margins this year came in at about 20.8% guided to 21.5 next year. So about 70 basis points of margin expansion. Maybe you could just break down some of the components. I know there's more cost saves on the come, but perhaps there's some more investment behind CAC and digital. Maybe some of the maybe temporary cost savings from this year might come into the model. Maybe just break down the components to bridge us or the walk to the 70 basis points of expansion.
spk12: Yeah, sure. Nice to speak with you, Tim. You know, revenue growth is a key driver of the margin expansion, so that really gives us the big start here. And you're right, we are targeting about $100 million of total savings this year, and that's including the more than $50 million or so that we got last year, so there's an incremental increase amount that will help us on the margin side. We're also investing in the business. Some of it is just catch up spending from last year, but we are investing in our technology platforms. We're going to have a new settlement system this year. We're moving applications to the cloud. We're upgrading our dynamic pricing capabilities. We're also going to spend a little bit more on the marketing side. So all of these things combined sort of give us this additional 70 basis points of expansion. And we're really happy to get now two years in a row of margin expansion. We haven't had that for a while. Last year, that was even in the face of a down revenue environment. This year, not only is the revenue going up, but we're also driving margin expansion. And I really do believe that, you know, and, you know, the other thing is that we're going to get an additional $50 million of savings next year. So That's part of our original roadmap, getting us to the $150 million of run rate savings. So there's more margin potential in the business, and we're really getting back on the right track with this year's outlook.
spk06: And returning significant cash back to the shareholders, adding on that, besides performing well in our business and giving guidance, returning also cash back to the shareholders, increasing the dividend and sharing purchases.
spk08: Excellent. Thank you for that context. That's all very, very helpful. The minor, minor follow-up is, and I apologize if you mentioned this and I missed it, but did you quantify any of the CUBA impacts at all, either for the quarter or for the guide? I'm sure it's small, but if you mentioned that.
spk12: Yeah, CUBA, we're obviously working to see what we can do to relaunch it. But yeah, right now it's closed. It's about 1% of our revenues, CUBA is typically. So that's, you know, so it's not the biggest impact, but it is about 1% of our revenues.
spk08: Okay. So I think you were about to anticipate my question. Go ahead.
spk12: Yeah, we've anticipated some of that in our outlook. So, you know, we already knew that it sort of shut down in mid-November or late November.
spk08: Perfect. Thank you so much for taking the questions.
spk09: And the last question will be from Bob Napoli of William Blair. Please go ahead.
spk02: Thank you for getting me in there. I appreciate it. Good afternoon, everybody. How are you? Great. The question, and maybe just digging in again to the digital business and kind of the long-term outlook and understanding it's getting close to a billion dollars in revenue. But as you look out over the next three to five years, and I mean, I realize your active customers are up 49% with revenue guided up 20. And I think that's something that's the white label. But what is the right growth rate? And is this accretive to margins over the long term? And what's the right growth for this business over the next three to five years? Where are the biggest opportunities geographically? What's going to sustain the growth of that business?
spk06: You know, 2020 was definitely an exceptional year. We had a very strong year. But, you know, we are only the beginning of the real growth here of the digital. I really believe that our future is the digital send transactions. That's going to happen, and that's going to continue to grow. Is it via WestUnion.com or via digital third parties? I'm really excited about that. And, you know, I think that especially also having customers acquisition in our system in our WestUnion.com consumer acquisition. We are only, or a lot, 8.6 million customers already yet. And that opens up a huge opportunity to expand our customer acquisition globally. And that's something that I'm excited about, that you could do more activities besides money transfer with 8.6 million customers. You can really have them stick here. You can offer additional products with WestUnion.com. look, you know, example like Sperbank. Sperbank is a great partner and they really say that, okay, we have, you know, we would like to choose you to send money to all the stance countries. Can you drop the money for us? And can you do the settlement? Can you do the, payouts, can you do the network activities, can you do the settlement activities, compliance activities for us, and that's what we are doing. And we are doing it in an efficient way that white-label partners are choosing. HTC Pay is another example, Saudi Arabia Telecom Pay. We even found the opportunity to invest there, and we believe that when they expand their activities in the Gulf states, in other countries, that gives us also additional transaction and capabilities and also customer acquisition. So I am excited about that. And Raj, you want to add something?
spk12: Just on the margin question you had, Bob, as we said in the last quarter, it's absolutely margin accretive. A lot of the digital business is incremental to us, first of all. And then it has a very high margin profile, regardless of whether it's Woo.com or Digital White Label. And, you know, because you've seen, and I think I said it earlier, but the digital business has grown. Now this year it will be about a billion dollars, and we've continued to expand margins over this period. So I think that really is the case in point about the profit profile of the digital business.
spk02: Thank you. Thank you. Raj, I thought I heard you or Hikman, just to clear, I mean, did you say as far as capital return that you're focused on looking for an acquisition in cross-border payments? And if so, if I heard that right, I wonder if you could give any more color on that.
spk12: Oh, yeah, I was trying to make a generic comment that that's a top priority for us. So we, you know, in terms of our capital priorities, it's really investing in the business, Then we use about almost $400 million for the dividend return. The next thing that we're always looking at is the right kind of acquisition opportunity in the cross-border payment space. And then we return our excess cash through stock buyback. So that's the order that we think through cash usage. But we're always looking for the right kind of acquisition, either capability or technology of some sort to advance us a couple of years from what we're doing on our roadmap. Thank you. Appreciate it.
spk02: Sure.
spk09: This concludes our question and answer session. I would like to turn the conference back over to Brendan Metrano for any closing remarks.
spk10: Yep. Thank you, Andrew. And thank you all for dialing in to the call today. And we appreciate your interest in the Western Union Company.
spk09: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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