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spk11: Good day and welcome to the Western Union Company's second quarter 2021 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 followed by 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 today's event is being recorded. I would now like to turn the conference over to Brad Winbigler, Head of Treasury and Investment Relations. Please go ahead.
spk04: Thank you. On today's call, we will discuss the company's second quarter 2021 results and our financial outlook for 2021, and then we will take your questions. The slides for the company of this call and webcast can be found at westernunion.com under the Investment 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, Hikmet Ersek, and our CFO, Raj Agarwal. 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 2020 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 in 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 Ms. Flang's 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.
spk09: Thank you, Brett, and thank you all for joining us this afternoon to review our second quarter results and the progress of our business. Our second quarter performance was strong, and we are on track to achieve our adjusted 2021 financial outlook with revenue growth reflecting sequential improvements in underlining trends and a favorable comparison to the prior year period which was impacted by COVID-19 pandemic. Profit trended as expected in the quarter as we continue to make strategic technology investment to strengthen our market leading platform and digital capabilities. Our business remained resilient despite global uncertainties related to ongoing COVID-19 resurgences from the Delta variant and the potential risk it poses to economic recovery. Our strategy to be a leader in cross-border, cross-currency money movement and payment serving consumers, businesses, and financial institutions remains unchanged. We remain confident in our ability to exceed $1 billion of digital revenue in 2021, supported by continuous strong growth in our Woo.com business and our digital partnership business. The expansion of our Woo.com customer base position as well, as we look to build a consumer ecosystem, deepening engagement with our customers and providing them access to a wider array of products and services. We will discuss more on our consumer ecosystem strategy in just a moment. But first, I'd like to highlight another important strategic development, which is the business solutions transaction we announced today. Today, we separately announced that we reached a definitive agreement to sell our business solution business to Goldfinch Partners and to Baofeng Group for $910 million. Small and medium-sized businesses and organizations around the world rely on Western Business Solutions as their global payments for an exchange and hedging partner. and we believe that Goldfish Partners and the Baupost Group are well positioned to invest in the business to deliver good value and innovation to these clients. With the planned sale of West Union Business Solutions, which was approximately 7% of total company revenue during the last 12 months, ended June 30th, 2021, now we will be fully focused on increasing our penetration of the global cross-border consumer payments market expanding our digital partnership business, and increasing our total addressable market to our Western Union branded ecosystem strategy. The company will benefit by having a single global payments platform capable of serving multiple use cases and customer segments, including fintech companies like Google Pay, telecom companies like STC Pay, and banks and other financial institutions like Spare. This requires a modern, adaptable platform that provides a strong user experience for our customers, agents, and partners. And we are well on our way in this regard, with significant recent progress in our cloud migration, pricing, automated marketing, and customer support built on a foundation of advanced machine learning and omnichannel engagement. These developments enable us to be more efficient, but most importantly, improve the customer experience and identify incremental revenue opportunities. Continuing technology investment in our unique global platform remains a key area of focus for us. We also remain focused on enhancing our market-leading network by improving our coverage, cost and quality. On a year-to-day basis, our new agent signings will expand our network by approximately 18,000 retail locations. We have also renegotiated contracts with over 50 agents year-to-date reflecting our commitment to optimize commissions. Finally, we continue to enhance our global account payout capabilities, which is now available in over 125 countries with real-time capabilities in approximately 100 countries. Over 60% of our global account payout transaction volume was delivered real-time. Turning back to our consumer ecosystem strategy, We are excited about our plan to pilot to our West Union International Bank a Wu-branded multi-currency bank account, debit card, and integrated money transfer solution in a couple of European countries later this year. Our initial focus will be testing and learning, and then we will evaluate how we expand from there. Longer term, we see significant opportunity for our consumer ecosystem strategy. We are a trusted provider to a large, unique customer segment the global migrant community, which has many needs beyond money transfer, such as insurance, lending, and travel, and it's often not well served in the market. Western Union, with its trusted brand, large and growing digital customer base, and global platform, is well positioned to execute on this opportunity. While we are fully focused on the implementation of our profitable growth strategy, we also remain committed to advance environmental, social, and governance, or ESG, at Western Union. I would encourage you to read our 2020 ESG report released in June to learn more about our 2020 impact and our ESG strategy and goals, which are closely aligned to our business, our values, and our purpose. Now, turning back to the second quoted results, we see pricing stability in the market and varying levels of recovery from the effects of the ongoing pandemic, particularly outside the US, where economic activity and government policies are more mixed. This was evident in my recent market tour in Europe, where agents, customers, and business leaders confirmed that while local economies are reopening and travel restrictions are being lifted, the pace of economic recovery is being impacted by labor shortages and the spike in cases from the Delta variant. Fortunately for our customers around the globe, we offer remarkable choice with our omni-channel offering with a comprehensive set of funding and payout options so they can transfer and receive money in a way that it's most convenient for them. During the quarter, we saw continued strength in principal per transaction or PPT with growth over 11% and cross-border total principal growth of 29%. benefiting from continued demand for support in received markets and improving economic and employment trends in sent regions like the US and Western Europe. Total company revenue grew 16% or 13% on a constant currency basis with underlining trends aided by continued growth in our digital business and sequential improvement in the retail business. C2C revenues and transactions each grew 15% in the quarter with C2C revenue growing 12% on a constant currency basis. Digital revenues were up from the first quarter and grew 22% year-over-year to over $265 million with quarterly highs for revenue, transactions, and principal. Digital comprised 36% of transactions and 24% of revenues for the C2C segment. As expected, we are beginning to see digital growth ease after exceptionally strong performance during the height of the COVID-19 pandemic. Woo.com results were healthy with transaction growth over 18%, driven by 14% growth in average monthly active users. Woo.com continued to lead money transfer peers in mobile app downloads by a wide margin and grew principal over 30%. Our customer engagement trends remained favorable year over year with positive trends in retention, transaction per customer, and principle per customer. We continue to expand in the new market, launching Chile and Peru in the second quarter and enhancing the customer experience with new features and tools, including the rollout of additional electronic know your customer options across European Union and transaction reminders. Improving the customer experience not only supports the continued growth in WestUnion.com, but also provides a growing customer base for the consumer ecosystem strategy that I mentioned earlier. Retail revenue achieved strong year-over-year growth, cycling over the disruption from the pandemic in the prior year period and is growing sequentially. We remain focused on ramping up our partnership with Walmart in the U.S., our domestic and international money transfers, Bill payments and money order services are now available in nearly 4,700 Walmart stores across the U.S. Trends in the business solutions segment continue to move in the right direction with strong improvement in the new business and stable trends in hedging and across most segment verticals. While we have announced a definitive agreement to divest Western Union business solutions, it will be business as usual until the transaction closes. Overall, we are pleased with the announcement of the West Sydney Business Solutions today and excited for the Business Solutions Management Team to receive strong support from the new ownership. Additionally, with our healthy second quarter results, we are confident in our ability to execute in fluid market conditions and our strategy with our resilient retail channel, strong growth of our digital channel, building a WU branded ecosystem with additional products and serving multiple enterprises with our unique and agile cross-border platform positions the company well for long-term incremental growth opportunities. I'll now pass it over to Raj to review our financial results in more detail.
spk14: Thank you, Hikmit, and good afternoon, everyone. Let me first summarize second quarter performance, and then I will provide more color on the business solutions divestiture, the planned termination of our defined benefit plan, and finally, our 2021 full-year outlook. Moving to the second quarter results, revenue of $1.3 billion increased 16% on a reported basis or 13% constant currency. Currency translation net of the impact from hedges benefited second quarter revenues by approximately $29 million compared to the prior year. In the C2C segment, revenue increased 15% on a reported basis or 12% constant currency with transaction growth partially offset by mix. C2C transactions grew 15% for the quarter, led by 33% transaction growth in digital money transfer and supported by growth in retail money transfer, which improved sequentially, particularly in North America and Europe and CIS. In line with our expectations, the spread between C2C transactions and revenue growth moderated this quarter and was flat on a reported basis or three percentage points constant currency as we cycled through the mixed impact from the high growth of digital partnership transactions, which represents a lower revenue per transaction category. We expect the spread will remain fairly tight during the remainder of the year. Globally, we continue to see pricing environment as stable. Total C2C cross-border principal increased 29% on a reported basis or 25% constant currency driven by growth in retail and digital money transfer. Total C2C principal per transaction, or PPT, was up 11% or 8% constant currency. Both retail and Woo.com continued to experience higher average PPT due to mix and changes in consumer behavior. Digital money transfer revenues, which include Woo.com and digital partnerships, increased 22% on a reported basis or 19% constant currency. Woo.com revenue grew 18% or 15% constant currency on transaction growth at 18%. Woo.com cross-border revenue was up 23% in the quarter. Digital partnerships continue to show strong growth across revenue, transactions, and principal in the quarter. Trends in our digital business moderated somewhat as expected from the exceptional growth we experienced from the second quarter onward last year as demand for our digital services grew significantly adding incremental revenue, profit, and transactions to our business. While we expect this moderating trend will continue the remainder of this year, we are now growing off a much larger base. Moving to the regional results, North America revenue increased 4% on both a reported and constant currency basis on transaction growth of 3%. The increase in constant currency revenue and transaction growth was driven by U.S. outbound, partially offset by current U.S. regulations in Cuba that limit our ability to operate and declines in U.S. domestic money transfer. U.S. domestic money transfer represented approximately 4% of total C2C revenue in the quarter. Revenue in the Europe and CIS region increased 18% on a reported basis or 10% constant currency on transaction growth of 26%. Constant currency revenue growth was led by the United Kingdom, France, and Russia with the spread between transaction and constant currency revenue growth driven by the digital partnership business in Russia. Revenue in the Middle East, Africa, and South Asia region increased 19% on a reported basis, or 18% constant currency, while transactions grew 22%. The digital partnership business in Saudi Arabia led constant currency revenue growth in the quarter, followed by Kuwait and Qatar. The impact of the digital partnership business on the spread between transaction and constant currency revenue growth diminished in the quarter, but was still the primary contributor. Revenue growth in the Latin America and Caribbean region was up 70% or 68% constant currency on transaction growth of 42%. Constant currency revenue growth was broad based across the region led by Chile, Ecuador, and Mexico. Much higher average principal amounts resulted in constant currency revenue growth, greatly feeding transaction growth in the quarter. Revenue in the APAC region increased 20% on a reported basis or 13% constant currency, led by the Philippines and Australia. Transactions increased 3%, with the Philippines driving the difference between constant currency revenue and transaction growth. Business Solutions revenue increased 25% on a reported basis or 16% constant currency, benefiting from favorable comparisons to prior year. revenue trends remained on a positive course with a continuing recovery in cross-border trade. The segment represented 8% of company revenues in the quarter. Other revenues represented 5% of total company revenues and increased 8% in the quarter. Other revenues primarily consist of retail bill payments in the U.S. and Argentina and retail money orders. Turning to margins and profitability, The consolidated gap operating margin in the quarter was 19.8% compared to 19.9% in the prior year period, while the consolidated adjusted operating margin was 20.2% in the quarter compared to 20.4% in the prior year period. Adjusted operating margin excludes M&A expenses in both the current and prior year period and last year's restructuring expenses. The decrease in consolidated operating margin continues to reflect how COVID-19 impacted the level and timing of certain expenses and investments as the company curtailed spending last year. Compensation-related expenses and strategic investments in marketing and technology were the primary contributors to the slight margin decrease in the quarter. Foreign exchange hedges had a negative impact of $2 million on operating profit in the current quarter and a benefit of $7 million in the prior year period. Moving to segment margins. Note that M&A expenses are included in other operating margins for both the current and prior year period, and segment margins exclude last year's restructuring charges. C2C operating margin was 20.7% compared to 21.8% in the prior year period. Given that our C2C segment comprises most of total company operating income, the decrease in operating margin was driven by the same factors that impacted total company margins. Business Solutions operating margin was 10.9% in the quarter compared to 1.6% in the prior year period. The increase in operating margin was largely due to increased revenue, partially offset by increased compensation-related expenses. Other operating margin was 16.2% compared to 21.9% in the prior year period, with the decrease driven by higher M&A expenses related to the divestiture of Western Union Business Solutions announced today. The gap effective tax rate in the quarter was 14.5% compared to 16.2% in the prior year period, while the adjusted effective tax rate in the quarter was 14.2% compared to 15.7% in the prior year period. The decrease in the company's gap and adjusted effective tax rate was due to changes in pre-tax earnings, including differences in the composition between high tax and low tax jurisdictions. Gap earnings per share, or EPS, was $0.54 in the quarter compared to $0.39 in the prior year period, while adjusted EPS was $0.48 in the quarter compared to $0.41 in the prior year period. The increase in gap EPS reflects benefits of revenue growth, the gain on an investment sale, and a lower effective tax rate partially offset by debt retirement expenses, compensation-related expenses, and strategic investments in marketing and technologies. Both the gain on an investment sale and the debt retirement expenses are excluded from adjusted EPS in addition to the expenses we noted earlier during the operating margin discussion. The net impact of these two items was a $0.07 benefit to GAAP EPS in the quarter. Turning to our cash flow and balance sheet, year-to-date cash flow from operating activities was $349 million. Capital expenditures in the quarter were approximately $48 million. At the end of the quarter, we had cash of $1.1 billion and debt of $3 billion. We returned $171 million to shareholders in the second quarter, consisting of $96 million in dividends and $75 million in share repurchases. The outstanding share count at quarter end was 407 million shares and we had $633 million remaining under our share repurchase authorization, which expires in December of this year. As Hikmet highlighted previously, today we announced the divestiture of Western Union Business Solutions. The sales price of $910 million is expected to generate in excess of $800 million in proceeds net of tax in 2022 and result in a gain on sale. Our net proceeds estimate is based on current tax policy and is subject to certain regulatory and working capital adjustments. The transaction is expected to close in two stages with the majority of the business and the entire proceeds transferring in early 2022 and the European business transferring by late 2022. Both closings are subject to requisite work consultations, regulatory approvals, and other customary closing conditions. Following the transaction, we will evaluate options for the use of proceeds based on market conditions and opportunities and in accordance with our established capital allocation priorities, which include reinvestment in the business to drive organic growth, dividends, acquisitions including technological capabilities that support our growth strategy, and share repurchases. As a reference point, during the last 12 months and at June 30th, 2021, the business solutions segment generated revenue, EBITDA, and operating profit of $374 million $64 million and $33 million, respectively. Turning to our outlook for 2021, the outlook we provided today assumes moderate improvement in macroeconomic conditions as the quarters progress in line with current prevailing macroeconomic forecasts with no material changes related to the COVID-19 pandemic. We reaffirmed our expectations for revenue growth, including our expectation that the digital business will achieve over $1 billion in revenue this year. We also affirmed our remaining metrics on an adjusted basis while updating our full year GAAP financial outlook for pension plan termination expenses and M&A costs related to the sale of the Business Solutions business. The pension plan termination is expected to accelerate the recognition of approximately $110 million of non-cash expenses on a pre-tax basis, lowering GAAP EPS by approximately 22 cents in the fourth quarter. and will be recorded to other expense in the P&L. With our plan overfunded by more than $35 million as of June 30th, we believe it is a good time to transition the plan to an annuity provider. We continue to expect full year 2021 revenues will grow mid to high single digits on a gap basis or mid single digits on a constant currency basis, which also excludes the impact of Argentina inflation. GAAP operating margin is expected to be approximately 21%, and adjusted operating margin is expected to be approximately 21.5%, with a difference attributable to M&A costs. We anticipate our effective tax rate will be in the mid-teens range on a GAAP and adjusted basis. GAAP EPS for the year is now expected to be in a range of $1.82, to $1.92, which now reflects the impact of pension plan termination expenses and M&A costs. Adjusted EPS is still expected to be in a range of $2 to $2.10. As we move into the second half of the year, let me provide some context for how we think the results may progress over the remaining quarters. Starting with revenue, our underlying assumption for revenue progression includes moderate improvement in the global macroeconomic environment in line with the current prevailing economic forecast. However, as Hikmet discussed earlier, global uncertainties remain, especially related to the emergence of the Delta variant and the potential risks this poses to broader economic recovery. As the quarters progress, we expect moderate improvement in our business, similar to the current prevailing economic forecast, although overall company growth rates will be lower than we have seen in the second quarter due to the Grover impacts from last year. We continue to expect to generate over $1 billion in digital revenue this year, along with a relatively stable retail business. Lastly, we expect that the business solutions and other segments will continue to rebound this year as global macroeconomic conditions improve. With respect to margins, we expect the margin for the second half of the year will be above our full year adjusted margin outlook of approximately 21.5%, primarily driven by expected higher revenue levels. To wrap up, we delivered a solid second quarter performance and are on track to achieve our financial outlook for the year. With the planned divestiture of the Business Solutions business, we are also sharpening our focus on the strategy that Hickman laid out. Thank you for joining our call today, and operator, we are now ready to take questions.
spk11: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star then one on your touchtone phone. If you would like to remove yourself from the queue, please press star, then two. Today's first question comes from Darren Peller at Wolf Research. Go ahead.
spk06: Hey, thanks, guys. Hey, Darren. Hey, guys. Congrats, by the way, on the sale of the business solutions business for, you know, I think it looks like, you know, enabling you guys to really align to what you want to on your C2C side. Thanks. Thanks, sir. When we look at the C2C side of the business, though, you know, the transactions on a stack growth rate basis did actually accelerate, which was nice to see from our math at least. When we're trying to figure out the dynamics, especially as the spread narrowing now as well, I mean, was it as simple as saying, like, digital obviously continues to grow well, and do you see that being sustainable from here even if we do get into more reopening? And then just give us a reminder of where we are on the retail correction. I guess the retail – you know, reopening element, where we are versus where you think it can get to by the end of the year?
spk09: Yeah, let me give an overall sense of the business. First of all, we are really happy with the performance of the business. Digital expansion is really doing very well. You know, also retention rates are extremely high. The customers are using, now we are in 75 countries with our WestUnion.com business. And additionally on that, we also have our white label business, Enterprise Partnerships. which brings us to, you know, exceed of $1 billion by year end. And we really like that. We already have $500 million achieved, and we believe that's going to continue. And, you know, if you look at that from a base, right, especially if you compare that with competition, we are really growing very strong from a huge base here. So I'm pleased on that. And retail is coming back, especially in places where retail is open, where, you know, the – Volatility due to coronavirus is less. It's really doing well. Outbound business is doing very well. It's coming back. So that's also stable. The stability of the retail, the resilience of the retail business, adding on that on the digital business, it's really good news here we have here. And then, you know, also .com business gives us the ability to return customers, have that customer relationship. We have about 9 million customers now with only .com business. That gives us really a great base for our ecosystem strategy and the customer loyalty is increasing here and really allows us to offer additional products to our WestUnion.com customers in the future and the test, as you saw, starts this year in Europe with our WestUnion bank. You want to add something on that?
spk14: Yeah, Darren, on your question around the spread, it is generally as simple as we are growing over some of the really fast growth from our digital partnership, digital white label business, which was the key driver of the wider spread over the course of the last year. So we had expected that it would narrow. I do think that it's going to continue to be narrow the rest of the year because of that impact. You know, and I think the, you know, in terms of where is retail, the way we think about it is if you look at the total C2C business this second quarter compared to the second quarter of 2019, We're slightly ahead of where we were. We're about a point ahead in total of where the overall consumer business is. Obviously, the business has shifted dramatically over that period of time. Now, in the second quarter, we have digital is about 24% of consumer revenues. And back in the second quarter of 2019, it was only about mid-teens. So we've had a significant shift in the business, if you will, and I think that's a really good story for us going forward where the consumer business is more digitally heavily oriented and provides a good growth profile going forward.
spk06: That's really helpful. It's a big data point, I think, that from a retail side is actually the 2019 level now from a transactional standpoint, which I guess underscore is the digital side is holding up and helping your growth profile. But one quick one is just when we look at the investments and the progress you've made on the Woo.com number of the 9 million users, can we just touch on engagement levels for a minute in terms of, you know, where they are now versus where they've been in years past, how many transactions you see for those kinds of users versus the retail side, and what that can become over the next couple of years with modernization.
spk09: Thanks again, Kevin. Yeah, I think on the westunion.com retention levels are really increasing in the countries we've been along. Customers are using us more and more once they open an account. As you know, the big difference between retail money transfer and westunion.com money transfer is that you have to know your customer, you have to register at westunion.com. And biggest advantage we recently did also that helps a lot is the electronic KYC. The customers don't have to go to a location to pre-register in many countries. That's a huge step to get more customers and have them really low. And one thing also changed recently is that the PPT is higher. You know, the principal per transaction with the customers, we do see that we acquire new customer segments here with higher PPT. And In addition to that, as you know, most of the transactions are paid out on our locations, at retail locations globally. We have in 200 countries 550,000 locations. They're paid out in cash. But the new customers also want to send money to an account. In fact, this business is growing very strong. We are really gaining market share, and it's on the $200 million business almost now.
spk14: The account-to-account, pure account-to-account is on our...
spk09: Annual run rate of $200 million. $200 million annual run rate business. So you could see we are really adding new customers. And the customers, to your question, yes, the retention is high. The revenues are coming from the customers who have been already here. But don't forget also we are in 75 countries. We are sending money from 75 countries. We recently opened new countries. And they're also adding to our success on digital growth.
spk06: All right. That's great. All right. Thanks, guys.
spk09: Thank you, Darren.
spk11: And our next question today comes from Tianxing Huang with JP Morgan. Go ahead.
spk07: Excellent. Hi, Tianxing. Good afternoon here. Hey, Hikman. Good afternoon. Good to connect, as always. I totally understand the focus in selling business solutions, but Hikman, I just wanted to clarify the strategy. Is the idea to focus more on consumer-based payments as alluded to with the consumer ecosystem strategy, or is still servicing businesses with money movement as stated in your strategy statement here? Is that still on the table? I just wanted to clarify that point.
spk09: So, great question, Tijen, on that. First of all, our strategy has not changed, right? Being a leader on the cross-border, cross-currency money transfer serving multiple use cases, it's really a big advantage of Western Union. And to do so, we heavily invest in one platform strategy, right? One unique platform which serves multiple use cases. As you look at our platform, the investment we did in the technology, the automation, the cloud-based systems, transaction processing systems, which have been really a huge advantage for us and it's continued investments there, serves multiple use cases. C2B, B2C, B2C, C2C, all these cases are going to continue to expand and our right-level expansion is going to continue to happen. As I mentioned earlier, we do have technology customers like Google Pay, and that's going to continue to happen, or retailers like Amazon. That's going to continue to happen, and we have strategy to expand that. Then we have mobile telephone companies, telecom companies like FCC Pay. So their customers are also businesses. And most importantly, we do have financial institutions. As you know, we are serving with our white labeling also about more than 40 financial institutions globally white labeling our system. And the big two, you know, the biggest, you know, that we have a very successful business with Spare in Russia. That continues to happen. So our strategy is, and if I summarize that tension for you, You know, serving our customers, existing customers with West Union.com, with retail, with West Union brand, but also adding new customer segments like businesses, financial institutions, tech company with our unique platform. That has not changed and that's a very successful strategy, I believe. Yes, okay, understood.
spk07: I just want to make sure.
spk09: And by the way, you know, by the way, By the way, Tijan, remember in 2019, our Investors Day, I showed also C2B and B2C segment is a $2 trillion market opportunity, right? And that focus continues to happen.
spk07: Okay. Yeah, that's what got me thinking about it. Thank you for that. Thank you for that clarification. I do go back to that Investor Day quite often. So thanks for that. My quick follow-up, if you don't mind, just with retail getting better, it was good to see that. I have to ask on the Walmart side, if you can comment, how is that performing relative to your expectations? Any surprises there?
spk09: No surprises, Tinjan. We did roll out with all our products in 4,700 locations. We have not only money transfer, domestic money transfer, international money transfer, we also rolled out the bill payments products at the Walmart locations. It's ramping up and, you know, the phone line associates are aware, the customers are aware. I think we see now a good ramp up at the Walmart locations with Western Union transactions. We like it. Great. Thank you for the update. Thankful for that. Thanks. Thanks, Tijan.
spk11: And our next question comes from Jason Kupferberg with Bank of America. Please go ahead.
spk02: Thanks, guys. Good afternoon. Since you brought up the investors today, I'll ask you one, just going back to that, which I know was six months or so before the start of the pandemic. I think back then you had talked about a multi-year revenue taker target of 2% to 3% for the C2C business. And obviously, there's been a mix shift to digital that's been accelerated further due to the pandemic. So Just wondering how you would figure now, you know, as we move forward and what kind of year-over-year comparison would normalize?
spk09: Well, first of all, great question. Obviously, pandemic, as you said, Jason, had some impact to our, you know, focus, obviously, but only timing-wise. I think we are well on the way to executing our strategy as we presented at the investors' day. And we are really expanding not only with Western Union branded products, also with white labeling and offering our platform to third parties has been a good strategy. And our digital growth, as we outlined at the Investors Day, is really in the good path. COVID-19 and the pandemic definitely helped us also to gain new customer segments with higher principal numbers in digital. But we were ready. We were already ready to serve this kind of customers. They wanted to send money to their loved ones. One thing that has not changed is that customers want to support their loved ones in good and bad times, in good times and challenging times. And that's resilience of our business and using the omni-channel capabilities which Western Union offers, from the send side, also from the receive side, is unique. And that has not changed on the consumer business. Also, on our businesses, like offering to financial institutions, to FI, it's a big focus within the company. As you know, we have been investing in our platform, technology platform, significant investment. We have now, you know, one example is that Technology investment give us the capabilities really serving our platform to banks and to financial institutions, getting easy connections to them, really kind of going after the headaches of correspondent banking. As you know, the closed-ended bank is sending money from one account to another account, especially when it comes to exotic currencies from the emerging countries. It's painful, but our unique platform can really serve that. So that's all been outlined at our investors' day, and I'm pleased with that. Maybe the biggest, the other advantage we over, we didn't talk too much at the investors' day, but recently we started to talk is about our ecosystem. It's unique. Our platform, WestUnion.com capability really gives us a unique platform that we can offer additional products like credit cards, like debit cards, like loans, like insurance, even like travel. always building that ecosystem. And there is no other company who can talk to those unique customers like we can talk to global migrant community. And examples like in the UK, we are not talking to the Albanian customer in English or in their British way. We are really talking with their way to understand that this loyalty, this brand awareness is huge. And that gives us really a basis of building additional products.
spk02: Okay. Yeah, that's a comprehensive answer. I appreciate it. Raj, I know you mentioned there's over $600 million left of authorization. I think you've spent just about $75 million in the second quarter. Do you expect to use up the rest of the authorization by the time it expires at the end of the year?
spk14: uh no we don't uh jason that would be a lot of share repurchase for this year um you know but we do we do plan to continue to be active uh i would expect that we're gonna re-up an authorization after this year is over um you know just to continue to be active and obviously we have the sale of business solutions which will close uh the first calls will be early next year And, you know, so we'll have a view on how we're going to deploy those proceeds. And so all of that will play a factor in terms of the share repurchase amounts. But, you know, we're very pleased with the cash flow generation the business has had. And, you know, we're paying healthy dividends and buying back stock as we have historically.
spk02: Yeah, I was just wondering about, you know, if the second half would be stronger than the second quarter, just given the pullback and the stuff.
spk14: Yeah, I mean, look, we don't have an exact forecast to give you on how much stock buyback, but we're always going to be nimble on that depending on the market conditions and other factors, but that's the current plan.
spk02: Okay. Thank you, guys. Appreciate it.
spk14: Thanks. Thank you.
spk11: Thank you. And everyone, in the interest of time and allowing as many people to ask questions as possible, we would ask that you please lend yourselves to one question going forward. Today's next question comes from James Fawcett with Morgan Stanley. Please go ahead.
spk08: Great. Thank you very much. I'm wondering if, you know, I know that you're moving gradually throughout the Wu Banking Services in Europe, but I'm wondering if you can kind of give us an outline of what we should expect around that, what you think the opportunities are. and kind of the key milestones that we should be keeping track of or watching for and what timeframe, just trying to get some more color on that initiative.
spk09: Yeah, first of all, we believe it's extremely exciting, this opportunity, because what we have maybe is a big competitive advantage is that we are really starting with brand awareness, customer relationship already, and really having a unique customer segmentation which others don't have it. And by the way, having a European Union bank license and offering financial services, we really start from a very good base, actually, to offer our services. We will start to test that in two countries in Europe now. I would say that, you know, internally we looked at that. I would say that no bank has been launching so fast a product like we have done it, and we will do it. And I'm very proud what team has done it, and I'm very excited about that. Obviously, you know, when time comes, we are going to give you more details about that, what the metrics will be, but I'm excited. And customers also told us that They want to have additional products from Western Union. They want to get a better service and they trust our brand.
spk14: James, I would just add that depending on the outcome of this test, we'll be ready to go to more markets and expand further as appropriate. So I think the beauty of our business is the send and receive dynamics that we'll be testing out between a sending market and a receiving market as part of this test. So we're excited about what it can be.
spk11: Thank you. Our next question today comes from Ramsey Ellisall with Barclays. Please go ahead.
spk01: Hi, this is Ben on for Ramsey. Thanks so much for taking my question. I wanted to ask about the continuing pace of your digital revenue growth. It looked like the sequential step up in revenues was quite a bit bigger in this quarter, you know, two Q versus one Q than it had been in previous quarters. Does that look like that's on track to continue or should it kind of grow a little bit more moderately? Because it looks like you're already kind of nicely on track to hit like at least a billion dollars this year. So I just wanted to get a better sense of what we should expect in the next couple of quarters.
spk13: Yeah. I mean, that's our, that's our outlook.
spk14: Um, you know, our outlook is to grow at least a billion dollars and you're, you're right on the mark. I mean, we, we got really good sequential improvement in the second quarter and that was with both, uh, woo.com as well as our digital white label business that make up this digital business for the first half of the year, we're over 500 million and we're well on pace to exceed that. Um, And so we feel very good about it. I won't give you specific numbers behind what's going to happen in the second half, but we should hit at least $500 million in the second half, if not more.
spk01: Okay, that's helpful. And if I could just ask kind of one follow-up just on the digital side as well. It looks just from our math like the pricing on digital has kind of stabilized a little bit in the last couple of quarters. Is there any possibility that could go up? I mean, are you perhaps lapping some introductory pricing that's going to, you know, as you go past it, pricing can come up a little bit? Or is stabilization kind of the way to think about it?
spk13: Yeah, I would say that pricing overall is quite stable in the market.
spk14: But we always are moving pricing up and down in our 20,000 corridors. in all of our channels, so it's never static in nature. But what you're seeing from a year-over-year standpoint is that we are beginning to grow over some of the price changes we made in the Woo.com business for customer acquisition last year, if you recall. And so we see it as quite stable, but we're always going to be nimble on what is it that's going to drive the best customer acquisition and the best customer adoption. And that's really what's going to drive the long-term health of this business not just what is the price in this quarter or that quarter. It really is about getting lifetime value of customers. And one thing I would just add, well, a couple of things is the dynamic pricing capabilities that we have have really started to gain some traction and we're not even done with that opportunity yet. So whether it's retail or digital, the dynamic pricing capabilities, we continue to add to our technical capabilities and that team is doing an amazing job in capturing additional opportunities there. And then the account-to-account part of the business also is quite interesting. You know, that's at a lower yield typically. However, we're getting about $200 million of annual revenue run rates in the pure account-to-account business within digital. So that's sort of a hidden gem, if you will, on the purely digital part of our business. It's not something that we've spoken about before, but it's quite interesting and quite attractive. And that is the fastest-growing part of our digital business.
spk01: Okay, very helpful and interesting. Thank you so much for taking my questions.
spk11: And our next question today comes from Andrew Jeffrey in Truist Securities. Please go ahead.
spk03: Hi, good afternoon. Appreciate you taking the question. Hi, Andrew. Hi, Hikmet. I'm curious about the Western Union branded ecosystem strategy and how you think about sort of timing Obviously, there are some digital native competitors in the market, one in particular in London that has sort of been doing this for several years. So I just wonder, you know, the brand is an important advantage. I wonder about whether or not you feel like you're maybe behind the curve a little bit competitive and how you're going to balance the commitment to shareholders and free cash flow with the investments required to grow that business.
spk09: Well, first of all, you know, obviously we wouldn't start such an exciting project if we wouldn't be very motivated about that. And, you know, we have, as I mentioned earlier, we have all the bases and all the regulatory environment to start this ecosystem project. It's really a long-term opportunity. It's a very exciting opportunity to have the customers loyal for a long time for different products, what they need. The investment is really low investment. We have the basis. We don't have to start like a narrow bank or all the banks from zero. We don't need the investments. As you know, we've been as a company, we're a shareholder firm and we're always profitable growth focused. Saying that, though, we think that that's an incremental growth opportunity with lower investment requirements than others would have it here. And that gives us a base. And our bank, which is based in Europe, allows us also to run that in a way that others maybe have some challenges. I don't see big investment. We will invest, of course, but that means that we will have to change our guidance suddenly or something like that. I'm very pleased with the opportunity.
spk14: I would just say that the advantage we have is that we already operate everywhere in the world. It's about adding additional capabilities. That's why we think we're uniquely positioned to be able to take advantage of our 9 million consumers that are on woo.com and give them additional products and services. So, yes, there's investment, but it's really within our outlook certainly this year, and if it drives additional revenue growth, that's the real beauty of what we're trying to create here.
spk09: I think that, you know, the question comes up because it's something new as we spoke a little bit in the investors' day, but I can tell you that we're going to give you more color over the coming quarters and, you know, years because this is really exciting. And so we can really build to tell the story even more in detail.
spk11: Thanks, Stan.
spk09: Thank you.
spk11: And our next question comes from Vasu Govil with KBW. Go ahead.
spk10: Hi, thanks for taking my question. I guess I wanted to go back to the last investor day as well. And I know you guys have talked about a 23% drop margin goal by 2022. And I know a lot has changed since then, but now with this divestiture of the business solution segment, at least a part of that is expected in the first part of the year. Is that potentially a goal on the table now? If you could comment on that. And then if you could also just talk about how we should be modeling the business solutions divestiture, because I know it's getting done in two parts. Thank you.
spk13: Yeah. Hi, Vasa. This is Raj. Let me try to answer both your questions.
spk14: Um, you know, on the, on the original target that we set in 2019, I think you've sort of answered your own question, which is a lot has changed. since then. We certainly had objectives of expanding margins by 300 basis points, and the key driver behind that were our cost savings initiatives of $150 million, which we're very much on track to achieve. So we'll get to $150 million of run rate savings next year, which itself was the primary driver of the margin expansion. In addition to that, we needed 2% to 3% revenue growth each of the following three years, which obviously we didn't get because of COVID. So we really have to reassess where we are. I would say one thing that the model hasn't changed. So our cost structure is still 40% to 45% fixed. and our variable costs are 55 to 60 percent so as we get revenue growth it gives us a lot of flexibility to not only think about margins but also to invest back in the business so if we can get back on track and you've seen and you've heard some of the commentary around the mix shift of the business where now almost 20 about 24 percent of our consumer revenues are digital it really gives us a potentially a different growth profile going forward so we're very excited about that and then on your second question related to to west union business solutions no real impact this year because the first transaction first part of the closing won't happen until early part of next year uh we've called out the m a costs that are related to the woods divestiture but other than that nothing else really changes the the p l will still reflect the business next year as we get into the first closing we will start to show you the impacts of business solutions on a pro forma basis. And we did give you some data points that you can use just as some data points. The last 12 months, the business generated about $374 million of revenue, about $64 million of EBITDA, and about $33 million of operating income. So just to give you a sense of what the business has looked like the last 12 months.
spk10: Thank you very much.
spk13: Sure.
spk11: And our next question today comes from Jeff Cantwell at Guggenheim Securities. Please go ahead.
spk05: Hi, how are you? Congrats on the results, guys. Mine's a follow-up to earlier questions that you're being asked. I wanted to ask you, can you talk some more about your digital business? We see you reaching a new high for revenue, and that's slide eight. You show Woo.com principal growth is up 37%. You know, MAUs are up 14%. We can see the data on your app downloads is pretty strong over the past few quarters. So, The digital results stood out to us and, you know, relap in the height of the pandemic last year. So it's good to see some continued expansion there. So maybe, you know, is there anything more you can share that stood out about right now as far as your ability to attract new customers? Maybe about the growth you're seeing with your existing customers and whether there's any pockets where Woo's expanding, you know, geographically. Just hoping to get any further kind of granularity and so forth. And then maybe could you talk more about the opportunities that you're seeing in digital right now as you're looking ahead? Thanks very much.
spk13: Yeah, I mean, if you have a couple hours later, Jeff, we'll have to talk to you. But let me just try to summarize.
spk14: We're very excited about the digital opportunity. The growth rates are not really reflective of what the business is because we're growing off of a much larger base, whether you're talking about customers or revenue from last year. And the 14% growth in MAUs is still very good on a much larger base, if you will. So very pleased with that. We do think that the digital business in total has a lot of great growth opportunities ahead of it. Obviously, we're doing a lot of things in Woo.com, you know, improving features and functionality, which drives better retention. We're also continuing to acquire more customers. And then we have a heavy focus on distribution, so more mobile funding, more mobile payout, more account funding. account payout and more geographies. We expanded Chile and Peru in the quarter. So that's on the wu.com side.
spk09: Maybe you can also mention the app downloads by far.
spk14: Yeah, the app downloads, as we said in our press release and commentary, is still number one app download by far, according to Sensor Tower data. And then on the digital partnership side, we have a pipeline of partners that are coming. You'll see some more that are activated this year. And then we have, you know, that's a long-term growth opportunity. Not all the partners on the digital side need to be like Saudi Telecom or Spare Bank, which has really far exceeded our expectations. But if we can get a partner or two in every market in 200 countries, that becomes a really big opportunity for us. long term. So we're very pleased and we can certainly talk more offline if you'd like about just generally how we feel about the business.
spk05: Okay, great. Thank you. Sure.
spk11: And ladies and gentlemen, our final question today comes from Jamie Friedman with Susquehanna. Please go ahead.
spk12: Hi. Let me echo the congratulations on the results. Hi. And the transaction. You know, If you were to map slide 8, which Jeff was just referencing, over to slide 11, like the geographic footprint, what would that look like? Are there any callouts or characteristics on that? What does the geographic footprint of Woo.com specifically look like?
spk09: On Woo.com, obviously, we are very much focused on, we have 75 countries and we are very much focused on the sent countries because by nature, Woo.com is a sent agent, right? We happen to own it and it's us what we are doing. That's the 9 million customers sending money to the loved ones, so 200 countries. Most of the transactions are dual happening in North America and in Europe, European Union, and recently very strong growth also in the Gulf states with our Woo.com transaction to sending from 75 countries. But recently we also saw that some receiving countries traditional receiving countries started to send money also certain customer segments with a higher band. There are different customer segments really supporting like their children cross-border or doing medical payments, doing really .com and this kind of transactions are really driving the growth of .com business and regional maybe you want to add something.
spk14: let me see if i can also answer part of your question jamie the the heaviest concentration of the digital business from a geographic standpoint will be in north america and europe and cis the next two probably are middle east and asia pacific because we we've seen some good concentration there i would say the part of our business that is least leveraged on digital is latin america And that's why you actually saw some significant growth rates in Latin America because it was more heavily impacted negatively last year because they didn't really have a digital business to mitigate some of the decline. And this year in the second quarter, you see the big pop upward because there's no digital business there really to speak of. And so the Chile and Peru launches for Woo.com this year and this quarter are going to be important components as we keep building that digital business in Latin America. So there continues to be opportunity around the world to keep going from a geographic expansion standpoint.
spk12: Got it. Thank you very much. Thank you.
spk11: Ladies and gentlemen, this concludes today's question and answer session and today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.
spk10: Goodbye.
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