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spk05: Good day and welcome to the Western Union third quarter 2021 results 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 note this event is being recorded. I would now like to turn the conference over to Brad Winbigler, Head of Treasury and Investor Relations. Please go ahead.
spk12: Thank you. On today's call, we will discuss the company's third quarter 2021 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. Our call today is our CEO, Hikmet Ercik, and our CFO, Raj Agrawal. 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 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 the 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.
spk07: Thank you, Brett, and good afternoon, everyone. We appreciate you joining us today to discuss our third quarter results and the progress of our business. Our business continues to rebound from the effects of the COVID-19 pandemic, delivering double-digit revenue growth in digital and business solutions, as well as strong profitability and operating cash flow during the quarter. Additionally, we are continuing to make good progress on our key initiatives, including our pricing evolution and platform enhancements. Now, let's take a closer look at the third quarter results. we achieved revenue growth in the quarter of 2% on a reported and constant currency basis, which was driven by 15% growth in digital and 31% growth in business solutions. While these two businesses grew nicely, the retail business was affected by the slower economic recovery, in particular, recovery in the labor markets where employment of migrant workers remains below 2019 levels. As a result, our CTC revenue was flat on a reported basis or down 1% in constant currency terms with transaction growth down 1%. Both principal per transaction and cross-border principal increased approximately 4% during the quarter. Year-to-date, our cross-border principal increased 19%, reflecting the elevated levels of support that our customers provide to their loved ones during the period of uneven economic recovery. With that, based on the latest World Bank forecast, we believe we are growing market share. Our digital business continues to generate strong growth. Revenue generated during the quarter was $266 million, maintaining the record high level that we achieved in the second quarter and putting us well on pace to exceed $1 billion in revenue this year. Most of our digital business is Western Union.com, which grew at a healthy pace in the third quarter with 16% principal growth and 12% revenue growth. Woo.com average monthly active users increased 8% in the quarter. Although Woo.com growth is moderating as expected, As we grow from a much larger base and compare results against the prior year's accelerated growth levels, we anticipate growth to remain healthy as we continue to invest in marketing, product, and customer experience. We were particularly encouraged by the results we are seeing in our account-to-account business, which is the fastest-growing portion of our business. The other component of our digital business is digital partnerships. Momentum is building in this business as we expand relationships with existing partners and launch new partners. We recently completed our previously announced acquisition of a minority stake in STC Bank, formerly known as STC Pay, which was a leading digital wallet service provider and is now in the process of launching as one of the first digital banks in Saudi Arabia. In addition, we are planning to launch a number of new partners in upcoming months. Our progress confirms that the capabilities we have built to serve our branded direct digital business is also well suited to serve the needs of leading banks and digital wallet providers. Our solution emphasizes flexibility and choice built on a strong foundation of compliance and technology. We are able to offer a branded solution partners who want to feature our leading brand in cross-border payments, or we can offer capabilities that partners incorporate as a white-label solution. Our real-time account payout capabilities, currently available in over 100 countries, improve on incumbent solutions while also providing choice for consumers who prefer to direct transfer to our agent network. We recently announced that Western Union International Bank has joined SEPA Instant Credit Transfer Scheme as a direct participant, further enhancing our real-time payment capabilities in Europe. Our capabilities have focused on cross-border remittances historically, but partner needs are evolving to include broader use cases. Just as we have integrated with traditional payment systems in the past, our platform can also be extended to incorporate future use cases related to digital currencies. Key to our success, whether serving our direct consumers to our branded offering or serving the customers of our partners is our omnichannel capabilities, which enable payouts to more than 200 countries and territories in over 130 currencies to our extensive global network of billions of bank accounts, millions of wallets and cards, and approximately 600,000 retail locations. We continue to invest in expanding our payment capabilities to provide our customers and partners with additional options and convenience across platforms, devices, borders, and currencies. Turning to our profit performance in the quarter, profitability was strong with operating margin increasing to approximately 25% as a result of solid business solutions revenue growth and lower planned marketing investments, which was partially offset as we continue to invest in our technology, and global omnichannel platform. Earnings per share for the quarter was $0.57 on a reported basis and $0.63 on an adjusted basis. Before turning it over to Raj to discuss our financial performance for the quarter in more detail and our updated 2021 financial outlook, I'd like to provide an update on a few key strategic initiatives. Starting with business solutions, our planned divestiture remains on track. The majority of the business and entire proceeds are expected to transfer in the first quarter of 2022. As we announced earlier today, we are expanding our ecosystem strategy. We are on track to launch our digital bank pilot in Germany and Romania in the fourth quarter, offering customers a digital banking and integrated money transfer solution to our Western Union International Bank. The digital banking offerings, where Suyun branded WooPlus, is an important part of our ecosystem strategy, which is focused on bordering and deepening our relationship with customers by offering them additional relevant products and services. Another component of our ecosystem strategy is WooShop, a shopping and cashback rewards program that enables our customers to shop internationally at over 12,000 online stores and send gifts directly to their families and friends in other countries while receiving cash back on their purchases. Wooshop is now live in Germany and Austria. Several more countries, including the US, are targeted to launch by year end. Overall, despite an uneven economic recovery and the continuing effects from the pandemic, our business proved resilient and we are on solid footing as we finish the year. With that, I'll now turn it over to Raj to discuss the third quarter results in more detail.
spk14: Thank you, Hikmit, and good afternoon, everyone. Today, I will discuss third quarter results in our full year 2021 financial outlook. Third quarter revenue of $1.3 billion increased 2% on a reported and constant currency basis. Currency translation net of the impact from hedges benefited third quarter revenues by approximately $3 million compared to the prior year. In the C2C segment, revenue was flat on a reported basis or decreased 1% constant currency. C2C transactions declined 1% for the quarter as the slow recovery from COVID-19 impacted retail money transfer, partially offset by 19% transaction growth in digital money transfer. The spread between C2C transaction and revenue growth was 1 percentage point on a reported basis and flat on a constant currency basis. Total C2C cross-border principal increased 4% on a reported basis, or 3% constant currency, driven by growth in digital money transfer. Total C2C principal per transaction, or PPT, continued to grow and was up 4% or 3% constant currency, driven by mix and changes in consumer behavior. Digital money transfer revenues, which include Woo.com and digital partnerships, increased 15%, on a reported basis or 14% constant currency. Woo.com revenue grew 12% or 11% constant currency on transaction growth of 9%. Woo.com cross-border revenue was up 16% in the quarter. Regionally, Woo.com revenue growth was led by North America and Europe and CIS. Digital partnerships continue to show solid growth across revenue, transactions, and principal in the quarter. Moving to the regional results, North America revenue decreased 2% on both a reported and constant currency basis on transaction declines of 5%. Constant currency revenue was impacted by U.S. outbound including U.S. regulations concerning Cuba that limit our ability to provide services there and continued declines in U.S. domestic money transfer. Revenue in the Europe and CIS region declined 3% on a reported basis or 5% constant currency on transaction growth of 3%. Our digital business continued to generate strong transaction and revenue growth offset by softness in the retail business. The digital partnership business in Russia was the primary contributor to the spread between transactions and constant currency revenue in the quarter. Revenue in the Middle East, Africa, and South Asia region declined 2% on both a reported and constant currency basis, while transactions grew 2%. The digital partnership business continued to generate strong performance, driving regional transaction growth in the quarter and was the main contributor to the spread. Constant currency revenue declines were driven by the retail business. Revenue growth in the Latin America and Caribbean region was up 25% or 26% constant currency on transaction growth of 10%. Constant currency revenue growth was generally broad-based as the region recovered from prior year economic dislocation due to COVID-19 with growth led by Mexico, Chile, and Ecuador. The driver of the spread between transactions and constant currency revenue growth was due to business mix. Revenue in the APAC region increased 1% on a reported basis and declined 1% on a constant currency basis, while transactions declined 13%. Constant currency revenue in the region continued to be impacted by COVID-19. Business Solutions revenue increased 31% on a reported basis or 28% constant currency. Revenue growth was driven by increased payment services activity and the education vertical, while trends remained on a positive course with a continuing recovery in cross-border trade. The segment represented 9% of company revenues in the quarter and benefited by growing over lower revenue in the prior year period. Other revenues represented 5% of total company revenues and increased 3% in the quarter. Other revenues primarily consist of retail bill payments in the U.S. and Argentina and retail money orders in the U.S. Turning to margins and profitability, the consolidated gap operating margin in the quarter was 24.8% compared to 22.7% in the prior year period, while the consolidated adjusted operating margin was 25.2% in the quarter compared to 23.5% in the prior year period. The gap and adjusted margin increases were primarily driven by revenue growth and lower planned marketing investment partially offset by higher technology investment. The gap operating margin also benefited from prior year restructuring costs. Adjusted operating margin excludes M&A expenses in both the current and prior year period and last year's restructuring expenses. 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. B2C operating margin was 24.3% compared to 24.6% in the prior year period. The slightly lower operating margin was due to higher technology spend as we continue to invest in our platform, partially offset by lower planned marketing investment. Business Solutions' operating margin was 32.9% in the quarter compared to 10.5% in the prior year period. The increase in operating margin was primarily due to increased revenue. During the last 12 months, the Business Solutions segment generated $402 million of revenue and $86 million of EBITDA. Other operating margin was 18.3% compared to 20% in the prior year period due to higher M&A costs this year related to the divestiture of business solutions. The GAAP effective tax rate in the quarter was 20.2% compared to 12.4% in the prior year period, while the adjusted effective tax rate in the quarter was 13.7% compared to 12.7% in the prior year period. The increase in the GAAP-affected tax rate was due to deferred taxes recorded on the pending sale of business solutions. GAAP earnings per share, or EPS, was $0.57 in the quarter compared to $0.55 in the prior year period, while adjusted EPS was $0.63 in the quarter compared to $0.57 in the prior year period. The increase in EPS reflects the benefit of revenue growth and lower plan marketing investment partially offset by a higher tax rate and higher technology investment. GAAP EPS includes a 5 cent impact related to the deferred taxes recorded on the pending sale of business solutions. Turning to our cash flow and balance sheet, year-to-date cash flow from operating activities was $686 million. Capital expenditures in the quarter were approximately $35 million. At the end of the quarter, we had cash of $1 billion and debt of $2.9 billion. We returned $170 million to shareholders in the third quarter, consisting of $95 million in dividends and $75 million in share repurchases. The outstanding share count at quarter end was 404 million shares, and we had $558 million remaining under our share repurchase authorization, which expires at the end of this year. Moving to our outlook for 2021. Today, we provided an updated financial outlook reflecting recent business trends and macroeconomic conditions. As Hikmet mentioned earlier, the pace of recovery from COVID-19 has created a fluid environment. For example, GDP expectations were revised downwards in recent months and labor markets have not fully recovered. Our outlook assumes that the macroeconomic environment will be similar to what we experienced in the third quarter, while our previous outlook assumed moderate improvement. We now expect full-year 2021 GAAP revenue growth will be approximately 150 basis points higher than constant currency revenue growth. Our previous GAAP revenue outlook called for a mid-to-high single-digit increase. Constant currency revenue, excluding the impact of Argentina inflation, is expected to grow between 3 and 4%, while our previous outlook called for a mid-single-digit increase. Our operating margin outlook has not changed. with the full year gap operating margin expected to be approximately 21%, while the adjusted operating margin is expected to be approximately 21.5%. Compared to the third quarter, fourth quarter margins are expected to be closer to the full year average as we anticipated from incremental investment in lower revenue from Business Solutions in the fourth quarter, which benefited from seasonal factors like tuition payments. We continue to anticipate our effective tax rate will be in the mid-teens range, on a GAAP and adjusted basis. GAAP EPS for the year is expected to be in a range of $1.80 to $1.85 compared to the previous outlook of $1.82 to $1.92, reflecting the tax impact related to the pending sale of business solutions. We are also raising the bottom end of the range for adjusted EPS with a new range of $2.05 to $2.10, which compares to $2.00 to $2.10 in our previous outlook. To summarize, we're pleased with the progress we continue to make toward achieving our long-term strategic objectives. Thank you for joining our call today, and operator, we are now ready to take questions.
spk05: We will now begin the question and answer session. To ask a question, you may press star then 1 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 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Tianxin Huang with JP Morgan. Please go ahead.
spk06: Okay, thank you. Good to connect with you all. I want to... Hi, T.J. Hi, Hikman. Hi, Raj. I'll kick it off with you passing on the retail impact that you talked about with labor and weaker migration. How broad-based was that? Any call-outs from a regional perspective? Is it more COVID-related? It sounds like there's some nationalism... with Cuba, anything from a competitive standpoint to note as well?
spk07: Yeah, let me start on the, obviously micro environment has not been as supportive as we thought, right? We hope that after vaccination became widely available that in the US and the Europe, the economy will be much better in much better position. That impacted especially our retail business, our migrant customers, have not been employed as we thought. In fact, the labor market has not normalized in the U.S. as we hoped. One example I can give you is that U.S. foreign-born employment still sits at 1.2 million people So the U.S. foreign-born employment is 1.2 million people, which is tension. It's like today, it was 2019. So this environment has been impacting our retail business. However, on the other side, we have seen very good performance in our digital business. Our digital business has been performing very well, and that drives definitely our C2C growth. And within the digital business, the account-to-account business has been extremely good performing. to people use their accounts and money and using our platform. So that has been a good factor on that. And then regional, I would say that, you know, U.S. definitely has done, Europe has an impact on our retail business, but digital-wise, all over a good growth, you know, and that's going to continue. And I'm very optimistic, and as I said in my opening remarks, we are hitting the billion dollar, and I don't see any competitors who has a billion dollar revenue to report. and growing that strong with a very great base, growing that strong. So that's very good. Do you want to add something?
spk14: Yeah, just to mention the macro factors relate primarily to impacts to our retail consumer, as you noted. And North America is related a lot to U.S. to Cuba because we shut that down late last year. So that's getting to be annualized soon. And then USDMT continued to decline. Latin America was probably the one brighter spot that continued to recover a little bit from last year because Latin America has less relative digital business growth. And so last year was hit harder, and this year it's recovering more because of that factor. And then there are a lot of other nuances throughout the rest of the world, but it is generally impacting our retail consumer more than anything else.
spk06: Great. Thanks for sharing all that. Maybe just a follow-up. I want to ask on the digital banking trials. What are you looking to learn from the pilots in these two countries in the second quarter? And if you're happy with what you see, how quickly can you expand on this in the two countries and even in some other countries as well?
spk07: Great question. As you know, our digital banking is based on our expanding our ecosystem. We have one big unit, it's called WestUnion.com, which acquires millions of customers globally and have direct relationship. We are building on that digital banking, and we use our existing assets, our brand, our global platform, but also our WestUnion international bank license, which allows us to do banking services to our customers, and our customers told us, and we are launching services in Germany and Romania And with that, also, we are launched, as I mentioned earlier, we are launched on this morning, you saw at the probably press release, WooShop. WooShop allows customers to shop online in Germany and Austria and send gifts also, you know, send money and also gifts to their loved ones cross-border. It's really unique and the customers were asking us and in the future, maybe also buying an airline ticket. and really shopping online for our customers. And we're going to launch that in the U.S. very soon within this quarter. And we are also expanding definitely digital banking activities globally. And, you know, we have this capability that not many companies have the unique customer, which is the migrant customer, or asking for additional services. I'm very excited about that. And I'll give you more once the products are launched. I'll give you more figures and more data of how successful that is. But I am very excited about that.
spk06: Yeah.
spk07: I'm excited to learn more about it. So I appreciate that. Thank you, Tijan.
spk05: The next question comes from Jason Kupferberg of Bank of America. Please go ahead.
spk02: Thanks, guys. Just wanted to start by building on Tingen's question just regarding the migrant worker employment dynamic. I mean, when do you think that starts to turn around? What do you think it takes for that to turn around? And why do you think it's not affecting your digital business just to retest?
spk07: As you know, that digital business customer and migrant retail customers are different segments. And we could also say that, you know, over years I was repeating that these digital customers are new, incremental to our brand, and it's not cannibalizing our retail business. We told that, you know, digital customers by nature have a bank account or credit card to send money globally. On the receive side, most of the transactions are picked up in retail by cash, but one of the faster growing part is the account payout. So this is great. That shows our capabilities as omnichannel and omnichannel environment. So the impact, Jason, to your question, why retail, most of the customers have been impacted You know, or probably the cash customers, they want to go and do cash transactions. You know, some facts, obviously, the global GDP, as you know, was broke down from 7% in the last few months ago to 5%, around 5%. In the U.S. even from 7% to 2% growth. So these are definitely impacting our customers, our customers' behavior. And Western Union has been always the first indicator of economical growth. environment, and that probably our customers feel the first. And that's, I guess, has a big impact to our retail customers. And the digital customers have more solid income, have money on their accounts, and they continue to support the customers. Now, saying that, as you know, This quarter it was down, the retail business. That doesn't mean that it will be down. It's a very solid business, very resilient business. The customers are doing everything still to support their loved one. I'm very optimistic. We are expanding our retail business. We today announced that we crossed approximately 600,000 locations. We are expanding and more and more, gaining more and more agents.
spk02: Okay. So if we're trying to hone in on the potential performance of the digital business Q4, I'm just looking at last year. I think it was up around 4% quarter over quarter. I would assume there's probably some seasonal tailwinds around the holidays. Is that kind of a decent proxy for how Q4 digital growth could come in this year?
spk14: Jason, just say that again. You're comparing it to last year's Q4? I'm saying...
spk02: Q420 versus Q320 was up around 4%, so if we take that 4%.
spk14: Yeah, it's hard to compare growth rates and sequential impact from last year because there was so much happening last year. And when you look at the overall growth this quarter with the mid-teens growth for total digital and then low double digits for Woo.com, that's not necessarily what the business will do in the future. I think it just depends on all of the marketing activities, the platform upgrades that we're doing, the features and functionality, and then the distribution that we have around the world that we have a lot in the pipeline. So all of those are going to have an impact on where the business ultimately goes. Q3 to Q2 was great. relatively flat from an overall revenue standpoint. And, you know, in our outlook, we have not assumed something too significant for this year. But in terms of longer term, you know, we continue to see good opportunities for growth for the digital business.
spk02: Okay. Just last one real quick, a housekeeping thing. You bumped up the midpoint of the EPS guidance a little bit, even though you lowered revenue and maintained margins and tax. Is that just a function of buybacks and your share count?
spk14: No, you know, we have ranges for each of these line items when we come into the year and they don't always all move in unison. You know, so we have a number of factors that can impact revenue or expenses or level of investments. We're obviously saving some money this year with good expense management. So that's helping us achieve the overall margin goals and bottom line and EPS levels. even while revenue is not being hit at the original objective. And as we typically move through the course of the year, Jason, we will tighten those ranges based on what we're seeing. So it's nothing really more than that.
spk07: And we feel comfortable with our investments. We continue to invest heavily in technology, in innovation. We are really expanding on that. So we feel comfortable. Raj and I talked about that. We feel really comfortable with our guidance on the EPS and on the margin guidance.
spk02: Okay, thanks for that.
spk07: Also, obviously, on the expanded revenue guidance, now the new revenue guidance also, obviously. Thanks, Jason. Thank you. Operator, can we have another question?
spk05: Yes, the next question comes from Darren Peller with Wolf Research. Please go ahead.
spk10: Thanks, guys. You know, while there's been a lot of progress made on the Woo.com business, obviously, and as you mentioned, it's now become the largest digital money transfer business. When you consider the sequential change, just to follow up on that a bit, again, it was pretty flat from a revenue standpoint from last quarter to this quarter. And I think you have average users, you said, up 8%. Can you help us understand what kind of dynamic we can expect over user growth for Woo.com going forward? It was obviously much higher. It's off a larger base now. But we haven't heard an update to that 9 million metric in a while. And I'm just curious what you think you can do. What kind of growth normalize into 22? And what tactics you're going to be taking from a marketing standpoint to execute on that kind of user growth going forward?
spk14: Yeah, I mean, a lot has happened, Darren, over the last couple of years. You know, at the end of, if I give you a little bit of history, I'm sure you recall at the end of 2019, we had anticipated that the digital business, which was primarily Woo.com back then, could grow in the 20% range for the following, you know, two or three years or so. And I think that's what we said at our investor day that fall. And last year, it doubled the growth. It was almost 40% revenue growth. This year, it's probably going to be in line with what we would have expected in a normal year. And now we're going to be sitting at over a billion dollars in size and on a much larger customer base, too. We do believe that there will continue to be good growth in those various metrics, but a lot of it will depend on the level of traction we get on the digital partnership side. So that's going to be a key component. And then Woo.com, the opportunity is really there. The market growth will come from the digital part of the remittance market, and we continue to have a very strong position there. And we'll continue to invest in marketing for customer acquisition, and we're also spending a fair amount on the technology side to continue to upgrade the features and functionality, which ultimately increases the retention levels of the customers we have. So we feel good about... the business and the continued customer growth and traction of the digital business.
spk07: Yeah, just to turn on that note, I really am very happy with the digital business, actually. While the economic conditions and industry trends have been impacted, not only us, but the overall industry, and you heard that from other calls also, I think our digital business has been performing pretty well, and it's extremely resilient and it's growing. And that's from our base. And, you know, think about that. WestUnion.com is in 75 countries, but only in 75 countries. And maybe 50 of them are pretty new, launch pretty new, and, you know, really getting new customer segments. So there's a really huge way to go forward with the WestUnion.com connecting the 200 countries. So there is the customer acquisition here, also with our new ecosystem strategy, making customers more sticky, lifetime customers. That's what we think that. And also, you know, the other one is that our investment on STC Bank, which is basically a WestUnion.com strategy in Saudi Arabia. They do their digital banking, and we are part of it. These things will continue and, you know, they're optimistic. But to your question, what happened in Q3, a little bit slow down, has been also impacted by economic... Well, it's really a grow over from last year. Not a grow over.
spk14: Last year was so high. And, Darren, for the full year, the monthly active average users, the annualized number will be similar to where the revenue growth will be for Woo.com. So... The quarterly growth was only 8%, and that just reflects the much higher base of customers that we had in last year's third quarter. But the overall customer level is much higher than it has been, obviously.
spk10: Yeah. And then, okay, that's helpful. And then engagement levels on these users are obviously notably higher than retail. I'm not sure if you've ever disclosed. It would be great to hear if you can give us a sense of the number of transactions that you would see on Woo.com users versus more traditional. And then really adding on to that, what that could turn into with this WooShop initiative and the WooPlus initiative, and what timing you expect around WooShop. I'd just be curious to hear a little more around your strategy on that initiative.
spk07: I think, first of all, we don't give these numbers yet, but that's a good hint that long time we should maybe disclose more, especially when we talk about our ecosystem. how that can be, you know, the customer loyalty, how long we keep the customers, how many transactions they do, more than, different than the retail transactions. By nature, at thevestrian.com, you have to be a lifetime customer or, you know, long-time customer because you have to have an account. At the retail customers, you walk, obviously, to a retail location, make a transaction, and without customers, by digital customers, by nature, are longer, you know, customers and We should maybe in the future disclose that. Regarding strategy, what we do with the ecosystem is definitely something that we will more give a highlight in future earning releases. And I'm excited, you know, as we disclose that first time in our Investors Day end of 2019, we are really executing what we said there. And that's an exciting opportunity for Western Union, besides doing only money transfer, also really, you know, satisfying the needs of the migrant customers long-term and their loved ones back home.
spk05: Was there a follow-up, Mr. Peller?
spk10: It was really about WooShop and the opportunity there in terms of investment, what you'd expect to be in about, let's call it a year from now, around that initiative.
spk07: Yeah.
spk14: We're just launching it now, WooShop, and we're doing the financial services test this quarter as well. So, Darren, hopefully we will have more feedback after the first quarter or so of next year. We just need to see the level of traction. But it really is a seamless way to shop online.
spk07: I think there's also a link on the presentation where you can go to WooShop and look at that. But it's really shopping and sending you, you know, from home and sending your gift cross-border. And there are about 12,000 retail shops there, which you can send, you know, not only money, but also send goods there and get cash back, which is a quite attractive way of keeping customers longer and, you know, building this ecosystem for a longer time, like a bank, digital banking. Okay. Got it.
spk10: Thanks, guys.
spk07: Thanks, Darren. Talk to you later.
spk09: And pardon me, everyone. This is the operator. I will take over the question and answer session at this time. I do apologize. And our next question today comes from David Toget with Evercore ISI. Please go ahead.
spk03: Thank you. Good afternoon. Hey, David. Hey, Raj. How are you? Good. Good. Could you walk through the price mix within C2C, both in North America and, you know, EU and CIS? For example, it looks like you have negative price mix in EU and CIS with transactions up 3%, gap revenue down 3%. But then in North America, it looks like you have some positive price mix with transactions down 5%. revenue down to? Is that just the mix of Woo.com or is there actual some change in pricing occurring in either region?
spk14: Yeah, there are different things happening in different regions. In Europe and CIS as well as Middle East, Africa and South Asia, the digital white label business is causing most of the transaction revenue spread. So in those two regions, that's the main factor. In North America, it is just some price optimization that we're doing and primarily in our U.S. domestic money transfer business. And then Latin America has some positive business mix in it where the business continues to recover, but we're getting a lot of good high principal growth within the Latin America region. And You know, so that's causing the bigger spread between transactions and revenue. And then APAC just continues to, you know, recover from some of the COVID related impacts from last year. And, you know, I would just say overall, you know, when you look at our business on a global macro basis, the pricing environment continues to be quite stable. You know, we have 20,000 corridors, David, as you may know, and, you know, our country pairs, and we're always moving pricing up and down in those corridors. But when you, add it all up at a macro level, we don't seem to see too much in the way of pricing pressure. And then we're also moving pricing within our channels. And so, you know, hopefully that gives you a little bit of color on what's happening around the world.
spk03: That's helpful. Thanks. Could you just expand upon your comments around price optimization and U.S. domestic, you know, price cut you took?
spk14: Well, it's not necessarily a price cut. The U.S. domestic money transfer business has been in decline for several years. It's now about 4% of total revenues. And we don't expect that's going to turn around, as you've heard us say before. That's not a business where we're going to be competitive long term, the U.S. domestic business. And so we are trying to maximize the cash flow opportunity there. The one caveat I would give to it is that we have, you know, just launched the relationship with Walmart and, you know, we're seeing some good traction there in our domestic business. So we'll just see how that plays out. But more broadly throughout the rest of the U.S., that's really what I was getting at.
spk05: The next question comes from Brian Keene of Deutsche Bank. Please go ahead.
spk04: Hi, guys. I just had a couple questions or clarifications. Raj, the digital revenues, was that in line with expectations in the quarter or was that also impacted by COVID? Because I guess the growth rate of 15% is below the kind of the 20% outlook, yet there's some moving pieces there.
spk14: Yeah, I would say it's generally what we expected, Brian. So not really impacted by COVID, maybe on the margin, but we're still very much on track to exceed a billion dollars of total digital revenue for the year. And we achieved the same level of revenue that we had, which is a record high in the second quarter, you know, $266 million of revenue. So it's very much in line with what we had expected and, you know, keeps us on track to hit or exceed a billion dollars of revenue this year.
spk04: And is 20% the right growth rate to think about going forward in the digital business?
spk14: Yeah, it's hard to tell you what to expect for next year or in future years because we didn't expect to be at this level of revenue this year. We're going to be comfortably above a billion dollars for this year, so we'll just have to see where we exit. But again, there are a lot of factors. So if we think about Woo.com, the things that we can drive include improving the features and functionality on our platforms to drive better retention levels of our customers We're also continuing to invest in marketing, which is the main customer acquisition vehicle we have. And that's been going quite well. And then lastly, we have a very heavy focus on distribution. So more account funding, more account payout, more mobile capabilities. So those things will help to drive the Woo.com business. And then for a digital white label business, it's all about signing more digital partners around the world. And we'll have more that will go live in the next few months that we haven't announced yet, but we have signed. And so all of those will come into play on Total Digital. But with the billion-dollar base we have gives us a good platform for future growth.
spk07: I think, Brian, also maybe your question is also how are you doing against competition, all these things. I will say that you are doing pretty well. If you look, generally the market has been, you know, obviously industry has been impacted by Q3 with the economic environment. But our digital business has been performing very well. And comparing with the competition, also very well. Just to give you a summary, A general principal amount, the World Bank tells that we're going to, you know, the world remittance market will grow about 2%. And we believe we are gaining market share because our principal is going by 19%. So within that, obviously, mainly driven by digital business. So I would say that our digital business is performing very well. As Raj said, you know, is it 20%, 15% or 25%? I can't tell you now because we, you know, we had an excellent year on digital business and we are having an excellent year in digital business. And we're going to reset. Where do we go from 1 billion? Is it going to be 2 billion soon or 3 billion soon? Let's see. That's going to be the guidance we will give in February.
spk05: The next question comes from James Fawcett with Morgan Stanley. Please go ahead.
spk01: Thank you very much. I appreciate all the details you're giving on the business dynamics. I want to turn really quickly to the business solution sale and as that progresses and, you know, as long as it clean or finishes the way you expect. I'm wondering if you can talk about the priorities around your use of proceeds there, particularly capital allocations. I know it's early, but just think about how you're planning to align business priorities with that contribution.
spk07: Yeah, I think first of all, as I mentioned earlier, we are happy with our strategic approaches and within that also with business solutions divestiture. We assume that we're going to have the first closing by end of first quarter 2022. And the procedures, all the procedures will be transferred by when we close the first one. There is a second part also, but that doesn't impact the procedures. So the second part will be probably later, given the regulatory environment in Europe. So the business solution has been performing very well this quarter. One of the reasons is that, first of all, the grow over. Secondly, is that, you know, the university is open again. The people can go back to the universities, can study cross-border after COVID. And so the tuition payment has been good for us. And that has been probably one of the biggest impact on the business solutions growth. So maybe on the capital allocation question, James, Raj, you want to take that?
spk14: I can, yeah, sure. James, we'll have obviously more specific color once we close the transaction, which, as Hikman said, will be sometime in the first quarter. But whether it's our ongoing cash flow, operating cash flow, or proceeds from the transaction, which are expected to be about $800 million net of taxes, we still have not changed our capital priorities. So that is to invest in the business to drive organic growth and expansion. Secondly, we pay a very healthy dividend. This year, it'll be almost $400 million by the time we're done with this year, and then Third, we would like to focus on the right kind of acquisition opportunity. And it doesn't necessarily have to be a direct revenue generating acquisition. It could be a technology or capability of some sort or something that might help our ecosystem strategy. And then to the extent that we have excess cash left over, we'll buy back stock. And that priority order hasn't really changed. And that's the way we think about whether it's the proceeds from the wood sale or our ongoing operating cash flow. That's how we think about it.
spk01: Thank you. I appreciate that. And then I wanted to ask quickly, because I haven't heard it mentioned, but I know that, you know, we're continuing to or expect that you're continuing to make progress on some of your trials around broader suite of financial services in Europe. Just can we get an update on, you know, kind of what's happening there and the timeline that we should start to monitor things more closely, etc.? ?
spk07: Sure. I'm very pleased that, you know, in such a short time, we're probably, as you know, digital banks need six to eight, ten years to launch a product. We've been launching products very, in a very short part because one of the biggest advantages we have, we have our platform, then we have our brand, and we have a bank in Europe with a bank license, which we have to report to regulators, everything. As you know, financial services, Launching products with financial services is not easy. So we are launching this year prepaid cards, multi-currency cards, really talking to the customers with their needs and really having a consumer financial service products for our customers. And our bank allows that. and really building an account relationship, not a transactional relationship, but an account relationship with our customers for their financial needs. And that's probably a big advantage that we have, you know, compared with other traditional money transfer companies. Really, Western Union is moving to a more multi-product, multi-service companies with close relationships. And to do so, we have all the fundamentals. And I'm very excited. And, you know, we're going to obviously give more information to you once we launch the first product and their results.
spk05: The next question comes from Ashwin Trinikar of Stiti. Please go ahead. Hi, Ashwin.
spk11: Hi, how are you? Good, how are you? So, first question, the solutions that have the benefits from education, how much of it was from sort of reopening the very fact that, you know, there are actually students coming into universities this year.
spk14: I'm sorry, Ashwin, do you mind just maybe getting closer to the microphone? You're a little bit jumbled, or I can't hear you clearly.
spk11: Yeah, is this better?
spk14: Yes.
spk11: Okay, cool. Now, the question is with regards to business solutions, revenue growth, how much of the this year or this quarter was because of reopening versus any kind of share gain?
spk14: Well, I guess the way I would answer it is that it's slightly above where it was in 2019 from an absolute revenue standpoint. And then it's sequentially better obviously as well. So I guess that there's some additional revenue there. But, you know, I think the primary driver is really about the seasonality around the education or tuition payments. And, you know, so sequentially is a little bit better and a little bit higher than 2019 levels. And correct me if I'm wrong on that, Brad. That's what I saw in there. And then I think so it's a little bit of both. But I would say it's mostly related to the grow over impact and the seasonality of the education business.
spk11: Understood. And then... As far as the digital bank strategy is concerned, should we be looking for almost a country-by-country approach, like you mentioned STC Pay, or is it a broader, more global, trying to build components that travel better?
spk07: So it's definitely, we're starting with Germany and Romania. You'll see announcements soon, a few additional countries, And obviously, you know, we are testing with the two big countries, which are Germany on a sent country, migrants and Romania more on the receive side to understanding the needs to adapting the products. And it's definitely a global approach. It's not a one part. We as a global company look always for global opportunities. and we really want to launch that globally. But, you know, obviously, first move will be in Europe, and we are going to expand in Europe to other countries and taking to, obviously, the U.S. and other countries soon.
spk05: The next question comes from Jamie Friedman with Susquehanna. Please go ahead.
spk13: In your prepared remarks, you had mentioned that you're integrating the network for future use in digital currencies. That sounded important, so I was wondering if you could elaborate on that.
spk07: Yeah, sure. Obviously, our platform is allowing us to have 80 currencies, right? And that's unique. We are in 200 countries. We can take any currency to translate to any currency and, you know, settle in that, make the compliance programs, know your customer and pay out. And probably one of the biggest advantages is that we can also translate the digital currency to fiat currencies, 130 currencies. So the biggest question on the digital currency, digital currency is such a big word. It's a cryptocurrency or essentially bank issued currency or Bitcoin. It's the volatility of sometimes of the coin and the use cases for consumers. And we are looking at that. We are really, you know, involved on several discussions. And for us, digital currency, once it's regulated, once it's really regulated, you know, as a use case, it's like taking another currency and settling in another currency. So we feel very comfortable that our platform can do that. Once we feel comfortable and have use cases, we will definitely start. And many digital currency companies are also approaching us because they know our capabilities. They understand that we are close to the consumers. We can do both fiat currency and digital currency. That's something very exciting.
spk14: I mean, Jamie, if you just think about the primary use case in our business, if our customers are sending $200 or $300 at a time, their primary goal is get the money to their recipient as fast as possible, get it there efficiently, get it there with the least amount of time and with transparency, and that's the service we already provide today. But if there were certainly another use case or if there was a need to do additional conversions or additional steps, I don't think most of our customers are thinking of that cryptocurrency or digital currency in that way. We have the ability to settle in 130 currencies today with consumers. If we have a desire by consumers to do more, we can certainly add to it. But that's not really what they're thinking about. And if you move money from an account to an account in our business, let's say it's about a 1% yield, that's a $2 or $3 transaction. So it's very efficient. It's very fast. It gets money to the recipient. And that's the end of job for what most consumers are looking for. And we'll see what other applications there are. But, you know, that was the main point of the comment.
spk13: Yeah. No, that sounds exciting. Thanks. Thanks for that color. I'm going to drop back into Cuba. Thank you for that answer.
spk12: And operator, we have time for one more question.
spk05: Thank you. And that will come from Russell Google with KBW. Please go ahead.
spk08: Hi, thank you for squeezing me in here. I just had two quick ones. One, I guess first on just October trends. I know you guys said you're kind of assuming the same pre-Q type of trends continuing into the fourth quarter in your guide, but anything on particularly in October, what you've seen, have you seen any improvement or trends have been pretty much the same?
spk14: Yeah, we won't comment on October trends, but we're comfortable with the outlook that we're getting today. And, you know, I expect that that's the way it's going to turn out. That's why we gave the outlook that we gave today.
spk08: Got it. And I guess just the next quick one I had was on Walmart. I know you called that out earlier, Aj. Any color on how that channel is performing relative to expectations? And I don't know if you can provide any quantification as to how much of a tailwind that might have been in the quarter.
spk07: Well, let me show Walmart you can. Yeah, go ahead. Well, we are very happy with Walmart, right? We enrolled 4,700 locations in the U.S. As you recall, we already were active with Walmart in Canada and in Mexico. And, you know, the performance is picking up and good, you know, good performance. And we started our marketing activities. If you have time to go to a Walmart location, you will see Western Union everywhere there. And I think Frontline Associates has been trained. And many customers start to use us to many corridors. And we are gaining customers from Walmart to our network. So that's great.
spk14: Yeah, the business has continued to gain traction every month that we've launched it. And we think it's going to be a bigger contributor next year. And we're doing a lot of promotional and other marketing type of activity to create the awareness. And so we're pleased with it.
spk07: Yeah, thank you. I think we had the last question, Brad, for this call. Thank you for joining this call. We are looking forward to the next call. in February, and we are pleased with our resilience of the business, and we are very proud of West Union. Thank you for calling and dialing in. Have a good day. Thank you, everyone.
spk05: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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