The Western Union Company

Good day and welcome to the Western Union fourth quarter and full year 2022 results conference call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Brad Windvigler, Head of Treasury and Investor Relations. Brad, please go ahead.

Thank you. On today's call, we will discuss the company's fourth quarter 2022 results, our financial outlook for 2023, and then we will take your questions. The slides that accompany this call and webcast can be found at WesternUnion.com under the Investor Relations tab and will remain available after the call. Additional operational statistics have been provided in supplemental tables with our press release. On our call today is our CEO, Devin McGranahan, and our CFO, Matt Cagwin. 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 2021 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 in our earnings release attached to our Form 8-K, as well as on our website, westernunion.com, under the investor relations section. I will now turn the call over to our CEO, Devin McGranahan.

Good afternoon and welcome to Western Union's fourth quarter 2022 financial results conference call. Our reported revenue in the fourth quarter was $1.1 billion and excluding contributions from business solutions decreased 6% on a constant currency basis. This growth reflects a negative impact of three percentage points from the suspension of operations in Russia and Belarus, continued softness in our retail business, as well as our new branded digital marketing strategy, which includes promotional pricing. Adjusted earnings per share was $0.32 in the quarter, compared with $0.64 in the prior year period, which included a contribution of $0.08 from Business Solutions and $0.06 from operations in Russia and Belarus. The decrease in adjusted EPS was driven lower by lower operating profit and a five cent negative currency impact and a higher effective tax rate, partially offset by lower share count. We continue to focus on maximizing cash flow and on returning capital to our shareholders. In 2022, we returned over $700 million to the shareholders, including $175 million of share buyback in the fourth quarter. matt will further discuss our financial results in more detail and provide an update on our 2023 financial outlook on the macro front 2022 is a challenging year for many businesses with interest rates rising to the highest levels in over a decade in global inflation at the highest point in multiple decades despite that backdrop our customers continued to show their resilience with constant currency principle per transaction up 4% in the fourth quarter and the full year. The IMF updated their global growth forecast last week. They now expect GDP growth of 2.9% in 2023, which will be down from 3.4% in 2022. We have come to believe that remittance volume closely tracks with global GDP growth. As such, global remittance volume continues to remain strong according to the World Bank's most recent migration and development brief, which was published in November. They estimated that global remittance flows to the low and middle income countries grew at 5% in 22 and project a further 2% growth in 2023. We continue to monitor macroeconomic variables that could influence our business. But our expectation is that the backdrop for 2023 will remain similar to what we have experienced in 2022, and we have included these assumptions in our 2023 outlook. Last October, we launched Evolve 2025 strategy to return Western Union to growth by becoming the market leader in providing accessible financial services to the aspiring populations of the world. To achieve this goal, we have been working to revitalize our core retail and digital remittance businesses and launch new products and services to expand our value proposition to our 120 million plus customers around the world. In August, we outlined our plan to accelerate investment in the back half of the year. We achieved this goal with increased investment in our technology platforms and in our digital marketing. These investments are focused on building core new technology to better enable world-class customer and agent experiences. As we highlighted yesterday, improving customer retention is an important driver of returning Western Union to positive growth. We are laser focused on creating world-class experiences across our channels and products that it will make it easier for customers to want to transact with us the first time and every time after. While our investment levels were heavier in the fourth quarter than I would expect on an ongoing basis, we recognized that in order to compete with many of our digital first competitors, we need comparable customer experiences and will want to continue to iterate and innovate every step of the customer journey. A few notable examples of investments in the fourth quarter include, first, in our digital bank. In February of 2022, we launched a digital bank in Germany and Romania with the goal of creating a digital wallet-based payment platform. As we evolve our model from a transaction-based relationship to an account-based relationship, we expect to see increased customer engagement through more frequent interactions and ultimately improve customer retention. We believe an account-based model will provide us with a better platform also for the expansion of new products and services. In Q3, we expanded our digital bank offering to Poland, and in Q4, we added Italy. By ending send and receive country pairs, we are experimenting with how this approach can maximize the benefits of our two-sided network. The project is progressing, and the countries we have now launched, we have a total of approximately 150,000 onboarded customers. Our goal for 2023 is to expand our digital wallet and financial ecosystem to a number of additional markets. And in the fourth quarter, we made investments to enable us to launch our digital wallet into additional European countries, as well as our first two launches outside of Europe, including the United States, the largest remittance and market in the world, and Brazil, the largest economy in Latin America. In addition to our digital bank, in the quarter we also continued the development of our new retail point of sale system. We believe this new POS will improve both agent and customer experience and will help change the trajectory of our retail business. We began a pilot of the new POS in select locations in the US in December. We believe that removing friction from our retail transaction process will improve not only transaction abandonment rates, but will allow our agent partners to serve more customers, ultimately creating a better experience for both our agents and our customers. Finally, driven by our new go-to-market strategy in the US, we made the decision to invest, increase investment in our marketing program in digital customer acquisition in the fourth quarter so that we could test and learn. We added additional dollars behind the strategy in the United States and also rolled out similar strategic programs in a few European markets as we continue to scale the program worldwide. As we discussed at Investor Day, returning our digital business to positive customer and transaction growth is our top priority. We are shifting our approach from maximizing revenue per transaction to maximizing customer acquisition and growing customer lifetime value. This change has required us to rethink our approach to new customer offers and our approach to maximizing top of funnel effectiveness on every marketing dollar. I am pleased to tell you, we believe it is working. We reported to you last quarter that new U.S. outbound branded digital customers increased 26% year over year in the month of September. Today, I am pleased to report that that momentum we saw in September continued through the fourth quarter with new U.S. outbound branded digital customers up 30% year over year, which is now contributing to an improvement in our transaction trends as well. In Q4, we saw U.S. outbound branded digital transactions grow at 5%, a clear reversal of the decelerating trends we had seen in the business earlier in the year and the fastest transaction growth rate since the fourth quarter of 2021. Growing customers and transaction is important, but so is increasing customer lifetime value. In the near term, increasing retention is the lever and our focus. By simplifying repeat send experiences and increasing our ongoing CRM efforts, we are starting to see improvements. As a case example, if we look at fourth quarter retention rates for our newly acquired U.S. outbound September cohort, going back several years for comparison, the 90-day retention rate for that cohort is the highest we've ever seen. Not only are we acquiring now more U.S. outbound branded digital customers, but we are retaining those customers at a higher rate than we have in the past. While it is clearly too early to definitively say what the ultimate lifetime value of these new customers will be, early results show promise as typically around 75% of the full year retention value is captured in the 90-day retention rate. Given what we are seeing with transaction growth and retention rates among this new cohort, we believe these new customers are clearly value accretive even at a lower revenue per transaction. The last topic that I'd like to discuss is the success we are seeing in Latin America, which has continued to perform with double-digit revenue growth in the fourth quarter. Latin America is a great example of where we are improving our distribution both via own location In conjunction with our agent partners. As we discussed on the second quarter call, our corporate-owned locations in Brazil, while only 5% of our retail footprint, accounted for over 50% of the revenue in that country. In 2022, we opened over 50 new corporate-owned locations in Latin America, including new locations in Argentina, Peru, and Brazil. Given the right mix of distribution, like we have in Latin America, we are seeing results. In Q4, LACA saw 16% new cross-border customer growth with cross-border monthly active users up 11%. Marginally increasing our footprint of exclusive Western Union branded corporate owned and concept stores in high volume locations allows us to better control the customer experience, increase the number of products and services we offer, promote the retail to digital escalator, and assist with the eventual adoption of our digital wallet and our financial ecosystem. Importantly, we are able to add these kinds of locations at attractive economics with low capital and oftentimes generate above corporate average operating margins. Our goal is to concentrate corporate-owned and concept stores in high-density areas of the network while continuing to maintain and expand our extremely broad and valuable agent footprint. Given the success we have seen in Latin America, our plan for 2023 is to open another 50 corporate-owned locations in the region and also expand this model of controlled distribution into other parts of our network. europe in 2022 we opened 15 new concept stores across the region in one new corporate owned location in the central madrid train station in a quick update melody our partner in rome that we highlighted at investor day will now have seven stores live branded western union that includes a new store in italy that she is opening this week she and we together are enabling us to better serve the Filipino community across Europe. Before I turn the call over to Matt to discuss our financial results in more detail, I would like to highlight a few key partnerships. First, we are pleased to announce the signing of 7-Eleven stores across Mexico. Mexico is one of the largest inbound remittance markets in the world, and we look forward to offering our remittance services at over 1,800 7-Eleven locations across the country. Next, we are pleased to announce the extension of our long-term and exclusive relationship with the Rite Aid, signing a new five-year partnership. Rite Aid is one of the leading consumer retail stores in the United States and a long-term valuable partner of Western Union. Finally, I am very pleased to announce that Matt Cagwin was appointed the Chief Financial Officer of Western Union. Matt joined us in July of last year as the Head of Business Unit Financial Planning and Analysis and served as the interim CFO since September. Matt brings a wealth of experience to the role, most recently serving as the CFO of the Merchant Acceptance Division of Fiserv First Data. Thank you for your time, and I will now turn the call over to Matt.