Q3 2019 Earnings Call
Good day and welcome to the Western Union third quarter 2019 results Conference call. All participants will be in listen only mode should you need assistance. Please take the only conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opera.
I wanted to ask questions. Please note. This event is being recorded.
I'd now like to turn the conference over to Brad wouldn't Bigler head of Investor Relations. Please go ahead.
Thank you Andrew.
It was card we will discuss the company's third quarter results in our financial outlook and then we will take your questions slides to accompany this call webcast can be found at western Dot com under the Investor Relations tab remain available after the call additional operational statistics have been provided in the supplemental tables, but that's that's true.
Today's call will be recorded in our comments it groups looking statements. Please refer to cautionary language in the earnings release lessons filings with the Securities and Exchange Commission.
The team Form 10-K for additional information concerning factors that could cause actual results to differ materially any forward looking statements.
Recall, we will discuss some items that jockey for him to generally accepted accounting principles, we reconcile those items to the most comparable GAAP measures on <unk> website, that's green Dot com under the Investor Relations section, we'll also discuss certain adjusted metrics. Although the expenses have been excluded from adjusted metrics are specific to these initiatives. The types of expenses, maybe similar types of expenses at the company is.
Previously incurred and can reasonably <unk> do you expect it to incur in the future.
All statements made by Western Union officers on this call or the property the West Marine company and subject to copyright protection I didn't the replay noted in our press release Western has not authorized and disclaims responsibility for any recording replay or redistribution of the trend or true any transcription of this call I'd now like to turn the call over Hikmet Ersek.
Thank you Brett and good afternoon, everyone.
Good good results, most said, but as you produced strong adjusted margins and improved consumer money transfer revenue growth.
Completed significant actions related to our previously announced restructuring program.
[laughter] jokes remain strong we did you money transfer, including receivables commented part gauge what they did did you don't services, increasing more than 22% indicator.
Additionally, we assume.
So she was delivered its 50 contributed to a constant currency revenue growth.
And.
Yes.
So again use our strong cash flow 22 significant sums to our shareholders through share repurchase and dividends.
No return rather were $700 million year to date.
Given our third quarter results and trends expected for the remainder of the year. We remain on track does seem to your financial outlook.
Well actually gave you may be just on the quarter and restructuring activity.
It's before that I would like to review the long term said the Gen financial targets, we announced last month, including a 23% operating margin.
To 22.
The low double digit earnings per share compound annual growth rates over the next three years compared to our 2019 adjusts the outlook.
As noted at Investor Day, we have tremendous assets first cross border money movement and payments.
Let me recap these briefly.
You have lost global metric, that's strong Brent a distinct global processing a settlement capabilities.
Over time, our business and customers have proven to be resilient and they trust us to move their funds.
And the liability.
In recent years, you have strengthened our compliance capabilities added more digital services and expanded our met but connections to bank accounts mobile websites and carts continued to progress our digital expansion and our announced and I'm still pending but they seem to come in India, where.
Zumiez will now be able to samsung's cash cost for the two out of service.
India is that so this is inbound country, new days, an incremental opportunity for outbound business.
India is one of the fastest growing emerging economies and upcoming does this have been growing the last several years.
Yeah, that's implemented real time cross border transfer payments capabilities, while up different channels. In addition, we have taken more patient steps to make our platform more joke by investing in new technology, implementing lean processes and adjusting operating model.
Despite the foundation in place.
Our main focus.
Focus from opening up lots into more took part to use cases in both cross border money transfer and payment solutions. We believe this will give us incremental long term revenue opportunities.
This includes areas such as ecommerce market places, where we have already begun a collaboration with Amazon as well as well maybe a consumer money transfer from third parties Cross border services for institutions and many other opportunities.
We mentioned some of the white labeled money transfer examples at our Investor day, and better banks in Russia, and Saudi Telecom are continuing to perform very well and upgrades to our portfolio.
Yeah, I know expanding its important to other countries.
The announcement reputable and processing agreements major financial institutions in Korea and Japan.
[noise] senior targets, I assume 2% complete parts and revenue growth.
Over the long term you expect your cross border solution services for third parties will contribute incremental growth to our business.
[noise] received when consumer money transfer business, we expect revenue growth will be driven by three primary and you said its first and then to create a deeper relationships with customers, whether they ultimately translate transcept digital retail.
Second we plan to leverage they took to better customized to use it expands and maximize lifetime value. This includes using technology.
Actually intelligence to extend our dynamic pricing activities at them, even more micro level and customized offers to consumers.
And third.
Plan to increase the productivity of our net growth by providing specialize customer and agent experiences.
Agent locations based on sense revenue. This will include initiatives such as digital displays. So say this prior to lanes mealtime marketing offers expanded pro back over in and differentiated agent incentives.
And given solutions, we expect revenue growth to be led by adding more reasons verticals.
We're continuing to expand existing high growth areas, such as education payments, while also leveraging our edge platform and digital so service offerings.
As we discussed last quarter, you have also begun restart to blend and and I undertaking other efficiencies that it takes away profit growth and cash flow for the next two years, while the new platform, where we need you said to develop.
Do you anticipate these actions degenerate hundred 50 minimum balance of incremental profitability by 2020 too. In addition to providing additional funds for reinvestment in the gross book to business.
Savings combined with our revenue assumption support our financial targets.
Operating margins by approximately two up to approximately 23% in 20 to 22 and delivering a low double digit EPS compound annual growth rate over the next three years.
Most expect.
To generate more than $3 billion operating cash flow.
The 2020 to 20 to 22 period and return to.
Two ki bin Embezzlers to shareholders through dividends and share repurchases.
So I'll, let excited about the future.
Our courseware demanded sensor business sell it and digital business growing strong.
Given solutions has delivered better gross.
And we all expect expanding our presence in the very much need to be markets.
In addition.
You bet, you have incremental long term growth.
By opening our platform to third parties.
And.
Third quarter results no sell it and efficiency initiatives are well underway.
Now I would like to turn it over to watch for a more detailed discussion.
The third quarter financial results Raj. Thank you.
Third quarter revenue of $1.3 billion declined 6% compared to the prior year period, while adjusted constant currency revenue, which excludes our divested businesses in the prior year period increased 4% currency translation net of the impact from hedges reduced third quarter revenue by approximately $46 million.
Paired to the prior year, primarily due to depreciation of the Argentine peso.
The decline in the peso negatively impacted reported revenue by 2%, while the effective inflation on their Argentina businesses is estimated to have positively impacted both reported and constant currency revenue by approximately 2%.
In the consumer to consumer segment revenue increased 1% or 2% on a constant currency basis, while transactions grew 2% total CDC cross border principal increased 3% or 4% on a constant currency basis, while principal per transaction was flat or increased 2% constant currency.
Spread between CDC transaction and revenue growth in the quarter was 1%, where the negative 1% impact from currency.
Pricing and mix offset each other as pricing positively impacted revenue while mix had a negative impact.
Turning to the regional results North America revenue grew 2% on a reported and constant currency basis, while transactions declined 1% growth was led by the U.S., Mexico corridor and other you ESOP on business, which was partially offset by continued declines in U.S. domestic money transfer.
Domestic declines were generally similar to last quarter's charts.
In Europe , and in Europe , and see I asked region revenue declined 1% or increased 1% on a constant currency basis with growth led by Spain, France, and Russia transactions in the region increased 6% aided by the spare bank White label business.
Revenue in the Middle East Africa in South Asia region grew 4% on a reported basis or 5% constant currency, while transactions increased 1%.
Revenue growth was driven by strength in Saudi Arabia, and the way, including benefits from the Saudi Telecom White label business and increased prices in certain quarters Arts. These benefits were partially offset by lost business due to hard currency limitations in certain African markets.
Latin American and Caribbean region continued to deliver strong constant currency revenue growth led by transaction growth in Ecuador and Sheila.
Revenue in the region increased 4% on a reported basis or 12% constant currency, while transactions grew 10%.
In the APAC region revenue declined 13% on both a reported and constant currency basis transactions were down 6% in the region.
Ration trends improved sequentially, while revenue trends, where the similar to last quarter, partially due to pricing reductions implemented in certain markets.
[noise] Western Union Dot Com revenue grew 16% or 17% constant currency with transaction growth of 16%.
We are dot com, representing 40% of total CDC revenue in the quarter.
Cross border West muted dot com revenue increased approximately 25%, but this was partially offset by declines in domestic money transfer.
Physicians revenue was flat on a reported basis or increased 3% constant currency and represented 8% of company revenues in the quarter.
Constant currency revenue growth was driven by strong performance generated from customers in Europe , as well as increased sales and hedging products and strong growth in the education and financial institution verticals.
Other revenues, which consist primarily of our retail bill payments businesses in the U.S. in Argentina decreased 48% in the quarter, which reflects the impact of the speed pay and Paymap divestitures in may.
The professor walk in business in Argentina posted good increases in transactions and local currency revenue growth and increase in us dollar terms as well.
Other revenues represented 7% of total company revenues in the quarter.
Turning to margins and profitability will focus on consolidated margins as segment margins are not comparable with the prior year period due to reallocation of corporate costs. Following the divestiture of the speaker business.
We're also providing adjusted metrics to exclude restructuring expenses merger and acquisition costs and related tax effects.
The consolidated GAAP operating margin was 15.1% in the quarter compared to 21.8% in the prior year period.
The decline was primarily due to the impact of restructuring expenses from our previously announced initiatives, we incurred $92 million a restructuring expense in the quarter, where the significant majority attributable to severance.
We continue to expect approximately $100 million of restructuring expense for the full year and approximately $50 million to be incurred in 2020.
Adjusted operating margin in the third quarter was 22.3% compared to 22% in the prior year period with the increased primarily due to operating efficiencies, partially offset by the impact of the speed day and came after divestitures.
VPN Paymap contributed about 50 basis points to last year's third quarter margin, while foreign exchange hedges provided a benefit of $10 million in the current quarter compared to a benefit of $4 million in the prior year period.
We expect adjusted margins to be lower in the fourth quarter due to timing of spending and planned investments and we're maintaining our approximately 20% adjusted margin outlook for the full year.
The GAAP effective tax rate was 16.8% in the quarter compared to 21.7% in the prior year period.
The adjusted tax rate of 18% compared to 11.8% in the prior year period.
The decrease in the GAAP rate was primarily due to changes in estimates for the for tax Act provisional accounting in the prior prior year period.
The increase in the adjusted rate was primarily due to nonrecurring benefits in the prior year.
GAAP earnings per share in the quarter was 32 cents compared to 46 cents in the prior year period with the decreased primarily due to restructuring expenses.
Adjusted earnings per share in the third quarter was 49 cents compared to 53 cents in the prior year period.
Due to dilution from the speed pay divesture and a higher adjusted tax rate, partially offset by lower shares outstanding.
Turning to our cash on balance sheet year to date cash flow for operating activities was $665 million capital expenditures in the quarter, where approximately $19 million at the ended the quarter, we had cash of $1.4 billion and debt of $3.2 billion, we returned $224 million to shareholders.
In the third quarter, including $84 million and dividend and $140 million a share repurchases, which represented approximately 6.5 million shares.
Outstanding share count at quarter end was 420 million shares and we had $1.1 billion remaining under our existing and new share repurchase authorizations, the majority of which expires in December 2021.
Turning to our financial outlets, we are affirming our three year financial targets and 2019 full year financial outlook.
We continue to expect GAAP revenues for the full year to decrease mid single digits due to the divestiture of the speed pay business in may.
Adjusted constant currency basis, excluding speed band Paymap from both years and excluding any benefit from Argentina inflation, we expect a low single digit constant currency revenue increase.
GAAP operating margin is expected to be approximately 18%, while the adjusted operating margins are expected to be approximately 20%.
We expect GAAP effective tax rate to be in the range of approximately 18% to 19% and the adjusted rate approximately 19% for the full year.
We continue to expect the effective tax rate in 2020 to be in the mid teens ranch.
GAAP EPS for the year as expected to be in a range of $2 47 to $2.57.
While adjusted earnings per share is expected to being a dollar in a range of $1.70 to $1.80.
Cash flow from operating activities for 2019 is expected to be approximately $800 million, while adjusted operating cash flow is expected to be about $950 million. We continue to expect to spend between five and $600 million on share repurchases for the full year, and we have repurchased $475 million through the third quarter.
In summary, we are pleased with the quarter's results and we remain on track with our full year financial outlook, we have begun implementing our new global strategy designed to drive profitability efficiency and long term growth and we have made significant progress on the restructuring.
We have also continued to return significant funds to shareholders, while maintaining a strong balance sheet.
We look forward to delivering our strategy and financial targets and we will provide updates on key activities as we move forward.
Thank you for joining our call today and operator, we're now ready to take questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then to.
At this time, we will pause momentarily to assemble our roster.
The first question comes from Darrin Peller of Wolfe Research. Please go ahead.
Hi, there hey, Thanks, guys, let me Hey.
Starting off on the on the revenue side, I mean pricing look like.
Benefited you buy I think you said 100 basis points. So I think we saw some of those trends in the World Bank data to I mean is that a broad based macro trend you're seeing from a competitive standpoint across the industry or.
Are you actually already starting to see some of the customize efforts you talked about at your Investor day, taking hold where you are dynamic pricing is already being implemented.
Well, yes, say, there and the pricing benefit we didnt quantify we said that pricing and mix have largely offset each other but we have seen then in.
In in the market generally that the pricing is relatively stable. So we haven't really seen any pricing pressure certainly on the downside and it has been quite stable.
As we do more dynamic pricing and as we bring more technology into the equation looking application based pricing or or Dave waiting time of day. It actually is more difficult to actually distinguish between what is the pricing increase or decrease and so we really want to get away from getting that because it may not be actually accurate right. So we.
We are trying to drive the overall lifetime value of the customer as we modify our pricing strategy.
But generally I would say, though in the pricing environment is stable and we feel we are quite competitive bid our corridors and as you know there.
Being as Rob said being in so many corridors and being so dynamic helps us to adjust the prices on zero, we will focus on the customer long term value.
Okay.
All right that helps and just one quick follow guys. I mean, the you obviously call out a lot around the partnership model now me.
The ability to use your network for others, FCC and Sperbeck as the notable ones you mentioned others coming on I mean, I guess I'm just trying to figure out the materiality of these two year transaction growth rates and how how you'd expect them to impact transaction growth rates on the overall CDC business starting as early as 2020, I mean is that's enough to move the needle.
What kind of numbers of larger partners are you, adding beyond beyond the ones you talked about already.
So the good thing is that let me start with the new this incremental right because you know we so.
And despair Bank for instance, the suburban ton secular bank transactions are happening anyway, but it's quite complex suite the correspondent banking on debt choosing us to do it easy way to transfer that that's really.
Incremental transactions are not cannibalizing big picture, our our business our existing Western Union brand that business right I think from the still as you know four or five examples worldwide I just came back from a roll through.
Yes, we just signed an agreement in Japan, We just signed an agreement in South Korea, which we're very excited that similar likes Burbank Big banks.
So use the platform to drop money worldwide and that's kind of strategy is a long term strategy. As you also know making agreements financial institutions. Our long term agreements at the same them. It takes some time to implement them because you have to.
Your your eye to steer systems, so demetra their systems, but given our open ipi, we're very confident that you can really adjusted very fast so I am excited about that.
Putting our platform and to the banks because in that case, we are not opening a new product we are able to solving a problem most of banks and which they have and the money moves there at comtech and anyway, but with our with our.
Real time.
Account payout, it's really replacing their issue in most cases.
Okay.
Okay, all right. Thanks, Thanks, guys.
Thanks, Dan.
Question comes from Jason Kupferberg of Bank of America Merrill Lynch. Please go ahead.
Hey, good afternoon, guys I just wanted to see if somebody guys have any hi, I just wanted to see if you guys had any preliminary thoughts on on where 2020 revenue growth might land Im just thinking about it obviously in the context of the three year guide some of these initiatives that you've been embarking on.
It will presumably ramp to some extent next year, others may take longer. So just wanted to see where we should we thinking about a reasonable range potentially for next year, obviously, assuming no major changes in the macro backdrop.
Yeah, Jason I would say that we're still comfortable with a three year view that we gave meet our assumption is that we're going to go 2% to 3% and that assume just as a reminder, that assumed about 20% digital growth, which includes would dot com and some of these digital partners, but nothing that material.
And we assumed a relatively stable retail business in that regard with the dynamic pricing and engagement will have that the customer and then we also seem to mid single digit Peter bead growth over that three year period. So.
We're not really ready to give specific guidance for next year, but we're comfortable with the three year view that we gave and also the new opportunities as Jason our long term opportunities and once they get material. We're very excited at the start but once we do they get material, we will give definitely.
Some more color on that so it's early but as Rob said that we feel comfortable with our three years assumptions on revenue.
Okay, and you talked about the uptick in C to see constant currency revenue growth I think we went from 1% last quarter to 2%. This quarter does it feel like two is sustainable.
Well, we know that the 2% to 3% outlets for three years assumes that there the consumer business in total is going to go 2% to 3% as well right.
The uptick in the quarter, just specifically was related in large part to the significantly improved performance in the middle East right with the right and Saudi Telecom was a key part of that overall performance. So.
Yeah, we'd love to have a continuing in that range. So.
Let's see how things that transpired here, but it's always good performance.
Just one more for me I was curious just as you continue to roll out who dot com in more countries, if you're seeing any distinct patterns in terms of how.
The usage patterns of the service tend to evolve when you when you actually launching a new country.
Yes, I think so.
The India example, which I gave earlier its new New example for us and launching a dot com business in the receiving mainly receiving country, but don't forget India has 1.2 billion people and that really fast growing economically the millions of emerging middle class and they are trading and they are connected globally.
They do want to us and money I think we have some important is there we have to create the brand awareness there will be just send money. That's another only to receive money and but the you know we are really exact about that I am also just one thing on on India. The recently announced the.
The real time on an account in India. We made an agreement did you pie.
It's you pie is the kind of.
Kind of I'd, which gets banks and with the S Bank together. So we can drop immediate we can really dropped immediately money just suite the phone numbers under the name space and if you'd be a name today console to all Oh Indian banks, which we are the first there and be viewed beyond the first financial institution.
In saying that for close for the transactions to India, and we're very excited about that doses up to a question on resi and just come it depends on the market. It takes time.
But it does still a huge potential and I'm very proud to say that remember Jason few years ago. You asked me how when are we going to have the 10% off the revenue total revenue total revenue.
Yep.
14% of our total revenues.
Visteon Dot Com Beach.
And it's still going between 2%.
Right well, thanks for the comments Scott.
Thank you.
Next question comes from Tencent Wong of JP Morgan. Please go ahead.
Hi, great. Thank you can be a different type Halloween you guys. The margin I want to ask the you're running little bit ahead, you today, what 20 that six it looks like ahead of your approximately 20 I think unless you mentioned there will be a little bit low in the fourth quarter.
Is that normal way seasonality spending you doing something unique I'm, just trying to get a good jumping off point here and.
Whatever I can tell us on 21, no time 2020 margin will be great too [laughter] itself I guess looking at the time there.
Yes the.
Look at this year as being more this quarter is being our timing related it's similar to last year's pattern. It doesn't necessarily mean that that's going to happen every year, but.
There were some timing of spending and we do have some further investments in the fourth quarter, we could end up a little bit above or so or little bit blood just depends on how we spend the money in the fourth quarter back.
We're still comfortable where the approximately 20% outlook for this year and as we had said at Investor Day, We do expect to get margin improvement each of the next three years and so I won't get any more specific than that but we are looking for margin improvement next year, but generally United we started out programs to engine I will say that.
Really the lean management tools helps the company, how you're thinking about though.
How operative way are we really look at though.
Optimized to optimize the business, but at the same time.
The growth shows also that we have potential to further growth. So we are not to holding back must be investing and in Q4, I believe that continue to invest where the growth initiatives.
Bets, but still improving the margins so I'm very confident about that okay. Great real quick if you know mining.
At Monday, 2020 machines and people there was very clear talking about open platform strategy.
Seems very clear everyone's on board I'm curious the pipeline for new potential partners here now that you've been board vocal and visible with it how how is that evolved here in the.
In recent weeks, where we can days.
Well as a sales guy was underwrote Mel dullest conveys only around the world I have to say that I met several Ceos and I have to say that you know we are really solving a problem for some weak financial institution, especially the for direct sort of currencies for opening our platform and I'm very excited under some.
Some potential prospects here.
And I believed that there is some more to come and I'm excited about that actually in Japan.
So we really signed blunts right. They are there new partners there they want to use our platform to drop money.
Globally and are very efficient compliant way and the phosphate right and real time.
So the two buildings over concept. That's makes me very excited and also you know.
Amazon is one of the examples that the opening our platform to collect funds for a third party, it's their product, but it's all medsurg, it's our machine it's our engine.
And I believe that these are also contracts stable there more more potential here.
I am confident I'm going to us so you're going to hear more about that in coming years and it's too small over is the United is just beginning of a big journey, but.
Exact can journey because as we show those in the Investor day, The fact out there and they are still growing.
Notably fund to track at.
That's for sure. Thank you.
Thank you decision.
The next question comes from Bryan Keane of Deutsche Bank. Please go ahead.
Hi, guys happy Halloween.
Yes, It has gone on the earnings outlook.
We're still the adjusted EPS range of $1.70 to $1.80, which then makes a 10 cents pretty wide range for the fourth quarter.
I was wondering if you could shade is to one side or the other that range or maybe talk about what we'll get you to the high end at low into that range.
Yes, Brian is it just takes.
Number of factors are going to determine where we come out in that range.
Yes at the level of spending that we have on various initiatives. Obviously, we will have an impact to the level of revenue growth. So I mean, we gave you a wide range back.
We're very comfortable that we're going to be in that range in the where comes out is just going to depend on a number of different factors that is hard to call. At this stage just given their margin improvement that we had in the third quarter.
It just depends on how how much investment we make in the in that growth initiatives.
So, but we're comfortable with with that range and.
We'll see where that comes out and again as we had mentioned at Investor Day, We do expect to get low double digit type of earnings per share growth over the next three years. So it should set up well for next year in the years after.
It's one of the wildcard for the fourth quarter, just how much marketing or how much additional spending investment goes it.
Yes, yes marketing is certainly one of the key investment areas not shoes. The wildcard we know what you're doing no I mean, it's not a wildcard we know what we're doing but it just depends on how much we put forth there and.
But yes, I would I wouldn't read too much in did a wide range. There. It's we're comfortable with where we are and yet we are tracking according to our plants yes.
Got it.
And then we would dot com I mean, it moderated slightly I think was growing closer to 20% moderated a little bit to 17 anything to read in there any tougher comps or something that that created a little bit of though modest slowdown.
Not really I'd, just say that 80% of the business grew at 25% in would dot com, which continues to be the highlight of the business across border piece. The domestic piece continued to decline so that their domestic part of what dot com was slightly worse than last quarter back in the same range.
So that certainly having an impact and then as you saw and our notes overall digital growth, including the white label partnerships grew more than 20%. So that includes also domestic yes that also includes domestic obviously all of that so the total digital business, including the white label partnerships grew at above 20%.
So we're pretty comfortable that we can continue to grow.
At that level with a total business. So I mean, we dot com. We continue to have large expansion plans. There. We think it's a great opportunity for the future and we continue to add geographies and channels to that business.
Got it thanks for though.
Sure Ryan. The next question comes from James Faucette of Morgan Stanley . Please go ahead.
Hi, This is tougher calling Frank on the half team I'm just a quick follow up on the pricing question.
Last quarter, you called out some pricing benefit, particularly when you ask him off top of you price that shouldn't be a product that was that also in play this quarter now or is there something else.
Yes, that's certainly a key part of the overall pricing left.
As you've seen a transaction growth in North America was down 1%, but revenue growth is up to present. So we are continuing to try to maximize the overall value of the U.S. domestic money transfer business are there some pricing embedded in there as well.
Got it among.
Just a quick question on on India on how you how you how you're thinking about Jane can you give new markets. You mentioned that you have increased brand awareness. So.
How do you think about going to market that increasing brand awareness.
Provital, Neil the country discounted digital services.
And on the answer people now what the product looks like R&D cost increased marketing spend how are you thinking about.
I think it's a similar market approach, where we do it everywhere, but don't forget that India been for many many years, the receiving country, but emerging.
Merger new.
The Clos Indians, one to send money and they want to use their account embassy in but come to send money.
More and more people.
They want to use connect their debit cards, there could cause or their bank account so as soon but come and that's that's that's the thing what we do it in every country when we launch a new country does awareness.
But we are excited about the India long term because we never did that in such a huge country outbound business and I believe that.
There is a new upwards and it shows that an example of western Union, how flex a little bit Union is in many countries and how many opportunities we have what kind of portfolio. We have on so that part of investment will definitely I've been but it's nothing.
Different than opening a new country.
Great. Thank you.
The next appears in the next question comes from Ramsey El Sauzal of Barclays. Please go ahead.
Thanks for taking my question.
I also wanted to ask a bit about pricing a bit clarification.
How far along are you with the sort of infrastructure to enable more of an enterprise wide rollout of the dynamic pricing and maybe I just missed it thats already something that's in place I just wanted to clarify whether the pricing power that youve displayed in the quarter was related to that or is that something that's more of a future state sort of implementation and then lastly, I kind of market.
Separately on the same topic I just wanted to kind of explore review or have you comment on the degree to which that dynamic pricing to sort of AI driven dynamic pricing might result in incremental pricing power.
As you are able to take price sort of more efficiently.
Yes, I think them that good good question actually if you look at our business being and 20000 quarter plus we've been doing dynamic pricing all the time.
We adjust surprising you heard several quarters before on for a sort of several years I was talking about.
Bob suit called enterprising and other activities.
This is what you have done here is that.
We really go through a more coal dose, we multiple decode aerosmith, some product adjustment on pricing adjustments and also if you download your rest soon but Colm you will see also you can choose between different channels. When you send money to different countries with different channels. It's like an airline there really adapting the.
Turning to the customer needs to the.
Demands and that has been different there from a bit power now what we are being as that is tested in so we thought that was really the agenda certain corridors. We are really over the years, we will invest that because it's huge ripe to 100 countries.
Different codells different needs and Bob digital intelligence, but from them is something we will give us pardon me thing as I mentioned again, the pricing environment generally has been stable.
You know weve been definitely we have some competition but.
We are products, our speed our channels our brand.
Makes it to our compliance programs our settlement programs our platform.
Makes it happened that our pricing environment is been has been stable.
Thanks for that just my my follow up is on B to B and on your business payments segment.
Can you talk about sort of which strategies you see that such a large opportunity, which sort of sub strategies you see within that segment. You know that are available to drive growth as it focusing more on a p. automation our global disbursements is something that we see a lot of other companies, especially some started its really making kind of hey out of I just curious in terms of.
We see the primary growth drivers in our opportunities in that business.
I think our core business is doing the volatility global volatility on our core business like hedging helps on the FX trading part but.
Im very excited about the verticals.
The vertical acquisition like the University acquisitions globally, and we're going to expand that also like Middleton tourism, So acquisitional hospitals paying really the consumer paying the bills in their local currencies, and Oh and able to study abroad.
And our dependence paid in local currency and sent their kids broke to study.
I think thats going to continue the vertical is going to come through your but those are edge platform, which serves the SMB is exporters and import ddos, where they need online on the on the on the platform.
And really connect them.
Thats also growth opportunity.
So I believe all years, we will definitely have more payments focus you will hear more about that because it's a huge market as we demonstrated that the investors. They and we have a small portion of the market and SMB small size and the export their importers continues to be very exciting for us.
Got it thanks, so much.
Thank you.
The next question comes from Ashwin Shirvaikar of Citi. Please go ahead.
Thank you.
Hi.
Fashion.
Hey.
So I wanted to start with Cancun get more off.
Granular information with regards to to the segments and geographies, if you don't mind kind of going to because.
Yes, I do see that.
Yeah. There is some pretty good acceleration in the middle East South issue, a piece, which I'm thinking maybe this is because of things like Saudi telecom that agreement.
But there's also desalination in.
In many of the other segments and normally quarter to quarter, it's not being did the size of the move so kind of tanker figured out from the segment basis, If you had democratic.
Yes, just on Middle East Africa in South Asia, and just reiterate some of my commentary, we had strong growth in Saudi Arabia, and you 80, and then we had a slight offset from the hard currency issues in parts of Africa, but overall the market and.
We are dramatically from a revenue standpoint, so 4% for revenue growth, 5% constant currency.
Saudi Arabia was driven by a couple of different well primarily driven by the.
The performance of Saudi Telecom that had very strong performance both transactions in revenue and then there are some some price changes in certain corridors.
And then you really are also had a good performance that was driven by some aging incentives and other things we're doing in the local area as well some price changes and then overall, though transactions also improves so Saudi telecom I would say would be there number one highlight.
For the region.
If you look at some other regions Europe and she has stayed relatively stable transactions improve there that was largely driven by the spare bank white label business that we have which had high transaction growth lesser than impact to the revenue side.
North America was relatively stable to last time.
Latin America was a little bit softer the Latin America has been growing at double digit range for quite awhile right. So.
We saw Ecuadorian chalet going well and that was largely business is going to Colombia because of the migration patterns, we're seeing from Venezuela.
To the neighboring countries and then Asia Pacific, we're doing a price reductions there so that helped for transactions trends a little bit there's still negative, but helped a little bit but revenue for that reason stayed about the same so.
Does that give you a little bit more color Ashley and what you're looking for.
Yes, It does I guess the one he part that I mean, I'm thinking you know any impact from Hong Kong and say consolidation may be in any in each case, yes, sorry.
But that they probably compete picture there.
So then the other question I had was with regards to.
Earlier this year, obviously that.
To conclude took a look at the various businesses you divested debited certain assets.
Is there anything as left in that process exited any kind of look at the stub off the other.
Revenue piece, which by the way you guys continue to extract good EBITDA out of it.
And then you look at that look at B to B.
Anything that you could be doing inorganically.
Adding subtracting that that is left to do.
Yes, I would say that if you look at our strategic focus it is really around cross border across currency money movement, so things that fit within that strategy, we like and will continue to own then and we may look for other things that help to supplement our strategy there.
And things that are not in that definitions are potential candidates for us to look at divesting, but there's not much left really the only domestic payments business. They really have left of any size is in Argentina, and Argentina has its own issues as you know so there's not much more or less there, but we're always look.
For acquisition opportunities that helped to supplement our capabilities or can help to supplement what we want to do strategically over the next few years.
Got it and quick clarification, if I can on tax rate you know that was under the impression the tax rate over the next couple of years would be stepping down but in the quarter itself.
Picked up just a tad.
I am assuming this is this quarter to quarter fluctuation and nothing's changed it seems to have canpotex take going down.
Yes, I'd say a tax rate outlook for this year is very consistent with what we've been saying all year. So it's in that high teens range given the specific factors from this year, but we do expect it to step down into the mid teens range.
For the next few years and specifically, we expect that for next year as well. So we're very much on track with what we've said about the tax tax outlook.
Got it thank you.
Thanks.
The next question comes from Kartik Mehta of North Coast Research. Please go ahead.
Good afternoon Rotten anything.
Kartik I.
I wanted to ask you a little bit about a into your ability to use obviously your physical distribution system for other channels and Amazon specifically, maybe because it's so much in.
We've talked about it so much but as you look at that particular product has Amazon or you marketed the product outside the U.S. and some of the other emerging market countries or are you is that coming up.
Not really.
It's coming up you know does really Amazon I believe that's its first lose their product they're going to promote it you're going to upgrade we are.
Putting our our platform there it's really the marketing activities really didnt started its coming up I guess and Amazon knowing Amazon diverse customer friendly they want to have a 100% good customer experience and everything so.
Big Big Global launch will happen.
At the same time I have to say that.
So far to test our I'll do call at the start is going pretty well.
You know we have countries.
Like Colombia.
Well actually and Sam it's really big launches.
Coming up hopefully soon kartik.
So hikmet so it sounds like Amazon has shared with you.
That they want to launch this product globally. So theres more consumer awareness is that fair statement based on your answer.
Yep.
Okay and then just one question on pricing obviously, it's very stable is there is there a difference right now that you're seeing from just the physical distribution the pricing in that channel versus the digital channel is more aggressive than the other or is more one more.
But I guess, that's it is one more aggressive than the other.
Which say they and cut to get through digital is more aggressive federal versus retail do we see any differences on by depending on the corridor. So I think it really that's exactly the answer it depends on the thousands and thousands of quarters. The country errors that we sometimes we're very aggressive reprice started taking you notice quite well spend as we are very aggressive.
Reprice at other times, we don't need to be so aggressively priced and.
Another quarter or is that its retail for example, where pricing to maximize the value of our domestic money transfer business or it just depends.
And I think as we migrate more dynamic pricing capabilities. Ultimately our goal is going to be a drive better lifetime value of customers. So that might mean that we reduced prices in certain areas, we increased prices and we take advantage of conditions because all scenarios as you saw our at Investor day, we want that customer to not Walker.
Hey, without doing a transaction so we want to price the product so that they do that last transaction with US right. So it's just as we evolve to the more.
Dynamic pricing capabilities, that's really going to be how we look at the business.
Fair enough. Thank you very much appreciate it.
Sure. Thanks Kartik.
The next question comes from James Friedman of Susquehanna. Please go ahead.
Hi.
Alright, thanks to Mike.
So.
You guys covered a lot of territory today.
I'll just get to upfront one.
Turning to the compliant I'm, sorry, if I did.
You will rise in the.
Thanks, Dan will.
We're thinking about that that's the first one and then the second one is limited Argentina right.
Like that.
Okay.
Is there, but what is the narrative around that.
Ill.
It is that.
Got it will your I believe you're thinking about that one I could point than the other on Argentina.
Jamie as it was really hard to hear your first question was I believe compliance spend on the second question on Argentina, Argentina, Brazil. So let me James Let me try to address and then you can let US know if we didn't know if we didn't have to say more there on the compliance spend.
The last few years, we've been very consistently spending roughly $200 million that span in that three naps, 4% range. We are trying to get away from giving specifics now on the compliance and because it has been so stable. Obviously, we can never predict the future depends on where regulation goes, but we feel very good about our compliance.
Capabilities are in program. So it's been very stable would be message I would give to you there and then on Argentina I didn't quite understand your exact question there.
You mind repeating that one more time on Argentina.
Yeah, I my recollection is and I'm, sorry about that back to that.
With that Midtown Manhattan, but the pad that pad that field.
With that I'll go Flexsteel.
Pago is that this.
There is that something is liquid or how should we think about.
It's not well for domestic bill payments business. So I would just say that it produces.
Hi, good cash flow.
But it's not necessarily doesn't necessarily fit within the broader strategic area that we want to focus which is cross border cross currency money movement.
But we like the Argentina business, it's and a good producer for Ascendiant.
It is a part of our portfolio and that's all we have I think Argentina business has been part of our portfolio. We do use locations. The plug office locations also for our in bump up business and.
It has been stable business for many years.
Yeah, Good management there.
But you know our focus continues its a very small part of our business. Our focus continues to be in cross border Cross currency.
Got it.
The next question comes from Andrew Jeffrey of Suntrust. Please go ahead.
Hi.
Let me appreciate taking the question this afternoon.
Oh rates are you.
Well thank you.
You know it's interesting to see this to me this kind of.
Juxtaposition between the the revenue growth of the business, which is clearly stabilizing and picking up in some cases.
And then this commitment to return of capital.
Which I think the markets really like this year by the way.
What I'm trying to understand is is there some point recognizing you've given us this multiyear plan.
Where if you see real success with some of these newer initiatives that you're calling out, especially considering your compound multiyear revenue growth is essentially being driven by essentially 20% of the business.
You know, where you choose to reinvest and maybe accelerate growth around some of these newer initiatives or how how are you going to evaluate that versus just sort of being a dead set on returning this capital shareholders.
Well I mean, you know capital we are very committed to returning capital to the shareholders and are staying strong cash flow is continue to going to be there on VR. We are committed but let me step back and tell you why we're so successful with our opening the platform why we believe that you're going to be successful. It's the correct me and the first.
Signs up it looks like you're going to continue to be successful.
Developed a platform over the years, which gives us the capability to offer our platform to third parties, which the I just don't have it the compliance capability the settlement Kibler Didnt hundred seven currencies real time capabilities and it comes on wallets on parts. It's a huge platform for 200 countries you know the a.
Capable legally cable to approaching 200 countries. These are huge.
Competitive advantage and we have demo right now we just to adjust our businesses most to open our platform to the TARP part business doesn't need additional big investments are really we are looking at our processes optimizing our process open our platform to third party, that's a big advantage that maybe.
I just don't have it all platform in the past served the Western Union customers now we are a little opening add to the platform to sold an issue about third parties.
Are they going to move money anyway, but do not hardware, but the state use us it will be easier way.
That's the incremental part of that revenue of course, we will do not look at that the best incremental opportunities, we will going to invest there, but I don't assume that we will have a huge be from investments, which will affect our margins and we are very committed to our three years margin expansion. Yeah. The only thing I would just add is that.
As we had said Andrew on at Investor Day, We are stating we're driving for more savings then just a $150 million by 2022.
That is with it with an eye towards investing back in the business to drive some of these longer term growth opportunities. So we believe that we have enough investment allocated to some everything's and we'll just have to see how the experience is over the next few years as these things develop.
Okay.
And then as a follow up.
The the gross margin cost of service as a percent itself has been pretty stable, it's been increasing a little bit.
Our our weight to the extent you're driving.
Operating leverage is it.
Coming more from Opex as opposed to cost of goods as I noticed.
You haven't been capitalizing a whole lot of.
I've Commission costs.
Certainly would seem like it's a fairly benign agent environment.
Yes, I would say that we certainly.
Our fixed expenses will be an area, where we get a significant amount of our savings.
But we also as you've heard are driving for efficiencies in our cost of sales right and so both will certainly.
Factor, but you know and we want to try to drive lever here as we look at commissions. It's our number one cost item in the company. So we have to look at that we have to find a way to be more efficient there and we believe we have the REIT strategies, there and you know so yes, we're getting leverage on our entire cost structure I would say and that's a part of the overall form.
As we get the revenue growth, we also get leverage as we keep those costs pretty stable.
Okay. Appreciate it thank you.
Sure. Thanks.
Next question comes from David Scharf JMP Securities. Please go ahead.
Hi, a and thanks for squeezing me in here.
[noise] one wanted to just a follow up with with one more question on.
The DXP platform initiative.
Wondering.
Clearly all the investments and compliance over over the years have positioned us to effectively outsource you know do those programs in relationships and I just wanted to sort of double check.
<unk> is there any additional.
Uh huh.
Clients risks or maybe just requirements.
That you could potentially foresee having to address.
Based on opening up your 80 I in inviting third parties to leverage the platform.
Well, you know more money cross border cross currency as old as complex, it's very regulated.
And so obviously the complexity of the business understanding the complexes road business is a competitive advantage for us and we know it out today, but at the same time. There was also risk over is of course.
So you know we believe we are really well positioned to answer or to respond to many questions on many regulatory requirements that.
Global regulatory sub.
If we think bumped into undiscounted in London, So incurrence. It definitely has something I don't see additional risk because if you opening your platform alluded to the banks, it's a kind of know your customer environments.
The you know already done, but our team is very diligent to choose the right partner our team is very much.
Much investing to look what how we can move in a.
Very compliant Wade.
Worldwide and we are Rededicated, we have a great compliance.
Team you have a great legal team.
And are really a bid into advising us and within the business mobile here and that's we see that complement compliance and onto my lending activities and responding to them as a competitive advantage.
Got it now you know I would imagine it's it's no different from the way you bet agencies as well okay. Thank you very much.
Thank you.
And Andrew we have time for one more question.
You bet question will come from Tim Willi of Wells Fargo. Please go ahead.
Great. Thank you very much for the time.
Two questions. The first one was just a housekeeping on the modeling Arash could you go back through what the margin impact caused from that pay divestiture just want to make sure I've got that.
Accurate sorted in my model on thought process over the next couple of quarters.
Yeah, Yeah, I mean, if you look at our financial tables, we have quite a bit of detailed information and the tables. So last year, ASP pay and paymap generated about $370 million or revenue and $110 million a direct profit.
And they had a margin benefit to the business of around 70 basis points and then this year, we had a 40 basis point benefit in the first quarter and then no benefit in the second quarter and then we sold it obviously in may so.
No further benefit there so it should give you a lot of details in the tables.
Okay I'll go back through those thank you putting it out and second question I had was just on <unk> dot com given the length that you've now had this business and the success and obviously he wants assuming lots of repeat customers that have probably been once you now.
For some time I guess going back to an earlier question about.
Pricing it just any insights or color you could share around.
As you sort of test and think about pricing and the stickiness of customers given the duration at how long they've been with you and just any sort of thoughts around engagement do you think people are truly exclusive to dot com or do you think there are people out there that their activity might say hey, they might have another.
Digital money transfer relationship on their smartphone as well because they got comfortable with the ease of using new Dot Com me thinking about crying out somebody else's service, where do you feel like people are still pretty exclusive to you.
No Tim Good question actually you know as you know the big difference, we didn't dotcom and walk on is that the dotcom you have to privileges to yourself you have it's really a customer acquisition in the beginning and once you had on those system can be due to customer and everything.
Really the loyalty is huge within divesting book call well up the reason is that mobile can match our distribution.
Metric worldwide. So you collect funds weather dot com and you can send money anytime to a 5.1 off the 500000 locations are one of the billions of accounts and the real time.
It took us wall to build up to both sides and that makes the customer loyalty. Once you can send money to your grandmother in Uganda to the next corner imminent in minutes drop money and location or three India. So in a comp in minutes.
Really going in minutes without any issues that loyalty is.
Definitely something that we admire sitting back into new countries. Tim you are going to focus on acquiring new customers under existing core countries are real which we've been longer time be pursuing but come it's all about customer experience on customer loyalty and I am continued to be excited about diversity.
Dotcom.
So there is definitely investing but come up all about the customer.
Great. Thank you very much really appreciate that.
Thank you. Thank you.
Thanks, everyone for joining have a good evening.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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