Q3 2020 Western Union Co Earnings Call
Good day and welcome to the Western Union Company third quarter 2020 earnings release Conference call.
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I would now like to turn the conference over to Brendan Trudell, Vice President of Investor Relations at Western Union. Please go ahead.
Thank you.
On today's call, we will discuss the company's third quarter results, our financial outlook for 2020, and then we will take your questions.
Slides that accompany this call and webcast can be found at western Union Dot com.
The Investor Relations tab, and where were being available after the call.
Additional operational statistics have been provided supplemental tables with our press release.
Western Union is still following it works well policy. So on our remote call today is our CEO Hikmet Ersek, our CFO Raj Agarwal, and head of Treasury and Investor Relations, Brad went to pickler.
Today's call is being recorded and our comments include forward looking statements.
Please refer to the cautionary language in the earnings release and didn't Western Union's filings with the Securities and Exchange Commission.
Including the 2019 form 10-K for additional information concerning factors that could cause actual results to differ materially from the forward looking statements.
During the call we will discuss some items that do not conform to generally accepted accounting principles we.
We have reconciled those items to the most comparable GAAP measures on the Investor Relations website.
We will also discuss certain adjusted metrics.
Although the expenses that have been excluded from adjusted metrics are specific to these initiatives.
Types of expenses are similar to those that the company has previously incurred and can reasonably be expected to incur in the future.
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I will now turn the call over to our CEO Hikmet Ersek.
Thank you Brendon and thank you all for joining our earnings call. This afternoon I'm pleased to say that our business continues to rebound from the global stroke caused by cold <unk> might be and Debbie and delivered solid third quarter results.
Improving top line trends operating margin expansion and very strong earnings per share the quick and dramatic agree bonds be experience beginning late in second quarter reinforces our conviction in the solid foundation on our business and the effectiveness forthright did you.
Older macro uncertainty global remained alleviated.
They do me amplifier business employees and customers gives us optimism that prospects for the global community and our company are headed the right direction.
Given improved visibility into market dynamics and the trajectory of our business you have to be issued a financial outlook for full year 2020 be dragged you will discuss in more detail shortly.
Turning to the third quarter results as you may recall, we saw robust consumer to consumer trends into later part of the second quarter and into July the performance carried through the third quarter, the transaction growth of 6% and cross border principal drug well over 20%.
Year to date, our cross border principal is up 8% would strongly suggest we are outperforming the remittance market based on previous independent forecasts.
The primary driver of the sequential improvement in our <unk> and those bugs retail money transfer led by improving transaction trends and strong growth in principal per transaction, while digital will be the stayed elevated.
The quality and scale of our network continues to be an important differentiator that allow dogs better attract and retain customers who choose to transact at the physical location or digitally.
Our digital channels continued to perform exceptionally well both lets you need dot com and B do partnerships.
It's a money transfer transactions grew 96% needed third quarter and reached new heights for both with Union Dot Com and teach in partnership transactions.
We're also getting married to a new quarterly high well over $202 million or digital money transfer revenue.
Accounting for 21% of PTC revenue and 31% of CTC transactions.
The senior Dot Com Compugen <unk> impressive performance in the third quarter generating approximately 50% transaction growth and approximately 45% monthly average active customer growth both for the second consecutive quarter.
According to the mobile market diligent from sensitive tuber visteon, but come once again that <unk> money transfer companies for mobile app downloads by a wide margin in the third quarter.
So the targeted investments we are making in customer acquisition and engagement are clearly paying off.
The same time, we continued to see the general pricing environment as stable.
Foundational part digital tucked. It is an unmet omni channel platform. The boss My journey to a part B cell transactions are paid out at the Western Union agent location.
<unk> Chen with Kibali could continues to be a competitive advantage for which the union. That's this type of physical payout transaction is challenging for digital startups to execute.
At the same time, but see me in a contact com capabilities.
<unk> into billions of it comes in over 122 countries, including real time payout in 80 countries to select bank accounts and while it is allowing the company to compute the capture incremental growth in the fast growing a comp the comp channels.
Our comtech on transactions up over 30% in the quarter.
As we previously discussed we are extending the capabilities, we have developed with our branded retail investing in both the <unk> offerings to took part departments to target the new an incremental market Beach was using cross border banking for cross border money transfer.
Our focus on financial institutions, who have customers. Good cross border money movement needs. That's historically use more costly and less efficient services like the correspondent banking system and now they are seeing the advantages of switching to our high quality and if we should cross border platform yes.
You have seen the early success as our usual partnerships are delivered meaningful results and the pipeline continues to build its go to market approach and advantage competitive position in digital should support strong long term top line growth for years to come.
Importantly, the digital business is value enhancing for US first it is highly incremental over 80% of 15, but customers are new to get seen company and our comp that content is driving new attractive segment of customers that generally have not use our service in deposits. In addition.
The digital partnership business part of it is a large market opportunity that best be named Betsy stores did not participate today, which represents roughly half of the $700 billion do you did see remittance market.
Digital channels have strong profitably to on both a dollar and margin basis overall.
Overall, the economy itself to best being booked com business today are similar in nature to the retail business.
For digital took parky older. The revenues per transaction is lower margins are even higher and incremental to overall margins and this business is still in early stages. At this business continues to ramp up it should help drive margin expansion for the company.
Now putting the pieces together the digital business is an important source of incremental profit for the company.
The large business to be done markets is another important long term growth opportunity.
Our business solutions segment, which represents approximately 7% of total company revenue has been affected by macro headwinds related to <unk> 19 over the past two quarters due to exposure to small to medium sized enterprises travel and tourism and indication however, both revenue and my.
Did improve from the second quarter long term prospects remain favorable and we are positioning the business for a recovery pushing forward with payment product enhancements like our new refunds and vendor payment product, we didnt global pay for students and support for more currencies in our must payment products.
Moving to our strategy and you turn objectives.
Well with the third quarter be gained a better understanding of.
Thanks, Oh, depending on our market our ability to adapt our strategy and the opportunities available in the new normal.
His experience coupled with consideration of risk and reward reaffirmed to us that we should rigorously pursue key objectives for our growth strategy you.
We continued to develop our digital offerings, including significant investment in customer acquisition for Western Union Dot com data analytics capabilities to enhance customer insights and dynamic pricing and infrastructure to support a third party services.
We remain focused on advancing our solid pipeline of third party prospects.
We are ramping up our platform you said to you and compute the invest in technology to move more of our operations to the clock. This will provide a more flexible and scalable infrastructure to enhance current execution and our competitive position. It will also support growth, including both current usage just like our digital took part.
The business and you use cases that may arise in the future such as additional services for consumers businesses and governments.
We are further enhancing our market leading network by improving did coverage cost and quality you do that you have new renegotiated agreements with nearly three and four existing agents and added 90, new agents with over 18000 locations. We also continue to add additional wallet <unk>.
<unk> capabilities and we are on track to issue 100 countries to be real time, it comp payout capabilities by the year end.
Our focus on lean management, which we called movie has enabled good progress in creating a more efficient organization.
We are on pace with the savings targets be described during our September 2019 invested to date, specifically, we expect to deliver at least $50 million annual productivity savings this year as well as the three year target hundred and $50 million.
So in closing.
The third quarter Twentytwenty, well, then important chapter for investing in our business continued the recovery that began during the second quarter and we delivered solid financial results.
Like many global view I am hoping to COVID-19 pandemic comes to an end soon and our society can live in a less risky and safer environment, we all need to take the preventative steps to avoid further spread of to COVID-19 wires and get back to a new normal as soon as possible.
At the same time lets unions future continues to be very exciting yep.
We have strong conviction that we will achieve the key he said if I'm delighted that strategy that will enable us to drive meaningful profitable growth for years to come.
With that I will turn the call over to Raj.
Thank you Hikmet and good afternoon, everyone. My comments today will focus on third quarter results, along with our newly re issued financial outlook for 2020, and some high level thoughts as we look forward to the remainder of the year.
As Hikmet discussed earlier the position of the business improved during the third quarter supported by the foundation, we started to late last year with our digitally focused growth strategy.
We see our growth strategy, taking shape with the continued rebound.
Resilient retail business from the impact of COVID-19, strong topline and customer trends for Western Union Dot com and significant incremental growth through digital partnerships.
Digging into the details of the third quarter revenue of $1.3 billion declined 4% compared to the prior year period, our constant currency revenue declined 1% a substantial improvement from last quarter.
Currency translation net of the impact of hedges reduced third quarter revenue by approximately $41 million compared to the prior year, primarily due to the depreciation of reaction team critics.
The decline the pace or negatively impacted reported revenue by 3% Robbie factor inflation on our Argentina business. There is estimated to positively impact the constant currency revenue by approximately 1%.
And the CDC segment revenue declined 1% or was flat on a constant currency basis, the transaction growth offset primarily by the impact of mix.
Transactions grew 6% for the quarter led by 96% growth for digital money transfer, partially offset by declines for retail money transfer. It is worth noting that the sequential improvement NCTC transactions from minus eight in the second quarter was primarily attributable to improving retail trends, while our digital business sustained.
Hi growth.
Total CDC cross border principal increased 23% on a reported basis or 24% constant currency driven by growth in digital money transfer.
Well per transaction or ppt was up 13% or 14% constant currency and increased across all channels multiple factors contributed to higher ppt that can be characterized property as changes in consumer behavior and business mix.
The spread between CTC transactions and revenue growth in the quarter was 7% or 6% constant currency.
Excluding the mixed effect for hard there's a white label partnerships spread was close to zero.
Current digital white label partnerships carry a lower revenue per transaction for RPT than western Union branded transactions.
Partnerships, we're just getting started in the prior year period and grew significantly year over year, which drove a greater mix of white label partnerships that reduced RPT.
Digital money transfer revenues, which include Western Union Dotcom and digital partnerships increased 45% for 46% constant currency and accounted for 21% of total CDC revenue, 31% of total CTC transactions in the quarter.
Spread between digital transaction and revenue growth was primarily attributable to the mix effect of digital white label partnerships that were incremental to the business. This year. In addition to certain strategic pricing actions for Western Union Dot com.
As we mentioned last quarter, our objective for Western Union Dot Com Mr. price dynamically to drive customer acquisition transactions and revenue over the long term, which contributes to higher lifetime value customers.
Rescue me that Tom revenue grew 33% or 32% constant currency with cross border revenue up approximately 46%, partially offset by continued declines in domestic money transfer.
Western Union Dotcom transactions increased 53%.
As Hikmet noted earlier, we are pleased with the results of the targeted pricing we employed this quarter to drive customer acquisition for West Marine Dot Com, while overall, we continue to see the pricing environment as stable.
Within our digital partnership business digital White label partners continued to perform exceptionally well with strong transaction growth.
There still seems to be some misunderstanding about the profitability of our digital business. So I would like to take a minute to discuss the economics starting.
Starting with Western Union Dot Com, which is most of our digital business. The overwhelming majority of transactions there funded fabric card and pay out at one of over 550000 Western Union agent locations in 200 countries.
These transactions have unit economics that are relatively similar to our retail channel and overtime, we think that could be even more profitable.
The digital third party business, which today largely consists of only a handful of partners yields are lower than western Union branded transactions, because we play that process.
At the same time margins are generally higher than western Union branded digital transactions, because we incur a fewer costs such as customer acquisition fraud losses, and fund sort of profitability of our combined digital business is compelling, particularly compared to native digital players.
Put this in perspective, the mix of digital revenues in our DTC business for the third quarter increased 700 basis points year over year from 14% to 21%.
Ed we still generated strong adjusted margins of 23.5%.
Turning to the regional resolved all regional trends increased sequentially from the second quarter led by improvement in retail and bolstered by continued strong growth in digital money transfer.
North America revenue trends improved to flat year over year on a reported basis and grew 1% on a constant currency basis on transaction growth of 1%.
Both constant currency revenue.
Q3, driven by the U.S. GAAP, our business, primarily sends to Latin America, and Caribbean region, partially offset by continued declines in U.S. domestic money transfer, which was less than 5% of total company revenue in the quarter.
Revenue in the Europe, and see I guess, we can improve and increased 3% on a reported basis or 1% constant currency on transaction growth of 24% constant currency revenue growth was led by Germany, France and Russia.
Spread between constant currency revenue transactions, primarily due to channel mix driven by the digital white label business in Russia.
Revenue in the Middle East Africa, and South Asia region also improved and increased 2% on both a reported and constant currency basis, while transactions grew 15%, Qatar and Saudi Arabia.
Solid constant currency revenue growth in the quarter, while the UAE continued to experience economic pressure, resulting from coke at 19.
The spread between constant currency revenue and transaction growth was attributable to strong growth in Saudi Arabia, driven by additional white label business.
Revenue in the Latin America, and Caribbean region improved substantially, but still decreased 21% on a reported basis or 8% constant currency I'm transaction declines of 21%.
The combination of restrictive government policy responses to probably 19 in some countries coupled with high rates of inspection in the region contributor to the negative performance in the quarter.
We've also not seen the same offsetting benefits from digital in Lhasa due to slower adoption by governments for electronics compliance methods, which have generally been adopted in other regions.
Revenue in the Asia Pac region also improved and increased 4% on a reported basis or 5% constant currency.
Constant currency revenue growth was primarily led by Australia.
It's actually declined 6%, primarily driven by the Philippines domestic business.
Which has limited impact on revenue.
Business solutions revenue trends improved from the second quarter, but decreased 11% on a reported basis or 13% constant currency and represented 7% of company revenues in the quarter.
Revenue declines were the result of ongoing impact of 19 on the business has cross border trade has declined and small and medium sized enterprises have reduced visibility to future hedging and payment needs.
Other revenues represented 5% of total company revenues and declined 33% in the quarter.
Other revenues primarily consists of retail documents in both Argentina, and the U.S. as well as money orders in the U.S.
The revenue decline was due to the depreciation of the Argentine peso and the ongoing impact of probing 19.
Turning to margins and profitability I will focus on consolidated margins segment margins are not comparable with the prior year period due to expense allocation changes implemented in the first quarter of 2020.
Consolidated GAAP operating margin was 22.7% in the quarter compared to 15.1% in the prior year period. The increase was primarily due to restructuring costs incurred in the prior year period in conjunction with current your productivity savings and additional cost management measures, partially offset by revenue.
Brian.
Additional cost savings realized in the quarter, mainly reflects the timing of certain expenses for lower levels of expenses related to business activity, such as lags in hiring or travel.
I'll talk more about margin drivers for the remainder of the year when I discuss the reissue 2020 financial outlook in a moment.
We incurred $9 million in restructuring expenses in the third quarter and ready to trade productivity program. We continue to expect total restructuring related expenses of approximately $150 million and since the start of this we have incurred approximately $140 million.
Adjusted operating margin in the third quarter was 23.5% compared to 22.3% in the prior year period rate expansion driven by the same factors stated previously and adjusted for restructuring and M&A costs.
Foreign exchange hedges had a negative impact of $1 million in the current quarter and a benefit of $10 million in the prior year period.
The GAAP effective tax rate was 12.4% third quarter compared to 16.8% in the prior year period.
While the adjusted tax rate was 12.7% compared to 18% in the prior year period.
Decrease in the GAAP and adjusted effective tax rate was primarily due to higher prior period domestic pretax income due to the sales reps you pay and pay math businesses offset by increased discrete expenses in the current period.
GAAP earnings per share in the quarter was 55 cents compared to 32 cents in the prior year period you're.
Year over year EPS growth benefited from higher restructuring expenses incurred in 2019, additional productivity and cost savings in 2020, and a lower effective tax rate and share count partially offset by revenue declines.
Adjusted earnings per share in the quarter was 57 cents compared to 49 cents in the prior year period with the increase due to the factors stated previously and adjusted for restructuring and M&A costs, turning to our cash on balance sheet year to date cash flow from operating activities was $586 million in.
The year over year decline in operating cash flow was primarily due to the timing of payments for restructuring and other activities, partially offset by lower income tax payments and an increase in operating and.
Capital expenditures in the quarter were approximately $22 million.
At the end of the quarter, we had cash of $1.3 billion net debt of $3 billion.
Our financial position is among the strongest within our payments peer group, we have an undrawn $1.5 billion revolving credit facility and no significant debt maturities until 2020 to be.
We returned $92 million dividend to shareholders in the third quarter and had no share repurchases we.
The outstanding share count at quarter end was 411 million shares and we had $783 million remaining under our share repurchase authorization, which expires in December 2021.
Turning to our financial outlook note that we have made key assumption that the current economic environment will persist for the remainder of the year with no significant worsening of the current pandemic.
We expect GAAP revenues for the full year to be down high single digits due to the impact of COVID-19, and 2019 divestitures of speaker came out.
On an adjusted constant currency basis, which excludes the impact of the Divestures in Argentina inflation, we expect revenues to be down mid single digits.
The spread between transaction growth and revenue growth should temporarily widen further in the fourth quarter as we continue to cycle through incremental year over year digital transactions and some targeted price increases in the fourth quarter of 2019.
The gap should narrow over 2021 as these factors diminish.
As I mentioned earlier, excluding the mix impact from the significant ramp up in the digital White label business CTC transactions and revenue growth were similar to each other in the third quarter.
GAAP operating margin is expected to be approximately 20%, while the adjusted operating margin is likely to be approximately 21%.
I'd like to provide some context on cadence of quarterly margins recall that in the early stages and I think we spoke a number of initiatives and investments due to significant macroeconomic uncertainty as business conditions improve during late second quarter and third quarter, we pushed forward and as previously planned activities, but there could be a laggard weeks to a month.
Before some of the associated costs actually hit the piano.
So the fourth quarter will be for a higher level expenses.
Although we are expanding margins in line with our original 2020 targets.
EPS for the year is expected to be in a range of $1.72 to $1.77. While adjusted earnings per share is expected to be in the range of $1.80 to $1.85.
To recap we are pleased with the financial results and progress of our business. This quarter as we continue to rebound from the impact of the COVID-19 pandemic and advance our growth strategy looking.
Looking forward our business is well positioned for continued progress the solid market fundamentals and an effective strategic agenda, which we believe will create long term value for our customers and our shareholders.
Thank you for joining our call today and operator, we are now ready to take questions.
We will now begin the question and answer session.
I'll ask the question you May Press Star then one on your telephone keypad.
If you are using a speakerphone please pick up your handset before pressing the keys if.
If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then too.
At this time, we will pause momentarily to assemble our roster.
The first question comes from Darrin Peller of Wolfe Research. Please go ahead.
Thanks, guys.
When we look at the actual additions that you're out there you have in your your business and the transaction growth versus principal looks like principal per transaction was up meaningfully double digits. I think you mentioned something about types of customers driving these.
I guess I'd be curious to hear what you are seeing how you're seeing this trend is the current principal per transaction sustainable and many of these new customers are really sticky for you guys and then just bigger picture when we look at the digital mix here.
I know, it's a little early to ask this but once we anniversary hopefully some of these trends in the let's call. It mid middle of next year.
Do you think that this 20% plus type mix from digital is sustainable at that rate.
Based on behavioral trends of what you're seeing in your base.
[noise] Hey, Darrin. This is Raj on the first question on now Ppt trends, we're quite pleased to see that you know we're still learning I would say in this in this environment because people have changed their behavior at that you know certainly the customers that are remaining in our.
This are.
The customer is that the other transacting at a high level, but they also have higher ability to peg, but to send money and so they are sending higher principal amount, even the new customers that are coming into our business are exhibiting the same type of characteristics. You know I would say that it kind of remains to be seen on how long. This is going to stay in place but.
Most of the customers that are coming in they say, they're going to continue to use that and there's certainly a strong need for the receive markets to keep receiving money. So it's going to continue in the short term, but we're going to have to see how this plays out longer term.
Hikmet, you want to add anything to that or yes.
Yes, I think you know Darren.
The customers be acquire especially digital one.
Seeing dotcom, they're new to us we know that 8%.
Two customers that use us and they are more stickier.
They stay and they use a higher principal they use their cards accounts or debit cards are sticky secure and they stay on you have would be direct connection.
Servicing dotcom loyal customers. So we like a low have that each.
Each dissection that goes also died principle.
And I'm your and your question around deal misplaced.
Yes, sorry, and then your question around digital next week.
We had a dramatic turnaround in the retail business in the third quarter.
It's still declining on the retail side, but it's much better than wasn't second quarter, and we still maintain roughly.
Roughly 20% mix on digital so we think that.
Digital continue to be a very strong contributor it's running now at $230 million of revenue. This quarter. So we still see good growth opportunities there and we want to do everything we can to bring the retail business back and also maintain that kind of a digital mix.
The next question comes from.
Jason Kupferberg.
Well think of America.
Hi, Jason.
To start with.
I have a trajectory question CDC business I was wondering just kind of how the quarter progressed month to month and what you've been seeing in October. So far you know relative to the 6% number that you saw for the full quarter in Q3.
Well generally I would say that the business is improving.
And the brewing day by day and be like told to reach the addiction to business going I mean big contributions are.
Retail is coming back a good contribution is the digital growth, it's really into high.
Hi, good revenue growth and additional incrementally is also our third parties right fit their digital transactions really adding to our success currently and it looks like we are gaining market share or just you know compare.
Compared with the independent outside so just like gold bank.
And look at that eight.
8% on principle game has been a pretty good so I would say that it's all over.
Yeah, no that's the third.
Third quarter trends you ask within the quarter I would say you know there were some holidays and other impacts so it's not really.
Back to you know when you look at the monthly data, it's not that relevant it's more important to look at the entire quarter and six.
6% transaction growth is really a good level for that for where that business is in October.
October I would say is just in line with our expectations. So nothing new there at this stage.
Okay.
And just in terms of you know capital deployment I mean, obviously you guys suspended the buyback back when when coal that had and now the business is clearly on firmer footing you reinstated guidance.
Which is great to see so just curious how you guys are thinking about what needs to happen before you are comfortable buying back stock again.
Well as you know, we still have authorization for buybacks stock rights me yet the environment is definitely.
You know still we are still in the pandemic situation. We are still looking around but obviously feel day by day more confident up our business and our dividend policy has been very good.
It would be we will definitely consider other ways of giving back to the shareholders as we get more confidence about our business.
The next question comes from Justin Long of JP Morgan. Please go ahead.
That's great. Thank you hey.
Hey, guys. Good to talk to you also so the retail improved nicely that's great I'm curious just thinking about the guidance that is reinstated.
As Jason mentioned that mid single digit decline I think you're at 3.5% down year to date Raj If I'm correct.
If so are you expecting or bracing for potentially thinking a little bit weaker in the fourth quarter or is that just conservatism on your part.
No no. It's you know that the tables that don't exclude the benefit of Argentina. So that's embedded in the year to date numbers and the outlook Weve given.
That excludes the impact of Argentina inflation, so Argentina inflation was about 150 basis points year to date. So that you have to take that into account as well section. So it's really for the fourth quarter, our ability to do that you have for the fourth quarter, we haven't really assumed a material change in trends that we're expecting more of the same.
Obviously, we'll see whatever the chemicals, but generally we would expect more of the same sort of churn.
Thank you for correcting me there on that on the on the the targeted pricing that you mentioned on the digital side is that.
Does that reactionary or or maybe opportunistic to acquire customers. When digital demand is so high right now just trying to think about what the.
What the motivation there was.
Yeah.
Wanted to ask on on the last quarter. When we showed July transaction trends for <unk> Dot Com digital transfer and C. D C and there were quite a bit higher than where they ended up coming out with a quarter.
That D shall we saw is that all explained away by the holiday or was there also some diesel in the fundamental business and those three metrics.
Yeah, there's a lot of calendar stuff going on between July August and September and and that's where I get most representative numbers are for the full quarter, regardless of which channel channel. You were taught me about so on the on the digital side, we started to see some.
Grover from the digital White label business that began last year. So that's some of what you're seeing there, but otherwise it's really the full corner numbers that are more more relevant to really pay attention to their Brian.
Got it and then when I back into the fourth quarter E. P. S number on adjusted basis. I mean, you came quite a bit of head on the corner and adjusted earnings, but when I back into the fourth quarter. It looks like it's a little bit below street and it looks like the margins might be down a little bit on the year over year.
Basis, but just to make sure I understand that point Roger it sounds like there's some investments that will be made that were kind of pushed off and caused the the margins potentially to drop in that fourth quarter, which might be what we didn't model correctly on the street.
Yeah, Yeah, we are given the performance every pack as far we did hold back on some plans spending in the second and third corner. Brian that is now we started to relaunch some of the spending in the latter part of the third quarter, which will hit mostly in queue for.
And you know what we're really pleased with her that we were now at 21% for the full year for outlook for margins, which is really our it's our original margin objected for the year, even in a very down revenue environment. So we're really pleased with that and I think it just gives you a sense of the flexibility we have in our operating model with 55 to 60 because.
One of our costs being variable in nature. So we're very pleased with that and I don't see the fourth quarter really being as representative of the of the you know the baseline of the business. It's more about the for your numbers for us.
Hickman, you're running out for me.
Yeah, No I, just want to add something as old as investments used to be out doing two four Brian are really but since portals towards the future you know as we all climbed in that you are the in our September 2019, part is definitely the marketing, but good investing heavily into technology and continue to put everything as I mentioned earlier, two cloth N V I really.
Improving here, and which will make us even more competent to put in the future. You know I think I'm more effective I believe that would be our so called me <unk> 150 million.
<unk> to your savings so that brings this you'll be a comfort them without 21% margin and that's what me gave in the beginning of the year before COVID-19.
The next question comes from Yuck Kumar off Evercore. Please go ahead.
Good evening, thank for taking my questions. Since we've already got three to four corner view when we might have a vaccine in order to be open with that before I can day quarantine, what an increase in migration improve your cross-border money transfer it around three further assuming we have moderate job creation and.
Hi, G D. P per capita country to drive it.
Well the old wait for the vaccine right [laughter], that's that's something that make old probably you know better than to be turned to new normal. One thing is clear from us. Your appointment for you I can only say that there will be a new new normal things will be different but b R. As you could see that you're very confident for.
The future I think as be better prepared during COVID-19, with our digital with our you know global.
Global network and bizarre plot for them I think they're also getting ready for the new appointment is of course, the migration Oh or it helps our business <unk> of course exports imports more and so you know, it's it's gonna be using like sports imports helps our business students payment to students go to the University the game and Ah <unk>.
That helps our business, but at the same time you chose also do even doing COVID-19, how strong our branches. How trustworthy is how much you know be our our customers like us they're coming and using those you know even it shows that even though we are gaining marketshare. So I.
I hope he put down to your place move it on that.
Very helpful and then for.
For the last couple of quarters, even highlighting really cramped in your white label Parker.
Luckily in Russia and <unk>.
<unk> Telecom, maybe if you can speak a little bit about where there's other opportunities to happen quite lethal partnerships.
Sure I mean, you know we are very our platform is even adapting to the night White labels partners. You could you mentioned that finding a bank a larger bank are signing up I initially solution or telecom company that after signing that mm integration takes a little bit of time and.
We are we do have pipelines that'd be do have some signed the agreement to some smaller some <unk> and that will contribute also in the future to or a white label growth Library executive and the good thing is also have you see that then shows I was also is incremental because this financial institutions were using correspondent banking into past, which.
Is you know quite difficult to send money from cross border and expensive. So use it and you know we do have programs complaints for example ask him under under a program state oversight speech are really probably one of the best in the industry. So many financial institutions, turning to us, saying that okay for me.
<unk> can you drop for us too exited occurrences in these countries can you do that because you're into 100 countries and do you have a great platform. So if this is something that I'm excited about.
The next question comes from James Poor set of Morgan Stanley. Please go ahead.
Great. Thanks, just Wanna to follow up on on a white label comments that you just made.
When we think obviously, there's lots of of of opportunity et cetera, but how do we think about.
How expansive those can be and and what your limits are and maybe any particular geography or you know if there's exclusivity just trying to think about how broadly you could you could take those partnerships.
So on White label as I said, Jim is a great question and what they will lose though this is a different environment that people do financial institutions are using correspondent banking already.
The customer for customers to send money, especially with the knicks or the curtains as let's say from bowler environments unaccepted currency or from your environment, two different curtains as well, but it's a struggle and that's in you know that sending in minutes. If you have the real time payment and it can't be I have real time catch pay.
<unk> and these are a big advantage is for us if you drop money minutes and I'd location or send money in real terms an account in the different currencies. This is probably the biggest advantage b O for to the financial institution. So it's not about exclusive at the <unk> that they only did you.
Different methods, it's really replacing let me see.
<unk> struggled they have or costly system, they have replacing with our most more efficient system and serving their customer in a better way.
Got it and then it's Raj highlighted the the strength of the balance sheet and an overall capital position I'm wondering how do you think about.
You and you already pay a nice dividend how do you think about returned incremental to the dividend whether it be buybacks versus M&A and and are you seeing opportunities, perhaps to put that that capital to work in buying new technologies or other businesses et cetera.
Generally I would say that as if you feel much more comfortable about business. You know we are not pre covid, yet, but the direction is good and our programs where pre Colgate design pre Covid, then announced pretty Covid. So that's why we have the still you know <unk> on buyback.
780 million, but left thrive a building.
Yeah.
And maybe get more confident about the business on the <unk> side I mean, you know given out financial strike, we will always look at the market. It has to have the right to return EM. It has to have the you know be aligned with our sorry digit and that's where we are definitely looking if there is opportunities for us.
Growth opportunities or even sooner Joe put them. It is very can be more active we are definitely active in the market those but I I think from from my point of view I feel much more confident or what the business and I think that the shareholder return has been always on top of my agenda.
<unk>.
Yeah, <unk> you know our capital priorities have not really changed James here. It continues to be their best in the business to drive the organic growth that rehab and it's largely digital technology improvements.
Repair very healthy.
And that's a key priority third would be how many opportunities that fit nicely with an R. A crossbow payment strategy and then the fourth one and an important one with the stock buybacks to the extent, we have excess cash flow. So that's gonna be the priority that we think about or whenever we're making investment decisions.
And in order to give others a chance to ask the question. The last that you kind of a limit yourself to one question.
The next question comes from Ramsey Hello style of Barclays'. Please go ahead.
Hi, guys. Thanks, so much for taking my question I wanted to ask you about the the Kroger relationship and there was a change there in terms of exclusivity could you help us sort of Dimensionalize, how you're you're thinking about that is it you know you have a very diversified business. So will it be perceptible, if you lose a little sharing that particular client or or not or not.
Well you know you just announce our Kroger relationship and we are very happy for up to 30.
35 years again to extend just a relationship I think we've at Kroger. The great part maybe you have a very good partnership and it's but one of our partners globally I think none of our apartment that are bigger than 5% of our revenue globally. Right. Then you haven't thousands of partners through the globally and it's one of the partners between like the 35.
You know for your issue very much look the on the exclusive at the Monday exclusive at the worldwide. We are acting like one of our most successful market is the middle East Gulf States and they've been always a non exclusive market them they've been very very much a successful day around very expanding our.
<unk> by the way the biggest exclusive agent is best suited dot com right. I mean, you know we are on agent Beach has been doing very well and alone you know this quota growing very again from a very huge phase again growing very strong and that shows also how we can operate in an exclusive.
[noise] nonexclusive market customer how the customers are choosing us and how we are gaining current the marketshare. So.
I think the love Kroger and we're gonna be together again, we are looking forward with another multi year agreement with Kroger.
Yeah, I would say Ramsey also most of our agents are well below the 5% threshold is not matter it doesn't matter.
So it really is a very diversified business makes that we have in our ultimate right. We're also looking at the overall echo.
Mixed at Western Union and what it means we look at opportunities around the world.
The next question comes from Ashwin Shrivel car of city. Please go ahead.
Hello, I screen Hi.
Hi, My time, I had I should be good.
Cool that's good to hear I am trying to figure it out the impact of some of these new shutdowns in France, and Germany remind me whether <unk> immediate back in market, but a lot is this the situations made a T V shut down what it really.
Uhm effect affect the numbers much I don't want to minimize the mechanic you have the situation, but just from a financial standpoint.
Yeah, I think it's a good question first of all you know as you. So two second quarter shutdown in the March area of February March area is a different shutdown them to shop generally what we see on the market. It's more focus I think unfortunately have you learned.
Or the government's learned their lessons helped do the you know you are restrictions around to control COVID-19 pandemic. It's so it is different.
As you know so that our business after the restrictions get a little bit better immediately bounce back also in and have two two or you can do a Q3 significantly. So I don't expect that this shutdown in France, and Germany is dissimilar one.
It happened in in in in February and March.
So I am more confident that it will have less financial impact us. That's why we're also confident of on your end guidance. We learned also and that's why the our rhaetian or your and guidance.
The next question comes from two Timothy Kyodo of Credit Suisse. Please go ahead.
Thank you for taking the question I wanted to touch on the Hey, Thank you [noise].
I I wanted to touch on the small, but fast growing I believe in the sides.
Three X growth in terms of the account payout business. So account on both sides. The payout network has gotten quite large now you mentioned billions of accounts of 120 countries, which is the vast majority of G. D. P. I would assume I wanted to talk about a little bit of the mechanics of how this network has been built out to.
To the extent, you're leveraging partners like a visa directed in Earth's court to get access to accounts what portion of this is perhaps proprietary integrations that you've built using your global Treasury network into perhaps local a C. H connections et cetera, really the mechanics of how you were able to bill out such a broad account to count network.
<unk>.
Yeah, I think it's if you have a big advantage. Obviously, we are in 200 countries present already right. The other Fintech company with another company with struggling to the company country are present, our licenses our compliance programs are settlement programs are already settling so many curtains.
So what we do here is that you really over the years that theater recall, two or three years ago. We started between instead of signing more accounts globally, because we believe onto real time without shaving your customer segments with higher principle different customer segments, which did not use that some to pause and <unk> and what I like is that most of the <unk>.
Team did a great job the original teams and is it in India, and Turkey or is it didn't in Bangladesh. They did a great job signing the it comes directly the banks directly without having to switch with that we do have a more profitable business direct contact can't collect from an account dropping an account without.
Using a switch that makes us actually switch in the middle of the 10th at do the treasure <unk> Treasury ourselves. We can do the settlement ourselves. So that's a big advantage be signed about billions of it kinds of most of them are direct it gone. So what you'll do is that you sign a bank and.
In in China, and you have a direct it since you've signed up bank in Argentina, you have a direct kicks it seemed in Brazil and is it. So that's account there cause it's a highly appropriate of a business is still small still growing it's still you know in the banks on the sense I'd have to promote that that they can.
Send money why are they are account direct that's when they contact Vietnam and that's what we are doing.
The next question comes from Jamie Friedman I'll Susquehanna. Please go ahead.
Hi, congratulations on the excellent results here Uhm I just wanted to ask the dynamic pricing was a big theme at analysts day it continues to evolve.
Uhm eight <unk> what percentage of your constituents. Your transactions is dynamic pricing applicable is it only really in the digital environment, where do you see that evolving too. Thank you.
That's a great question, we did talk about that we do see also has a big advantage dynamic pricing, obviously, especially we can have dynamic pricing from where we are in a agent beach I seen dot com, but we also have a retail dynamic pricing. So dynamic pricing is always a definition thing you know how dynamic are you are you dynamic minutes.
<unk> are you dynamic and you know quarterly or area dynamic in and and countrywide. So corridor wise bent wise and we do that we are almost like an airliner in many some corridor. So I would not say we are a very very yet.
Really learning and adapting to the customer needs to rebuild this customer data or data is getting even more intelligent he bite day to understand and be getting more more influence is it fixed rates as a customer needs is it's a customer loyalty as the corridor is it processing fees is it.
The day by holidays. All these things we are putting in our system and we are coming adopting the prices constantly to the customer needs and that's continue to grow it's only the beginning it's a journey and I believe being in 200 countries with that that's.
That's huge.
The next question comes from Ken Cichocki Autonomous Research. Please go ahead.
Hey, good afternoon, Hickman Raj thinks that I'm, taking my car.
Hey, I I just wanted to follow up on on Ramsey's question on Kroger, because we got this on it a few times over the last couple of weeks, but that agreement shifted from an exclusive deal to to non-exclusive deal and I know most agents are below the 5% threshold, but I was curious what what percentage of your of your total.
All agent locations in transactions are under exclusive agreements today, and then I guess a follow up on that is just how do you think about maintaining that share with kroger once once kroger brings in that second offering thanks a lot.
So let me just start with the second one maintaining that's that's easy because we are reading in the market anyway.
Our operating and maintenance nonexclusive nonexclusive areas anyway, it's a customer choice. That's actually that's also krogers kroger's intention being a customer choice who has a better service. If you send money to real time to an account in Bangladesh or in Vietnam, probably you will go from Kroger and send money with <unk>.
<unk> and computer you you see a loyal customer to rest of you you're gonna get to use so I'm not worried about that I'm. You know we are winning on the non exclusive environment constantly and obviously chose also the stats current that shows that pro Oh that'd be are winning maybe kroger is on the line because it to the U.
But once you come with me [laughter] to solve the Arabia or to you or to other countries. You will see you and how rich environment. We are operating beaches nonexclusive went the customers that choosing us the customer trust his uncle them to the trust Us Georgia.
I'm not yeah on the first part can as you said most of our business and agents are exclusive in nature, except without golf space in Russia had been nonexclusive for a long time and we were actually a later insurance into the Gulf States, but you know that's a key part of our business and mentally esophagus outfitters.
You know what that is in terms of per cent of total C. D C.
So I would say so the vast majority of our revenues and transactions and age or or it's blue Sir in Africa. For example, just add. Another example, you you're actually cannot have one specific agreements that doesn't mean, you can't work with agents exclusively Friday, just depends on how you doin' sense agents in different parts of the world.
It's a mixture of different kinds of agreements back and ultimately as I mentioned earlier it really ends up being a question of economics, what are the best economics for Western Union, what kind of opportunities in rehab and that's how we make our decisions on flatter, sometimes a first of or not it's not about just a 470.
Really is about economics ultimately.
The next question comes from Heartache Mesa of Northcoast Research. Please go ahead.
Hey, Hey, right, Okay Carthage.
<unk>, you've talked a lot about dynamic pricing and I'm wondering now that the digital business is growing so fast and there are more competitors at least recognizable competitors on the digital side are you having to adjust pricing more because of just greater demand greater competition.
And I'm.
I'm wondering if the pricing has to be adjusted more because of that and if you were seeing pricing pressure.
First of all I guess that you saw during my presentation, but you know obviously the customers choose rest of Union I mean, you saw from the downloads. They have a abdon boats, we are by far the largest at the market the by far the best choice in the market and that's not my <unk>.
The district that stuff on third party independent statistics, a customer to come through the trials, but I think you know if you operate then 75 cent countries in 200 countries you do adjust your prices or your customer loyalty programs are your programs close the marketing.
Programs constantly to the environment and that's what we are doing V. C. This pricing environment very stable I think that you know <unk> drop money in minutes for some bear.
It's not everybody has everybody's art, we do it in the probably do you believe that we are doing the best way and that's why we are gaining those some marketshare, even in digital and especially in digital [laughter] and that's also retail this coming back. So that's it's a big advantage for us and I.
Don't see big pricing moments coming in the next you know in the next two near future.
Next question comes from Matthew O'neill of Goldman Sachs. Please go ahead.
Yeah. Good afternoon Hickman raasch. Thanks, so much for squeezing in here Hi, I wanted to you what what I wanted to just focusing on slide 12, first and foremost really appreciate rise Brendan you guys, putting that together I think it's a really helpful way to to think about that and it makes sense. The the traditional business first who dot com.
And of course, the newer white label, Yeah to dovetail on the the the conversation you were having with Tenjin about the customer acquisition cost and lifetime value just kind of thinking of headgear I suspect there is even a greater delta between blue Dot com and the mobile app users as far as you know the engage.
Mint with the brand and they're they're recurring nature of that business and you know thinking about how that's gonna move forward given that we've had sort of a coven driven inflection point in the business to incrementally more digital is there an opportunity that uhm the stickiness of those customers could allow for.
You know margin expansion, starting in 21 and and beyond.
So I think garage spend a little time on the margins of digital margins. We are very pleased with the digital margins actually and you are absolutely right. So I think we are focused on you know this business if that expense really could be also helps in our margin in the future also because you know you'll do.
You have less sense site.
The expenses on this is expensive the agent expenses and you have direct control here with the expensive. So that's what they that's may help us but at the same time I. If you really like the digital the stickiness off the customers. We are not very much focus on the how can be have the customers even more.
<unk> can be an additional products to that besides money to transfer can be at additionally, commensal products, which will drive the margin than revenue for that that's something it's very interesting. Our data is unique our data has about 150 million customers globally and for our customers parts of that'd be.
Digital customers, but the relationship with the digital customers is unique and did the customers are asking us we love Your brand would you all for other products also and that's something that would be a definite looking at that and in the future longterm people liked the definite to talk more to you about these opportunities.
This concludes our question and answer session I would like to turn the conference back over to Brendan Marrano pretty closing remarks.
Thank you Andrew and thank you all for joining us today and for your interest in the Western Union Company.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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