Q2 2021 Western Union Co Earnings Call
Good day and welcome to the Western Union Company second quarter 2021 earnings release Conference call.
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Please note today's event is being reported.
I would now like to turn the call. This over a broad 1 big head of Treasury and Investor Relations. Please go ahead.
Thank you.
On today's call, we will discuss the company's second quarter 2021 results and our financial outlook for 2021, and then we will take your questions.
The slides that accompany this call and webcast can be found on western Union Dot com under the Investor Relations tab.
Available after the call.
Additional operational statistics have been provided in supplemental tables with our press release.
On our call today is our CEO hikmet <unk> and our CFO Raj Agarwal.
Today's call is being recorded on our comments include forward looking statements.
Refer to the cautionary language in the earnings release and in Western Union filings with the Securities and Exchange Commission.
<unk> 2020 form 10-K for additional information concerning factors that could cause actual results to differ materially from the forward looking statements.
During the call we will discuss some items that do not conform to generally accepted accounting principles, we have reconciled those items and the most comparable GAAP measures on our website.
Green Dot com under the Investor Relations section.
He will also discuss certain adjusted metrics the expenses that have been excluded from adjusted metrics are specific to certain initiatives, but maybe similar to the types of expenses that the company has previously incurred and can reasonably expect to incur in the future.
All statements made by Western Union officers on this call on the property of the West Union company and subject to copyright protection.
Other than the replay noted in our press release Western Union has not authorized and disclaims responsibility for any recording replay or distribution of any transcription of this call I will now turn the call over to our CEO Hikmet Harrison.
Thank you Brett and thank you all for joining US this afternoon to review, our second quarter results and the progress so far business.
Our second quarter performance was strong and we are on track to achieve our adjusted 2021 financial outlook with revenue growth, reflecting sequential improvements and underlining trends and a favorable comparison to the prior year period, which was impacted by COVID-19 pandemic.
Profit trended as expected in the quarter as we continue to make strategic technology investment to strengthen our market leading platform and digital capabilities. Our business remained resilient. Despite global uncertainties related to ongoing COVID-19 resurgence from the Delta brand and debt.
Potential risks this poses to economy recovery.
Our strategy to be a leader in cross border cross currency money movement, and payments, serving consumers businesses and financial institutions remains unchanged.
We remain confident in our ability to exceed $1 billion of digital revenue in 2021 supported by continued strong growth in our dot com business and our digital partnership business.
Pension of are we bought from customer base position us well as we look to build a consumer ecosystem deepening engagement with our customers and providing them access to a wider array of products and services.
We will discuss more on our consumer ecosystem strategy in just a moment, but first.
I'd like to highlight another important strategy development, which is the business solutions transaction, we announced today today. If you separate the amounts debt viewed reached a definitive agreement to sell our business solution business to goldfinch partners and the bulk of scope for $910 million small and medium sized businesses on.
<unk> are on the wall to rely on Western Union business solutions as their global payments foreign exchange on hedging partner and we believe that gold fish partners and the <unk> group are well positioned to invest in the business to deliver good value and innovation to these clients.
With the planned sale of West Union business solutions, which was approximately 7 percentage of total company revenue. During the last 12 months ended June 32021, now we will be fully focused on increasing our penetration of the global cross border payments.
Payments market, expanding our digital publishing business and increasing our total addressable market to our western Union branded ecosystem strategy.
The company will benefit by having a single global payments platform capable of serving multiple use cases and customer segments, including Fintech companies like Google pay telecom companies like STC pay and banks and other financial institutions like spirit.
This required some modern adaptable platform that provides a strong user experience for our customers agents and partners and we are well on our way in this regard with significant recent progress in our cloud migration pricing automated marketing and customer support built on a foundation of advanced <unk>.
Schindler earnings and omni channel engagement.
These developments enable us to be more efficient, but most importantly, improve the customer experience and identify incremental revenue opportunities.
On tuning technology investment and our unique global platform remains a key area of focus for us.
We also remain focused on enhancing our market leading network by improving our coverage costs on quality.
On a year to day basis, our new agent signings will expand our net book by approximately 18000 future locations.
You have also renegotiated contracts with over 50 agents year to date, reflecting our commitment to optimize commissions. Finally, we continued to enhance our global account payout capabilities, which is now available in over 125 countries with real time capabilities and approximately 100 countries.
Over 60% up on a global comp payout transaction volume is delivered real time.
Turning back to our consumer ecosystem strategy, we are excited about our plan for pilots.
So you need the national Bank of Blue branded multi currency bank account debit cards and integrated money transfer solution and a couple of European countries. Later this year. Our initial focus will be testing on learning and then b how.
How do we expand from there.
Longer term, we see significant opportunity for our consumer ecosystem strategy. We are a trusted provider to a large unique customer segment. The global migraine community, which has many needs beyond money transfer such as insurance lending and travel and it's often not well served in the market.
With the Union with its trusted Brent Lodge on growing digital customer base and global platform is well positioned to execute on this opportunity.
While we are fully focused on the implementation of our profitable growth strategy.
We also remain committed to advance environmental social and governance or ESG, especially union.
I would encourage you to read our 2020 ESG report released in June to learn more about our 2020 impact and our ESG strategy and goals, which are closely aligned to our business our values and our purpose.
Now turning back to second quarter results do you see pricing stability in the market and varying levels of recovery from.
The effects of the ongoing pandemic, particularly outside the U S where economic activity and government policies are more mixed this was evident in my recent market 2 in Europe, our agents customers and business leaders confirmed debt, while local economies are reopening and travel restrictions are being lifted.
The pace of economic recovery is being impacted by labor shortages and despite in cases from the Delta variant.
Fortunately for our customers around the globe, we offer a remarkable choice with our omni channel offering with a comprehensive set of funding and payout options. So they can transfer on receive money in a way that it's most convenient for them.
During the quarter, we saw continued strength in principal per transaction, our ppt with growth over a low 1% and cross border total principal growth of 29% benefiting from continued demand for support can receive mark goods, and improving economic and employment trends and central regions like.
The U S and Western Europe.
Total company revenue grew 16% or 13% on a constant currency basis with underlining trends aided by continued growth in our digital business and sequential improvement in the retail business.
<unk> revenues and transactions each grew 15% in the quarter, we'd see to see revenue growing 12% on a constant currency basis.
Digital revenues were up from the first quarter and grew 22% year over year to over $265 million to be quoted on the highs for revenue transactions and principal.
Digital comprised 36% of transactions and 24% of revenues for the <unk> segment.
As expected we are beginning to see digital growth ease.
After exceptionally strong performance during the height of the COVID-19 pandemic.
Well dot com results were healthy with transaction growth of over 18% driven by 14% growth in average monthly active users.
Dot Com continues to lead money transfer appears in mobile app downloads by a wide margin and grew principal over 30%.
Our customer engagement trends remained favorable year over year with positive trends in retention transaction per customer and principal by customer.
2 to expand into new market launch in Chile, and Peru in the second quarter and enhancing the customer experience with new futures on tools, including the rollout of additional electronics.
Customer options across European Union, and transfection reminders.
Improving the customer experience muscle on the supports the continued growth we're seeing in dot com, but also provides a growing customer base for the consumer ecosystem strategy as I mentioned earlier.
Retail revenue achieved strong year over year growth cycling over the disruption from the pandemic in the prior year period and is growing sequentially.
We remain focused on ramping up our partnership with Walmart in the U S. Our domestic and international money transfers bill payments and money on the services are now available in nearly 4700 Walmart stores across the U S.
Vince in the business solutions segment continued to move in the right direction with strong improvement in the new business and stable trends in hedging and across most segments verticals.
While we have announced a definitive agreement to divest which the union business solutions it will be.
As usual until the transaction closes.
Overall, we are pleased <unk> done obstinate. After this union business solutions today and excited for the business solutions management team to receive strong support from the new ownership. Additionally, with our help to second quarter results. We are confident in our ability to execute in fluids market conditions.
And our strategy with a resilient retail channel strong growth of our digital channel building.
Building, our branded ecosystem with additional products and serving multiple enterprises with our unique and agile cross border platform positions the company well for long term incremental growth opportunities.
I'll pass it over to Roger to review, our financial results in more detail.
Thank you Hikmet and good afternoon, everyone. Let me first summarize second quarter performance and then I will provide more color on the business solutions divestiture planned termination of our defined benefit plan and finally, our 2021 full year outlook.
Moving to the second quarter results revenue of $1.3 billion increased 16% on a reported basis or 13% constant currency.
Currency translation net of the impacts from hedges annotated second quarter revenues by approximately $29 million compared to the prior year.
In the <unk> segment revenue increased 15% on a reported basis or 12% constant currency with transaction growth, partially offset by mix.
<unk> transactions grew 15% for the quarter led by 33% transaction growth in digital money transfer and supported by growth in retail money transfer, which improved sequentially, particularly in North America, and Europe and CIS.
In line with our expectations the spread between CTC transactions and revenue growth moderated this quarter and was flat on a reported basis or 3 percentage points constant currency as we cycled through the mix impact from the high growth digital partnership transactions, which represents a lower revenue per transaction category.
We expect the spread will remain fairly tight during the remainder of the year.
Globally, we continue to see pricing environment as stable.
Total <unk> cross border principal increased 29% on a reported basis or 25% constant currency driven by growth in retail and digital money transfer.
CFC principal per transaction or PBT was up 11% or 8% constant currency, both retail and we dot com continued to experience higher average ppt due to mix and changes in consumer behavior.
Digital money transfer revenues, which include <unk> dot com and digital partnerships increased 22% on a reported basis or 19% constant currency, we dot com revenue grew 18% or 15% constant currency on transaction growth of 18%.
Dotcom Cross border revenue was up 23% in the quarter digital partnerships continued to show strong growth across revenue transactions and principle in the quarter.
Trends in our digital business moderated somewhat as expected from the exceptional growth we experienced from the second quarter onward last year as demand for our digital services grew significantly, adding incremental revenue profit and transactions to our business.
While we expect this moderating trend will continue the remainder of the year. We are now growing off a much larger base.
Moving to the regional results North America revenue increased 4% on both a reported and constant currency basis on transaction growth of 3% the increase in constant currency revenue and transaction growth was driven by U S. Outbound, partially offset by current U S regulations in Cuba that limit our ability to operate and decline.
And U S domestic money transfer.
U S domestic money transfer represented approximately 4% of total <unk> revenue in the quarter.
Revenue in the Europe, and CIS region increased 18% on a reported basis or 10% constant currency on transaction growth of 26% on.
Instant currency revenue growth was led by the United Kingdom.
<unk> and Russia with the spread between transaction and constant currency revenue growth driven by the digital partnership business in Russia.
Revenue in the Middle East Africa, and South Asia region increased 19% on a reported basis or 18% constant currency, while transactions grew 22% for digital partnership business in Saudi Arabia, <unk> constant currency revenue growth in the quarter, followed by Kuwait and Qatar.
The impact of the digital partnership business on the spread between transaction and constant currency revenue growth diminished during the quarter, but was still the primary contributor.
Revenue growth in the Latin America, and Caribbean region was up 70% or 68% constant currency on transaction growth of 42% on.
Instant currency revenue growth was broad based across the region led by Chile, Ecuador, and Mexico much higher average principal amounts resulted in constant currency revenue growth greatly exceeding transaction growth during the quarter.
Revenue in the APAC region increased 20% on a reported basis or 13% constant currency led by the Philippines, and Australia transactions increased 3% with the Philippines driving the difference between constant currency revenue from transaction growth.
Business solutions.
<unk> revenue increased 25% on a reported basis or 16% constant currency benefiting from favorable comparisons to prior year.
Revenue trends remained on a positive course with the continuing recovery in cross border trade. This segment represented 8% of company revenues in the quarter.
Other revenues represented 5% of total company revenues and increased 8% in the quarter.
Other revenue is primarily consist of retail bill payments in the U S on Argentina and retail money orders.
Turning to margins and profitability the consolidated GAAP operating margin in the quarter was 19, 8% compared to 19, 9% in the prior year period.
The consolidated adjusted operating margin was 22% in the quarter compared to 24% on the prior year period.
Adjusted operating margin excludes M&A expenses in both the current and prior year periods and last year's restructuring expenses. The decrease in consolidated operating margin continues to reflect how COVID-19 impacted the level on timing of certain expenses on investments as the company curtailed spending last year.
<unk> related expenses and strategic investments in marketing and technology were the primary contributors to the slight margin decrease on a quarter.
Foreign exchange hedges had a negative impact of $2 million on operating profit in the current quarter and a benefit of $7 million in the prior year period.
Moving to segment margins note net M&A expenses are included in other operating margin for both the current and prior year period non segment margins exclude last year's restructuring charges <unk> operating margin was 27% compared to 21, 8% on the prior year period, given that our <unk> segment comprise.
As most of total company operating income a decrease in operating margin was driven by the same factors that impacted total company margin.
Business solutions operating margin was 10, 9% in the quarter compared to 1.6% in the prior year period. The increase in operating margins largely due to increased revenue, partially offset by increased compensation related expenses.
Other operating margin was 16, 2% compared to 21, 9% in the prior year period with the decrease driven by higher M&A expenses related to the divestiture of Western Union business solutions announced today.
The GAAP effective tax rate in the quarter was 14, 5% compared to 16, 2% in the prior year period, while the adjusted effective tax rate in the quarter was 14, 2% compared to 15, 7% in the prior year period.
Decrease in the Companys GAAP and adjusted effective tax rate was due to changes in pre tax earnings including differences in the composition between high taxes and low tax jurisdictions.
GAAP earnings per share or EPS was <unk> 54 in the quarter compared to 39.
In the prior year period.
<unk> EPS was <unk> 48 in the quarter compared to <unk> 41 from the prior year period.
The increase in GAAP EPS reflects benefits of revenue growth to gain on an investment sale and a lower effective tax rate, partially offset by debt retirement expenses compensation related expenses and strategic investments in marketing and technology.
Both the gain on an investment sale on the debt retirement expenses are excluded from adjusted EPS. In addition to the expenses. We noted earlier during the operating margin discussion from.
The net impact of these 2 items was a <unk> <unk> benefit to GAAP EPS in the quarter.
Turning to our cash flow on balance sheet year to date cash flow from operating activities was $349 million.
Capital expenditures in the quarter were approximately $48 million.
At the end of the quarter, we had cash of $1.1 billion on debt of $3 billion.
We returned $171 million to shareholders in the second quarter, consisting of $96 million on dividends and $75 million on share repurchases.
Outstanding share count at quarter end was 407 million shares and.
We had $633 million remaining under our share repurchase authorization, which expires in December of this year.
As Hikmet highlighted previously today, we announced the divestiture of Western Union business solutions the.
The sales price of $910 million is expected to generate in excess of $800 million in proceeds net of tax in 2022 and result in a gain on sale.
Our net proceeds estimate is based on current tax policy and is subject to certain regulatory on working capital adjustments. The transaction is expected to close in 2 stages with the majority of the business and the entire proceeds transferring in early 2022.
On the European business transferring by late 2022 gross closings are subject to requisite work council consultations regulatory approvals and other customary closing conditions.
Following the transaction, we will evaluate options for the use of proceeds based on market conditions and opportunities and in accordance with our established capital allocation priorities, which include reinvestment in the business to drive organic growth dividends acquisitions, including technological capabilities that support our growth strategy and share re.
Purchases.
As a reference point during the last 12 months ended June 32021, the business solutions segment generated revenue EBITDA and operating profit of $374 million $64 million and $33 million respectively.
Turning to our outlook for 2021 the outlook, we provided today assumes moderate improvement in macroeconomic conditions as the quarters progress in line with current prevailing macroeconomic forecast with no material changes related to the COVID-19 pandemic.
We reaffirmed our expectations for revenue growth, including our expectation that the digital business will achieve over $1 billion in revenue. This year. We also affirmed our remaining metrics on an adjusted basis are updating our full year GAAP financial outlook for pension plan termination expenses and M&A costs related to the sale of the business.
<unk> business the.
The pension plan termination is expected to accelerate the recognition of approximately $110 million noncash.
Non cash expenses on a pre tax basis, lowering GAAP EPS by approximately <unk> 22 cents in the fourth quarter and will be recorded to other expense in the P&L.
With our planned overfunded by more than $35 million as of June 30, We believe it is a good time to transition the plan to an annuity provider.
We continue to expect full year 2020, when revenues will grow mid to high single digits on a GAAP basis or mid single digits on a constant currency basis, which also excludes the impact of Argentina inflation.
GAAP operating margin is expected to be approximately 21% and adjusted operating margin is expected to be approximately 21, 5% with the difference attributable to M&A costs.
We anticipate our effective tax rate will be in the mid teens range on a GAAP and adjusted basis GAAP.
EPS for the year is now expected to be in a range of $1.82.
$2.1.92, which now reflects the impact of pension plan termination expenses and M&A costs. Adjusted EPS is still expected to be in a range of $2 to $2.10.
As we move into the second half of the year, Let me provide some context for how we think the results may progress over the remaining quarters, starting with revenue our underlying assumption for revenue progression includes moderate improvement in the global macroeconomic environment in line with the current prevailing economic forecast however, as Hikmet discussed earlier.
Global uncertainties remain especially related to the emergence of the Delta variant and the potential risks this poses to broader economic recovery.
As the quarters progress, we expect moderate improvement in our business similar to the current prevailing economic forecast, although overall company growth rates will be lower than we have seen in the second quarter due to the grow over impact from last year.
We continue to expect to generate over $1 billion in digital revenue this year, along with a relatively stable retail business.
Lastly, we expect that the business solutions and other segments will continue to rebound this year as global macroeconomic conditions improve.
With respect to margins, we expect our margin for the second half of the year will be above our full year adjusted margin outlook of approximately 21, 5%, primarily driven by expected higher revenue levels.
To wrap up we delivered a solid second quarter performance and are on track to achieve our financial outlook for the year.
With the planned divestiture of the business solutions business. We are also sharpening our focus on the strategy that hikmet laid out.
Thank you for joining our call today and operator, we are now ready to take questions.
Thank you we will now begin the question and answer session.
If you would like to ask a question. Please press Star then 1 on your Touchtone phone.
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Today's first question comes from Darren Peller Wolfe research.
Net.
Hey, Thanks, guys I wanted to touch co Darren.
Hey, guys and congrats by the way on the sale of the business solutions business for.
It looks like enabling you guys really aligns to what you'd want to on your core CSC side.
Thanks.
On the.
When we look at the CDC side of the business, though the true.
<unk> actions on a stacked growth rate basis did actually accelerate which was nice to see from on the asset managers.
And we're trying to figure out the dynamics, especially as you're on the spread narrowing now as well.
Was it as simple as saying like digital obviously continues to grow well on do you see that being sustainable from here, we do get into more reopening and then just give US a reminder of where we are on the retail correction I guess the retail.
Preopening element, where we are versus where you think it can get to by the end of the year.
Yes, let me.
The center of the business first of all we are really.
Happy with the performance of the business.
Digital expansion is really doing very well.
Also retention rates are extremely high.
The customers are using now in.
75 countries EBITDA with senior debt Com business and <unk>.
Linda.
We also have our white label business enterprise partnerships, which brings us to.
Exceed the $1 billion by year end. So on we really liked that we already have $500 million achieved in <unk>.
Believe that's going to continue and if you look at that on my watch.
Base right, especially if you compare the competition, we are really growing very strong from a huge base here. So I am please on debt and retailers coming back, especially in places where retailers open.
On the <unk>.
Volatility due to.
Due to Corona or wireless is less it's really doing well from business doing very well, it's coming back. So that's also stable stability on the retail the resilience of the retail business, adding on debt on there.
Digital business, it's really good news here, we are heavier and then also the co.
On business it gives us the ability to turn customers have debt customer relationship you have about 9 million customers now.
On the Dot com business.
That gives us really a great space for our ecosystem strategy.
On the customer level. It is increasing gear and really allows us to offer additional products to our assumed debt from customers in the future and the test.
As you saw starts this year in Europe with our <unk> Bank, you want to add something on that Darrin on your other question around the spread.
It is generally as simple as we are growing over some of the really fast growth from our digital partnership digital White label business, which was the key driver of the wider spreads over the course of the last year. So we had expected that it would narrow I do think that it's going to continue to be narrow the rest of the year.
Of that impact.
And I think the.
In terms of whereas retail the way we think about it is if you look at the total <unk> business. This second quarter compared to the second quarter of 2019 were slightly ahead of where we were we're about 1 point ahead in total.
The overall consumer business. There's obviously the business has shifted dramatically over that period of time now in the second quarter. We have digital is about 24% of consumer revenues and back in the second quarter of 2019. It was only about mid teens. So we've had.
We can't shift in the business if you will.
And I think Thats, a really good story for us going forward, where the consumer business here is more digitally heavily oriented and provides a good growth profile going forward.
That's really helpful. At the Big data point, I think debt from a readout of the REIT side is actually.
Yes.
2019 level now from a professional standpoint, which I guess underscores the digital side is holding up and helping your growth profile, but 1 quick 1 is just when we look at the.
The investments on the progress you've made on the Dot com number of the 9 million users can we just touch on engagement levels for a minute in terms of where they are now versus where they've been in years past, how many transactions you see for those kinds of users versus the retail side.
And what that can be from business from them.
Monetization thanks again.
Yes, I think on <unk>, but from a retention levels are really increasing them to come to us we've been a lender customers are using us more on more 1 stood up on the net bond as you know the big difference between retail money transfer.
We're seeing them come anytime soon is that you have to have you.
Now your customer you have to register at the scene Dot Com and the biggest advantage. We recently did also that helps a lot is the EU.
K y.
Customers don't have to go to a location to just sort of in many countries. That's huge step to get more customers and have them really low.
1 thing also change recently as do the people.
It is higher.
The principal per transaction with the customers, we do see that we acquire new customer segments here mid to high PPD.
Additional to that low unlike.
Most of the transaction that paid off on that.
Locations at retail locations globally and co.
I'm, just kind of spike on pizza 1000 locations they paid out in cash.
<unk>.
The new customers are also.
Wanted to send money to on a comp in fact this business is growing very strong we are really gaining market share.
On the $200 million business almost now.
Account to account and fewer accounts as John is on a annual run rate, that's 200 million flow revenue.
<unk>.
In November <unk>.
You could see we are adding new customers on the.
Customer so to.
To your question, yes. The retention is high the revenues are coming from the customers who have been already here, but don't forget also we own 75 countries.
Sending money from 75 countries. We recently opened new concludes on better and also adding to our success on digital growth.
Alright, that's great alright, thanks, guys.
Thank you Sir.
Our next question today comes from Tim Knutson Wong with Jpmorgan. Please go ahead.
Excellent Tien tsin.
Good afternoon here, Hey, Hikmet and good afternoon to connect those.
I totally understand the focus on selling business solutions, but hikmet I just wanted to clarify the strategy.
Is the idea to focus more on consumer based payments as alluded to with the consumer ecosystem strategy or is still servicing businesses with money movement as stated in your your strategy.
Statement here is that still on the table I'm just I just wanted to clarify that point.
So great question Tien tsin on debt first of all our strategy has not changed.
Being a leader on the on the cross border Costco on some money transfer several multiple use cases, it's really big advantage of Western Union and could also be heavily invest another bump up from <unk>.
A unique platform, which serves multiple use cases as you look at our platform. The investment we did into technology optimization to cloud.
The system's transaction processing systems, which have been really.
A huge advantage for us on continue to growth investments debt serves multiple use cases.
<unk> B to C. B to C C to see all the studies and Kona continues to expand on that.
Our white label expansion is going to continue to happen as I mentioned earlier, we do have co.
Customers like.
Technology customers like Google play on.
But thats going on top of it will come to debt.
Retailers like Amazon.
That's going to continue to happen.
Absolutely just to expand that on behalf mobile telephone company as well as some companies like STC pay.
Customers are also businesses.
Most importantly, we do have flow.
Financial institutions as you know.
Our survey with our white labeling also about more than 40 financial institutions globally white labeling our system.
Due to you know.
The biggest debt.
Our very successful business disposal.
In Russia that come to you to happen. So our strategy has been if I summarize debt.
Pension.
Serving our customers existing customers investing in both from a detailed assuming Ben but also adding new customer segments like visiting those financial institutions Tech company EBITDA.
A unique platform that has not changed and that's a very successful so as you I believe.
Yes, Okay understood I just wanted to.
Good day.
By the way season remember in 2019, our Investor's day I showed also seem to be on <unk> segment is <unk>.
2 of them by the market opportunity it right and that focus continue to happen.
Okay, Yes, that's what got me thinking about it. Thank you for that thank you for that clarification, because I do go back to that Investor day quite often so.
Thanks for that my quick follow up if you don't mind, just with retail getting better it was good to see that.
I have to ask on the Walmart side.
If you can comment how is that performing relative to your expectations any surprises there.
No surprise us gentlemen, rolling out model.
Did rollout sorry.
Moving to drill up with all of our products and portfolio 700 locations you have mud on the money transfer domestic mindset so international months.
Also on the bill payments on our products.
Volume up locations, it's ramping up.
From them.
Associates are there, but customers are there I think do you see margo goods ramp up at Walmart locations with Western Union transactions, we like it.
Great. Thank you for the update thankful for them. Thanks, Thanks, Scott Thanks, Susan.
And our next question comes from Jason Kupferberg with Bank of America. Please go ahead.
Great. Thanks, guys good afternoon.
Since you brought up the Investor day.
I'll ask you 1 just Scott.
Going back from that which I know is.
6 months or so before the start of the pandemic I think back then you were talking about a multi year revenue CAGR target of 2% to 3% for the <unk> business in <unk>.
So theres been a mix shift to digital that's been accelerated further due to the pandemic just wondering how you would.
Figure now as we.
We move forward on it.
Year over year comparison.
Hi.
Well first of all.
Great question, obviously as.
As you said Jason has some impact.
So basically about them with timing wise.
We are well underway to executing our strategy as we presented at <unk>.
The investors day.
We are really expanding not only with <unk> branded products also with white labeling and offering our platform to third parties has been a good strategy and our digital growth.
Offline that the investors day is really on the in the in the goods pad.
<unk> depend on definitely helped us also to gain new customer segments with higher principal embassy in digital.
But we were ready.
The weighted to serve this kind of customers they want us to send money to their loved ones..1 thing has not changes that come.
Customers want to support their loved ones are grouped on bad times, and good times and challenging times on that.
Resilience of our business and using the omni channel capabilities, which Western Union offers from defense side and also when the receive side is unique.
That has been debt has not change on the consumer business.
On our businesses like offerings to financial institutions.
It's a big focus within the company as you know we have been investing on our platform technology platform significantly investment.
Michael.
1 example is debt.
Technology investments give us the capabilities.
Serving our platform to banks and to financial institutions getting easier connections to them really.
Kind of.
After the headaches of correspondent banking as you know the postman and bengie, sending money from them on.
Especially when it comes to exited clearances from the emerging countries, it's painful but our unique platform can really say.
So thats all been outlined at our Investor day.
Im pleased with debt maybe the biggest the mother advantage be although we didn't talk so much.
Vessel day, but recently, we start to focus on both our ecosystem.
Our platform is seen in dot com.
Capability really gives us a unique platform that we can offer additional products like credit cards debit cards like loans like insurance, even like Cabo oldest building that ecosystem and there is no other company, who can talk to those unique customers like weekend pulp global Michael and permanent.
Examples like in the UK not talking to the Albanian customer.
In English or in their.
British way really talking with their release to understand that this low relative to this <unk> is huge.
That gives us really a basis of building additional.
Products.
Okay.
Net comprehensive answer I appreciate it.
Raj I know you mentioned there is over 600.
<unk>.
<unk> spent just about $75 million in the second quarter.
Do you expect to use it use up the rest of the authorization.
It expires at the end of the year.
Sure.
No we don't Jason that would be a lot of share repurchase for this year.
But we do we do plan to continue to be active I would expect that we're going to re up an authorization. After this year is over.
Just to continue to be active in and obviously, we had the sale of business solutions. Rachel close the first part will be early next year and so we'll have a view on on how we're going to deploy those proceeds and so all of that will play a factor in in terms of the share repurchase amounts but.
We're very pleased with the cash flow generation of the businesses had an <unk>.
Paying healthy dividends and buying back stock as we have historically.
Yeah, I was just wondering about that.
Second half would be from Robert in the second quarter, just given the pullback in the stock.
Yes.
No we don't.
We don't have a exact forecast to give you on how much stock buyback, but we're always going to be.
Nimble on that depending on the market conditions.
Are there factors, but that's the current plan.
Okay.
Thank you guys I appreciate it.
Thanks, Thank you.
Thank you and everyone on the interest of time and allowing as many people to ask questions as possible. We would ask that you. Please limit yourself to 1 question going forward. Today's next question comes from James Fawcett with Morgan Stanley. Please go ahead.
Great. Thank you very much I'm wondering if if I know that youre moving gradually to dwell on the banking services in Europe, but I'm wondering if you can kind of give us an outline of what we should expect around that what you think the opportunities are and kind of the key milestone.
On that we should be keeping track of or watching for and what timeframe just trying to get some more color on that initiative.
Yes, especially low.
Yes.
<unk> is extremely exciting.
This opportunity because.
While we have maybe is a big competitive advantage is that we are really starting with brand awareness customer relationship already and really.
Having a unique customer segmentation, which others don't have it and by the way we've given this having a European Union Bank license and have the offering of financial services, we really is from a from.
From a very very good day is actually true.
For our services.
We will start the test up in 2 countries in Europe.
And.
I would say that internally, we looked at debt I would say that's no no bank has been launching so far as the product like we have done it and we will do it on I'm very proud, but team has been on the way.
About debt obviously.
Time comes when you look on I'll give you more details about debt what the what the metrics this will be.
Customers also told us that they want to have additional products 1 western Union day, 1 I get.
On a better service and they trust our brand.
Okay Jamie.
And debt.
Depending on the outcome of this test we will be ready to go to more markets and expand further.
As appropriate so I think the beauty of our business. There is a send and receive dynamics that we will be testing out between the ascending market and are receiving market as part of this test. So it's we're excited about what it can be.
Okay.
Thank you. Our next question today comes from Ramsey El <unk> with Barclays. Please go ahead.
Hi, This is Ben on for Andrew. Thanks. Thanks for taking my question I wanted to ask about the continuing pace of your digital revenue growth. It looks like the sequential step up in revenues was quite a bit bigger in this quarter to Q versus <unk> than it had been in previous quarters does that looks like thats on track to continue on.
Or should it kind of grow a little bit more moderately cause it looks like you're already kind of nicely on track to hit like at least $1 billion of here. So just wanted to get a better sense of what we should expect in the next couple of quarters.
Yes.
Thats our outlook.
Our outlook is to grow at least $1 billion and Youre right on the Mark I mean, we got really good sequential improvement in the second quarter and that was with both.
Dot com as well as our digital white label business that make up this digital business for the first half of the year, we're over 500 million and we're well on pace to exceed that.
So we feel very good about it I won't give you a specific.
Our numbers beyond whats going to happen in the second half, but we sure.
We used 500 million in the second half if not more.
Okay. That's helpful and if I could just ask kind of wanted to follow up just on the digital side as well it looks just from our math like the pricing on digital has kind of stabilized a little bit in the last couple of quarters is that is there any possibility that it could go up I mean are you, perhaps lapping some introductory pricing thats going to.
As you go pass that pricing has come up a little bit or stabilization of kind of the way to think about it.
Yes, I would say net.
Pricing overall is quite stable.
And the market.
But we always are moving pricing up and down in our 20000 corridors and all of our channel. So it's never static in nature. So what youre seeing from a year over year standpoint is that we are beginning to grow over some of the price changes we made in the dot com business for customer acquisition last year, if you recall.
And so we see it as quite stable, but we're always going to be nimble on.
What is it that's going to drive the best customer acquisition on the best customer adoption and Thats really whats going to drive the long term health of this business.
Not just what is the price in this quarter on that quarter. It really is about getting a lifetime value of customers and 1 thing I would just add.
Couple of things as the dynamic pricing capabilities that we have have really started to do.
Gained some traction and we're not even done with that opportunity yet so whether it's retail or digital the dynamic pricing capabilities, we continue to add to our technical.
Abilities and that team is doing an amazing job in capturing additional opportunities there.
Then the account to account part of the business also is quite interesting.
That's at a lower yield typically however, we're getting about $200 million of annual revenue run rate in the pure account to account business within digital.
That's sort of a hidden gem if you will on the purely digital part of our business. It's not something that we have spoken about before but it's quite quite interesting and quite attractive and that is the fastest growing part of our digital business.
Okay very helpful and interesting and thank you so much for taking my questions.
And our next question today comes from Andrew Jeffrey of True Securities. Please go ahead.
Hi, Good afternoon I appreciate you taking the question Hi, Andrew.
Hi, Hikmet.
Okay.
I'm curious about.
On the western I need to branded ecosystem strategy.
And how you think about sort of timing.
Obviously, there are some digital native competitors in the market 1 in particular on Monday.
Joining us for several years.
So I just wonder the brand is an important advantage I wonder about that.
They are not going to feel like you're.
You may be behind the curve, a little bit competitive how youre going to balance the commitment to shareholders on free cash flow with the investments required to grow net.
Well first of all.
Obviously, we wouldn't start such an existing project if it wouldn't be very motivated about debt and we have as I mentioned earlier, we have older.
As an old regulatory environment to start this ecosystem project.
Truly a long term opportunity is very exciting opportunity.
The customers low.
Len.
Different.
Kind of different products, what they need.
Just 1 day.
From a low investment we have the basis. We then have to start like in <unk> <unk> from <unk> investments.
As you know we've been.
As a company very shareholder friendly on the always profitable growth focus, saying that though we are pink.
Incremental growth apart from a debt with lower investment requirements than others would habits here and that gives us a base and our bank, which is based in Europe.
Allows us also to remember everybody that others maybe.
On challenges and.
So I don't see big investment.
We didn't mess of course, but <unk> debt means that we will have to change our guidance suddenly or something like that we can move very pleased with it.
Thoughts on it yes.
The advantage we have is that we already operate everywhere in the world. So it's about adding additional capabilities. That's why we think we're uniquely positioned to be able to take advantage of our 9 million consumers that are on <unk> dot com.
And give them additional products and services. So yes, there is investment, but it's really within our outlook certainly this year and.
If it drives additional revenue growth that's the real beauty of what we're trying to create here I think the question comes up because it's something new as we spoke a little bit.
But.
And in the Investor day, but I can't tell you that we're going to give you more color.
With the coming quarters.
Because this is really exciting and so we can really built to tell the story even more in detail.
Thanks for that.
Thank you.
And our next question comes from Industrial Gold Hill with K B W.
Sure.
Hi, Thanks for taking my question.
I guess I wanted to go back to the last Investor day, as well and I know you guys had talked about on 'twenty.
I agree with that.
Margin goal by 2022, and I know a lot of of Kingston from them, but now with this.
In terms of business segment at least the price that is expected in the first part of the year.
Scott put them on the day.
A quick comment on that and then if you could also just talk about how we should be modeling.
The business produces divestiture, because I know its getting done in Dubai.
Thank you, Yes, Hi, Ross this is Raj let me try.
To answer your both your questions.
On the.
The original targets that we set in 2019, I think you've sort of answered your own question, which is a lot has changed since then we certainly had objectives of expanding margins by 300 basis points on the key driver behind that where our cost savings initiatives of $150 million, which we're very much on track to achieve so we will.
Get to $150 million of run rate savings next year, which itself was the primary driver of the margin expansion. In addition to that we needed 2% to 3% revenue growth each of the following 3 years, which obviously, we didnt get because of Covid. So we are you know we really have to reassess where we are I would say 1 thing that day.
Model Hasnt changed.
Our cost structure is still 40% to 45% fixed and our variable costs are 55% to 60%. So as we get revenue growth. It gives us a lot of flexibility to not only think about margins, but also to invest back in the business. So if we can get back on track and you've seen and you've heard some of the commentary around the mix shift.
The business, we're now almost 20 about 24% of our consumer revenues are digitally it really gives us potentially a different growth profile going forward. So we're very excited about that and then on your second question related to Western Union business solutions, No real impact this year because the first transaction first part of the closing won't have.
And until early part of next year.
We've called out M&A costs that are related to the woods divestiture, but other than that nothing else really changes the P&L will still reflect the business next year as we get into the first closing we will start to show you the impacts of business solutions on a.
Pro forma basis, and we did give you some some data points that you can use just as some.
Some data points there the last 12 months the business generated about $374 million of revenue about $64 million of EBITDA and about $33 million of operating income. So just to give you a sense of what the business have looked like the last 12 months.
Thank you Brian on.
Sure. Andrew next question today comes from Jeff Cantwell Guggenheim Securities. Please go ahead.
Hi, how are you congrats on the results Scott mine is a follow up to earlier questions that European I wanted to ask you can you talk some more about your digital business we.
We see you, reaching a new hydro revenue and Thats slide 8 Sherwood Archon principal growth is up 37%.
I mean, it was around 14 per side, we can see the data on your opt on losses pretty strong over the past few quarters. So the digital results stood out to us.
You are lapping there the hydro depends on like last year. So it's good to see some continued expansion. There. So maybe is there anything more you can share that stood out about right now as far as your ability to attract new customers.
Maybe about the growth you're seeing with your existing customers and whether there's any pockets where we're expanding.
Geographically, just hoping to get any further granularity and so forth and then maybe could you talk more about the opportunities that you're seeing in digital right now Azure looking ahead, thanks very much.
Yes.
If you have a couple of hours later, Jeff.
I have to talk to you but.
Let me just try to summarize we're very excited about the digital opportunity.
The growth rates are not really reflective of what the business is because we're growing off of a much larger base, whether youre talking about customers on revenue from last year.
And the 14% growth in <unk> is still very good on a much larger base. If you will so very pleased with that.
We do think that the digital business in total has a lot of great growth opportunities ahead of it obviously, we're doing a lot of things and who dot com.
Moving features and functionality, which drives better retention.
Also continuing to acquire more customers and then where we have a heavy focus on distributions are more mobile funding more mobile payout more account funding account.
Account payout in more geographies, we expanded Chile, and Peru in the quarter. So that's on the <unk> Com site and then maybe you can also mentioned the app downloads by the App downloads as we said in our press release and commentary is still.
Number 1 we're the number 1 app download by far by far According to sensor tower data and then on the digital partnership side, we have a pipeline of partners that are come in Youll see some more that are activated this year.
And then we have that as a long term growth opportunity not all of the partners on the digital side need to be like Saudi telecom or Sberbank, which is really far exceeded our expectations, but if we can get a partner or 2 in every market in 200 countries that becomes a really big opportunity for us.
Our long term. So we're very pleased then we can certainly talk more offline if you'd like about just generally how we feel about the business.
Okay, great. Thank you.
Sure.
Ladies and gentlemen on final question today comes from Jamie Friedman with Susquehanna. Please go ahead.
Hi, let me Echo the congratulation on the results and the transaction.
If you were to map slide 8.
Which Jeff was just referencing over to slide.
Slide 11.
The geographic footprint, what would that look like.
Sure.
Are there any callouts or characteristics on that like what does the geographic footprint of <unk>.
<unk> Dot com, specifically look like.
On <unk> Dot Com, obviously, we are very much focused on.
75 countries and we are very much focused on the send countries because by nature <unk> Dot com is a sent agents describe future we have been doing it on we saw us what we are doing thats. The main moving customers sending money to their loved ones to 200 countries.
The most of the transactions are dual have been in North America.
In the Europe European Union and <unk>.
Recent day very strong growth also in the Gulf States.
<unk> dot com transaction to sending from 75 countries, but it seemed to be also sold some receiving countries traditional receiving countries started to us.
Also certain customer segments with a higher band.
On this.
And customer segments really supporting their children gross further on the medical payments.
Doing really well ever seen in dot com and this kind of transactions are really driving the growth of.
Congress is on regionally, maybe you want to add some yes, yes.
Let me see if I can also answer your part of your question Jamie.
This concentration of the digital business from a geographic standpoint will be in North America and Europe Ncis.
Next to probably our middle East and.
Asia Pacific.
Because we have seen some good concentration there I would say the part of our business that is least leveraged on digital as Latin America, and that's why you actually saw some significant growth rates in Latin America, because it was more heavily impacted negatively last year because it didn't really have a digital business to mitigate some of the decline and this year in the second quarter Youll see.
The big pop upward.
Because theres no digital business, there really to speak of and so the Chile, and Peru launches for wood Dot com. This year in this quarter are going to be important components as we keep building that digital business in Latin America. So there continues to be opportunity around the world to keep going from a geographic expansion standpoint.
Yes.
Got it thank you very much.
Thank you and ladies and gentlemen. This concludes today's question and answer session and today's conference call.
Thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.
Bye.
Yeah.