Q3 2021 Western Union Co Earnings Call
Good day and welcome to the Western Union third quarter 2021 results Conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing Star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions to ask you.
<unk> you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please.
Please note this event is being recorded.
I would now like to turn the conference over to Brad One Bigler head of Treasury and Investor Relations. Please go ahead.
Thank you on today's call, we will discuss the company's third quarter 2021 results our financial outlook for 2021, and then we will take your questions. The slides that accompany this call and webcast can be found at <unk> dot com under the Investor Relations tab and will remain available after the call additional operational statistics.
<unk> had been provided in supplemental tables with our press release.
Our call today is our CEO Hikmet <unk> and our CFO Raj Agarwal today's call is being recorded and our comments include forward looking statements.
Please refer to the cautionary language in the earnings release and in Western Union's filings with the Securities and Exchange Commission, including the 2020 Form 10-K for additional information concerning factors that could cause actual results to differ materially from the forward looking statements.
During the call we will discuss some items that do not conform to generally accepted accounting principles. We have reconciled those items to the most comparable GAAP measures on our website <unk> com under the Investor Relations section.
We will also discuss certain adjusted metrics the expenses that have been excluded from adjusted metrics are specific to certain initiatives.
Maybe similar to the types of expenses. The company has previously incurred and can reasonably expect to incur in the future.
All statements made by the Wuxi officers on this call are the property of the Western <unk> 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 <unk>.
Thank you Brett and good afternoon, everyone. We appreciate you joining us today to discuss our third quarter results and the progress of our business.
Our business continues to rebound from the effects of the COVID-19, pandemic delivering double digit revenue growth in digital and business solutions as well as strong profitability and operating cash flow during the quarter. Additionally.
Additionally, <unk> continued to make good progress on our key initiatives, including our pricing evolution and platform enhancements.
Now, let's take a closer look at the third quarter results overall, we achieved revenue growth in the quarter up 2%.
On a reported and constant currency basis, which was driven by 15% growth in digital and 31% growth in business solutions.
While these two business grew nicely the retail business was affected by the slower economic recovery in particular recovery in the labor markets, where employment of migrant workers remains below 2019 levels.
As a result, our CTC revenue was flat on a reported basis or down 1% in constant currency terms with transaction growth down 1%, both principal per transaction and cross border principal increased approximately 4% during the quarter.
Year to date, our cross border principal increased 19%, reflecting did elevated levels of support that our customers provide to their loved ones during the periods of uneven economic recovery.
With that based on the latest World Bank forecasts, we believe we are growing market share.
Our digital business continues to generate strong growth revenue generated during the quarter was $266 million maintaining the record high level that would be achieved in the second quarter and putting us well on pace to exceed $1 billion in revenue this year.
Most of our digital business is the best and dotcom.
Which grew at a healthy pace in the third quarter with 16% principal growth and 12% revenue growth.
<unk> Dot Com average monthly active users increased 8% in the quarter.
Although blue Dot com growth is moderating as expected.
As we grow from a much larger base and compare results against the prior year's accelerated growth levels, we anticipate growth to remain healthy as we continue to invest in marketing product and customer experience.
We're particularly encouraged by the results we are seeing in our content business, which is the fastest growing portion of our business.
The other component of our digital business is digital partnerships momentum is building in this business as we expand relationships with existing partners and launch new partners.
We recently completed our previously announced acquisition of a minority stake in SDC Bank, formerly known as H D. C. P, which was a leading digital wallet service provider and is now in the process of launching as one of the first digital banks in Saudi Arabia. In addition.
We are planning to launch a number of new partners in upcoming months.
Our progress confirms that the capabilities, we have built to serve our branded direct digital business is also well suited to serve the needs of leading banks and digital wallet providers.
Our solution emphasizes flexibility and choice built on a strong foundation of compliance and technology, we are able to offer a branded solution partners, who want to future a leading brand in cross border payments or we can offer capabilities that partners incorporated as a white labeled solution.
Our real time account payout capabilities currently available in over 100 countries improve on incumbent solutions, while also providing choice for consumers who prefer to direct transferred to our agent network. You recently announced that a senior International Bank has joined set by instant credit transfer scheme is that.
Direct participant further enhancing our real time payment capabilities in Europe.
Our capabilities have focus on cross border remittances, historically, but parkman needs are evolving to include broader use cases.
Just as we have integrated with traditional payment systems in the past our platform can also be extended to incorporate future use cases related to digital currencies.
Key to our Succes redrow, serving our direct consumers, who are branded offering or serving the customers of our partners is our omnichannel capabilities, which enable payouts to more than 200 countries and territories and over 130 currencies to our extensive global net vertical.
Billions of bank accounts millions of wallets and cards and approximately 600000 retail locations. We continue to invest in expanding our payment capabilities to provide our customers and partners with additional options and convenience across platforms devices borders and currencies.
Turning to our profit performance in the quarter profitability was strong with operating margin increasing to approximately 25% as a result of solid business solutions revenue growth and lower planned marketing investments, which was partially offset as we continue to invest in our technology and glue.
Omnichannel platform, earning.
Earnings per share for the quarter was 57% on a reported basis and 63.
On adjusted basis.
Before turning it over to Raj to discuss our financial performance for the quarter in more detail and our updated 2021 financial outlook I'd like to provide an update on a few key strategic initiatives.
Starting with business solutions, our planned divestiture remains on track.
<unk> of the business and the entire proceeds are expected to transfer in the first quarter of 2022.
As we announced earlier today, we are expanding our ecosystem strategy.
We are on track to launch our digital bank pilot in Germany, and Romania into fourth quarter offering customers, a digital banking and integrated money transfer solution to our Vasu Union International Bank. The digital banking offerings were seen branded Hulu plus is an important part of our ecosystem strategy.
We just focus on ordering and deepening our relationship with customers by offering them additional relevant products and services.
Another component of our ecosystem strategy is Wuxi is shopping and cashback rewards program that enables our customers to shop internationally at over 12000 online stores and send gifts directly to their families and friends and other countries, while receiving cashback on their purchases with us.
Europe is novel life in Germany, and Austria, several more countries, including the U S are targeted to launch by year end.
Overall, despite an uneven economic recovery and the continuing effects from the pandemic our business proved resilient and we are on solid footing as we finished the year with that I'll now turn it over to Raj to discuss the third quarter results in more detail.
Thank you Hikmet and good afternoon, everyone today, I will discuss third quarter results and our full year 2021 financial outlook.
Third quarter revenue of $1 $3 billion increased 2% on a reported and constant currency basis currency translation net of the impact from hedges benefited third quarter revenues by approximately $3 million compared to the prior year.
In the <unk> segment revenue was flat on a reported basis decreased 1% constant currency.
CFC transactions declined 1% for the quarter as the slow recovery from COVID-19 impacted retail money transfer, partially offset by 19% transaction growth in digital money transfer.
The spread between CDC transaction and revenue growth was one percentage point on a reported basis or flat on a constant currency basis.
Total <unk> cross border principal increased 4% on a reported basis or 3% constant currency driven by growth in digital money transfer total CDC principal per transaction or <unk> continued to grow.
Up 4% or 3% constant currency driven by mix and changes in consumer behavior.
Digital money transfer revenues, which include <unk> dot com and digital partnerships increased 15% on a reported basis or 14% constant currency.
<unk> com revenue grew 12% or 11% constant currency on transaction growth of 9%.
<unk> Dot Com cross border revenue was up 16% in the quarter.
Generating we dot com revenue growth was led by North America and Europe Ncis.
Partnerships continued to show solid growth across revenue transactions and principle in the quarter.
Moving to the regional results North America revenue decreased 2% on both a reported and constant currency basis on transaction declines of 5%.
Constant currency revenue was impacted by U S outbound, including U S regulations concerning Cuba.
Our ability to provide services there and continued declines in U S domestic money transfer.
Revenue in the Europe, and CIS region declined 3% on a reported basis or 5% constant currency on transaction growth of 3% our.
Our digital business continued to generate strong transaction revenue offset by softness in the retail business.
The digital partnership business in Russia was the primary contributor to the spread between transactions and constant currency revenue in the quarter.
Revenue in the Middle East Africa, and South Asia region declined 2% on both a reported and constant currency basis, while transactions grew 2% for.
Our digital partnership business continued to generate strong performance driving regional transaction growth in the quarter and was the main contributor to the spread.
Constant currency revenue declines were driven by the retail business.
Revenue growth in the Latin America, and Caribbean region was up 25% or 26% constant currency on transaction growth of 10%.
Currency revenue growth was generally broad based as the region recovered from prior year economic dislocation due to COVID-19 with growth led by Mexico, Chile and Ecuador.
The driver of the spread between transactions and constant currency revenue growth was due to business mix.
Revenue in the APAC region increased 1% on a reported basis and declined 1% on a constant currency basis, while transactions declined 13%.
Constant currency revenue in the region continued to be impacted by COVID-19.
Business solutions revenue increased 31% on a reported basis or 28% constant currency revenue growth was driven by increased payment services activity in the education vertical while trends remained on a positive course, where the continuing recovery in cross border trade.
The segment represented 9% of company revenues in the quarter and benefited by Brian over lower revenue in the prior year period.
Other revenues represented 5% of total company revenues and increased 3% in the quarter either.
Other revenues primarily consist of retail bill payments in the U S and Argentina and retail money orders in the U S.
Turning to margins and profitability the consolidated GAAP operating margin in the quarter was 24, 8% compared to 22, 7%.
Prior year period, while the consolidated adjusted operating margin was 25, 2% in the quarter compared to 23, 5% in the prior year period.
The GAAP and adjusted margin increases were primarily driven by revenue growth and lower planned marketing investments, partially offset by higher technology investment.
The GAAP operating margin also benefited from prior year restructuring costs.
Adjusted operating margin excludes M&A expenses in both the current and prior year period and last year's restructuring expenses.
Moving to segment margins note that M&A expenses are included in other operating margins for both the current and prior year period and segment margins exclude last years restructuring charges.
Can you just the operating margin was 24, 3% compared to 24, 6% in the prior year period, but slightly lower operating margin was due to higher technology spend as we continue to invest in our platform, partially offset by lower planned marketing investments.
Business solutions operating margin was 32, 9% in the quarter compared to 10, 5% in the prior year period.
The increase in operating margin was primarily due to increased revenue.
During the last 12 months the business solutions segment generated $402 million of revenue and $86 million of EBITDA.
Other operating margin was 18, 3% compared to 20% in the prior year period due to higher M&A costs. This year related to the divestiture of our solutions.
The GAAP effective tax rate in the quarter was 22% compared to 12, 4% in the prior year period, while the adjusted effective tax rate in the quarter was 13, 7% compared to 12, 7% in the prior year period.
The increase in the GAAP effective tax rate was due to deferred taxes recorded on the pending sale of business solutions.
GAAP earnings per share or EPS was <unk> 57 in the quarter compared to <unk> 55 cents in the prior year period, while adjusted EPS was <unk> 63 during the quarter compared to 57 turns in the prior year period.
The increase in EPS reflects the benefit of revenue growth and lower planned marketing investments, partially offset by a higher catch rate and higher technology investment GAAP EPS includes <unk> impacts related to the deferred taxes recorded on the pending sale of business solutions.
Turning to our cash flow and balance sheet year to date cash flow from operating activities was $686 million.
Capital expenditures in the quarter were approximately $35 million.
At the end of the quarter, we had cash of $1 billion and debt of $2 9 billion.
We returned $170 million to shareholders in the third quarter, consisting of $95 million in dividends and $75 million in share repurchases.
The outstanding share count at quarter end was 404 million shares and we had $558 million remaining under our share repurchase authorization, which expires at the end of this year.
Moving to our outlook for 2021.
Today, we provided an updated financial outlook, reflecting recent business trends and macroeconomic conditions.
As Hikmet mentioned earlier the pace of recovery from COVID-19 has created a fluid environment for.
For example, GDP expectations were revised downwards in recent months and labor markets have not fully recovered.
Our outlook assumes that the macroeconomic environment will be similar to what we experienced in the third quarter, while our previous outlook assumed a moderate improvement.
We now expect full year 2021, GAAP revenue growth will be approximately 150 basis points higher in constant currency revenue growth.
Our previous GAAP revenue outlook calls for a mid to high single digit increase constant currency revenue, excluding the impact of Argentina inflation is expected to grow between 3% and 4% while our previous outlook calls for a mid single digit increase.
Our operating margin outlook has not changed with the full year GAAP operating margin is expected to be approximately 21% while the adjusted operating margin is expected to be approximately 21, 5%.
Compared to the third quarter fourth quarter margins are expected to be closer to the full year average as we anticipate some incremental investment and lower revenue from business solutions in the fourth quarter, which benefited from seasonal factors like tuition payments.
We continue to anticipate our effective tax rate will be in the mid teens range on a GAAP and adjusted basis.
GAAP EPS for the year is expected to be in a range of $1 80 to $1 85 compared to the previous outlook of $1 82 to $1 92, reflecting the tax impact related to the pending sale of business solutions.
We're also raising the bottom end of the range for adjusted EPS with a new range of $2 <unk> to $2 10, which compares to $2 to $2 <unk> in our previous outlook.
To summarize we're pleased with the progress we continue to make toward achieving our long term strategic objectives.
Thank you for joining our call today and operator, we are now ready to take questions.
We will now begin the question and answer session.
To ask a 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 at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
The first question comes from Tien Tsin Huang with Jpmorgan. Please go ahead.
Okay. Thank you Sachin.
Got it good to connect with you all.
I want to license it.
Hi, Nick Mackay of Russia.
Hey, Good luck has begun to retail.
The impact that you talked about with labor and weaker migration, how broad based was that.
Kevin.
Any callouts from a from a regional perspective and does it does it more COVID-19 related or it sounds like the national does.
With Cuba.
From a competitive standpoint.
As well.
Yes, let me start on the obviously the market environment has not been as supportive as we thought right.
We hope that after vaccination became widely available.
In the U S and Europe, the economy will be much better and much better position.
Impacted especially our retail business.
Mike.
<unk> have but have not been.
Lloyd as we thought and in fact, the labor market has more.
Normalized <unk> normalized in the U S. As we hoped.
One example, I can give you is that U S foreign-born employment's still sits that.
One 2 million people.
So the U S farm Bill unemployment is $1 2 million people beaches Tianjin.
Yes.
It was 2019. So this environment has been impacting our retail business. However on the other side, we have seen very good performance in our digital business, our digital business has been performing very well.
Drives definite sea to sea.
Growth and maybe you didn't the digital business <unk> Com business has been extremely good performing the people use their comps and money on using our platform. So that has been a good factor on that and then regional I would say that.
U S definitely has in Europe that has an impact on our on our retail business, but.
Digital wise all over a good growth.
And that clinical MTN Im very optimistic as I said in my opening remarks, we are hitting the billion dollar and I don't see any compared to those who is the $1 billion revenue to report and growing that that's strong Vita very great base.
Growing that strong so that's good that's very good.
Something just Tien tsin.
Macro factors relate primarily to impacts to our retail consumer as you noted and North America is related a lot to U S to Cuba, because we shut that down.
Late last year, so thats getting to the annualized soon and then U S. TMT continue to decline Latin America was probably the one brighter spot that continued to recover a little bit from last year, because Latin America has less relative digital business growth last year was hit harder than this year.
Recovering more because of that factor and then there are a lot of other nuances throughout the rest of the world that it is generally impacting our retail consumer more than anything else.
Great. Thanks for sharing all of that.
Just a follow up I did.
Digital banking trials.
<unk>.
Here.
Are you looking to learn from the pilots and these too.
Countries in the second quarter and.
If you are happy with what you see how quickly can you expand on this in the two countries and even in some other countries as well.
Great question as you know our digital banking is based on our expanding our ecosystem.
We have one big.
All you need is called <unk> dot com, we take wires millions of customers globally on the direct relationship. We are building on that digital banking and we use our existing assets our brand our global platform, but also our Internet bank.
International Bank license, which allows us to do banking service to our customers the amount of customers told us and we are launching services in Germany, Romania and.
With that also we are launched as I mentioned earlier, we will launch on this morning, you saw that probably press release Blue shop will show up is allows customers to shop online in Germany and Austria.
Gift to also send money and also gifts to their loved ones Cross border, it's really unique and the customers were asking us in the future maybe also buying of airline tickets and really shopping online.
For our customers and we're going to launch that in the U S. It's very soon.
In this quarter and we are also expanding definitely digital banking activities.
Globally.
And we have this capability does that not many companies have the unique customer which is the mining customers are asking for additional services I'm very excited about that and I will give you more once the product launch I'll give you more figures and more data I'll start physical that is but I am very excited about that.
Yes.
A little more about <unk>.
Okay.
The next question comes from Jason Kupferberg of Bank of America. Please go ahead.
Thanks, guys just wanted to start by building on <unk> question, just regarding the migrant worker employment dynamic I mean, when do you think that starts to turn around what do you think it takes for that to turn around and why do you think it's not affecting your digital business just to recap.
As you know digital business customer and migrate the retail customers are different different segment that we could also say that.
Over the years I was repeating that this digital customers are new incremental to our brand and it's not cannibalizing our retail business. We are told that digital customers by nature has to have a banker condo Craig cut to send money globally.
On the receive side the most of the transactions are picked up in in retail by cash, but one of the faster growing part as that comp payout. So this is great that shows our capabilities is omni channel and Amit.
On the channel environment. So.
The impact.
Jason to your question why retail most of the customers have been impacted.
Are probably the key.
Cash customers they want to go and.
Cash transactions.
Some factors obviously the global GDP as you know it was broke down from 7% in last few months ago to 5% around 5% in the U S. Even from 7% to 2% growth. So these are definitely impacting our customers our customers behavior and Western Union has been always the first indicator.
Economical environment, and Thats, probably our customers field the first.
That's I guess.
The big impact to our retail customers.
Digital customers have more a solid income.
Money on their account and they are continuing to support the customers know, saying that as you know.
This quarter it was down the retail but that doesn't mean that it will be done it's a very solid business very resilient business the customers I think everything still to support their.
Loved one I'm very optimistic we are expanding our retail business, we today announced that because approximately 600000 locations you are expanding and more and more and gaining more and more agents.
Okay.
So if we're trying to hone in on the potential performance of the digital business Q4, I'm just looking at last year I think it was up around 4% quarter over quarter I would assume there's probably some.
Seasonal tailwind around the holidays is that kind of a decent proxy for how Q4 digital growth could come in this year.
Jason just.
Say that again youre comparing it to last year's Q4.
I am saying.
Q4, 'twenty versus Q3 dollars 20 was up around 4%. So if we take all of them.
Yes, yes.
Yes, it's hard to compare.
Growth rates in the sequential impacts from last year, because there was so much happening last year.
And when you look at the overall growth this quarter.
With a mid teens growth for total digital and then low double digits for dot com, that's not necessarily what the business will do.
In the future I think it just depends on.
All of the marketing activities the platform upgrades that we're doing that features and functionality and then the distribution that we have around the world that we have a lock in the pipeline. So all of those are going to have an impact on where their business ultimately goes.
Q3 to Q2 was relatively flat from our overall revenue standpoint and.
In our outlook, we have not assume something too significant for this year.
But in terms of longer term, we continue to see good opportunities for growth for the digital business.
Mhm Okay.
Last one real quick a housekeeping thing.
You bumped up the midpoint of the EPS guidance, a little bit even though you lowered revenue and maintain margins and tax is that just a function of buybacks and your share count.
No.
We have ranges for each of these line items, when we come into the year and they don't always all move in unison.
So we have a number of factors that can impact revenue or expenses our level of investments. We're obviously saving some money. This year with good expense management, so that's helping us achieve the overall.
Margin goals and bottom line and EPS levels, even while revenue is not being hit at the original objectives. So.
And as we typically move through the course of the year, Jason We will tighten those ranges.
Based on what we're seeing so.
It's nothing really more than that but we feel comfortable with our investments we continue to invest heavily in technology and the innovation. We are really expanding on that so we feel comfortable Raj and I talked about that we feel really comfortable with our guidance on the on the EPS and on the margin guidance.
Okay. Thanks, Paul So obviously on the expanded revenue guidance now with the new guidance all services.
Thanks, Jason Thank you.
Operator can we have another question.
Yes. The next question comes from Darrin Peller with Wolfe Research. Please go ahead.
Thanks, guys.
While theres been LDR progress made on me Hey, Raj.
Dot com business, obviously and as you mentioned.
Now become the largest digital money transfer business. When you consider the sequential change just to follow up on that a bit.
Again, it was pretty flat from a revenue standpoint from last quarter to this quarter and I think you have average users you said up 8%. So can you help us understand.
What kind of dynamic we can expect over user growth for <unk> com going forward. It was obviously much higher it's off a larger base now.
We haven't heard an update to that 9 million metric in a while and I'm. Just curious what you think you can do what kind of growth normalize into 'twenty two.
What tactics you are going to be changing from a marketing standpoint.
To execute on that kind of user growth going forward.
Yes, I mean, a lot of a lot of happened Darren over the last couple of years.
At the end of if I gave you a little bit of history I'm sure you recall at the end of 2019, we had anticipated that the digital business, which is primarily with dot com back then could grow in the 20% range for the following.
Two or three years, or so and I think thats, what we said at our Investor Day last fall and last year double the graph there was almost 40% revenue growth. This year, it's probably going to be in line with what we expected in a normal year and now we're going to be sitting at over $1 billion in size and on a much larger customer.
Base too we do believe that there will continue to be good growth in there.
Various metrics.
But a lot of it will depend on.
The level of traction we get on our digital partnership side. So that's going to be a key component and then with dot com.
<unk> opportunity is really there the market growth will come from the digital part of the remittance market and we continue to have a very strong position there and we will continue to invest in marketing for customer acquisition and we're also spending a fair amount on the technology side to continue to upgrade our features and functionality, which ultimately.
Increases the retention levels of our customers. We have so we feel good about the business and continued customer growth and traction of digital business, Yes, just.
On the <unk>.
I really I'm very happy with the diesel pistons actually.
While the economic conditions in India as the trends has been impacted not only us all the overall, although all industries and you heard this from other calls also I think our diesel business has been performing pretty well and it's extremely resilient and it's growing.
That's the former base.
Think about that were seen in dot com its in 75 countries, but only in 75 countries.
Maybe 50 of them are <unk>, new launch pretty new.
Really getting new customer segments. So there is a there is a really cool way to go forward with.
Diversity in both comp connecting the two 100 countries. So there is the customer acquisition here.
We are also with our new ecosystem strategy, making customers more sticky lifetime customers. That's what we think that the and also the other one is that our investment on SDC Bank.
Which is basically <unk> dot com strategy in Saudi Arabia, They do they're a digital banking and we are part of it does things will continue and are optimistic but.
Question, what's happened in Q2, a little bit slowdown has been also impacted by economic months, everyone. The rollover from last year to grow over last year, very well, so high and Darren for that for the full year. The monthly active average users the annualized number will be similar to where the revenue growth will be for wood dot com. So.
The quarterly growth was only 8%, but and that just reflects the much higher base of customers that we had in last year's third quarter, but the overall customer level is much higher than it has been obviously.
And then okay. That's helpful and then engagement levels on these users are obviously, notably higher than retail I'm not sure if you've ever disclosed would be great to hear if you can give us a sense of the number of transactions that you would see on <unk> dot com users versus more traditional and then really adding on to that what that could turn into wins.
This swoosh shop initiative, and the <unk> plus initiative and what timing you expect around with shop I'd just be curious to hear a little more around your strategy in <unk>.
I think first of all we don't give you gave you gave just numbers yet, but that's a good obtained.
Long term, we should maybe disclose more on the especially when we talk about our ecosystem of that can be the customer loyalty how long we keep the customers how many transactions. They do more that's different than the retail transaction by nature at <unk> Dot com, you'll have to be a lifetime customer.
Longtime customer because you have to have an account at the retail customers.
Obviously to a retail location mega transaction and would not customers buy diesel customers by nature of our loan.
Customers then you should maybe institute disclosed regarding strategy, what we do with the ecosystem is definitely something that we will more will give a.
A highlight in future earning releases.
As we disclosed that first time in our investors day until the end of 2019, we're really executing what we said there.
That's an exciting opportunity for western Union, Besides putting on new money transfer also really.
Satisfying the needs of <unk> customers long term and their loved ones back home.
Was there a follow up Mr pillar.
It was really about shops and the opportunity there in terms of investment what you would expect to be at about let's call. It a year from now around that initiative.
Yeah.
We will have.
We're just launching it now we shop and we're doing the financial services test this quarter as well so that hopefully we will have more feedback after the first quarter or so of next year, we just need to see the level of traction but.
It really is a seamless way to shop online.
I think there are also a link on the link on the presentation, where you can go to whoosh up and look at that but it's really shopping and sending you.
Home and sending gifts cross border and there are about 12000 retail shops there.
You can send not only money, but also send goods there and get cashback.
We were quite proactive way of keeping customers longer and we're building this ecosystem for a longer time like a bank digital banking.
Okay got it thanks guys.
Thanks, Darren ill feel later.
Operator can we have next question please.
Okay.
Operator.
Darrin this is the operator.
So just bear with us one moment.
Okay.
Yes.
Bear with US I think there are some technical issues with the operator, we are trying to reach them.
To get the next question.
Okay.
Yes.
Pardon me everyone. This is the operator I want to go over to question and answer session. At this time I do apologize and our next question today comes from.
David <unk> with Evercore ISI. Please go ahead.
Thank you good afternoon.
David.
Hey, Raj how are you.
Could you walk through the price mix within CDC, both in North America and.
EU and CIS for example, it looks like you have negative price mix in EU and Cif with transactions up 3% GAAP revenue down three but then in North America. It looks like you have some positive price mix with transactions down five in <unk>.
Revenue down two is that just the mix of blue Dot com or is there actually some change in pricing occurring.
Either region.
Yes.
There are different things happening in different regions.
In Europe, and CIS as well as Middle East Africa, and South Asia. The digital White label business is causing most of the transactional revenue spread.
So that those who are in those two regions Thats the main factor.
In North America. It is just some price optimization that we're doing in primarily in our U S domestic money transfer business.
And then Latin America has some positive business mix and where the business continues to recover but we're getting a lot of good high principal growth within the Latin America region and.
So thats, causing the bigger spread between transactions and revenue and then APAC just continues to recover from some of the COVID-19 related impacts from last year and I would just say overall.
When you look at our business on a global macro basis, the pricing environment continues to be quite stable.
We have 20000 corridors, David as you May know.
For our country pairs, and we're always moving pricing up and down in those corridors, but when you add it all up at a macro level, we don't seem to see too much.
The way of pricing pressure and then we're also moving pricing within our channels and so.
That gives you a little bit of color on what's happening around the world.
That's helpful. Thanks could you just expand upon your comments around price optimization and U S domestic.
Yes price cut you took.
Well, it's not necessarily a price cut.
U S domestic money transfer business has been in decline for several years. It's now about 4% of total revenues and we don't expect that's going to turn around as you've heard us say before.
That's not a business, where we're going to be competitive long term the U S domestic business and so we are trying to maximize the cash flow opportunity there.
The one caveat I would give to it is that we have just launched the relationship with Walmart and we're seeing some good traction there in our domestic business. So we'll just see how that plays out but more broadly throughout the rest of the U S. That's really what I was getting at.
Yeah.
The next question comes from Bryan Keane of Deutsche Bank.
Please go ahead.
Hi, guys I, just had a couple questions or clarifications.
Raj the digital revenues was that in line with expectations in the quarter or was that also impacted by Covid, because I guess the growth rate of 15% is below the kind of the 20% outlook yet there are some moving pieces there.
Yes, I would say is generally what we expected.
Brian So not really impacted by Covid, maybe on the margin, but we're.
Still very much on track to exceed $1 billion of total digital revenue for the year.
And we achieved the same level of revenue that we had which is a record high in the second quarter at $266 million of revenue. So it's very much in line with what we had expected and keeps us on track to hit or exceed $1 billion of revenue this year.
And is 20% the right growth rate to think about going forward in the digital business.
Yes, it's hard to tell you what to expect for next year.
Or in future years, because we didn't expect to be at this level of revenue.
This year, we're going to be.
Comfortably above $1 billion for this year. So we'll just have to see where we exited but again there are a lot of factors. So if we think about where dot com.
The things that we can drive include improving the features and functionality in our platforms.
To drive better retention levels of our customers. We're also continuing to invest in marketing, which is the main customer acquisition vehicle, we have and that's been growing quite well and then lastly, we have a very heavy focus on distribution. So more account funding more account payout more mobile capabilities. So those things will help to drive the dot com business and then.
Our digital White label business, it's all about signing more digital partners around the world and we will have more that will go live in the next few months that we haven't announced yet, but we have signed and so all of those will come into play on total digital back almost $1 billion base. We have gives us a good platform for future growth I think Brian also maybe you're good.
<unk> is also how are you doing against the competition oldest things I will say that you are doing pretty well.
Generally the market has been.
Obviously, the industry has been impacted by Q3, but the economic environment, but our digital business has been performing very well and the campaign with the competition also very well just to give you some general principal amount.
<unk> bank tells that to be going to the world remittance market will grow about 2% and we believe we are gaining market share because our principle is growing by 19%. So we didn't that obviously, mainly driven by digital business. So I would say that our digital business is performing very well as Raj said.
Is it 20% 15 person with 25% I can tell you now because we.
We had excellent year on digital business and we are having an excellent year end business and we've done a reset what where do we go from 1 billion is it going to be 2 billion Sundar previously assumed to be let's see that's going to that guidance, we will give it in February.
The next question comes from James Faucette with Morgan Stanley. Please go ahead.
Thank you very much.
Appreciate all the detail just given on the business dynamics I want to turn really quickly to the business solution sale and as that progresses.
And as long as it.
Clean or finishes the way you expect I'm wondering if you could talk about the priorities around your use of proceeds there, particularly capital allocations.
I know, it's early but just thinking about how youre planning to align business priorities with with that.
Contribution.
Yes, I think first of all as I mentioned earlier, we are happy with our strategic approach.
And then that also with business solutions divestiture.
We assume that we're going to have the first closing by end of first quarter and the procedure. All the proceeds will be transferred by when we close the first one there is a second bundles, so but that doesn't impact the proceeds.
So the second part will be probably later given the regulatory environment in Europe.
So the business solution has been performing very well this quarter. One of the reason is that first of all to grow what we're secondly is that.
The University has opened again.
People can go back to the Nurse's, Ken study cross border after Covid and so the tuition payments has been good for us.
That has been a probably one of the biggest impact on the business solutions growth.
So maybe on the capital allocation question.
Do you want to take that Ken Yes, sure James.
Obviously more specific color once we close that transaction, which as Hikmet said will be sometime in the first quarter.
But whether it's our ongoing cash flow operating cash flow or proceeds from the transaction.
Which are expected to be about $800 million.
Net of taxes, we still have not changed our capital priority. So that is to invest in the business to drive organic growth and expansion.
Secondly, we pay a very healthy dividend this year it'll be almost $400 million by the time, we're done with this year and then third we would like to focus on the.
The right kind of acquisition opportunity in it it doesn't necessarily have to be a direct revenue generating acquisition it could be a technology or capability of some sort or something that might help our ecosystem strategy.
And then to the extent that we have excess cash left over we'll buy back stock and that priority order Hasnt really changed and Thats. The way, we think about whether it's the proceeds from the web sale or our ongoing operating cash flow. That's how we think about it.
Thank you I appreciate that and then I wanted to ask quickly because I haven't heard it mentioned, but I know that.
We're continuing to or.
Expected, you're continuing to make progress on some of your trials around broader suite of financial services in Europe, just can we get an update on.
Kind of what's happening there and the timeline that we should start to monitor things more closely et cetera.
Sure.
I'm very pleased that in such a short term probably as you know digital banks meet.
Six to 810 years to launch a product we've been launching products very hard.
Because one of the biggest advantages we have we have.
Our platform then we have our brand and we have a bank in Europe with a bank license, which we have to report the regulators everything as you know finance.
Launching products with financial services. It is not easy so we are launching this.
This year.
Prepaid card multi currency cards.
Really talking to the customers with their needs and really having a consumer financial service products for our customers.
And that's that.
Our bank allows debt and really building a commerce relationship not a transactional relationship, but the account relationship with our customers for their financial needs.
For the big advantage that we have.
Compared with the traditional money transfer companies.
Western Union is moving to a more multi product multi service companies.
Closing relationships and to do so.
We have all the fundamentals and I'm very excited and we're going to obviously give more information to you once we launch the first product in their results.
The next question comes from Ashwin <unk> from the car of Citi. Please go ahead.
Hi, Ashwin.
Hi.
Good how are you.
So.
First question.
The solution to that.
The benefits from education, how much of it.
Was some sort of reopening of any significance.
Students coming into the business.
I am sorry Ashwin.
Do you mind, just maybe getting closer to microphone <unk>.
Bit jumbo there I can't hear you clearly.
Is this is this better.
Yes.
Another question is with regards to business solutions and revenue growth.
How much of the.
We will take this year or this quarter was because of the reopening.
Any any kind of share.
Well I guess the way I would answer it is that.
<unk>.
Slightly above where it was in 2019.
From an absolute revenue standpoint, and then a sequentially better obviously as well so I guess if there is some some additional revenue there but.
The primary driver is really about the seasonality around the education tuition payments and.
So sequentially, there's a little bit better and then a little bit higher than 2019 levels.
And correct me, if I'm wrong on that Brad that's right sorry, Matt.
And then I think so it's it's a little bit of both but I would say, it's mostly related to the grow over impact into the seasonality of the education business.
Understood.
And then.
As far as the digital bank strategy is concerned.
Should we be looking for almost a country by country approach.
Mentioned STC pay.
Yes.
Or is it a broader more global you think.
The components of that.
Travel better.
It's definitely we are starting to be Germany, Romania, you'll see announcements soon few countries additional countries.
Obviously.
We are testing with the two big countries.
Germany on the send country migrants in Romania more on the receive side to understanding the needs to adopting the products and its definitely a global approach it's not one one.
One part we as a global company Luke August four global opportunities and we really want to launch that globally, but.
Obviously first move will be in Europe, and we are going to expand in Europe to other countries I'm taking too.
Obviously to the U S and other countries soon.
The next question comes from Jane Jamie Friedman with Susquehanna. Please go ahead.
In your prepared remarks, you had mentioned that you are integrating.
Integrating the network for future use in digital currencies.
That sounded important.
Was wondering if you could elaborate on that.
Yes, sure obviously, our platform is allowing us to have Eddie currencies right.
That's a unique we are in 200 countries, we can take any currency to translate to any currency.
Subtle in that make the compliance programs know your customer and payouts and probably the one offs because advantages is that we can also translate the digital codes to Fiat currency is under the.
Currencies. So the biggest question on the dual currency dual currency is such a big word it's a cryptocurrency or central Bank you should current so a bit coin.
Colin It's bill.
Volatility of sometimes of the coin then do use cases for consumers and we are looking at that we are really.
Involved on several discussions and Q.
For us diesel currency once the regulated ones really.
As they use case, it's like taking out another currency and Seth let me get in another currency. So we feel very comfortable that our platform can do that.
Once we feel comfortable then abuse cases people will definitely start done many I'll deal with currency companies also are approaching us because they know our capabilities. They understand that we are close to the consumers. We can do both <unk> and digital currency, that's something very exciting.
Jamie if you just think about the primary use case in our business if our customers are sending two or $300 at a time.
Their primary goal is get the money to their recipient as fast as possible get it there efficiently get it there with the least amount of time and with transparency and that's the service we already provide today alright, but if there were certainly another use case or if there was a need to do additional conversions are additional steps.
I think most of our customers are thinking of that crypto currency or digital currency in that way.
Have the ability to settle in 130 currencies today with consumers. If we have a desire by consumers to do more we can certainly add to it.
But that's not really what they are thinking about and if you move money from an account to an account and.
And our business lets say its about a 1% yield that's a two or $3 transaction. So it's very efficient its very fast it gets money to the recipients and thats. The end of job for what most consumers are looking for and we'll see what other applications. There are but yes that was the main point of the comment.
Yes no.
That sounds exciting.
Thanks, Thanks for that color I'm going to drop back in the queue, but thank you for that answer.
And operator, we have time for one more question.
Thank you and that will come from vessel Gogo with Cade VW. Please go ahead.
Hi, Thank you for squeezing me in here I just had two quick ones. One I guess first on just October trends I know you guys said youre kind of assuming the same type of trends continuing into the fourth quarter in your guide but anything.
And particularly October about you've seen have you seen any improvement or any trends have been pretty much the same.
Yeah, we won't comment on October trends, but.
We are comfortable with the outlook that we're giving today.
I expect that that's the way, it's going to turn out and Thats why we gave the outlets that we gave today.
Got it and I guess just the next quick one I had was on Walmart I know you called that out earlier is any color on how that channel is performing relative to expectations and I don't know if you can provide any quantification as to how much of a tailwind that might have been in the quarter.
Well.
Let me first of all Walmart you Ken.
Well, we are very happy with Wal Mart and drove four thousands O&M locations in the U S. As you recall, we already were active with Walmart in Canada and in Mexico and.
The pro forma is picking up and good.
Good performance and we stopped our marketing activities. If you have time to go through a bold months gives you will see with the union everywhere, there and I think frontline associates has been trained and many customers start to use us to many corridors and we are gaining customers from Walmart to our network. So that's great.
Yes. The business has continued to gain traction every every month that we launched it and we think it's going to be a bigger contributor next year end.
We're getting a lot of promotional and other marketing type of activity to create the awareness and so we're pleased with it.
Yes. Thank you I think we had the last call last question Brett for this call. Thank you for joining this call I am looking forward to.
We are looking forward to the next call in February.
We are pleased with our resilience of the business.
And we are very proud of Athenian. Thank you for calling in building and have a good day. Thank you everyone.
You have got it.
This included you cannot be albertsons.
Today's until mid two to the meeting now disconnect.
Okay.
[music].