Q4 2022 Western Union Co Earnings Call
Good day, and welcome to the Western Union fourth quarter and full year 2022 results conference call.
All participants will be in a listen only mode.
After todays presentation, there will be an opportunity to ask questions. Please note. This event is being recorded I would now like to turn the conference over to Brad <unk> head of Treasury and Investor Relations. Brad. Please go ahead.
Thank you.
On today's call, we will discuss the company's fourth quarter 2022 results our financial outlook for 2023, and then we will take your questions.
Slides that accompany this call and webcast can be found at Western Union Dot com under the Investor Relations tab and will remain available after the call additional operational statistics have been provided in supplemental tables with our press release.
Our call today is our CEO, Devin mcgranahan, and our CFO, Matt <unk> today's call is being recorded and our comments include forward looking statements. Please refer to the cautionary language in the earnings release and in Western Union's filings with the Securities and Exchange Commission, including the 2021 Form 10-K for additional information concerning factors that could cause actual results to differ materially from the fourth.
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 in our earnings release attached to our form 8-K as well as on our website Western Union Dot com under the Investor Relations section I will now turn the call over to our CEO Devin Mcgranahan.
Good afternoon, and welcome to Western Union's fourth quarter 2022 financial results conference call.
Our reported revenue in the fourth quarter was $1 1 billion and excluding contributions from business solutions decreased 6% on a constant currency basis. This growth reflects a negative impact of three percentage points from the suspension of operations in Russia, and Belarus continued softness in our retail.
Business as well as our new branded digital marketing strategy, which includes promotional pricing.
Adjusted earnings per share was 32 cents in the quarter compared with 64 cents in the prior year period, which included a contribution of <unk> from business solutions in six cents from operations in Russia and Belarus.
The decrease in adjusted EPS was driven lower by lower operating profit and a five cent negative currency impact and a higher effective tax rate, partially offset by lower share count.
We continue to focus on maximizing cash flow and on returning capital to our shareholders. In 2022, we returned over $700 million to the shareholders, including $175 million of share buyback in the fourth quarter Matt.
Matt will further discuss our financial results in more detail and provide an update on our 2023 financial outlook.
On the macro front 2022 was a challenging year for many businesses with interest rates rising to the highest levels in over a decade and global inflation at the highest point in multiple decades. Despite.
Despite that backdrop, our customers continued to show their resilience with constant currency principal per transaction up 4% in the fourth quarter and the full year.
The IMF updated their global growth forecast last week. They now expect GDP growth of two 9% in 2023, which will be down from 3.4% in 2022, we have come to believe that remittance volume closely tracks with global GDP growth.
As such global Remittance volume continues to remain strong according to the world Bank's most recent migration and development brief which was published in November they estimated the global remittance flows to the low and middle income countries grew at 5% in 'twenty, two and project a further 2% growth in 2023.
We continue to monitor macroeconomic variables that could influence our business, but our expectation is that the backdrop for 2023 will remain similar to what we've experienced in 2022 and we have included these assumptions and our 'twenty to 'twenty three outlook.
Last October we launched <unk> 2025 strategy to return Western Union to grow by becoming the market leader in providing accessible financial services to the aspiring populations in the world to achieve this goal we have been working to revitalize our core retail and digital room.
<unk> businesses and launch new products and services to expand our value proposition to our 120 million plus customers around the world.
In August we outlined our plan to accelerate investment in the back half of the year. We achieved this goal with increased investment in our technology platforms and in our digital marketing.
These investments are focused on building core new technology to better enable world class customer and agent experience is as we highlighted today improving customer retention is an important driver of returning western Union to positive growth. We are laser focused on creating world class experience.
<unk> across our channels and products and it will make it easier for customers to want to transact with us the first time and every time after.
While our investment levels were heavier in the fourth quarter and I would expect on an ongoing basis, we recognized that in order to compete with many of our digital first competitors, we need comparable customer experiences and will want to continue to iterate and innovate every step of the customer journey.
A few notable examples of investments in the fourth quarter include first in our digital bank.
In February of 2022, we launched a digital bank in Germany, and Romania with the goal of creating a digital wallet based payment platform as we evolve our model from a transaction based relationship to an account based relationship we expect to see increased customer engagement through more frequent interactions.
And ultimately improve customer retention.
We believe in account based model will provide us with a better platform also for the expansion of new products and services in.
In Q3, we expanded our digital bank offering to Poland.
And in Q4, we added Italy.
By ending send and receive country pairs, we are experimenting with how this approach can maximize the benefits of our two sided network. The project is progressing and the countries, where we have now launched we have a total of approximately 150000 onboarding customers.
Our goal for 2023 is to expand our digital wallet and financial ecosystem to a number of additional markets and in the fourth quarter, we made investments to enable us to launch our digital wallet in two additional European countries as well as our first two launches outside of Europe , including the United States.
The largest remittance market in the world and Brazil, our largest economy.
In Latin America.
In addition to our digital bank in the quarter. We also continued the development of our new retail point of sale system. We believe this new pass will improve both agent and customer experience and will help change the trajectory of our retail business. We began a pilot of the new P. O S. In select locations in the U S. In.
Remember.
We believe that removing friction from a retail transaction process will improve not only transaction abandonment rates, but will allow our agent partners to serve more customers ultimately, creating a better experience for both our agents and our customers.
Finally, driven by our new go to market strategy in the U S. We made the decision to invest increased investment in our marketing program in digital customer acquisition in the fourth quarter. So that we can test and learn we added additional dollars behind the strategy of United States.
And also rolled out similar strategic programs and a few European markets as we continue to scale the program worldwide.
As we discussed at Investor Day, returning our digital business to positive customer and transaction growth is our top priority. We are shifting our approach for maximizing revenue per transaction to maximizing customer acquisition and growing customer lifetime value. This change has required us.
To rethink our approach to new customer offers and our approach to maximizing top of funnel effectiveness on every marketing dollar I.
I am pleased to tell you. We believe it is working we reported to you last quarter that new U S. Outbound branded digital customers increased 26% year over year in the month of September today, I am pleased to report that that momentum. We saw in September continued through the fourth quarter with new.
<unk> U S outbound branded digital customers up 30% year over year, which is now contributing to an improvement in our transaction trends as well in Q4, we saw U S outbound branded digital transactions grow at 5% <unk>.
A clear reversal of the decelerating trends, we had seen in the business earlier in the year and the fast fastest transaction growth rate since the fourth quarter of 2021.
Growing customers and transaction is important but so is increasing customer lifetime value in the near term increasing retention is the lever and our focus by simplifying repeats and experiences and increasing our ongoing CRM efforts, we are starting to see improvements.
As a case example, if we look at fourth quarter retention rates for our newly acquired U S. Outbound September cohort <unk>.
Going back several years for comparison, the 90 day retention rate for that cohort is the highest we've ever seen.
Not only are we acquiring now more U S outbound branded digital customers, but when we are retaining those customers at a higher rate than we have in the past while it is clearly too early to definitively say, what the ultimate lifetime value of these new customers will be early results show promise.
Is typically around 75% of the full year retention value is captured in the 90 day retention rate.
Given what we are seeing with transaction growth and retention rates. Among this new cohort. We believe these new customers are clearly value accretive even at a lower revenue per transaction.
The last topic that I'd like to discuss is the success. We are seeing in Latin America, which has continued to perform with double digit revenue growth in the fourth quarter. Latin America is a great example of where we are improving our distribution both via one location.
Conjunction with our agent partners as we discussed on our second quarter call, our corporate owned locations in Brazil, while only 5% of our retail footprint accounted for over 50% of the revenue in that country. In 2022, we opened over 50, new corporate owned locations in Latin America.
Including new locations in Argentina, Peru, and Brazil gives.
Given the right mix of distribution like we have in Latin America. We are seeing results in Q4 locker saw 16% New cross border customer growth with cross border monthly active users up 11%.
Marginally increasing our footprint of exclusive Western Union branded corporate owned and concept stores in high volume locations allows us to better control the customer experience.
Increase the number of products and services, we offer promote the retail the digital escalator.
And assist with the eventual adoption of our digital wallet and our financial ecosystem. Importantly, we are able to add these kinds of locations at attractive economics with low capital and often times generate above corporate average operating margins our goal is to concentrate.
Corporate owned and concept stores in high density areas of the network, while continuing to maintain and expand our extremely broad and valuable agent footprint.
Given the success, we have seen in Latin America. Our plan for 2023 is to open another 50 corporate owned locations in the region and also expand this model of controlled distribution into other parts of our network Europe in 'twenty 'twenty. Two we opened 15, new concept stores across the region and one new corporate.
One location in the Central Madrid train station.
And a quick update melody, our partner an ROE that we highlighted at Investor day.
We'll now have seven stores lie.
<unk> Western Union that includes a new store in Italy did she is opening this week, she and we together are enabling us to better serve the Filipino community across Europe .
Before I turn the call over to Matt to discuss our financial results in more detail.
I would like to highlight a few key partnerships.
First we are pleased to announce the signing of 711 stores across Mexico, Mexico is one of the largest inbound remittance markets in the world and we look forward to offering our remittance services at over 1800 711 locations across the country.
Next we are pleased to announce the extension of our long term an exclusive relationship with the Rite aid signing a new five year partnership Rite aid is one of the leading consumer retail stores in the United States and a long term valuable partner of Western Union.
Finally, I am very pleased to announce the Mac Keigwin was appointed the Chief Financial Officer of Western Union, Matt joined US in July of last year as the head of business unit financial planning and analysis.
And served as the interim CFO since September Matt brings a wealth of experience to the role most recently serving as the CFO of the merchant acceptance division of <unk>.
Fiserv first data.
Thank you for your time and I will now turn the call over to Matt.
Thank you Devin and good afternoon, everyone I'm pleased to be here today to walk through our fourth quarter results and our 2023 financial outlook.
Information from the full year results can be found on our press release and the attached as financial schedules.
Fourth quarter results were in line with our expectations and our 2022 adjusted full year financial outlook, although well below what we believe to be our long term potential.
Overall 2022 was a challenging year with the star the conflict between Russia, and the Ukraine. The increase in macroeconomic uncertainty given high inflation rising interest rates and slowing global economy.
We also announced the migration of two key retail European agents, the first of which that took effect in Q4.
While headwinds will continue into 2023, we are confident that we can move the needle in the right direction as we can continue to lay the building.
For our evolve 2025 strategy.
We will go through our 2023 outlook in more detail shortly.
Before I do that let's move into the fourth quarter results.
Fourth quarter, adjusted revenue was down 6% to $1 $1 billion.
The suspension of our operations in Russia, Belarus impacted revenue by 3%.
Q4 included a number of dynamics, including the net impact of promotional pricing activities.
And the loss of in the European agent, which negatively impacted our revenue by 2% in the quarter and was partially offset by the growth of other and a 1% benefit from Argentina inflation.
Adjusted operating margins was 15, 8% in the quarter compared to 24, 9% last year, which was positively impacted by 60 basis points from the inclusion of business solutions last year.
Full year operating margin was 24% landing in the midpoint of our range of our outlook.
As Devin highlighted earlier, we accelerated investment in the quarter supporting our evolved twin twenty-five strategy, including the expansion of our financial ecosystem. The implementation scaling of our new go to market branded digital strategy and the design and build of our new point of sale system.
The decrease in fourth quarter operating margin was driven by lower revenue the.
The rollout of our new brand digital strategy as well as the increase in technology investments.
The adjusted effective tax rate in the quarter was 14, 7% compared to 12, 1% in the prior year period the.
The increase in adjusted effective tax rate was primarily due to discrete tax benefits in the prior year period.
Now moving on to adjusted EPS, which was 32 cents in the quarter compared to 64 cents in the prior year period the.
The decrease in adjusted EPS was primarily driven by lower operating profits.
Five cent negative impact of currency.
A higher effective tax rate, partially offset by lower share count. Additionally.
Additionally, in the prior year period business solutions and operations in Russia, Belarus contributed eight.
And <unk> respectively.
Yeah.
Now turning to our <unk> segment revenue decreased 9% on a constant currency basis, driven by softness in our retail business and promotional activities related to our new branded digital go to market strategy.
Transactions in our <unk> segment declined 12% in the quarter.
Russia, Belarus negatively impacted revenue and transactions by three percentage points and nine percentage points respectively.
When you look at our branded digital business revenue declined 6% on a constant currency basis, and contrast transactions grew 2%.
By our new go to market strategy, which was launched in the U S. During the third quarter.
Earlier, Devon spoke about how our strategy drove a 30% growth in new U S. Outbound branded digital customers in the quarter and reversed the decelerating transaction trend that we'd seen in the business for number of quarters.
And then in the fourth quarter global New branded digital customers grew approximately 14%.
Now I'm moving on to the regional results in the fourth quarter North America continued to decreased 7%.
<unk> transactions declined 2%.
The U S domestic business in the U S outbound business to Russia continued to be a drag on our results.
Revenue was also adversely affected by 4% from the promotional price activity in the quarter as discussed earlier.
We were pleased by the continued momentum that we saw on our new U S outbound branded digital customers.
We saw three percentage point transaction growth North America brand into digital business, which was a 600 basis point improvement versus Q3.
Which we believe is another proof point that our strategy is moving in the right direction.
Revenue in Europe , and CIS region was down 17% on a constant currency basis.
With transaction declines of 31%.
Russia, Belarus adversely impacted adjusted revenue by eight percentage points and transactions by 26 percentage points.
The region continues to face difficult macro drop backdrop competitive pressures and was impacted by the loss of a key retail agent during the quarter.
Even with the agent loss revenue trends improved in the fourth quarter versus the first half of the year, excluding the impact of Russia and Belarus.
10% on a constant currency basis, while transactions decreased 5%.
Softness in retail and digital right label businesses were partially offset by growth in our branded digital business.
Revenue growth in Latin America, and Caribbean regions accelerated and was up 13% in the quarter on a constant currency basis with transaction growth of 8%.
The solid performance in the quarter was led by strength in Ecuador, Venezuela in Nicaragua.
And finally revenue in APAC region was down 14% on a constant currency basis with transaction declines of 12% due to softness in Australia, Japan and Korea.
Now turning to other revenue, which primarily consists of retail bill payments in Argentina, and the United States and retail money order in the U S.
Which represents 7% of total company revenue and grew 20% year over year on a reported basis.
During the fourth quarter, we completed the closing of the second second closing a business solution divestiture.
Transfer in the United Kingdom operations.
Third closing, which includes the European operations is currently expected to occur in the second quarter of 2023 subject to regulatory approvals.
As a reminder.
We've already received the full proceeds from the sale.
Yeah.
Now turning to cash flow and balance sheet in 2022, we generated $582 million of operating cash flow, which included a transition tax payment of $64 million paid in the second quarter.
These transaction transition tax payments resulted from the 2017 U S tax act and will increase annually over the next three years and stop after 2025.
In 2022, we also returned $713 million to shareholders through a combination of dividends and share repurchases continuing our strong track record track record to returning capital to our shareholders today.
We announced that our board of directors approved a 23 and a half cent quarterly dividend payable on March 31 2023.
We also want to have our capital expenditures, which were down.
For $208 million in 2022, which was down 3% versus 2021 with a mix shifting from agent signing bonuses to more software development.
And finally at the end of the quarter, we had cash and cash equivalents of $1 3 billion and debt of $2 $6 billion down roughly $40 million from a year ago with.
With our leverage ratio now sitting at two four times and one two times on a net basis.
Which supports our.
Which supports our strong balance sheet position and provides us flexibility for potential M&A, while we target to maintain our investment grade credit rating.
And then finally.
As part of our ongoing operating expense redeployment program to optimize our expense base in 2022, we invested approximately $50 million. This program allowed us to increase our funding and various strategic initiatives like building out our digital wallet or financial ecosystem, and creating our new point of sale system enhancing our digital transact.
From platform and creating an integrated omnichannel experience, we're already making good progress on reallocating expenses in 2023, and I look forward to providing additional updates as the year progresses.
Now moving to our outlook today, we reaffirmed the 2023 adjusted financial outlook, we provided our 2022 Investor day, our outlook assumes no major changes in macroeconomic conditions, including changes in foreign currency.
We expect adjusted revenue to be down 2% to 4%.
As I mentioned earlier 2023 will face headwinds from Russia, and Belarus in Q1.
And the loss of two European agents throughout the year.
We expect the adjusted operating margin to be in the range of approximately 19% to 21% in the first half of 2023, we expect margins to be at the B below our full year range as we continue to make product investments.
Expense redeployment related to our cost efficiency program and lapping the impact of Russia Belarus.
And finally.
Adjusted EPS is expected to be in the range of $1 55 to $1 65 expected year over year decrease in adjusted EPS includes 18 cents related to the sale of business solutions.
Isn't losses, Russia, Belarus and currency impacts.
Lastly.
We'd like to provide an update on our four key performance indicators that we talked about Investor day in 2022, we improved retail or retention and by 46 basis points year over year.
Our goal is to improve this metric by 200 basis points annually, driven by technology improvements and improvements in our agent and customer experience.
Our second performance goal is to grow our new branded digital customers by double digit.
Given the success of our new branded digital go to market strategy I'm pleased to report that we've achieved a 14% new customer growth in the fourth quarter.
Our third KBR is a 20% omnichannel customer growth.
This metric was flat year over year in 2022 in line with our assumptions as we believe we need to make improvements to our customer journey and loyalty programs before we will be able to meaningfully improve our omnichannel customer growth.
And finally, the last caveat I would talked about Investor day was our ecosystem our ecosystem added 15000 customers a month on average over the past three months, we believe our longer coal longer term goal of 100000, a month will be possible with the rollout of large consumer basis.
The United States, Brazil, and we look forward to launching our digital wallet in those countries in the coming quarters.
To recap last year, we delivered our adjusted full year financial outlook and launched our of all of 2025 strategy, which aims to put us on a path towards sustainable long term growth.
So far we've made good progress on laying the foundation of our strategy, including accelerating investments and look forward to providing more updates as we continue our journey. Thank you for joining our call today and operator now we're ready to take questions. We will pause momentarily to compile the Q&A roster. As a reminder, each person is allowed one question with one follow up question.
Please note that all participants will be in a listen only mode.
Our first question comes to us from Tien Tsin Huang from Jpmorgan. Please ask your question.
Hey, Thank you.
I appreciate you guys go through all the detail here. So the lockout acceleration I thought that was really interesting you noted three cut.
Countries, but is there a way to elaborate on some of the acceleration in maybe the attribution.
In terms of what you've done to create that and whether or not that is sustainable or applicable to some other.
In a region that we should be tracking here.
<unk>.
Tien tsin. Thank you for calling in today <unk> is a great example of when our strategy comes together.
It can be successful and so there are three elements going on and locker.
One is as I highlighted the investment in optimizing our retail network and in making sure that we have high quality distribution in the right places to serve our customers. The second as you can see Lockheed is starting the evolution. That's happened in much of the rest of the world to go digital and we are positioned well in many.
Those countries, particularly in Brazil.
<unk> Panama.
And so we've seen very strong digital growth.
Third is we have a strong operating model and locker and we've invested marketing dollars in.
Increasing our brand awareness and the effectiveness, we have in those markets, which is paying dividends.
That can give you a bit more detail on specific countries or quarters.
Hey, Tien Tsin, Hey, good afternoon.
As you think about it those are the three large ones that are driving it but as <unk> highlighted before we're seeing high double digit low triple digit growth in our digital business and we're seeing very solid growth across most of the region.
You look at it from a retail standpoint.
Into the funnel.
I think we believe it's quite sustainable and early returns would say 2023 will show strong performance and Mocha again as we saw in 2022.
<unk>.
Okay I appreciate the complete answer to that to us. So my quick follow up if you don't mind and thanks for taking my question maybe for you Matt Congrats on the CFO .
<unk>.
The first half I think you mentioned will be below the full year range I just wanted to make sure I caught that correctly from a modeling standpoint, I know, there's a lot of investments going on including digital banks.
And whatnot. So just wondering should we contact correctly.
Absolutely you did so I would view Q4, here's a low watermark, but are just to reiterate our guidance was 19% to 21% we would expect to be below that for the first half of the year and then progress into the range and pulls up in the range for the full year as the year progresses.
Yeah.
Our next question comes to Us from Darrin Peller from Wolfe Research. Please ask your question.
Hey, guys. Thank you.
The transaction the trend, we're seeing on the digital customer acquisition.
Specifically in the U S. Outbound was obviously very strong and it continues to move in the right direction from last quarter into this quarter.
Maybe just a bigger picture way if you can talk to revisit the strategy of what's working there.
What kind of lag effect, you would expect us to see around that turning into transactions and then.
Theres been marketing and pricing initiatives that obviously impacts the yield.
Maybe just touch on the timing and when that all catches up.
So what kind of trends, we should be looking forward to and David oil again, it maybe 12 months.
Yeah. So darrin, it's great to hear you thanks for joining the call.
We are excited about the work that first we did in the U S and now we're starting to see similar although a little bit more muted results in other places in the World, where we've launched the program. The program has three fundamental <unk>.
<unk> first as you highlighted.
Being in the market and being competitive with new customer offers and making sure that new customer segment pricing again reflects market and competitive reality.
The second is to optimize our marketing funnel efficacy getting the mix right getting dollars down lower in the funnel and making sure that we are creating the highest return for each marketing dollar.
Finally, we are optimizing the new customer experience and targeting peoples.
People's ability to get through our Onboarding and <unk> process with as few as steps as possible, which is increasing conversion rates for new customers to western Union.
Those three elements and different mixes we use around the world depending on where we are I mean, our market position and we are seeing strong results everywhere, we're launching it although the U S and so far the strongest result that we've seen Matt can talk a little bit more about the lapping effects and when we expect as you can see we believe that revenue growth.
We'll reach transaction growth as we work our way through this.
These cohorts are adding new customers and so the long term investment potential for this is high.
Thank you Devin and Dan. Thanks for the question as you think about it.
Really I think thats on a cohort basis.
We launched that we talked about with previously middle of Q3, we launched the U S.
You've highlighted now for two quarters in a row the great results, we're starting to see from there and I, obviously have highlighted the overall new customer growth in digital space for the whole world is.
Do you think about from a <unk> standpoint, we would expect that to start producing positive revenue growth in that couple of quarter standpoint within year. As you think about it. It does vary by region and our teams are working very feverishly on looking at other ways to maximize it but we're looking to also maximize the number of customers. So I view it as positive on the within the year.
Great to hear.
Thank you just very quick follow up I mean, it's probably the.
Your line one is going to ask about this but.
Other than the <unk> segment performed better just I know some of that is some moving parts can you just quickly update on what the strength there was <unk>.
Thats sustainable.
Hey, Darren just a reminder, I think by already note before but that area is largely made up of our biller business in the U S and Argentina as well as our money order business here in the U S lab.
Last quarter. It was muted result, because of two things one is we had some currency headwinds.
We are experiencing down in Argentina, as well as we rebalanced our.
We have a large investment portfolio that rolled up into that business as part of our money or a business that we rebalanced last quarter to take advantage of the current market conditions.
Those are the.
Currency has reverted back end tailwind now force a bit and then we also have a pretty large pickup from the rebalancing of our investment portfolio. We would expect it to be a strong underlying business as well as a pretty good result on the investment side for the foreseeable future and the rest of this year.
Okay great.
Thanks, guys.
Please note that for those who have dialed in you can press star six or raise your hand for your question. Our next question comes to US from David <unk> from Evercore. Please ask your question.
Thank you good afternoon I appreciate the callouts on Europe and CIS.
You've talked about previously the loss of some large European agents, plus obviously, Russia, and Belarus headwinds, if we strip those out and think about Europe and CIS on a go forward basis.
Perhaps normalize.
2020.
2020 mid.
Mid 2023 early 2024.
What does the transaction.
Mmm.
We have a very young landscape in Europe , and so if you look at a country like Spain, we have a very strong.
Performance there mainly because it was the corridors out of Spain go to lock or where we have strong market and strong brand. If you look at central Europe to Africa, that's been under pressure from competitive forces in for migratory results almost the entire year so on a.
Country by country and corridor by quarter basis, we have a high degree of variability in Europe .
If you strip out the impact of Russia, Belarus, and eventually the impact of losing those two large agents I believe we're approaching kind of flattish overall transaction trajectories as match said the back half of the year.
Strengthen the growth of transactions in the beginning of the growth in returning to revenue neutrality, given the size and the competitive nature of the region, but again, it's highly variable by country and by corridor segment I Dunno.
Build on with <unk>, but I mean, they can give these numbers out there, but our overall transaction growth, including Russia, Belarus is down 31%. This quarter, that's an improvement of 1% versus last quarter and it's a couple of hundred basis point improvement for the first half of the year when you're sure about Russia, Belarus, I'd actually got worse by about 100 base.
This point quarter over quarter, but that's because we have lost an agent in about half of our decline this quarter was due to losing the agent.
That's how you can think about the core business itself is it starting to trend towards the right direction, making pretty meaningful improvement with the first half with the head when we have in the last agent here in Q4.
And just just as a follow up when do you fully anniversary the loss of a second European agent.
The second agents in the middle of next year.
Middle.
<unk> yeah. The anniversary of it is in the middle of 24, yeah.
The agent lost isn't going to happen until.
Middle of this year or something.
Got it thanks, so much.
Our next question comes to Us from Ramsey L assault from Barclays. Please ask you questions.
Hi, Thank you for taking my question this evening.
I wanted to ask you about the <unk> concept retail locations and just whether we should sort of think of your efforts. There is the beginning of a longer term shift to a more direct distribution model. I guess the question is are when you look out five years or so should.
Should we expect there to be a great deal more direct distribution at some point, maybe even a majority of distribution.
So I would say no.
The way we are looking at it is kind of a pyramid of efficacy and control. So at the very top of the pyramid or the Western Union owned and managed locations and then given market they'll just be a handful. So if we got to a couple of hundred in a region like Europe .
That's gonna be a lot and laaco, we're kind of between Argentina everywhere in a couple of hundred and will add maybe 50 or 100 more over time. The next is this notion of branded exclusive with an agent partner, which we called concept stores, we seek particularly in markets like Europe , where the market as much.
More independent we asked as we highlighted some losses with our historic large exclusive agent a desire to build out that model I'll call. It the melody mob Bowl that I highlighted and help those agents expand on a branded an exclusive basis.
Underneath that we have our large strategic partners I highlighted or rite aid renewal, we still have several very privileged post office relationships around the world, which in general are branded an exclusive and then under that we have the large independent agent. Many times non-exclusive networks. So we continue just want to make sure that we have <unk>.
Access to Western Union products and services for every customer and every location and how we manage that pyramid depends on the nature of the customer base and the potential for us to control in those very high volume very strategic locations and entirely owned in Western Union prevented location, but I would not interpret that.
Ah to be somehow we're shifting the fundamental mix in nature of both our distribution model and or the economics of our distribution model.
Grace very helpful. Thank you and follow up for me can you talk about the the modernization strategy for the digital wallet and how you're thinking there is kind of evolving.
You know I'm not sure. If there is a revenue Andrew margin profile that is worthwhile talking about today. If there is please enlighten us, but how do you think about that being a contributor over time in terms of monetization revenue profit.
So the business case on the development and delivery of the wallet based ecosystem.
Entirely is based on increases in retention, our ability to increase retention through a more interactive.
An account based experience is the justification for the investment and the platform and that's just around our core economics of international money transfer from the digital platform.
Incrementally overtime, we expect to see some benefit from.
The value of interchanged that comes from issuing debit cards the value of prepaid that comes from linking that to a digital wallet or digital experience the value of accelerating our bill payment business from mostly a retail footprint today into the digital ecosystem and the ability to bring foreign.
Exchange services in multi currency aspects to the digital wallet for people, who want to buy and hold different kinds of currency. So we do see incremental revenue streams over time that will develop as we enrollee greater percentage of our digital customers in an account based or wallet based model.
The only other add that just as a reminder, 1% improvement in our retention, which is the largest driver. This is about $30 million to $40 million benefit to us.
Thank you very much.
Our next question comes to US from Raina Kumar from UBS. Please ask you a question.
Good evening, Congratulations Madam C S O.
This is a question on pricing are you <unk> are you expecting to have any other pricing actions defeat this year either.
And your digital or your cash to cash business and since you've implemented your promotional pricing strategy have you seen any changes in the competitive landscape.
So raina we.
Continue to optimize our prices as you well know we compete in 20000 corridors and we price on the basis of geography corridor customers segment and in some cases, even time of day. So our pricing is a very dynamic.
Model and we intend to and will continue to adjust that almost in real time accordingly around the world. So you can expect to continue to see as optimizing pricing to drive our business.
Uhm It was interesting one of our competitors called out on their most recent earning call the.
The inefficacy of new customer offer so clearly someone's paying attention and listening and commenting on what we're doing our experience has been as I highlighted the customers that were acquiring with our new offers a resulting in a higher quality customer with greater near term retention ability and greater.
<unk> second and third transaction timing then we saw when we were not offering promotional pricing offers for new customer acquisition. So we remain convinced that this is a strategy that can drive longterm value creation for Western Union shareholders and will return our digital business to customer growth transaction growth and ultimately revenue growth.
<unk>.
Got it that's very helpful. In that can you just help us understand what needs to happen this year to get to your high end of your operating margin guys of the 21% versus the low M N 19 per cent.
Hey, <unk>. This is Matt. Thank you very much for him my congratulations I'm very excited to be here at this iconic company.
There's a lot of moving parts they could do that it's hard to predict what will happen with the macro economic conditions, what will happen with our competitor situation. So I wouldn't want to speculate here on this call.
Because I'm a C E O and not a C.
The single greatest contributor to achieving the higher end of the margin would be above expectation growth. So this is a business model that has a moderate we fixed cost base that if we are able through these programs that were driving to be at the top end of our expected range that will help us.
Have a better than bottom end of our range margin contribution.
Growth is the elixir.
I like the answer thank you.
Our next question comes to Us from Brian Teen from Deutsche Bank. Please ask you a question.
Hey, guys How's it Goin', David I, just want to make sure I understand that when you talk about the World Bank grew 5% last year and two per cent. This year and then on the Sly we're talking about the C. D. C principal of <unk> transaction on a constant currency growing 4% I just Wanna make sure I understand.
Re growing then in line with the market or are we.
How do you think about you know share Gainshare losses first the market right now and and where you want to be.
I think it's quite clear given the overall market growth that we are a share donor and have been for some significant period of time as I have said publicly.
Much of the Outsize Grove from our competitors has been at the expense of Western Union.
As we revitalize our go to market strategy as we reinvest in both our retail platform, a retail marketing and our new approach to branding, we anticipate to stem the donation of share to our competitors and I believe we are seeing the evidence of that with if you look at app download.
<unk> in the fourth quarter.
We saw a significant chair gains in App downloads in our digital business in North America, which would be proof point that we are no longer donating chair at least in that market.
We aspire to be not only a non share donor, but a sure winner, but at some point in the future.
Got it and the point I just want to make sure I got it on the principal per transaction, that's been pretty darn consistent at four percentages the steadiness of the market.
That has been our experience and our customers have benefited from increased wages, while suffering the consequences of high inflation.
<unk> that has been for.
4% larger transactions.
Across our entire footprint. It obviously varies by geography, and buy corridor with some in some corridor seeing grader some corridor seeing less but the net take for us as the business is fairly resilient in the face of moderate to significant economic headwinds around the world.
I got it now thanks for thanks for the clarity.
And then my my follow up and just thinking you know want to return to that positive brand new digital growth.
Is there a kind of a normalized procreate new guys. Thank you can run that you know like in a year or two once we once we make that term.
I will tell you what our aspiration is.
Our aspiration is to get back to high single digit load double digit revenue growth in our digital business, which we believe given our scale and the diversity of our markets.
Will reliably enable us to outgrow the market and be a market winner in most of the important places of the world.
Great. Thanks for taking my question.
Our next question comes to US from Andrew Smith from City. Please ask your questions.
Our next question comes to Us from Chris.
<unk> from credit Suisse ask your question.
Hi, This is Kristen for <unk> at credit Suisse. Thanks for taking my question.
First one.
Related to the Triple purchase transaction that Brian I mentioned.
Fingers strong strong growth coating.
While you are two your and for your confidence currency.
And one metric zooming, a little bit on the underlying assumption for the <unk>.
Chris who to call out other <unk>.
Are you, saying the fiscal project to that some grilled coat and put it up in 2023 or theirs.
<unk> <unk> and this.
The first one.
Within the next Bill Hey.
Hey, Chris This is Matt there's lots of moving parts in our guidance Uhm price there as principal.
This new customer acquisition, so not going to comment on micro topics within our overall guidance, but we are confident that we can obtain our our our outlook. We gave out if you're on this call today as well as the rest of your day.
And.
For one of the factors secure too obscure midterm medium term outlook.
Saying some organization your progressive 46 basis points.
And.
Patricia in order to start increasing in irritation, and I think previously called out.
The source of punctuation, mainly due to pricing transaction time poor customer interaction and can you just share maybe some of the.
How much of the <unk>.
The tension is coming from different sources noticeably, it's probably going to be a plus pricing anti slowly but.
F. Your transaction is shipped incremental it's words digital is that also going to be a factor as well.
So a couple of things embedded in their <unk>, thanks for calling in today.
The focus on retention really started in the second half of the years, we rolled out the evolve Tony twenty-five strategy. So we were encouraged by the retention results that we got by focusing on it and believes that a continued focus and ultimately get us to our long term aspiration of improving retention by two.
Hundred basis points here.
Secondly, some of the work that we have been doing and remember we have a complicated ecosystem of multiple generations of point of sale systems, including gateway applications for our large strategic agents in one of those which we call <unk> 2.0.
We've been working hard on increasing transactional efficiency and in the second half of the year.
Hundreds of basis points of improvement in transaction completion rates and so it is incremental improvements and across the entire ecosystem to move transaction completion rates from you know.
Something in the eighties to something in the nineties that can help us increase retention and drive the overall number up and that's just one example of many of the initiatives that we've put in place is part of our increase retention program.
Oh, you're very helpful. Thank you very much.
Our next question comes to US from will Nance from Goldman Sachs. Please ask your questions.
Move to the next question here from Kelly guys can you hear me.
Or as I can.
Okay. We'll go ahead.
Sorry about that.
Technical issues.
I want Fob enter your question earlier on the operating margin of first half of the second half I'm. Just wondering if you could kind of talk for some of the moving piece of encounter bridge.
First half the second half the types of investments <unk>, obviously, I know you make on pricing investments in the fourth quarter, but I guess, what specifically do you have visibility to to sort of dropping off of the back half of the year to drive that operating leverage I better guidance.
Hey, well this man, it's really consistent we talked about for Q4 here just the completion of some of those initiatives.
So we're very focused bond continue to roll out our wallet or ecosystem in a number of different countries.
Highlighting the earlier part we've got the U as in Brazil, coming up quickly got more pairs within Europe .
So we got a fair bit of investment there were also putting some investment into additional products ago with our ecosystem things like prepaid, which we look to have go live this year as well as with things of that nature that we're really working on in the first half of the year and wrapping up things. We started this side of your end.
Got it that's super helpful and great.
Great to see the attraction on the the US outbound Brian digital customers wondering if you could talk and they talk a lot about sort of increase in a lifetime value.
Customer.
Tomorrow acquisition cost trend in the way of consolidated adjustments here too.
Your approach to pricing and how do you see those kind of training over the course of the year.
So we are working hard to balance customer acquisition cost with customer lifetime value and as I've talked about willow getting that equation right for us is really important and making sure that we're getting high return on all of our marketing dollars, which is part of the program we launched in the U S.
When we increased marketing spend in the fourth quarter, which I highlighted previously part of that was in this kind of test and learn approach to say where can we effectively applied dollars and what we have found is application of dollars to things like social media have a better return for US then application.
And $2 like paid search so we are honing the model as we rule out a more market competitive pricing for new customers to enable US then to apply the dollars to effectively manage tack to lifetime value.
And so I think we're still in the learning phase, we're making real progress and we're seeing results that are lined with how we believe we can execute.
<unk> you to drive the digital new customer growth and ultimately transaction growth.
Which will lead to revenue growth throughout 20, twenty-three globally and our branded digital business.
And I appreciate you taking my question.
Our next question comes to Us from Ken Celski from Autonomous Please ask your question.
Hi, everyone get good afternoon. Thanks for taking my questions I just wanted to follow up on that last discussion could.
Could you talk about what you're seeing in terms of repeat usage and transactions around your promotional programs I think the goal is to attract customers with that discount on the first transaction.
Back to more normal pricing on that second and third transaction. So what are you seeing in terms of that price sensitivity from customers on those later transactions and any comments about their willingness to do that second third or even for transaction or retention rate.
It'd be great. Thanks, Ken.
<unk> thanks for joining the call it's always great to have you.
As I highlighted we're very very indexed on repeat transaction performance from the new customer offers alright and in many cases, the new customer offer his first transaction free and so we are quite cautious to make sure that we're not offering a first.
Action free for a customer that doesn't return. So we are highly focused on what we consider to be second and third transaction, which then create a pattern of repeat usage, which allows us to then measure ongoing retention in the previously discussed remarks I highlighted the September <unk>.
<unk>, which is the most aged since we launched this program and the first time, we talked about it publicly where we hadn't mid 20% new customer growth. That's September cohort on 90 day retention, which would that include in most cases as a second if not a third transaction has the highest retention of any.
<unk> 90 day cohort that we have in history. So we are seeing.
Proved performance on second and third transaction from those new customer offers and we are seeing improved retention of that cohort at least through the first 90 days.
Which gives us confidence that we're not acquiring junk customers.
Okay, Great and then.
Is that retention devotees that I know.
The slide that has I think the cost 46 basis points.
And improve retention of 2022 is that we were talking.
Levels of magnitude above that 46 basis points anytime contest that'll be helpful. So to clarify the 46 basis points is retail retention not digital retention.
And as you know on very large basis of customers pretension is measured in basis points. So when we talk about improvements we are talking.
50 to 150 basis points of improvement whenever we see it with a goal of obviously get into 200 point across the footprint in retail and similar expectations about what we might do in digital so we're not talking thousand basis point pretension improvements.
If I could just squeeze on more here just just so I understand the impact of the roll off of the agents I just want to make sure I have already.
No one will off at a 2% important impact in the quarter about two percentage point headwind kind of roll through the next three quarters and then I guess, what's the expected style is the the headlines on the.
Next a gel just so we can model it correctly and then any offsetting factors on the piano like <unk> agent Commission coster or anything like that would be helpful. Thank you.
Can this mat so basically we talk about as an investor day, each agents about 1% of revenue.
So the first one exited here at the beginning of Q4, so will lap at the end of Q3. The other agent we expect to part here in the middle of the quarter middle of the Amelia. Thank you that our ability you. Thank you for clarifying.
And you can think about commission rates as being about a normal average withdrawn historically.
Our next question comes to us.
Jamie Fox at Morgan.
Morgan Stanley . Please ask you questions.
Mmm.
Hi can you hear me now yes.
Yes.
Sorry.
Thanks for all the details I just want to ask a couple of follow up questions first on that new cohort of customers digital customers and their high level of retention.
Those customers go into their second and third transaction et cetera are they seeing changes and that promotional pricing or is that promotional pricing stone in place for them, just wondering kind of what they're looking at and how they're they're judging the economics for themselves.
Jamie Thanks, no. They are returning to what we now referred to as market based pricing. So the first transaction is somewhere between 50 per cent off and free and then they return to what we would consider to be market based pricing for that situation that corridor that time of day that customer segment. So they are then paying what we would call.
It would be normal pricing on second and third transactions.
Got it got it got on some of your other evolve 2025 initiatives and rolling out new products et cetera.
I know you're still kind of working through like what the economics are going to look like et cetera, but in terms of goalposts.
Like what are the things that we should be tracking metrics around new customers per month and from the targets that you have but are there other things that we should be paying attention to from an economic perspective or revenue potential perspective on this.
Assess how that's evolving.
We look forward to provide a more of that as time goes on.
Now.
Publicly tracking the growth in our customer base and in retention that the added value of either new products and or an account based structure can drive.
And then if we see incremental benefit from the new products and services will certainly want to share that and will share that.
With Ya.
Okay, great. Thank you so much. Thank you. Thank you we have no additional questions at this time.
Thank you for joining the Western Union fourth quarter and full year 2022 results Conference call. We hope you have a great day.
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Goodbye.