Q1 2023 Western Union CO Earnings Call

Speaker 2: Good day and welcome to the Western Union first quarter 2023 results conference call. All participants will be in listen only mode. After today's presentation there will be an opportunity to ask questions.

Speaker 3: Please note that this event is being recorded.

Speaker 4: I would now like to turn the conference over to Tom Hadley, head of investor relations. Tom, please go ahead.

Speaker 5: Thank you.

Speaker 6: On today's call we will discuss the company's first quarter 2023 results and then we will take your questions. The slides that accompany this call and webcast can be found at WesternUnion.com under the investor relations tab and will remain available after the call. Additional operational statistics

Speaker 7: have been provided in supplemental tables with our press release.

Speaker 8: Joining me on the call today is our Chief Executive Officer, Devon McGranahan, and our Chief Financial Officer, Matt Kegwin. These calls being recorded and our comments include forward-looking statements.

Speaker 9: Please refer to the cautionary language in the earnings release and in Western Union's filings with the Security and Exchange Commission, including the 2022 Form 10-K for additional information concerning factors that could cause actual results to differ materially from the forward-looking statements.

Speaker 10: 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 in our earnings release attached to our Form 8K as well as on our website, westernunion.com, under the Invest Relations section. If you use our website to connect your Mai Technology to our due date the

Speaker 11: I will now turn the call over to our Chief Executive Officer, Devin McGranahan.

Speaker 12: Good afternoon and welcome to Western Union's first quarter 2023 financial results conference call.

Speaker 13: We are pleased with the progress we are making on our EVOLVE 2025 strategy and are generally positive about our first quarter results.

Speaker 14: As we have discussed previously, we see our evolution as a two to three year journey to return the company to sustainable, positive revenue growth.

Speaker 15: In the near term, changing the trajectory for new customer acquisition and transaction growth has been our priority.

Speaker 16: Our reported revenue in the first quarter was $1 billion, $37 million. Excluding contributions and excluding contributions from Business Solutions, this decreased 1% on a constant currency basis.

Speaker 17: This reflects several underlying dynamics, including a negative impact of 3 percentage points from the suspension of operations in Russia and Belarus, and a positive impact of 2 percentage points each from the business performance in the Middle East and Argentinian inflation.

Speaker 18: Adjusted adjusted earnings per share came in strong and was 43 cents in the quarter compared to 51 cents in the prior year which included a contribution of five cents from Business Solutions and four cents from operations in Russia and Belarus.

Speaker 19: Matt will further discuss our financial results in more detail and provide an update on our 2023 Financial Outlook.

Speaker 20: As you can see from these results, we are progressing against our evolved 2025 strategy. We are making headway on stabilizing our retail business and accelerating growth in our digital business. As you recall, some of our evolved 2025 goals include getting the retail business to stable.

Speaker 21: in returning our digital business to low double-digit growth rates. As we reported today, we saw sequential improvements in transactions across all regions compared to where we exited last year....more importantly for the first time in almost 2 years,

Speaker 22: We saw positive transaction growth in North America in the first quarter. We also saw a 200 basis point sequential improvement in transaction growth in our European operations when adjusted for the suspension of services in Russia and Belarus.

Speaker 23: Transactions in our Middle East region also improved by 200 basis points sequentially, and transactions in APAC improved significantly as well. Latin America continued to be the top performing region in the company, with transactions up 9% year over year.

Speaker 24: an acceleration of 100 basis points over the growth rate we experienced in the fourth quarter.

Speaker 25: Our results demonstrate that our focus on improving the core operational performance of our business, focusing on winning new customers and improving retention can be achieved.

Speaker 26: Stepping back for a moment, on the macro front, the first quarter of 2023 continued to be challenging with persistent high inflation, despite interest rates being elevated around the world. Even with that backdrop, 2023 central bank remittance data indicates the resilience of the cross-border remittance market.

Speaker 27: with an average principal volume up mid-single digits in the countries which have reported.

Speaker 28: We are also seeing resilience in our own customer base, with constant currency principle per transaction up 5% in the quarter. Our PPT is benefiting from our decision to suspend operations in Russia and Belarus, but even excluding Russia and Belarus, is not a good idea.

Speaker 29: Constant currency PPT remains positive.

Speaker 30: Last October , we launched our Evolve 25 strategy to return Western Union to positive revenue growth by becoming the market leader in providing accessible financial services to the aspiring populations of the world. In addition to accelerating our core retail and digital remittance businesses, we are

Speaker 31: We have been working to launch new products and services to expand our value proposition to our existing 120 million customers.

Speaker 32: We have successfully launched our digital bank in Germany, Italy, Romania, and Poland.

We are now in friends and family testing in Brazil and the US with our digital wallet product.

We have expanded our bill pay business in Laca, relaunched our US corrections pay platform, have entered into partnerships in Argentina and Australia to help connect customers to lending products and are nearing the relaunch of our prepaid product in the US as well.

While in the short term, these products and services will not be material contributors to our overall revenue growth, they are the foundation of expanding our value proposition, increasing our relevance, improving our customer retention, and providing platforms for future revenue growth. As we gain more traction, I look forward to sharing more.

with you. Returning to our returning our branded digital business to positive customer and transaction growth has been a top near term priority over the last three quarters.

We launched a new go-to-market approach in August of 2022 and shifted from maximizing revenue per transaction to maximizing LTV to CAC.

We launched new customer segment offers, and more importantly, revamped our approach to marketing funnel management.

We are now far enough into this journey to be able to tell you we believe it's working and durable. We reported to you last quarter that new US outbound branded digital customers were up 30% year over year, which contributed to 5% transaction growth in the fourth quarter.

I am happy to report that in Q1 we saw a continuation of these trends with US outbound branded digital customers growing at 21% and transactions now growing at 11%. The fastest transaction growth we have seen in the US since 2021.

Our expectation has always been that we would see new customer growth first, followed by transaction growth, and ultimately revenue growth, which we expect to begin in North America in the third quarter of 2023.

In the near term, growing new customers and transactions is an important part of the equation to jumpstart revenue growth.

But sustaining that growth at scale, longer term, will require us to increase the customer's lifetime value and improve our cost of customer acquisition. Our work in these areas is also starting to bear fruit. In the first quarter, while increasing our new U.S. branded digital customers,

By 21%, we were also able to lower our average customer acquisition cost by roughly 20% in North America.

Additionally, retention rates of our U.S. outbound September cohort, the first of our new approach, continue to perform at or above the levels of our existing customer base.

In conclusion, we are acquiring more new U.S. outbound branded digital customers than in the recent past. We are acquiring them at a lower cost of acquisition and early signs would indicate we are also retaining them at similar, if not higher levels than in the past. As we mentioned in the last quarter.

We have expanded our digital go-to-market program to several of our large European markets. As a result, we have begun to see a similar trajectory across key countries in Europe . New branded digital customers in France, Spain, the UK, and Germany were all up double digits in Q1.

which is a meaningful improvement from recent trends in those countries. Additionally, we have also seen improvements in transaction growth across the same countries and look forward to sharing more with you on future calls.

Our retail growth strategy centers around having the right value proposition for customers.

delivered with the right partners in the right locations and on driving location level productivity as opposed to just increasing the number of active locations.

Breaklandly, these partners include some of our largest networks, many of which have been partners for decades. Strategic network partners, as we refer to them, are an important element of our overall retail network strategy, as in most cases, they are exclusive to Western Union, and provide the customer with a unique value proposition around convened-

products and services, integrating loyalty programs, improving stage and pay options, simplifying refunds, and focusing on reducing friction in the transaction flow.

Beginning in the second quarter of 2022, I began discussing the opportunities to reduce friction for both our retail customers and our agents to better improve the overall Western Union retail experience. Over the past year, we have launched many such initiatives, including streamlining our refunds.

percent year over year drop in per transaction agent support calls to our call centers.

While this is obviously beneficial from a cost perspective, ultimately we believe it will help us increase retention. We realize we still have a lot of work to do but are pleased with the progress we are making and will continue to work to improve the overall experience for our agents and our customers alike. As part of our retail network strategy, we continue to pilot...

development allows us to bring to market product enhancements that will improve the customer experience in advance of the full scale rollout of our new point of sale system.

Two functions we have developed in recent months are quick resend and an improved customer lookup tool which we call Remember Me.

The goal of quick resend is to allow customers to complete repeat transactions to no one receivers more quickly and can reduce transaction times by up to 75%.

We have tested this product enhancement on our legacy technology, in select agent locations in the United States in the first quarter, and have now begun to roll it out across our entire US footprint.

Finally, I would like to give you an update on the progress of our ecosystem strategy.

In recent months, we have focused heavily on improving the onboarding and transacting experiences for new customers.

to migrate to the digital bank.

As we continue to evolve, we believe that these migrated customers and returning customers will continue to be the most valuable and the easiest to retain.

Today, our digital bank has enabled us to re-engage with more than 20,000 lapsed Western Union customers.

Our offer has not only brought them back to Western Union, it has given them access to an improved money transfer experience, our multi-currency digital wallet, and a Visa debit card. Secondly, converted Western Union customers and prior lapse customers.

are doing more than twice the number of transactions they were doing prior to the conversion to the digital bank. These transactions include P to P, top up, funds in and out, and debit card payments in addition to traditional money transfer.

Finally, and potentially most surprisingly, we have seen that the cohort that converted from our retail network to our digital bank is among our very best performing with more money transfer transactions and more revenue than they were providing prior to the conversion. This will be a clear opportunity for us going forward.

Now, we realize it is still a small sample relative to our existing customer base, and we will need to continue to scale our efforts more broadly.

But early results leave us optimistic about the possibility to provide broader financial services and increase retention with our 120 million customers around the world.

Before I turn the call over to Matt to discuss our financial results and outlook in more detail, I would like to highlight a key partnership renewal. We are pleased to announce the extension of our exclusive, long-standing relationship with Swiss Railways.

They have been a valued partner of ours for nearly 30 years and we look forward to continuing to serve our Swiss customer base at 135 plus Swiss railway locations for many years to come. 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 discuss our first quarter results.

First quarter, adjusted revenue was down 1% to $1.1 billion.

Given this is better than our initial expectations, I'd like to walk you through several dynamics in the corridor that led us this outcome.

First, we continue to see a negative impact on our results from the suspension of operations in Russia and Belarus, and agent loss, and promotional pricing activities related to our new branded digital go-to-market strategy. Protection in Belarus negatively impacted Q1 adjusted revenue by...

Improvement in the Middle East was driven by a change in monetary policy in Iraq during the first quarter.

Our leading compliance capabilities in strong, strong, agent network allowed us to react quickly and meet the needs of customers in Iraq and thus drove a two percentage point benefit to adjusted revenue.

At this time, it's unclear at what level or for how long this trend will continue.

In the first quarter, we saw improving trends from our fourth quarter exit rates on nearly all important dimensions. Our retail money transfer business, while still down, improves sequentially, and we believe it is now improving in the right direction. Our branded digital go-to-market program is progressing its dev and

primarily driven by retail money order business. Do the benefit of higher interest rates?

Argentina and the United States.

Adjusted operating margin was 20.5% compared to 21.8% last year.

The year-over-year decrease in margin was due to increased technology investments, primarily related to our evolved 2025 strategy, and a slower reduction in cost relative to our lower revenue.

When looking at operating margins on a sequential basis, it improved by nearly 500 basis points, which was above what we initially expected when we shared our outlook in early February . A sequential improvement in our operating margin was due to a few factors.

First, lower third party spend and marking spend, which was expected.

Two, quicker than expected expense reductions related to our cost redeployment program.

We have been able to take actions which will allow us to free up more than $35 million in 2023 with almost half benefiting the first quarter.

And third.

better adjusted revenue than expected thus increasing leverage of our cost base.

The adjusted effective tax rate in the quarter was 13.5% compared to 13% in the prior year period.

The increase in adjusted effective tax rate was primarily due to discrete expenses in the current period.

The adjusted EPS was 43 cents which compares to 51 cents in the prior year period.

which included five-cent contribution from business solutions, and four-cent contribution from Russia and Belarus.

Business Solutions, Enforceants sent contributions to the United States of America and the United States of America.

Now turning to the C2C segment, revenue decreased 5% on a constant currency basis while transactions declined 6%. Russian Belarus negatively impacted revenue by 3% and transactions by 6%.

Softness in our retail business and promotional pricing activity related to our branded digital go-to-market strategy were partially offset by growth in Iraq.

For our branded digital business, revenue declined 6%.

On a constant currency basis is Devon highlighted earlier when anticipated that?

Our go-to-market strategy would first lead to an increase in new customers, followed by an increase in transactions, and then lastly an increase in revenue. As a result, promotional pricing activities negatively impacted revenue in the quarter, while global transaction growth accelerated from 2% in the fourth quarter of last year to 7% in Q1.

With new customer acquisition up 14% year-over-year in Q1, excluding Russian Belarus.

We remain excited about the progress of our new digital customer, customers and transactions and expect to see positive revenue growth in the back half this year.

Now moving to the regional results. In the first quarter, North America revenue decreased 8% while transactions grew 1%.

The U.S. domestic business and U.S. outbound business to Russia continue to be a drag on our results. While promotional pricing activities related to our new go-to-market strategy negatively impacted revenue growth.

Branded digital transactions grew 8%, leading to the first quarter of positive overall transaction growth in North America since the second quarter of 2021.

Revenue in Europe and CIS was down 13% on a constant currency basis, while transactions declined 23%.

Russian Belarus, which will anniversary next quarter, negatively impacted revenue by 6% and transactions by 19%.

The region faced continued headwinds from an agent loss.

continue to improve for both revenue and transactions for the second consecutive quarter. Revenue in the Middle East, Africa and South Asia accelerated meaningfully growing 6% on a constant currency basis, while a transaction decreased 3%.

Iraq led the region with a higher principal per transaction, driving revenue growth.

Partially offset by continued softness in our retail business.

Revenue in Latin America and the Caribbean accelerated and was up 17% on a constant currency basis, while transaction growth of 9%.

The solid performed in the quarter was led by strength and Argentina, Ecuador, and the Dominican Republic.

And finally, revenue at APEC was down 5% on a constant currency basis, while transactions declined 2% due to softness in Japan, Australia, and Korea. Now moving to other revenue, which primarily consists of retail bill payment and Argentina in the United States and the money order business in the US. Other represents 8% of the total company revenue and grew 23% year-over-year on a reported basis. As I discussed earlier, the strength was driven by our retail money order business and our consumer bill pay businesses.

in both Argentina and the United States. Now turning to our cash flow and balance sheet. In the first quarter, we generated $137 million of operating cash flow, compared to $200 million in the prior year period.

With the decrease due to timing of payments

Additionally, our annual transition tax payment related to 2017 U.S. Tax Act will increase to nearly $120 million in the second quarter.

These payments will continue to step up over the next couple years and will end after 2025.

Capital expenditures were $57 million in the quarter with a large portion due to a single agent signing bonus, which we entered into early last year.

As a reminder, agent signings bonuses can vary from quarter to quarter and we anticipate that the mix will shift away from agent signing bonuses.

We continue to maintain a strong balance sheet with cash and cash equivalents of $1.2 million billion in debt of $2.5 billion.

Our leverage ratios were 2.4 times and 1.2 times on a gross and net basis.

which continues to provide us flexibility for potential M&A while we target to maintain our investment credit rating. Now moving to our outlook. Today, we reaffirmed our 2023 adjusted financial outlook. We have included improved trends in Iraq.

in our forecast for the outlook through April , but have assumed no incremental revenue for the remainder of the year due to the degree of uncertainty regarding the level and duration.

Our outlook assumes no material changes in macroeconomic conditions. As a reminder, we expect adjusted revenue to be down to 2% to 4%, we expect adjusted operating margin to be in the range of 19 to 21%, and finally, adjusted EPS is expected to be in the range of $1.55 to $1.65.

To recap, we are off to a good start.

We're optimistic about the trends we're seeing and the progress that we're making in our evolved 2025 strategies.

Thank you for joining the call and operator, 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 Reina Kumar from UBS. Please ask your question.

Good afternoon. Thanks for taking my question. I want to ask about promotional pricing. Can you give us an update on the spending behavior of your newly acquired customers through promotional pricing? How many of the customers are returning to make subsequent transactions at market-based pricing?

And yet thanks for the question. Thanks for joining the call. As we have said previously and we will continue to reiterate, the customers that we acquired with new customer promotional pricing, which in many cases was first transaction free, have exhibited the same, if not better,

characteristics in terms of subsequent transactions and retention rates over three and six month periods. In fact, we have seen an acceleration in the progress of subsequent transactions over our traditional

Customers acquired not through promotional pricing.

So we feel good as we commented that the strategy is working and durable.

Our next question comes to us from Darren Peller from Wolf Research. Please ask your question.

Okay, thanks guys. Can we just touch on where you think you are now in terms of the promotional pricing changes for digital transaction growth? And maybe just as a quick follow on to that. I mean, it looks obviously like it's been having an effect on adding digital users.

If you could remind us on the stepping stones from here to a more positive inflection on revenue growth that's sustainable, just remind us on the key variables that get us from where we are today, whether it's anniversary pricing and anniversary selling some of the headwinds from Russia, etc. all the way to a positive inflection would be really helpful.

Hey, Darren. Thank you very much for joining the call. As we talked about in past calls, we're rolling this out in a cohort fashion. So we started the program last year in August here in the US with 450 corridors. And then we've been continuing to bring on customers on a monthly basis since then. So it's now been in the market for going on.

that will help you get your head around this. But as we've talked about also, we expect to have positive revenue growth in the second half this year. Yeah, and we have historically said we anticipated, you know, somewhere between 12 and 18 months to anniversary or lap the effects of the...

new customer and new segment-based pricing.

I think we are pleased as we comment in this call that we expect in North America where we first launch it to move into positive revenue territory.

That is happening quicker than we originally modeled due to both as I explained on the first question, an accelerated return of customers for second, third and fourth transaction, as well as similar if not elevated levels of retention.

Thanks, Devin. I mean, if I have time for a quick follow up, just the margin strength was pretty notable in the quarter. And so, but we didn't see a change in EPS guidance. So was it just just remind us again, was it below the line items, anything nuance there, or maybe you could remind us on your on the cadence of margins of the year progressions. Hey, Darren. So really, when you think about our outlook for the year, we are very excited about.

The next question comes to us from Ken Sachowski from Autonomous. Please ask your question.

Hi, good afternoon, everyone. Thanks for taking the question here. I just want to ask about the trends in the physical retail business. If I do some macro math, it looks like the trend actions in that retail business declined, maybe in that mid-single digit range, year over year this quarter. It's down low and double digits in the prior three quarters. Maybe there's some Russia impact in there. But I'm just sure is, should we expect that?

us to attract and retain customers more importantly to increase the retention of the large customer base that we have. Those efforts are beginning to take effect and you can see that in the change around the world of the retail customer accounts and transactions that we've been reporting.

I do not anticipate that that will accelerate enough to get us to flat or stable by the end of the year, but we anticipate that being able to achieve that during the course of our evolved 2025 time period. Okay. All right, that's helpful, Devin. And then just as my follow up, I mean, you talked about some of the momentum in the woo.com kind of branded business, transaction growth accelerating 7% this quarter.

What's the expectation there in terms of transaction growth for the rest of the year? Then I guess how should we expect that to translate into revenue growth? Just because the pricing just came in a little bit softer. Take in this?? breath wave.

I mean, so obviously we're rolling out our new digital go-to-market strategy. You can see the continued improvement in our transactions. You get a larger portion of our customer base that is on that and we grow our customer base.

It's hard for us to forecast, but we actually don't provide guidance on digital growth. So I can't really answer that question, but I think you can model that if you think through just the path we've seen. It's been pretty sequential now for customer growth now being in the double digits and you're seeing the transactions working its way towards that level. And the same question for the first one. I think you can look at...

I think we've been pretty clear about what we're seeing in North America, X, the Russia and Belarus progression since we launched it. We're now in double-digit transaction growth in North America. That trajectory we feel pretty good about, and so as we roll that around the world, you can assess where we're going to be by the end of the year. We're now in double-digit transaction growth.

pretty clear about what we're seeing in North America, the Russia and Belarus progression since we launched it. We're now in double digit transaction growth in North America. That trajectory we feel pretty good about. And so as we roll that around the world, you can assess where we're going to be by the end of the year. All right, thank you so much.

Our next question comes to us from Tin Jin Wong from JP Morgan. Please ask your question.

Okay, thanks so much. Good quarter here. I may ask a similar question in a different way. That's been asked already just thinking about the spread on the digital brand of business. The spread between revenue growth and transaction growth. Is that more likely to widen out before it narrows again? Or can we see that start to narrow?

Is your statement there driven by the improvement more in the retention side or the acquisition side and just thinking about you know, in priority from a priority standpoint, what's more important to you about K-PAP perspective? You know, Miami's thinking more more about what people are asking me, just the Iraq. Can you just is there a way to quantify that? I understand you're not looking forward to extend beyond April , but I'm curious if that was sized for us. Thanks. On the retail side, the most powerful lever, and this is why we shared it at the Evolved 2025 investor day, small increases in retention on a very large base can make a meaningful improvement in the trajectory of that business.

The breadth and depth of our retail network is always a great catchment for new customers, continuing to have them transact with us because we have great experiences, we're easy to do business with, and we've got a good value proposition, should hopefully help us improve retention. And we're doing modifications as we talked about on prior calls.

in terms of what our network looks like and its ability to attract new customers into our branded locations from both an exclusive exclusivity standpoint but also competing head to head in the independent channel through our improvements with our point of sale and our ongoing efforts with customer loyalty programs and things like that.

I'll let Matt answer the question on Iraq. Hey, on the Iraq front, we talked about earlier on the call. It's about 2% of revenue in Q1.

Our next question comes to us from Tim Tiordo, from Credit Suisse. Please ask your question. Great. Thank you for taking the question. I want to dig into your recent partnership or announcement of being a part of the initial group of apps and new banks and fintechs that are participating in visa plus. And if you could just start off by maybe just giving us a little bit of the background or context on how you made the decision to join and what you thought some of the advantages might be. Tim, great question. Thanks for joining the call. As you know, that particular offer slash product slash partnership aligns with the launch of our digital wallet in the US. We have always been.

in India or Bcash in Bangladesh. So our basic philosophy of opening, of operating a funds in and funds out network is central to who we are. So the Visa Plus product offer is consistent with how we've constructed and managed our business.

about this as just another payout method, meaning there's retail in store, they're sent to an account, they're sent a card, and now it would be sent to another app potentially in another country, meaning the pay power Venmo of country ABC or XYZ, meaning doesn't necessarily have to be sent to a Western Union app. So I think yes. Let me try to clarify. So yes, it's US only. We have not agreed to anything beyond that at this point. We do today send to app.

do others apps all around the world. And so for us, this is simply an extension of what we already do. In fact, we have one of the largest power networks in the world of any kind. An important component of that is power to account and power to digital wallet all around the world. So for us, we already have our own network. Can we do that? If we could expand the network for what else we pay out to, I think over time that would make sense for us. Excellent. Thank you for taking both of those. I appreciate it. Our next question comes to us from Will Nance, from GoldenSax. Please ask your question. Hey guys, I appreciate you taking the question. Nice results today. I wanted to follow up. I think I just questioned earlier on some of those in pieces and adjusted revenue and the assessment.

I guess Iraq continuing beyond April would be a source of upside. Correct. And as you think about it, though, that mentioned earlier in one of the earlier answers. I mean, for us, if it does continue on, it gives us a whole lot of financial flexibility to accelerate our investments. Our objective as a target...

program that we've talked about on prior calls. So finding the productive, the most productive parts of the funnel that allow us to increase conversion for dollars spent.

I can't comment on others. Our next question comes to us from Ramsey, L. Assal from Barclays. Please ask your question. Thanks so much. Could you give us a bit more color on...

to how banks can move money out of the country.

We as a remittance provider were not subjected to those same policy changes and a result, customers that were traditionally using banks to move money out of our rack migrated to providers like us. Okay, and then maybe you could give us a bit more color.

As I was pleased to report today, we're having some success with that, and we're pleased and think it is a platform for us as we further roll out the digital wallet product with some of the added and enhanced benefits that we are now able to offer in Germany, Italy, Romania and Poland. Fantastic. Thank you very much. Our next question comes to us from Vasu, Golville, from KBW. Please ask your question.

Hi, thank you for taking my questions. I guess first one for you, Matt, just on around the outlook. I kind of got to a comment that it's too early in the year to change the guide. But you clearly saw one queue out performance and you're also expecting at least U.S. trends to be better in the back half. So should we think about the unchanged guide as basically more conservatism based into the back half or?

Are there any signing related factors that might be sort of leading the guys unchanged or are you expecting to Accelerate investment to the extent there is outside? Just if you put some give us a hot drop is there. You could have any best soon. I mentioned a couple of times in the call but it's giving us a lot more flexibility to make investments and look at how we can accelerate our path to long-term sustainable growth. We've not identified where we're going to go do that but we're also unwilling to commit to a different guide with the Macri-Con conditions we're living through the uncertainty around Iraq. The stage we are on are involved 225 strategies as well as we are looking for ways that we can accelerate those strategies.

So we look forward to updating everybody through months from now when we come back and we've gone through that In fossil as we have said since our investor day we are taking what we believe to be a very pragmatic and measured approach to Achieving and meeting our public financial commitments while continuing to rapidly involve Western Union towards our vision

of becoming a broader-based financial services provider to the aspiring populations of the world. And so we will look forward to continuing to update you as the quarters go on, but we're pleased with the progress that we've made in the first quarter. Wait, and then question for you, Devon. I sort of thought all the color you gave on sort of positive metrics you were seeing in the US from the promotional activity. Any meaningful differences that you were seeing in terms of retention improvement across the other regions, were you expanding promotion pricing? I'm actually going to take this one a little bit more recently, but the results are a little bit earlier because we launched.

customer offer, whether that be first transaction free, first transaction 50% off.

In combination with the program, we're also putting second, third, fourth transaction into more of a market-based pricing basket, which is helping drive increased retention relative to some of our historical pricing practices.

We're also putting second, third, fourth transaction into more of a market-based pricing basket, which is helping drive increased retention relative to some of our historical pricing practices.

Thank you for the color. Thank you. Our next question comes to us from Brian Keene from Deutsche Bank. Please ask your question. Yeah, hi. Can you hear me all right? No problem. Thanks for joining Brian . Sure. Thanks. We've been the response from the competitors from promotion.

historically, you know similar or above us have stayed there as well, you know in any given corridor or any given market there's a give-and-take and they're always particularly corridor specific particularly in Europe players that continue to operate and what I would consider a value destroying manner in terms of their pricing overall.

But in general, the market is fairly rational and people have continued doing what they were doing before we made our change.

Got it. How much more promotional pricing do you guys expect to do throughout the business? Is there more areas either in retail or just further in digital that you expect to roll this out or is it kind of the majority of it is complete that you plan to do?

You know, we've tackled this question before given that we operate in 20,000 corridors around the world from 150 countries give or take in territories. There are always opportunities to optimize, you know, high volume corridors, long tail corridors.

You know, we price everything from street corner level to time of day. We have a constant and ongoing optimization algorithm and model that's always running. And we continue to tweak that to the best of our ability to get the right combination of customer value proposition, incentives and alignment with our distribution. tracks created in our Federal

and our ability to grow transactions. Remember the big shift is we're really focusing on acquiring customers, managing and increasing their lifetime value, which includes retention, versus maximizing revenue per transaction at a transaction level.

Helpful. Thanks for taking the questions.

Our next question comes to us from Andrew Schmidt from Citi. Please ask your question.

Hey Devon, hey Matt, thanks for taking the questions. I'll just by missed this, but I'm operating margin in good performance in the first quarter here. But how do we think about the key to the year progresses? Is there anything lumpy we should be considering from an investment perspective? I understand there's some, some, some, sounds like there's some flex.

in the cost-based, the security, the perspective there. Thanks a lot. Hey Andrew, thanks for joining the call today. How I had earlier, there's really two major drivers while it was different than what I expected when we met maybe six, eight weeks ago. The drivers there were the benefit we've gotten from Iraq, just about 200 basis points of revenue with the normal fall through right there. And then also we were able to execute on our

cost optimization program at a faster pace than we were able to invest it. Both those things were unknown and positive surprises to us as we evolved through the quarter from early February till now. So our plan is to go and invest that money. We had always intended to save the objects that we were able to identify and save. So those investments will come in the later part of this year, the year progresses. And then as I mentioned previously, we are looking for monitoring how Iraq evolves. We're looking at other investment opportunities to use any upside we have relative to our guidance. And if we have some valuable way to use that to drive long-term sustainable growth, we will make those investments.

Got it. Thank you very much for that. And then if you follow up just on the independent channel, maybe you can comment on the just the early results from the new POS system, how productivity of those agents that might have the new POS system compared to the independent base as a whole. Any comments there would be helpful. Thank you very much.

Yeah, so to clarify because it is a pilot and we are in pilot in actual Western Union exclusive locations in the US Partially because we wanted agents who were willing to work with us as we launched the technology refine the experience We won't be putting it into the independent agent channel until the back half of this

Friendly hand selected to work with us through the launch.

hand selected to work with us through the launch. Got it. Appreciate that clarification. Thanks, Devin.

Our next question comes to us from James Fawcett from Morgan Stanley . Please ask your question. Hey guys, this is Chef Goldstein on for James. Can you guys hear me? Okay. Yeah, no problem.

All right, great. So I wanted to ask about Europe . Can you talk about some of the trends there? You know, what countries were primarily driving revenue to be down 13% in the quarter? And then I think in your prepared remarks, one issue you called out for the region was competitive pressures. So I'm just curious what you're seeing there in particular and how you're kind of going about navigating that backdrop, if anything's different there as opposed to other regions.

Yeah, so Jeff, a couple of things, right? Remember those results also still include through the end of the first quarter, the exit of Russia and Belarus, which Matt highlighted was a moderately significant headwind on revenue growth in the first quarter in Europe , which was by far the most impacted region we had.

Second, Europe continues to be one of the most, if not the most competitive on both the retail and the digital. And in particular, you know, central in Northern Europe to North Africa continues to face, you know, corridor specific competitors, as I highlighted, who are maximizing customers in transactions and potentially not revenue.

But Russia is the biggest place where we're obviously having a drag, we've highlighted a couple of times in the call, and then we've got some softness in Germany and France. –Felph, thank you. And then second, as my follow-up, you mentioned starting to pilot your digital banking product in the US and Brazil in the quarter, I believe. Just curious if you're learning – I know it's new, but just curious if you're learning anything as those rollouts begin, especially in the US. And then can you also remind us of the ongoing rollout plans by geography going forward? –Yeah, so a couple of important just notes in both US and Brazil, where and what we define as friends and family, which is largely employees and –

employees, families, and it is truly just a testing. We have not brought non-Western Union affiliated consumers into the offer. Second, in both Brazil and in the US, we are working towards what we have affectionately called on these calls OneApp.

So as you know, in Europe , we are conducting business across two apps, a digital banking app, which we call Western Union One, or in some markets WooPlus, and the traditional Western Union dot com app, which is a transactional money send.

When we launch the new product in the US and Brazil, we will be operating under what we call OneApp, which will include both the traditional transactional based service, which has a lower KYC burden, and a full on digital wallet. We will also be able to offer transactional customers.

a one or two, click upgrade to the digital wallet. So that is all in process and we're obviously learning a lot about how to integrate the two experiences into one. And as we learn more, I look forward to updating you. Appreciate it, thank you. Thank you. Our final question comes to us from Tyler DuPont.

from Bank of America. Please ask your question.

Thank you. Good afternoon, everyone. This is Tyler J. Onford, Jason. Thanks for the question. I know we're bumping up on time, so I'll try to be quick with these. It seems like Locker continues to be the bright spot geographically. Can you just speak a little bit more to the success and sustainability of that growth level, and then maybe just to the level to which you can apply that playbook to other geographies?

Tyler, thanks for joining. LACA is unique on many dimensions, but there's a couple of things in specific that we benefit from. One, we have a very strong retail footprint in the country, and as we've highlighted, it's a great combination of owned and controlled, as well as Western Union branded independent.

And we have some particularly strong master agents in the region that we've been working with for many many years that provide excellent product service delivery and customer service to their customers. The second is as we rolled out Western Union dot com. We had a strategy of maximizing our footprint around the globe. So we were early on our digital business and locker as a result have strong presence in many of those markets.

and a strong customer base. Finally, we have an excellent management team. It's been in place for many years that does a great job of driving that business. Great, thank you. I appreciate that. And just briefly following up with inflation. And looks like just the majority of the regions you serve continue to see inflation cooling pretty significantly. So you just briefly walk me through kind of how you were thinking about inflation and how that.

kind of price increases. And then we've got a little bit of labor that we're obviously working our way through. So thankfully, we're well protected from inflation.

Tyler, I think you can look at the success we've had in Argentina, which I think is facing 100% inflation this year on the durability of our business and our ability to manage, not just through the transitory inflation that many countries around the world are seeing, but sustained and high inflation like we have in many countries in Laca.

Thank you very much. Thank you for joining the Western Union first quarter 2023 results conference call. We hope you have a great day.