Q2 2019 Earnings Call
Good day and welcome to the Western Union Company second quarter 2019 earnings release Conference call.
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Please note this event is being recorded.
I would now like to turn the conference over to Mike Salem, Senior Vice President Investor Relations. Please go ahead.
Thank you Andrew on todays call, we will discuss the company's second quarter results and our full year financial outlook and then we will take your questions. The slides that accompany this call and webcast can be found at Western Union Dotcom 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 today's call is being recorded in 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 2018 Form 10-K for additional information concerning factors that could cause actual results to differ materially from the forward looking statements.
During the call we will discuss some items that do not conform to generally accepted accounting principles. We've reconciled those items to the most comparable GAAP measures on our website Western Union Dotcom under the Investor Relations section, we'll also discuss certain adjusted metrics. Although the expenses that have been excluded from adjusted metrics are specific to these initiatives. The types of expenses may be similar to types of expenses that the company has previously incurred and can reasonably be expected to incur in the future.
All statements made by the Western Union officers on this call are the property of the Western Union company and subject to copyright protection other than the replay noted in our press release Western Union has not authorized and disclaims responsibility for any recording replay or distribution of any transcription of this call I would now like to turn the call over to Hikmet Ersek.
Thank you, Mike and good afternoon, everyone.
I will begin with an overview of our second quarter results and business highlights afterwards, I will provide more information on the implementation of our new strategy that we announced today.
Revenue trends were steady into quote the second quarter and we remain on track with our full year expectations for core business performance.
Digital business continues to drive our results with 20% constant currency growth and 15% transaction growth in the quarter were assuming dotcom money transfer.
Declines in U.S domestic money transfer our impact individual results. However, western Union Dotcom cross border transaction and constant currency revenue are very strong.
Rich with each growing well over 25% in the quarter.
Total consumer to consumer revenues, which represented 83% of company revenue for the quarter declined 1% on a reported basis or increased 1% constant currency, while transactions grew 1%.
Pricing in the quarter was favorable by 2%.
Which has partially driven by price increases into us domestic money transfer and we continue to believe that overall of course, but the pricing environment as stable.
Geographically, our us outbound and us to Mexico money transfer business delivered good results, we continue to gain market share in the Mexico corridor based on the latest Banco de Mexico data and Latin America. Outbound also remains strong the gains were partially offset by declines in Asia Pacific and us domestic money transfer.
In business solutions, we achieved constant currency revenue growth for the fourth straight quarter revenue increased 3% on a reported basis basis or 7% constant currency driven by strong growth in Europe and Australia.
Furthermore, we continue to offer our unique cross border platform to existing and additional partners recently, we announced collaborations that allow other financial institutions and global brands to leverage our cross border platform and compliance capabilities to make payments from almost any type of account to almost anywhere in the world.
Today, we announced an agreement with Toronto Dominion Dominion Bank, the TD Bank, one of the largest financial institutions in Canada that gives TD customers the ability to send money digitally from their accounts for payout at Visteon locations in over 200 countries and territories around the world.
Last month, we announced an agreement with the UK Post office, which offers UK consumers and businesses expanded digital international payment services by integrating Western Union's cross border platform with the post office digital channel.
Customers will be able to access international payment services via UK post and Western Union branded online portal also businesses will be able to make near real pay payments in multiple currencies, allowing them to expand their network and connect with new business partners across the world.
These are only two prime examples where leading brands are turning to western Union for our deep financial expert services expertise digital know, how and leading compliance capabilities to expand access and create new choices for their customers.
Financial institutions, Fintechs and global companies like Amazon are also choosing our platform global regulatory framework and network to offer our capabilities to additional customer segments.
We think this validates our model and market position and crucially underlines the principal Optum, which this business has been built convenience the highest standards of compliance and reliability for you for users and communities, we interact with the platform.
We believe we have a responsibility as we evolve our business to maintain our commitment for those principles both for the benefit of the customers that use our platform and because it's a competitive advantage for western Union.
I'd now like to provide some additional color on the global strategy Knitted initiative that we announced today.
We are very confident in the underlying strength of western Union and enduring value of our unique cross border platform.
This is a stable business with strong margins, but we believe we can deliver additional value to customers and shareholders through a new global strategy designed to drive improved efficiency profitability and long term revenue growth.
This global strategy is the result of strategic review of the business that we will detail at our investors day on September 24 at Investor Day, We'll provide you with a full view of our new strategy discuss new initiatives to drive growth as well as detailed additional opportunities for efficiencies.
We plan to give you an overview of how we expect to generate long term growth by offering our more efficient and advance war platform and operating model to customers globally.
As discussed on our last call, we identified opportunities to run our business more efficient effectively and efficiently.
The global strategy is focused on executing on our opportunities through important changes to our operating model that will mean, a meaningfully reduce our structural cost base.
Planned changes include a reduction in our total headcount by approximately 10% and the consolidation of corporate and business offices, while we continue to be a leader in the global cross border money movement and payments industry.
We believe that these actions will have relatively quick return on investments for shareholders, while better positioning us to drive growth.
Specifically only from these actions we announced today, we expect to generate $100 million in annual savings beginning in 2021, which should help drive significant margin expansion from where we are today.
We have been working hard and planning these initiatives for some time and we look forward to sharing more details on our Investor day.
Our goal is not only to drive cost savings and margin expansion, but drive growth by delivering the efficient and advanced platform to more customers clients and global brands.
Now I would like to turn it over to Raj for a more detailed discussion of the second quarter financial results. Thank you Hikmet second quarter revenue of $1.3 billion declined 5%.
Compared to.
Compared to the prior year period, while adjusted constant currency revenue, which excludes our divested businesses for both the current and prior year increased 4%.
Currency translation net of the impact from hedges reduced second quarter revenue by approximately $74 million compared to the prior year, primarily due to depreciation of the Argentine peso.
The decline in the peso negatively impacted reported revenue by 3%, while the effective inflation on Argentina businesses is estimated to have positively impacted both reported and constant currency revenue by approximately 2%.
In the consumer to consumer segment revenue declined 1% or increased 1% on a constant currency basis, while transactions grew 1% for total CDC Cross border principal was flat or increased 3% on a constant currency basis, while principal per transaction was down 1% or increased 1% constant currency.
The spread between CDC transaction and revenue growth in the quarter was 2% with a negative 2% impact from currency.
Pricing and mix were offset as pricing positively impacted revenue by two present in the quarter compared to the prior year period, while mix had a negative impact of approximately 2%.
Turning to the regional results North America revenue grew 2% on a reported and constant currency basis, while transactions declined 1%.
For us to Mexico corridor delivered strong revenue growth in the quarter and the U.S. Alpine business also generated solid growth led by transfers to Latin America.
These increases were partially offset by continued declines in U.S domestic money transfer.
In the Europe , and CMS region revenue declined 3% or increased 1% on a constant currency basis with growth led by Spain, and France transactions in the region increased 4%.
Revenue in the Middle East Africa, and South Asia region declined 3% on a reported basis or 1% constant currency, while transactions decreased 3%, primarily due to softness in Saudi Arabia, and the UAE and hard currency limitations in certain African markets.
For Latin America, and Caribbean region continued to deliver strong constant currency revenue growth led by Ecuador, Peru, and Mexico outbound revenue in the region increased 4% on a reported basis or 16% constant currency, while transactions grew 11%.
In the APAC region revenue declined, 14% or 12% constant currency and transactions were down, 9% with Australia, Korea, and Malaysia contributing to the revenue declines.
Western Union Dot Com revenue grew 18% or 20% constant currency risk transaction growth of 15%.
Western Union Dot Com represented 13% of total CETC revenue in the quarter.
Business solutions revenue increased 3% on a reported basis or increased 7% constant currency and represented 7% of company revenues in the quarter.
Constant currency revenue growth was driven by increased sales of hedging products and strong growth in the education and financial institution verticals.
Other revenues, which consist primarily of our retail bill payments businesses in the us and Argentina decreased 31% in the quarter. The decline was due to the speed pay and Paymap divestitures in may which were non core domestic focused businesses and the impact of the depreciation of the Argentine peso.
Although the Pago faster walk in business in Argentina grew transactions and local currency revenue it declined in us dollar terms.
Other revenues represented 10% of total company revenues in the quarter.
Turning to margins and profitability, we will focus on consolidated margins segment margins are not comparable with the prior year period due to reallocation of corporate costs. Following the divestiture of the speed pay business. We are also providing adjusted metrics to exclude the impact of the net gain on the speed paying paymap divestitures restructuring expenses merger and acquisition costs and related tax effects.
The consolidated GAAP operating margin was 19.3% in the quarter compared to 20.1% in the prior year period.
The decline was due to the impact of the sale of the suite pay business higher marketing spending and restructuring expenses, which were partially offset by business solutions margin improvement and other operating efficiencies.
We incurred $7 million of restructuring expense related to the operating model changes in the quarter, we anticipate approximately $100 million of restructuring expense for the full year and approximately $50 million to be incurred in 2020.
These costs relate primarily to severance as we are reducing our headcount by approximately 10% and also include cost for relocation of operations facility closures consulting and other related expenses.
We anticipate these changes will generate $100 million of annual savings beginning in 2021 with about $50 million of the savings realized in 2020.
And we expect these savings to contribute to operating profit and drive strong margin expansion over the same period.
Our adjusted operating margin in the second quarter was 20.3% compared to 20.2% in the prior year period.
As business solutions improvement and other operating efficiencies offset the impact of the speed pay and Paymap divestitures and the increase in marketing spending.
Speed pain Paymap contributed about 80 basis points to last year's second quarter margin, but had no contribution to the current period margin, while foreign exchange hedges provided a benefit of $6 million in the current quarter compared to no impact in the prior year period.
The GAAP effective tax rate was 17.5% in the quarter compared to 14.8% in the prior year period, while the adjusted tax rate of 16.8% compared to 17.3% in the prior year period. The increase in the GAAP rate was primarily due to changes in estimates for tax Act provisional accounting and the prior year period.
GAAP earnings per share in the quarter was $1.42 cents compared to 47 cents in the prior year period with the increase driven by the gain on the sale this prepaid business.
Our adjusted earnings per share in the second quarter was 45 cents compared to 46 cents in the prior year.
We completed the sale of the Speedway business on May 9th for approximately $750 million in cash and also completed the sale of our Paymap mortgage services business in the second quarter.
The sale of these businesses generated a pre tax gain of approximately $525 million with related taxes estimated to be approximately $145 million based on statutory rates.
As we mentioned last quarter the speed pay gain also produced a favorable effect on our overall us tax position with respect to the beat provision in 2019, which should result in a separate tax benefits of approximately $50 million this year compared to our initial February outlook.
Turning to our cash on balance sheet year to date cash flow from operating activities was $403 million capital expenditures in the quarter were approximately $37 million at the end of the quarter, we had cash of $1.2 billion and debt of $3.1 billion as we paid down some notes that matured in may.
We returned $246 million to shareholders in the second quarter, including $86 million in dividends and $160 million of share repurchases, which represented approximately 8 million shares.
The outstanding share count at quarter end was 426 million shares and we had $1.2 billion remaining under our existing and new share repurchase authorizations, the majority of which expires in December 2021.
Turning to our financial outlook, we are updating our full year GAAP financial outlook to reflect the restructuring expenses related to the operating model changes we announced today.
We are also providing adjusted operating profit tax rate earnings per share and operating cash flow outlooks, which exclude the net gain on the speed pain paymap divestitures, the restructuring costs merger and acquisition expenses and all related tax impacts, including the beat benefit.
We continue to expect GAAP revenues for the full year two decreased mid single digits due to the divestiture of the speed pay business in may.
On an adjusted constant currency basis, excluding speed pain payment from both years, we expect low single digit constant currency revenue increase which is unchanged from the previous outlook.
GAAP operating margin is expected to be approximately 18%.
While the adjusted operating margin is expected to be approximately 20%.
The change in GOP margin from our prior outlook reflects the inclusion of the $100 million of expected restructuring expenses.
We expect both the GAAP and adjusted effective tax rates to be in the range of approximately 18% to 19% in 2019.
And continue to expect the effective tax rate in 2020 to be in the mid teens range.
GAAP EPS for the year is now expected to be in a range of $2.47 to 257.
Down from the previous 266 to 276 to reflect the restructuring expenses, which impact the full year outlook by approximately 19 cents per share on an after tax basis.
Our adjusted earnings per share is expected to be in a range of $1.70 to $1.80.
GAAP cash flow from operating activities for 2019 is expected to be approximately $800 million, while adjusted operating cash flow is expected to be approximately $950 million.
We continue to expect to spend between five and $600 million on share repurchases in 2019, and we already spent $335 million in the first half of the year.
In summary, the quarter's results were stable with improved pro forma revenue growth compared to the first quarter and solid margins.
Excluding the costs related to the restructuring we remain on track with our full year earnings outlook.
We continue to return significant funds to shareholders and maintain a strong balance sheet.
And we began implementing our new global strategy designed to drive profitability efficiency and long term growth with immediate changes that will generate $100 million in annual savings.
Operator, we are now ready to take questions.
We will now begin the question and answer session.
To ask a question you May Press Star then one on your Touchtone phone.
If you are using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then too.
At this time, we will pause momentarily to assemble our roster.
The first question comes from 10 10 long of JP Morgan. Please go ahead.
Hi, Thank you good hey, good afternoon.
Thanks facility for the.
The time on the savings makes sense I'm sure you'll give us lot Monte analyst day, but is that a.
Is that a net number that we should expect in savings net of any kind of incremental investments that you might make for.
Growth I just wanted to clarify that we'll be getting that question.
Yes, yes, yes, we expect most of the 100 million of savings to go to the bottom line and say impact positively our margins. So it is a it is a net concept yet.
Okay terrific and then if you don't mind pigment I want to ask you a crypto question because we've been getting that question a lot since the LIBOR news came out and.
And then Moneygram will triple and I know in light of some of these savings you're highlighting im curious how the crypto.
Might fit in your roadmap something around the currency et cetera, what that might mean anything to.
To say there thank you.
Sure.
Actually the older discussion shows how well it will lower platform is really build upon that and all the discussion shows how well the ruble is to be in 200 countries on moving money 100 entered to seven currencies. It shows the value of our platform. The regulatory challenges that many environment has bought western Union has that thrives on you know we are also at the same time, we are looking up the innovation on the crypto industry and.
We are the basically the cross border machine for many Fintech companies, many global companies may to financial institutions.
And I think it's a very important take that question is always what does the cryptocurrency today just currency or is it the settlement currency I think the differentiation has to be done in a very.
Good way and understood by the industry I think there is a lot of noise there, they're mixing everything between fee up currents and the settlement currency.
I think you know that needs more discussion, but most important thing is that it is a regulated environment and western Union has all the framework. It is how has the settlement machine and we can offer our supplemental many fintech companies.
Got it will soon thank you.
Thank you. The next question comes from Darrin Peller of Wolfe Research. Please go ahead.
Hey, Thanks, guys.
I think the other side of Finjans question on margins I guess.
Now in terms of investment that growth that we may want to hear about at the Investor day.
First of all can we expect to hear some greater discussion or where you're going with us for purposes of accelerating growth or.
Is it really going to be more of a margin focus and maybe just give us a preview of a couple of areas, you're hoping to talk about on.
Enhancing growth and then I just have a quick follow up on the Western Union Dotcom business.
Yes, I think Thats a great question. This initiative is really making our platform more efficient.
And really looking at growth additional growth opportunities.
And we believe that we can run this business, especially the core business more efficient way and we've been talking about that for a longer time, we were planning about that on that we are very confident that we could do that so this is very important that we will also.
This platform running in a different way with all our move in activity as with all our pro forma gives us also growth opportunities as I mentioned on the call as my scripts as I mentioned to you in a minute companies turning to as financial institutions Fintech companies Amazon.
Global brands are using our AUR platform to achieve also new customer segments that means for US also growth opportunities long term growth opportunities I think besides the risks of serving the western Union CTC customers. We believe there are also big opportunities to serve with our platform new customer segments and this is something that I would like to share at the at the investors. They the other thing is also.
The growth importance is our existing business like.
Artificial using artificial intelligence for more dynamic pricing.
We are today of 20000 corridors, but we could be more we thought the digital intelligence more corridors more dynamic more okay. Our growth opportunities I believe there are there.
All right. That's helpful. Thanks, and then just my quick follow up is on the west reviewed the dotcom site.
Look obviously revenue growth continues to hold up well and get accelerated a little bit this quarter, but I noticed transactions did decelerate. Some this quarter. It was if I may have missed some of the prepared remarks was that just X or was there.
These are you finding we know the higher revenue yield on certain transactions.
Yes Ivan.
Raj and I mentioned earlier I think the transaction growth was impacted by the us.
Domestic money transfer declines as you know the yos domestic money the us domestic money transfer has been quite under pressure for a while.
That has been but it's 80% of our revenue and the University in Dot Com is.
Cross border and that has been very well growing 25% accelerating UN transaction and revenue and we are now in 71 countries with dollar all pump business and we believe that we can expand even more there. So it's impacted mainly by us domestic.
Okay, all right Thats helpful. Thanks, guys.
Thanks Aaron.
The next question comes from Bryan Keane of Deutsche Bank. Please go ahead.
Hi, guys. So wanted to ask about the global strategy and how it compares and contrasts with will wear.
So you know you will we as you know while driving the lean operating principle throughout our organization to enable that our platform is.
Much more.
Much more better and.
We operate in a more efficient way and we did find significant increases in productivity on the areas. What we have done is that over time over due the wu way activities, we learned a lot and we really taking this movie activities do next level during our first phase of way, we invested back into compliance in GDPR in privacy in marketing activities is growing the western Union Dotcom Tomorrow punches here. What we have done is is really taking this rule learning our learnings and taking the move away from the mix level actually and we we trained 6000 people their olin manager with trained we've trained looking at the process in a different way and we farmed indentified lost.
We have been working longer time on those newly identified additional opportunities to run this business more efficient.
And using more technology in a in a technology in a more efficient way consolidating some of the offices and using more artificial intelligence, we really identified them and that's that's the result of first the results of the global strategy.
The second there are more to come at the Investor day to share with you Brian .
And I'm looking forward to that actually I am very excited because the team is really.
Very motivated.
They really we managed to build share or.
More detail on that.
Got it got it and then.
Post 2021, when when you expect the App do you expect to generate.
The 100 million in savings I think that'll be starting in 2021.
When you look a little longer term then what does the global what does the operating margin and profit look like in the global strategy longer term does it have a leverage or is it more stable margins as we've seen post that will weigh originally.
Yes.
Brian We we will give you more color on our.
Growth strategies, obviously that plays a big part in where the margins go beyond 2021, but we do believe that there are additional opportunities for efficiencies that can drive further.
Cost opportunities and margin expansion beyond what we announced today.
But obviously revenue plays a big part of that and that's something we want to give you more color on but we feel good about the longer term opportunities here.
Okay, great. Thanks for taking the questions.
Thanks, Brian .
The next question comes from James Faucette of Morgan Stanley . Please go ahead.
Hey, Stephen laws on for James just a couple of questions that we've been seeing visa and Mastercard and some of the other diversified payments and make some more cross border.
News recently, just wanted to get a sense of how you view the competitive environment on the cross border side from the more diversified players.
Well compared to the Red.
Environment has not changed the cross border and we are really.
We are a leader on this area and bizarre expertise is our sweet spot this is being activated than.
It really in that area I think the others are catching up on that one and really trying to.
Acquire things, but although as I see here is.
Is that.
Our new cross border is really a competitive advantage because we are building on our existing strength.
An existing well iOS and we really want to expand that to new customer segments. Like you know today, we are serving as certain customers segment. The CGC customer segment with Western Union brand. The examples I brought before and the other examples are really serving also additional businesses additional brands for their customers offering our platform and the big difference probably now or is that not many companies on the end to end processes. We do end to end processes not many companies have the compliance programs. We do have the compliance programs not many companies can settle in under that 37 currencies, we do settle in London to serve current and so it is a big advantage and.
Additional have our route network the people can walk in to our network, but we also have 4 billion bank accounts and wallets rebuild that I think in the future we're going to talk more about the investor's day, but I'm excited also how we offered the network to new.
Brands, and new customer segments, and really using our facility I'll just have to build that we have it.
Okay, great Yeah. Thanks for the color and then just maybe one more.
Quick one there I think.
I might have missed this earlier on but when you guys were talking about the head count reductions and the relocation can you give us any additional granularity on where some of those headcount reductions are going to focus.
Or be focused on.
In terms of like Jonathan Julie.
Yes, it really is.
The best way to answer that really is throughout our entire business it's not.
Focus on any particular area.
There are some more senior type roles that we are taking on him in places but.
We're consolidating corporate and business offices in different parts of the world. So it's not particularly focused in that particular area and.
We're still in the process of notifying.
Employees over the coming weeks so thats.
It's really a global effort on our part. It's also you know really finding the right place to be operating the right way that doesn't mean that you're going to have oak closing some corporate offices that you're not going to operate in 200 countries as I said thats our strength there continue to operate even more efficient there, but really consolidating some of the offices. We're the experts are.
Where we can really get more efficient go to market activities Thats, what we are doing.
Perfect all right. Thanks, I appreciate that.
Thank you.
The next question comes from Ramsey El Assal of Barclays. Please go ahead.
Hi, guys. This is Damon really on for Ramsey. Thanks for taking the question I.
I just wanted to ask on the recently announced partnership with visa on.
How much of your volume do you think could ultimately be sent through cards instead of bank accounts and paid out in cash and do you see that sort of opening up a new service potentially for for your customers.
Randy This is Raj, we look at that as just being another channel for our customers to use.
Customers will have the ability to initiate a transfer online and send it to.
Somebody is a visa debit card and.
Many many different countries around the world and.
We're going to start piloting. It later this year and roll it out more broadly next year. So it's still early stages that for US. It's another channel. We're trying to have account capabilities all over the world and and this is just another angle to that so we're pleased to have an opportunity with them and we'll we'll see how it transpires chose also how companies like visa cooperate with US. It shows also our competency where we can.
Results trends combined with our strengths and really reach out to new customer segments.
Okay.
That's great to hear and.
Maybe.
A little bit more on like on the U.S. domestic money transfer business I know you previously mentioned that.
Despite the competition from from both legs now in venmo that there's still the need for.
For cash to cash payments.
Do you see the decline sort of stabilizing in the near term or maybe a broader question too do you see that this P to P. AAP phenomenon occurring in other geographies around the world.
Yes, I would say.
On the domestic money transfer side in total last year was about 7% of our revenues the year before it was about 8% of our revenues. So it has been a gradual decline.
For the digital business as Hikmet mentioned DMT is about 20% of the digital revenues, so thats seeing more of a decline.
But.
Overall, we've taken those things into account in our outlook and we assume that the domestic business will continue to decline.
It's not very large in any other part of the world other than in the United States. So thats really where we have the most material revenue in other markets, it's still relatively small and our most of our businesses are still really cross border nature.
So I would say it's on a.
More stable basis, the digital part we did see a little bit more of a decline in the quarter than last quarter, but.
We are certainly managing managing that we see good things overall for our digital business and as I mentioned, 80%, which is cross border for our digital business is growing well over 25% in both transactions and revenue. So we feel very good about that part of the business.
All right. Thanks, guys.
The next question comes from Ashwin Shirvaikar of Citi. Please go ahead.
Hello, everyone. Thanks.
Hi, how are you how much.
Good how are you.
I'm good. Thank you thanks for asking.
I guess the question I have is I look at the last five six years.
There have been multiple transformation initiatives.
Restructurings, including Wu way put a padded question and.
And frankly dependent.
In some ways creditable.
That youre maintaining a stable.
That growth.
And stable margins, but none of these initiatives have actually.
Managed to increase.
Either of those.
Even with the benefit of the cycle I guess I'm a little bit confused with regards to again, if you could just explain to me why this is different and why this should improve margins or have been broken it.
Yes. This is different our screen as you know in the past we announced several actions, but we also have savings and use them for regulated remained before the regulatory environment upgrading our regulatory framework upgrading our technology upgrading our you know investing on diversity in dot com, but you could see already it's paying back right I mean, how strong our western Union Dot Com is other compounds are far away from the growth of we're seeing dotcom and from the business overseeing dotcom. This is different because we are also coming to margin expansion in the past have you said that you're going to.
You know do further investment in the business, where we need it and where we had to upgrade our some of the things we.
Because the regulatory environment has changed and technology does change, but this is really a different business and the commitment to our shareholders. This is really a commitment that we are going to have 100 million run rate savings and that's that's a big difference than in the previous fund as you recall ushering national we have.
We have set up a specific processes internally.
To ensure that we the savings that we've identified we are able to capture and take to the bottom line we have.
Different things in place controls in place that we are.
Driving for these savings so we feel comfortable and confident that we will be able to get these savings and then as we mentioned earlier.
As we talk over the next few weeks and at Investor Day, We do want to talk about the growth opportunities because we still see more growth opportunities and we see further efficiency opportunities beyond the scope of what we announced today so.
I would just say no definite referred to that opportunity is on that.
Got it and then the I guess a quick follow up if I can.
Hey, how are you seeing any kind of benefit than if the question is why now so are you seeing a benefit from maybe the I'd requirement that one off here.
Two of your competitors have talked about it at a major.
Major retailer any any option optionality for agent gained Israel anything like that or are you seeing king in the market.
Yes, I think this is an issue for the other competitors not for US we have the right compliance programs into place we use a lot of investment that you mentioned earlier, what's happened to the Wu way savings. It went to the compliance environment part of it part over to Dart Digital intelligence I think this is particular for for one quarter or one area for the competition to have an idea requirements. We do have our control programs you have our business model, which was really very compliant I don't see any any any changes there a form that's the first question was why now upstream.
Yeah, Yeah why not.
I mean now it's because we are coming from position of strength, we feel really very comfortable with our business.
The pricing environment is stable and this quarter was that even though there was some parts of that was mix and some us domestic price increases, but pricing environment by column.
Stable and we feel really we are acting from position of strength. We are not leaning back. We are looking forward Thats why we are doing also the investor's day to show you.
Investors and to analysts Holdup company. If you look on the along the way how the AR platform will be slimmer and more agile and more effective tool goal for new opportunities and our commitment on the savings our commitment to the shareholders for margin expansion of course, we need also revenue growth right. That's that's exactly what we are focused old is based on our two days economical view of course, you know you never know, but we feel very confident about our future.
Got it look forward to seeing in September .
Thanks, Thanks Ashwin.
The next question comes from Jim Schneider of Goldman Sachs. Please go ahead.
Good afternoon, and thanks for taking my question Hello, Hello, Jim.
Hi, I just wanted to ask on the underperformance in that in Latin America that continue to improve relatively I think last couple of quarters.
I called out a couple of countries, including Ecuador approach than some others, but I'm curious is the improvement more a statement about the market and the macro trends or is the statement about your market share within it.
I believe it's a little bit of both the economic conditions are generally good in the markets that we called out.
We also see.
Good amount of business going to Colombia, as a result of the exodus from Venezuela, So although the mark the inbound business to Colombia is also benefiting us there and so it's been a good grower for US as you mentioned Jim for.
For quite some time now and we hope to keep that going as much as we can so it's been performing well as you said.
Great and then just.
Curious some.
In terms of making the network more efficient from a delivery perspective any examples you can give us in terms of what costs might be rationalized and whether that would in any way kind of reduce the span or footprint in any way up on the on a on the receive side of your network.
Yes, we'll move through this network non analysts.
I think the what we talk to what we've announced today is really more around the head count reduction.
Throughout the Globe and then also some corporate and business offices, we are going to look at other components of our cost structure, which would include commissions and other things and that's some of what we want to lay out for you as we get to Investor day, but it does not it does not sacrifice the quality of distribution that we have around the world as it actually.
I think we're also driving for our account payout.
Jim that is going to be a big part of our distribution strategy, both funding and pay out so that along with other commission strategies. We believe have some additional opportunities would you want to talk to you about remember, Jim we announced the even the wallets further which had good results in Kenya. The Safari come all these things in a dropping money not only on the retail also in an account, but also in a wallet. It's a big competitive advantage that means that our network looks totally different than it was in the past because we are serving the new use cases with our agile platform. That's the story we want to tell you also on the September way, how we can see the opportunities for the future.
Okay. That's helpful clarification, Thank you very much.
Thanks. Thanks, Jim. The next question comes from David Togut of Evercore ISI. Please go ahead.
Thank you good afternoon.
The document side could you provide a little detail behind the 2% price increase in the quarter I thought I heard you say domestic is it all domestic or is some of it cross border and if there are any specific corridors to call out that would be helpful.
You know David.
As you know we operate in 20000 cross border corridors, and we have a domestic money transfer business, which is about 7% of our revenue and we did do some price increases there as the transactions are going I think but our competitive advantages in the cross border in the 20000 corridors. The sometimes increases prizes sometime decreases comprised decreasing prices and we've been doing that for a lot of lots of time, its a really portfolio management and we use dynamic pricing actions.
Like an airline are right and we really use of different straight to sweep corner pricing different band prices that impact to our revenue.
On this in this.
And why arent actually the last quarters last two years the environment has been very stable the pricing environment, and we mentioned that several times, yes. They are.
The pricing lift was primarily focused in North America, David Rich and the single biggest area was domestic money transfer.
If you look around the world in the other regions. There are other factors like in Asia Pacific The transaction growth Scott worse, but it doesn't have much of a revenue impact because.
Its more us mostly around the intra business there.
So most of the pricing lift was focused in North America.
Thank you that's helpful. Just a quick follow up question.
On the competitive front zoom announced an expansion to more than 30 European countries in the second quarter, how do you assess the competitive threat from the zoom is there any.
Are there any counter.
Counter actions you need to take to protect and continue to grow Europe anti F, which was particularly strong in the quarter.
Yeah, we feel very good about our long term growth opportunities in our digital business, particularly the international business.
We said that the cross border part is growing above 25%. The international part is growing even faster than that and the one differentiating factor compared to others, who are in the market is that we have most of our revenue is even today being paid out at retail locations or even though its being initiated digitally.
It's still paid out retail and so for us our growth opportunity is to go account to account and look at digital ways of sending and receiving money, which is where other people. Other companies are also trying to play. So we really believe that we're going to be able to create a a better overall global cross border digital business than anyone else. We'll have over the next few years and long term I am going to share more at the investors day, but long term I believe is that our medford coming so such a competitive advantage is that the comp is that while it is it.
The retail many companies are turning to us.
Want to use our services and it's really thinking about our surgery, giving you more color on that on September 24 hours.
But the European and hardwood has been doing very well actually and it's continued to doing well, we do have our regulatory framework. There we have our bank license there and our compliance programs and we are now in 71 countries and is just the beginning I mean into US all digital business, we have been longer time, our European and other condo is new to us on growing that fast. So we feel very comfortable with the growth rates in international environment.
Understood appreciate the helpful insight.
Thank you. Thank you David.
The next question comes from Kartik Mehta of Northcoast Research. Please go ahead.
Hey, Hickman and Raj.
Perfect acres.
Raj in the past you've talked about needing a certain type of revenue growth to get to margin expansion I understand this new.
Cost cutting will help you get to margin expansion, but this is the formula change at all.
Once you put in these efficiencies in terms of the revenue growth you need to really drive margin.
Yes, I mean, karthik, what I've tried to say in the past is that all else being equal revenue growth needed to be.
In the mid to low to mid single digit type of range to drive margin expansion here, we're focused on taking some cost out so.
In terms of margin expansion, we do believe we're going to get quite a bit over the next couple of years and we've assumed a normal level of growth I would say.
In that regard normal meeting its not two extremely high or too low at sort of low single digit type of growth needs to be there for us to get this margin expansion with the cost savings initiatives that we've announced today.
And then the additional important goals.
Yes.
And then I think on Wu way, you had talked about who were doing two things one was obviously reducing costs. The other was.
Hoping you drive revenue I think obviously the cost cutting has really gone through but as you look back at the program did help drive.
Revenue for you.
Yes, I mean, it's initially it's not that big but all the new initiative, we launched two into seven countries internationally with with Dotcom that was a lean management process behind that we wouldn't get Amazon on our network. If we wouldn't have the wuwei mindset lean management operating activities. These are all examples of which are also driving the revenue does it really is a new way of going to the market being more efficient and really.
Operating our platform to the customers that has been definitely driven by Wu way instead of it. So it's not only a program. It's really how we operate is the wu way and for that it was it's a multiyear training multiyear way of thinking differently and operating differently.
And then just one last question Raj I know you are now, giving adjusted EPS guidance I guess, if you compared that to if you had given that in the previous quarter how would it compare.
Not much has changed Patrick.
Where we're adjusting for the restructuring charges and.
M&A as well as the game just to call it out because there's so many moving pieces. So largely our outlook that we began with at the beginning of the year has stayed relatively consistent with the speed pay divestiture. We mentioned last time that that was worth about a 10 cents dilutive impact this year.
And then our tax rate is slightly higher so if you actually look at the range that we initially gave.
We're right on track with what we thought at the beginning of the year.
Okay. Thank you appreciate it.
Sure.
The next question comes from Jennifer Dougan of Suntrust. Please go ahead.
Hi, Jenny taken on for Andrew Jeffrey.
It's surgeon the gross high if you look at growth in your big four receive markets.
How does that grows compare with say the combined growth trends and all the other corridors I'm just I'm wondering if there's a meaningful disparity with faster growth outside of the farming corridors.
Four main corridors pillar to change any I'm Lou.
Yeah like if you look at you know essentially yes.
Well if you use to Mexico. For example is one of our key corridors and we had very strong growth in the U.S. to Mexico corridor.
You know obviously, we have other quarters like the middle East to India.
That are also large that are having their own issues. So you have some large corridors that are performing well be all set some large quarters that are not performing so well.
So I would say, it's a mixed bag, but theres not a clear differentiation there.
Okay. Thank you.
Sure.
The next question comes from James Friedman of Susquehanna. Please go ahead.
Hi.
Thank you Ken since we're Hannah.
Right.
Revisit the tax conversation. Thank you for those helpful comments, the generic I heard you say something about the $50 million.
Adjustments to be from the speed pace you made some comments about the trajectory for next year, where we generally in the tax journey, though it's a question we get a lot some of that.
In the tax journey.
Well this year as we mentioned we expect an 18 to 19 present tax rate and that includes a number of different moving pieces, whether you look at GAAP, our GAAP tax rate or adjusted next year. We do believe that the tax rate will be in the mid teens range. We have solved the most of the beat issue.
Going forward and so we are comfortable that we will be back down to the mid teens level next year for our tax rate.
Got it Okay. That's helpful and then.
I just was wondering.
Well, it's not that intuitive that you would have raised prices domestically.
At a time when there was seemingly some pressure on the business maybe on to oversimplify, but.
Yes.
And I just.
Mike on the on track.
No I mean domestic money transfer is not a business we've assumed that that business will continue to decline for for quite some time, because it's not a business that.
It has.
Key competitive advantages to our competitive advantages really cross border in nature, and so we are trying to maximize our cash flow in that business.
So we do a good balance we have to make sure. We are aware of what the market is like but we also want to maximize the outcome for our business and so we try to balance both factors.
That makes sense. Thank you.
Sure.
Andrew I understand there's one more question in the queue. So we'll take the final question, yes, Sir that question comes from Vasu Govil of KBW. Please go ahead.
Hi, Thanks for taking my question I guess first I had a quick follow up on that visa direct partnership that you guys find.
I understand that its opening up more channels for you, but is it also an incremental cost saving opportunity, where you can maybe complete transactions for cheaper using davita real of course is traditional means of money money.
Well, obviously I mean, you know as Raj mentioned earlier, the visa Dudek and view came together be looked at our competency. They looked at their competency you know with visa direct euro obviously.
Coming to new customer segments.
Additional customer segments, where you can drop money.
And there is linked directly to an account with visa numbers, our capability to more money 137 currencies and being visa also global brands and we.
Believed that there is additional opportunity on that to grow this business even stronger.
And I think that doesn't that shows again, our capability to offer another brand to our customers that they can move up or move money globally and easy way and then a compliant way and then the regulated way and Thats, probably the most important part on this agreement.
Got it that's helpful and I guess, just a quick one I know, we'll get more detail on the growth opportunities under this new global strategy at the Investor Day.
So we expect to get long term growth targets for revenue and margin at the Investor day as well.
Honestly, we don't really want to get into what we're going to talk about there, but we certainly want to talk about our long term growth objectives, and how we see the growth playing out and then we also want to.
I'll talk more about additional opportunities that we may have for efficiencies and.
So to give you more of the full picture there.
And just a few weeks.
Great I appreciate it thank you very much.
Thank you.
Okay. Thanks, everyone for joining us have a happy have a pleasant afternoon.
Once again the conference has concluded. Thank you find today's presentation you may now disconnect.