Novan Q2 2021 Earnings Call Transcript

Quartr
Provided by Quartr
August 4, 2021

There are 14 speakers on the call.

Operator

Good day, and welcome to the Western Union Company's 2nd Quarter 2021 Earnings Release Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note, today's event is being recorded.

Speaker 1

I would now like to turn

Operator

the conference over to Brad Wenbigler, Head of Treasury and Investor Relations. Please go ahead.

Speaker 2

Thank you. On today's call, we will discuss the company's Q2 2021 results and our financial outlook for 2021. And then we will take your questions. The slides that accompany this call and webcast can be found at westernunion.com under the Investor Relations tab and will remain available after the call. Additional operational statistics have been provided in supplemental tables with our press release.

Speaker 2

On our call today is our CEO, Hikmet Ersayk and our CFO, Raj Agarwal. Today's call is being recorded, and our comments include forward looking statements. Please refer to the cautionary language in the earnings release and in Western Union's filings with the Securities and Exchange Commission, including the 2020 Form 10 ks for additional information concerning factors that could cause actual results to differ materially from the forward looking statements. During the call, we will discuss some items that do not conform to generally accepted accounting principles. We have reconciled those items in the most comparable GAAP measures on our website, westernunion.com under the Investor Relations section.

Speaker 2

We will also discuss certain adjusted metrics. The expenses that have been excluded from adjusted are specific to certain initiatives, but may be similar to the types of expenses that the company has previously incurred and can reasonably expect to incur in the future. All statements made by Western Union officers on this call 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 will now turn the call over to our CEO, Hikmin Harsat.

Speaker 3

Thank you, Brett, and thank you all for joining us this afternoon to review our 2nd quarter results and the progress of our business. Our 2nd quarter performance was strong and we are on track to achieve our adjusted 2021 financial outlook With revenue growth reflecting sequential improvements in underlining trends and a favorable comparison to the prior year Period, which was impacted by COVID-nineteen pandemic. Profit trended as expected in the quarter As we continue to make strategic technology investment to strengthen our market leading platform and digital capabilities, Our business remains resilient despite global uncertainties related to ongoing COVID-nineteen resurgences from the Delta variant and the potential risk this poses to economic recovery. Our strategy to be a leader in cross border, cross Currency, money movement and payments serving consumers, businesses and financial institutions remains unchanged. We remain confident in our ability to exceed $1,000,000,000 of digital revenue in 2021 supported by continued strong growth in our wu.com business and our digital partnership business.

Speaker 3

The expansion of our wu.com customer base position us well As we look to build a consumer ecosystem, deepening engagement with our customers and providing them access to a wider array of products and services. We will discuss more on our consumer ecosystem strategy in just a moment. But first, I'd like to highlight Another important strategic development, which is the business solutions transaction we announced today. Today, we separately announced that We reached a definitive agreement to sell our Business Solutions business to Goldfinch Partners and to Baufas Group for $910,000,000 Small and medium sized businesses and organizations around the world rely on Western Union Business Solutions as their global payments, Foreign exchange and hedging partner and we believe that Goldfish Partners and The Balfos Group are well positioned to invest in the business to deliver good value and innovation to these clients. With the planned sale of Western Union Business Solutions, which was approximately 7% of total company revenue during the last 12 months ended June 30, 2021.

Speaker 3

Now we will be fully focused on increasing our penetration of the global cross border consumer payments market, Expanding our digital partnership business and increasing our total addressable market through our Western Union branded ecosystem strategy. The company will benefit by having a single global payments platform capable of serving multiple use cases and customer segments, including FinTech Companies like Google Pay, Telecom Companies like STC Pay and Banks and other financial institutions like Spare. This requires a modern adaptable platform that provides a strong user experience for our customers, agents and partners, And we are well on our way in this regard with significant recent progress in our cloud migration, pricing, automated marketing And customer support built on the foundation of advanced machine learning and omni channel engagement. These developments enable us to be more efficient, but most importantly improve the customer experience and identify incremental revenue opportunities. Continuing technology investment in our unique global platform remains a key area of focus for us.

Speaker 3

We also remain focused on enhancing our market leading network by improving our coverage, cost and quality. On a year to date basis, our new agent signings will expand our network by approximately 18,000 retail locations. We have also renegotiated contracts with over 50 agents year to date reflecting our commitment to optimize commissions. Finally, we continue to enhance our global account payout capabilities, which is now available in over 125 countries With real time capabilities in approximately 100 countries, over 60% of our global account payout transaction volume was delivered real time. Turning back to our consumer ecosystem strategy.

Speaker 3

We are excited about our plan to pilot To our Western Union International Bank, a WOO branded multi currency bank account, debit card and integrated money transfer solution in a couple of European countries later this year. Our initial focus will be testing and learning and then we will evaluate how we expand from there. Longer term, we see significant opportunity for our consumer ecosystem strategy. We are a trusted provider to a large unique Customer segment, the global migraine community, which has many needs beyond money transfer such as insurance, lending and travel and it's often not well Serve in the market. Western Union with its trusted brand, large and growing digital customer base and global platform is well positioned to execute on this opportunity.

Speaker 3

While we are fully focused on the implementation of our profitable growth strategy, We also remain committed to advance environmental, social and governance or ESG at Western Union. I would encourage you to read our 2020 ESG report released in June to learn more about our 2020 impact And our ESG strategy and goals, which are closely aligned to our business, our values and our purpose. Now turning back to the 2nd quarter results. We see pricing stability in the market and varying levels of recovery from The effects of the ongoing pandemic, particularly outside the U. S.

Speaker 3

Where economic activity and government policies are more mixed. This was evident in my recent market tour in Europe where agents, customers and business leaders confirmed that while local economy Our reopening and travel restrictions are being lifted. The pace of economic recovery is being impacted by labor shortages And despite in cases from the Delta variant. Fortunately, for our customers around the globe, We offer remarkable choice with our omni channel offering, with a comprehensive set of funding and payout options, so They can transfer and receive money in a way that it's most convenient for them. During the quarter, we saw continued strength in Principal per transaction or PPT with growth over 11% and cross quarter total principal growth of 29%, Benefiting from continued demand for support in receive markets and improving economic and employment trends Incent regions like the U.

Speaker 3

S. And Western Europe. Total company revenue grew 16% or 13% On a constant currency basis with underlining trends aided by continued growth in our digital business and sequential improvement in the retail business. C2C revenues and transactions each grew 15% in the quarter with C2C revenue growing 12% on a constant currency basis. Digital revenues were up from the Q1 and grew 22% year over year to over $265,000,000 with quarterly highs for revenue, transactions and principal.

Speaker 3

Digital comprised 36% of transactions and 24% of revenues for the C2C segment. As expected, we are beginning to see digital growth ease After exceptionally strong performance during the height of the COVID-nineteen pandemic, woo.com results were healthy with Transaction growth over 18%, driven by 14% growth in average monthly active users. Wu.com continued to lead Money Transfer appears in mobile app downloads by a wide margin and grew principal over 30%. Our customer engagement trends remained favorable year over year with positive trends in retention, transaction per customer and principal per customer. We continue to expand in the new markets, launching Chile and Peru in the Q2 and enhancing the customer experience With new features and tools, including the rollout of additional electronic Know Your Customer options across European Union and transaction reminders.

Speaker 3

Improving the customer experience not only supports the continued growth in westernunion.com, but also provides a growing customer base for the consumer ecosystem strategy that I mentioned earlier. Retail revenue achieved strong year over year growth cycling over the disruption from the pandemic in the prior year period and is growing sequentially. We remain focused on ramping up our partnership with Walmart in the U. S, Our domestic and international money transfers, bill payments and money order services are now available in nearly 4,700 Walmart Stores across the U. S.

Speaker 3

Trends in the Business Solutions segment continue to move in the right direction with strong improvement in the new business and stable trends in hedging and across most segment verticals.

Speaker 4

While we

Speaker 3

have announced a definitive agreement to divest Western Union Business Solutions, it will be business as usual until the transaction closes. Now overall, we are pleased with the announcement of the Western Union Business Solution today and excited For the Business Solutions management team to receive strong support from the new ownership. Additionally, with our healthy second quarter results, We are confident in our ability to execute in fluid market conditions and our strategy with our resilient retail channel, Strong growth of our digital channel, building a WOO branded ecosystem with additional products and serving multiple enterprises with our unique An agile cross border platform positions the company well for long term incremental growth opportunities. I'll now pass It over to Raj to review our financial results in more detail.

Speaker 5

Thank you, Hikmet, and good afternoon, everyone. Let me first summarize 2nd quarter performance and then I will provide more color on the Business Solutions divestiture, the planned termination of our defined benefit plan and finally, our 2021 full year outlook. Moving to the 2nd quarter results. Revenue of $1,300,000,000 increased 16% on a reported basis or 13% constant currency. Currency translation, net of the impact from hedges, benefited 2nd quarter revenues by approximately $29,000,000 compared to the prior year.

Speaker 5

In the C2C segment, revenue increased 15% on a reported basis or 12% constant currency, with transaction growth partially offset by mix. B2C transactions grew 15% for the quarter, led by 33% transaction growth in digital money transfer and supported by growth in retail money transfer, which improved sequentially, particularly in North America and Europe and CIS. In line with our expectations, The spread between C2C transactions and revenue growth moderated this quarter and was flat on a reported basis or 3 percentage points Constant currency, as we cycle through the mix impact from the high growth of digital partnership transactions, which represents a lower revenue per transaction category. We expect the spread will remain fairly tight during the remainder of the year. Globally, we continue to see pricing environment as stable.

Speaker 5

Total C2C cross border principal increased 29% on a reported basis or 25% constant currency, driven by growth in retail And digital money transfer. Total C2C principal per transaction or PPT was up 11% or 8% constant currency. Both retail and wu.com continued to experience higher average PPT due to mix and changes in consumer behavior. Digital Money Transfer revenues, which include woo.com and Digital Partnerships, increased 22% on a reported basis or 19% constant currency. Wii.comrevenuegrew18 percent or 15% constant currency on transaction growth of 18%.

Speaker 5

Wu.com cross border revenue was up 23% in the quarter. Digital partnerships continued to show strong growth across revenue, transactions and principal in the quarter. Trends in our digital business moderated somewhat as expected from the exceptional growth we experienced from the Q2 onward last As demand for our digital services grew significantly, adding incremental revenue, profit and transactions to our business. While we expect this moderating trend will continue the remainder of this year, we are now growing off a much larger base. Moving to the regional results.

Speaker 5

North America revenue increased 4% on both a reported and constant currency basis on transaction growth of 3%. The increase in constant currency revenue and transaction growth was driven by U. S. Outbound, partially offset by current U. S.

Speaker 5

Regulations in Cuba that limit our ability to operate and declines in U. S. Domestic money transfer. U. S.

Speaker 5

Domestic money transfer represented approximately 4% Total C2C revenue in the quarter. Revenue in the Europe and CIS region increased 18% on a reported basis or 10% Constant currency on transaction growth of 26%. Constant currency revenue growth was led by the United Kingdom, France and Russia with the spread between transaction and constant currency revenue growth driven by the digital partnership business in Russia. Revenue in the Middle East, Africa and South Asia regions increased 19% on a reported basis or 18% Currency, while transactions grew 22%. The digital partnership business in Saudi Arabia led constant currency revenue growth in the quarter, followed by Kuwait and Qatar.

Speaker 5

The impact of the digital partnership business on the spread between transaction and constant currency revenue growth diminished in the quarter, but was still the primary contributor. Revenue growth in the Latin America and Caribbean region was up 70% or 68% constant currency on transaction growth of 42%. Constant currency revenue growth was broad based across the region led by Chile, Ecuador and Mexico. Much higher average principal amounts resulted in constant currency revenue growth, greatly exceeding transaction growth in the quarter. Revenue in the APAC region increased 20% on a reported basis or 13% constant currency, led by the Philippines and Australia.

Speaker 5

Transactions increased 3%, with the Philippines driving the difference between constant currency revenue and transaction growth. Business Solutions revenue increased 25% on a reported basis or 16% constant currency, benefiting from favorable comparisons to prior year. Revenue trends remained on a positive course with the continuing recovery in cross border trade. The segment represented 8% of company revenues in the quarter. Other revenues represented 5% of total company revenues and increased 8% in the quarter.

Speaker 5

Other revenues primarily consist of retail bill payments in the U. S. Operating margin was 20.2% in the quarter compared to 20.4% in the prior year period. Adjusted operating margin excludes M and A expenses in both the current and prior year period and last year's restructuring expenses. The decrease in consolidated operating margin continues to reflect how COVID-nineteen impacted the level and timing of certain expenses and investments as the company curtailed spending last year.

Speaker 5

Compensation related expenses and strategic investments in marketing and technology were the primary contributors to the slight margin decrease in the quarter. Foreign exchange hedges had a negative impact of $2,000,000 on operating profit in the current quarter and a benefit of $7,000,000 in the prior year period. Moving to segment margins. Note that M and A expenses are included in other operating margins for both the current and prior year period, and Segment margins exclude last year's restructuring charges. B2C operating margin was 20.7% compared to 21.8% in the prior year period.

Speaker 5

Given that our C2C segment comprises most of total company operating income, the decrease in operating margin was driven by the same factors that impacted total company margin. Business Solutions operating margin was 10.9% in the quarter compared to 1.6% in the prior year period. The increase in operating margin was largely due to increased revenue, partially offset by increased compensation related expenses. Other operating margin was 16.2% compared to 21.9% in the prior year period, with the decrease driven by higher M and A expenses related to the divestiture of Western Union Business Solutions announced today. The GAAP effective tax rate in the quarter was 14.5% compared to 16.2% in the prior year period, while the adjusted effective tax rate in the quarter was 14.2% compared to 15.7% in the prior year period.

Speaker 5

The decrease in the company's GAAP and adjusted effective tax rate was due to changes in pre tax earnings, including differences and the composition between high tax and low tax jurisdictions. GAAP earnings per share or EPS was $0.54 in the quarter compared to $0.39 in the prior year period, while adjusted EPS was $0.48 in the quarter compared to $0.41 in the prior year period. The increase in GAAP EPS reflects benefits of revenue growth, the gain on an investment sale and a lower effective tax Partially offset by debt retirement expenses, compensation related expenses and strategic investments in marketing and technology. Both the gain on an investment sale and the debt retirement expenses are excluded from adjusted EPS, in addition to the expenses we noted earlier during the operating margin discussion. The net impact of these two items was a $0.07 benefit to GAAP EPS in the quarter.

Speaker 5

Turning to our cash flow and balance sheet. Year to date cash flow from operating activities was $349,000,000 Capital expenditures in the quarter were approximately $48,000,000 At the end of the quarter, we had cash of $1,100,000,000 and debt of $3,000,000,000 We returned $171,000,000 to shareholders in the 2nd quarter, consisting of $96,000,000 in dividends and $75,000,000 The outstanding share count at quarter end was 407,000,000 shares, and We had $633,000,000 remaining under our share repurchase authorization, which expires in December of this year. As Hikmet highlighted previously, today we announced the divestiture of Western Union Business Solutions. The sales price of $910,000,000 is expected to generate in Our net proceeds estimate is based on current tax policy and is subject to certain regulatory and working capital adjustments. The transaction is expected to close in 2 stages with the majority of the business and the entire proceeds transferring in early 2022 and the European business transferring by late 2022.

Speaker 5

Both closings are subject to requisite work consultations, regulatory approvals and other customary closing conditions. Following the transaction, we will evaluate options for the use of proceeds based on market conditions and opportunities and in accordance with our established capital allocation priorities, which include reinvestment in the business to drive organic growth, dividends, acquisitions including technological capabilities that support our growth strategy and share repurchases. As a reference point, during the last 12 months ended June 30, 2021, the Business Solutions segment generated Revenue, EBITDA and operating profit of $374,000,000 $64,000,000 $33,000,000 respectively. Turning to our outlook for 2021, the outlook we provided today assumes moderate improvement in macroeconomic conditions As the quarters progress, in line with current prevailing macroeconomic forecasts, with no material changes related to the COVID-nineteen pandemic, We reaffirmed our expectations for revenue growth, including our expectation that the digital business will achieve over $1,000,000,000 in revenue this year. We also affirmed our remaining metrics on an adjusted basis, while updating our full year GAAP financial outlook for pension plan termination expenses and M and A costs related to the sale of the Business Solutions business.

Speaker 5

The pension plan termination is expected to accelerate the recognition of approximately $110,000,000 of non cash expenses on a pre tax basis, Lowering GAAP EPS by approximately $0.22 in the 4th quarter and will be recorded to other expense in the P and L. With our plan overfunded by more than $35,000,000 as of June 30, we believe it is a good time to transition the plan to an annuity provider. We continue to expect full year 2021 revenues will grow mid to high single digits on a GAAP basis or mid single digits on a constant currency basis, which also excludes the impact of Argentina inflation. GAAP operating margin is expected to be approximately 21% And adjusted operating margin is expected to be approximately 21.5 percent with the difference attributable to M and A costs. We anticipate our effective tax rate will be in the mid teens range on a GAAP and adjusted basis.

Speaker 5

GAAP EPS for the year is now expected to be in a range of $1.82 to $1.92 which now reflects the impact of pension plan termination expenses and M and A costs. Adjusted EPS is still expected to be in a range of $2 to 2 point Let me provide some context for how we think the results may progress over the remaining quarters. Starting with revenue, our underlying For revenue progression includes moderate improvement in the global macroeconomic environment, in line with the current prevailing economic forecast. However, as Hikmet discussed earlier, global uncertainties remain, especially related to the emergence of the Delta variant and the potential risks this This is a broader economic recovery. As the quarters progress, we expect moderate improvement in our business similar to the current prevailing economic forecast.

Speaker 5

Although overall company growth rates will be lower than we have seen in the Q2 due to the grower impacts from last year. We continue to expect to generate over $1,000,000,000 in digital revenue this year, along with a relatively stable retail business. Lastly, we expect that the Business Solutions and other segments will continue to rebound this year as global macroeconomic conditions improve. With respect to margins, we expect the margin for the second half of the year will be above our full year adjusted margin outlook of approximately 21.5%, primarily driven by expected higher revenue levels. To wrap up, we delivered a solid second quarter performance and are on track to achieve our financial outlook for the year.

Speaker 5

With the planned divestiture of the Business Solutions business, we are also sharpening our focus on the strategy that Hikmet laid out. Thank you for joining our call today. And operator, we are now ready to take questions.

Operator

Thank you. We will now begin the question and answer session. Today's first question comes from Darrin Peller at Wolfe Research.

Speaker 6

Congrats by the way on the sale of The Business Solutions business for, I think it looks like enabling you guys to really aligns to what you want to on your core C2C side.

Speaker 7

Thanks. Thanks, Eric.

Speaker 1

When we look at the

Speaker 6

C2C side of the business though, the transactions on a stack growth rate When we're trying to figure out the dynamics, especially as you know the spread narrowing now as well, I mean, was it as simple as saying like digital obviously continued to grow well? And do you see that being sustainable from here if we do get into more reopening? And then just give us a reminder of where we are on the retail correction. I guess the retail preopening Where we are versus where you think you can get to by the end of the year?

Speaker 8

Yes. Let me give overall The sense of the business, first of all, we are really happy with the performance of the business. Digital expansion is really Doing very well. Also retention rates are extremely high. The customers are using.

Speaker 8

Now we are in 75 countries with our westernunion. And additional on that, we also have our white label business, enterprise partnerships, which brings us to exceed $1,000,000,000 by year end and we really like that. We already have $500,000,000 achieved and We believe that's going to continue. And if you look at that from a what base, right, especially if you compare that with competition, we are really growing very strong From a huge base here. So I am pleased on that.

Speaker 8

And retail is coming back, especially in places where retail is open, where they are digging out the Volatility due to coronavirus is less. It's really doing well. Outbound business is doing very well. It's coming back. So that's also stable.

Speaker 8

The stability of the retail, the resilience of the retail business, adding on that on the digital business, it's really good news here we have here. And then also the dotcombusiness gives us the ability to return customers, have that customer relationship. We have about 9,000,000 customers now With only dotcombusiness, that gives us really that great base for our ecosystem strategy And the customer loyalty is increasing here and really allows us to offer additional products to our Westernunion.com customers in the future and the test, as you saw, starts this year in Euro EBITDA, Western Union Bank. You want to add something on that?

Speaker 7

Yes. Jaron, on your question around the spread, it is generally as simple as we are growing over some of the really fast growth from our digital partnership, digital white label business, which was the key driver of the wider spreads over the So, we had expected that it would narrow. I do think that it's going to continue to be narrow the rest of the year because of that impact. And I think the in terms of where is retail, the way we think about it is, if you look at the total C2C business This Q2 compared to the Q2 of 2019, we're slightly ahead of where we were. We're about a point ahead in total of where the overall consumer business is.

Speaker 7

Obviously, the business has shifted dramatically over that period of time. Now in the Q2, we have digital is about 24% of consumer revenues. And back in the Q2 of 2019, it was only about mid teens. So we've had a significant shift in the business, if you will. And I think that's a really good story for us going forward where the consumer This is more digitally heavily oriented and provides a good growth profile going forward.

Speaker 6

That's really helpful. It's a big data point, I think, that from a readout, the REIT side is actually a little bit of the 2019 level now from a National standpoint, which I guess underscores the digital side is holding up and helping your growth profile. But one quick one is just when we look at The investments and the progress you've made on the who.com number of the 9,000,000 users, can we just touch on engagement levels In terms of where they are now versus where they've been in years past, how many transactions you see for those kinds of users versus the retail side and what that can become in terms of monetization? Thanks again. Yes.

Speaker 8

I think on the restine. Retention levels are really increasing in the countries we've been longer. The customers are using us more and more Once they open an account, as you know, the big difference between retail money transfer and westernunion.commoneytransfer is that you have to Have you know your customer, you have to register at versedean.com. And biggest advantage we recently did also that helps a lot is the Electronics KYC, the customers don't have to go to a location to pre register in many countries. That's huge Step to get more customers and have them really low.

Speaker 8

And one thing also changed recently is that the PPT is higher. The principal transaction with the customers, we do see that we acquire new customer segments here with higher EPPP. And Additional to that, as you know, most of the transactions are paid out on our locations, our retail locations globally. We have In 200 countries, 550,000 locations, they paid out in cash. But the new customers are also pay want to Send money to an account.

Speaker 8

In fact, this business is growing very strong. We are really gaining your market share And it's on the $200,000,000 business almost now.

Speaker 7

Account to account, pure account to account is on our Annual run rate of $200,000,000

Speaker 8

$200,000,000 annual run rate business. So you could see we are really adding new customers. And the customers, To your question, yes, the retention is high. The revenues are coming from the customers who have been already here. But don't forget also we are in 75 countries.

Speaker 8

We are sending money from 75 countries. We recently opened new countries and they are also adding to our success on digital growth.

Speaker 7

Right. That's great. All right. Thanks guys.

Speaker 8

Thank you. Thanks, Darren. Thanks, Darren.

Operator

And our next question today comes from Tianjin Huang with JPMorgan. Please go ahead.

Speaker 4

Excellent. Hi, Pinching. Good afternoon here. Hey Hikmet, good afternoon. Good to connect as always.

Speaker 4

Just I totally understand the focus in selling business solutions. But Hikmet, I just wanted to clarify the strategy. Is the idea to focus more on consumer based payments as alluded to with the consumer ecosystem strategy or It's still servicing businesses with money movement as stated in your strategy statement here. Is that still On the table, I just wanted to clarify that point.

Speaker 8

So great question, Tien Tsin, on that. First of all, our Has not changed, right? Being a leader on the cross border, cross currency money transfer, serving multiple use cases, it's really Big advantage of Western Union. And to do so, we heavily invest in our 1 platform strategy, right, one unique platform which serves multiple use cases. As you look at our platform, the investment we did in the technology, the automation, the cloud based systems, transaction processing systems, Which have been really a huge advantage for us and its continued investments there, serves multiple use cases, C2B, B2C, B2C, C2C, all these cases are going to continue to expand and that Our white label expansion is going to continue to happen.

Speaker 8

As I mentioned earlier, we do have customers like technology customers like Google Pay And that's going to continue to happen. Retailers like Amazon, that's going to continue to happen and we have strategy to And then we have mobile telephone companies, telephone companies like SEC Pay. So their customers are also businesses. And most importantly, we do have 4 financial institutions. As you know, we are serving with our white labeling also about more than 40 financial institutions globally white labeling our system and the big To you know the biggest, you know that we have a very successful business with Spur in Russia.

Speaker 8

That continued to happen. So our strategy is, And if I summarize that, teaching for serving our customers, existing That tech company with our unique platform. That has not changed and that's a very successful, Serge, I believe.

Speaker 4

Yes. Okay, understood. I just wanted to clarify.

Speaker 8

And by the way, Tien Tsin, remember in 2019, our Investors Day, I showed also B2B and B2C segment is a $2,000,000,000,000 market opportunity, right? And that focus continue to happen.

Speaker 4

Okay. Yes, that's what got me thinking about it. Thank you for that clarification because I do go back to the Investor Day quite often. So Thanks for that. My quick follow-up, if you don't mind, just with retail getting better, it was good to see that.

Speaker 4

I have to ask on the Walmart side, how If you can comment, how is that performing relative to your expectations? Any surprises there?

Speaker 8

No surprises, Tien Tsin. We are rolling out now we did roll out, sorry, we did roll With all our products in 4,700 locations, we have not only money transfer, domestic money transfer, international money transfer. We also rolled out the bill payments products And at the Walmart locations, it's ramping up. And the frontline associates are aware. The customers are aware.

Speaker 8

I think we see now a good ramp up at the Walmart locations with Western Union transactions. We like it.

Operator

And our next question comes from Jason Kupferberg with Bank of America.

Speaker 9

Please go ahead.

Speaker 10

Thanks guys. Good afternoon. Since you brought up the investor debate, I'll ask you one just going back to that, which I know was 6 So before the start of the pandemic, I think back then you had talked about a multi year revenue CAGR target of 2% to 3% for the C2C business. And Obviously, there's been a mix shift to digital that's been accelerated further due to the pandemic. So just wondering how you would figure now as

Speaker 8

Well, first of all, great question. Obviously, Pandemic, as you said, Jason, had some impact to our forecast, obviously, but only timing wise. I think we are well underway to executing our strategy As we presented at the Investors Day and we are really expanding not only with the senior branded products So with white labeling and offering our platform to 3rd parties has been a good strategy and our digital growth As we outlined at the Investors Day, it's really in the good path. COVID-nineteen and the pandemic definitely Helped us also to gain new customer segments with higher principal numbers in digital. It had but we were ready.

Speaker 8

We were already ready to serve this kind of Customers, they want us to send money to their loved ones. One thing that has not changed is that customers want to support their loved ones in good and bad times, In good times and challenging times and that resilience of our business and using the omni channel capabilities which Western Union offers From the send side, also from the receive side, it's unique and that has not changed on the consumer business. Also on our businesses like offering to financial institutions to FI, it's a big focus within the company. As you know, we have been investing in our platform, technology platform significant investments. We have now one example is that Technology investment give us the capabilities really serving our platform to banks And to financial institutions, getting easy connections to them, really kind of going after the Headaches of correspondent banking.

Speaker 8

As you know, the correspondent banking is sending money from one account to another account, especially when it comes to exotic currencies from the emerging countries. It's painful, but our unique platform can really serve that. So that's all been outlined at our Investors Day And I'm pleased with that. Maybe the biggest another advantage we didn't talk too much at the Investor But recently we started to talk about our ecosystem. It's unique.

Speaker 8

Our platform, westernunion.com Capability really gives us a unique platform that we can offer additional products like credit cards, like Debit cards like loans, like insurance, even like travel, all this building that ecosystem and there is no other company who can talk To those unique customers like we can talk to global migrant community and examples like in the UK, We are not talking to the Albanian customer in English or in their British way. We are really talking with their way I understand that this loyalty, this brand awareness is huge and that gives us really a basis of building additional products.

Speaker 10

Okay. Well, thank you. That's a comprehensive answer. I appreciate it. Raj, I know you mentioned there's over $600,000,000 left on Authorization, I think you've spent just about $75,000,000 in the second quarter.

Speaker 10

Do you expect to use it use up the rest of the authorization by the time it expires at the end of the year?

Speaker 7

No, we don't, Jason. That would be a lot of share repurchase for this year. Yes, but we do plan to continue to be active. I would expect that we're going to re up an authorization after this year is over, Just to continue to be active and then obviously we have the sale of Business Solutions which will close the first close will be early next year And so we'll have a view on how we're going to deploy those proceeds. And so all of that will play a factor In terms of the share repurchase amounts, but we're very pleased with the cash flow generation the business has had And we are paying healthy dividends and buying back stock as we have historically.

Speaker 10

Yes. I was just wondering about The second half would be tougher than the second quarter just given the fallback in the stock.

Speaker 7

Yes. I mean, look, We don't have an exact forecast to give you on how much stock buyback, but we're always going to be nimble on that depending on the market conditions and Other factors, but that's the current plan.

Speaker 10

Okay. Thank you, guys. Appreciate it.

Speaker 11

Thanks. Thank you.

Operator

Thank you. And everyone in the interest of time and allowing as many people to ask questions as possible, we would ask that you please limit yourself to one question going forward. Today's next question comes from James Faucette with Morgan Stanley. Please go ahead.

Speaker 11

Great. Thank you very much. I'm wondering if I know that you're moving gradually to drop the WU Banking services in Europe, but I'm wondering if you can kind of give us an outline Of what we should expect around that, what you think the opportunities are and kind of the key milestones that we should be keeping track of Q4 and what time frame? Just trying to get some more color on that initiative.

Speaker 8

Yes. First of all, We believe it's extremely exciting, this opportunity, because what we have maybe is a big Competitive advantage is that we are really starting with brand awareness, customer relationship already and really having And by the way, given this having a European Union Bank license And having offering financial services, we really start from a very good base actually to offer our services. We will start to test that in 2 countries, in Europe now. And I would say that internally we looked at that. I would say that no Neurobank has been launching so far the product like we have done it And we will do it.

Speaker 8

And I am very proud what team has done it and I am very excited about that. Obviously, when time comes, we will kind of give you More details about that, what the metrics will be, but I am excited. And customers also told us that they want to Have additional products from Western Union. They want to get a better service and they trust our brand.

Speaker 7

Yes. And James, I would just add that Depending on the outcome of this test, we'll be ready to go in more markets and expand further as appropriate. So I think the beauty of our business is the send and receive dynamics that we'll be testing out between the ascending market and a receiving market as part of this test. So it's We are excited about what it can be.

Operator

Thank you. Our next question today comes from Ramsey El Assal with Barclays. Please go ahead.

Speaker 12

Hi. This is Ben on for Ramsey. Thanks so much for taking my question. I wanted to ask about the continuing pace of your digital revenue growth. It looked like the sequential step up in revenues was quite a bit bigger in this quarter, 2Q versus 1Q than it had been in previous quarters.

Speaker 12

Does that look like that's on To continue or should it kind of grow a little bit more moderately because it looks like you're already kind of nicely on track to hit like at least $1,000,000,000 a year. So I just wanted to get a better sense of what we should expect in the

Speaker 7

Yes, I mean that's our outlook. Our outlook is to grow at least $1,000,000,000 and You're right in the mark. I mean, we got really good sequential improvement in the Q2 and that was with both wu.com as well as our digital white label business that make up this digital business for the first half of the year were over $500,000,000 and We're well on pace to exceed that. And so we feel very good about it. I won't give you specific Numbers behind what's going to happen in the second half, but we should hit at least $500,000,000 in the second half, if not more.

Speaker 12

Okay. That's helpful. And if I could just ask kind of one follow-up just on the digital side as well. It looks just from our math like the pricing on digital has kind of stabilized a little bit in the last couple of quarters. Is that is there any possibility that could go up?

Speaker 12

I mean, are you perhaps lapping some introductory pricing that's going to as you go past it pricing can come up a little bit? Or is a stabilization kind of the way to think

Speaker 7

Yes. I would say that pricing overall is quite stable in the market and But we always are moving pricing up and down in our 20,000 corridors in all of our channels. So it's never static in nature. So what you're seeing from a year over year standpoint is that we are beginning to grow over some of the price changes we made in the wu.com business for customer acquisition last And so we see this quite stable, but we're always going to be nimble on what is it that's going to drive the best Customer acquisition and the best customer adoption and that's really what's going to drive the long term health of this business, not just what is the price in this That quarter, it really is about getting lifetime value of customers. And one thing I would just add, or a couple of things is the dynamic pricing capabilities that we have We have really started to gain some traction and we're not even done with that opportunity yet.

Speaker 7

So whether it's retail or digital, The dynamic pricing capabilities, we continue to add to our technical capabilities and that team is doing an amazing job in Capturing additional opportunities there. And then the account to account part of the business also is quite interesting. That's at a lower yield typically. However, we're getting about $200,000,000 of annual revenue run rate In the pure account to account business within digital, so that's sort of a hidden gem, if you will, on the purely digital part of our business. It's not something that we Spoken about before, but it's quite interesting and quite attractive and that is the fastest growing part of our digital business.

Speaker 12

Okay. Very helpful and interesting. Thank you so much for taking my questions.

Operator

And our next question today comes from Andrew Jeffrey with Truist Securities.

Speaker 10

I'm Curious about the Western Union branded ecosystem strategy and how you think about sort of Timing, obviously, there are some digital competitors in the market, one in particular to London that has So I just wonder, the brand is an important advantage. I wonder about whether or not you feel like you're Maybe behind the curve a little bit competitive and how you're going to balance the commitment to shareholders and free cash flow with the investments required to grow that business.

Speaker 8

Well, first of all, obviously, we wouldn't start such an exciting project if you wouldn't be very motivated about that. And we have, as I mentioned earlier, we have all the bases and all the regulatory environment to start this ecosystem Project, it's really a long term opportunity. It's very exciting opportunity to have the customers level for a long time for Different kind of with different products what they need. The investment is really low investment. We have the basis.

Speaker 8

We don't have to Sounds like a major bank or all the banks from 0. We don't need the investments. As you know, we've been as a With lower investment requirements than others would have it here and that gives us a base and our bank which is based in Europe Allows us also to run that in a way that others maybe have some challenges. And That's so I don't see big investments. We will invest, of course, but not that means that we will have to change Our guidance suddenly or something like that, we are very pleased with the opportunity.

Speaker 8

Yes.

Speaker 7

I would just say that the advantage we have is that we already operate everywhere in the world. So it's about adding additional capabilities. That's why we think we're uniquely positioned to be able to take advantage Of our 9,000,000 consumers that are on wu.com and give them additional products and services. So yes, there's investment, but It's really within our outlook certainly this year. And if it drives additional revenue growth, that's the real beauty of what we're trying to create here.

Speaker 8

I think that the question comes up because it's something new as we spoke a little bit in the Investor Day. But I can tell you that we are going to give you more color Over the coming quarters and years because this is really exciting and so we can really build to tell the story even more in detail.

Speaker 10

Thanks, Sven.

Speaker 8

Thank you.

Operator

And our next question comes from Vasu Govil with KBW. Please go ahead.

Speaker 9

Hi, thanks for taking my question. I guess I wanted to go back to the last Investor Day as well. And I know you guys had talked about A 23% margin goal by 2022, and I know a lot has changed since then. But now with this The best of the business solutions segment, at least a part of that is expected in the first part of the year. Is that potentially a goal On the table now, if you could comment on that.

Speaker 9

And then if you could also just talk about how we should be modeling the business solutions divestiture, because I know it's getting done in 2

Speaker 7

Hi, Vasant. This is Raj. Let me try to answer both

Speaker 5

of your

Speaker 7

questions. On the Original targets that we set in 2019, I think you've sort of answered your own question, which is a lot has changed since then. We certainly had Objectives of expanding margins by 300 basis points and the key driver behind that were our cost savings initiatives of $150,000,000 which we are very much on track to achieve. So we will get to $150,000,000 of run rate savings next year, which itself was the primary driver of the margin expansion. In addition to that, we needed 2% to 3% revenue growth Each of the following 3 years, which obviously we didn't get because of COVID.

Speaker 7

So we really have to reassess where we are. I would say one thing that the model hasn't changed. So our cost structure is still 40% to 45% fixed and our variable Costs are 55% to 60%. So as we get revenue growth, it gives us a lot of flexibility to not only think about margins, but also to invest back in the business. So, if we can get back on track and you've seen and you've heard some of the commentary around the mix shift of the business, we're now almost about 24% of our Consumer revenues are digital.

Speaker 7

It really gives us a potentially a different growth profile going forward. So we're very excited about that. And then on your second question related So Western Union Business Solutions, no real impact this year because the first transaction first part of the closing won't happen until early part of next year. We have called out the M and A costs that are related to the Woods divestiture, but other than that, nothing else really changes. The P and L will still reflect the business.

Speaker 7

Next year as we get into the 1st closing, we will start to show you the impacts of business solutions on a pro form a basis. And we did give you Some data points that you can use just as a some data points. The last 12 months, the business generated about $374,000,000 of revenue, about $64,000,000 of EBITDA and about $33,000,000 of operating income. So I just need to give you a sense of what the business has looked like for the last 12 months.

Speaker 9

Thank you very much.

Speaker 5

Sure.

Operator

And our next question today comes from Jeff Cantwell of Guggenheim Securities. Please go ahead.

Speaker 1

Hi, how are you? Congrats on the results guys. Mine is a follow-up to earlier questions that you're being asked. I wanted to ask you, can you talk some more about your digital business? We see you're reaching a new hyper revenue and that's Slide 8, you show wu.com.

Speaker 1

Percival growth is up 37%. M and A was up 14%. And we can see the data on your app This has been pretty strong over the past few quarters. So the digital results stood out to us and you know, you're lapping the height of the pandemic Good to see some continued expansion there. So maybe, is there anything more you can share that stood out about right now as far as your ability to attract new customers, Maybe about the growth you're seeing with your existing customers and whether there's any pockets where Wu is expanding Geographically, just hoping to get any further kind of granularity and so forth.

Speaker 1

And then maybe could you talk more about the opportunities that you're seeing in digital right now as you're

Speaker 7

Yes. I mean that's if you have a couple of hours later, Jeff, we'll have to talk to you. But we're very let just try to summarize. We're very excited about the digital opportunity. The growth rates are not really reflective of what the business is Because we're growing off of a much larger base, whether you're talking about customers or revenue from last year, and 14% growth in MAUs is still Very good on a much larger base, if you will.

Speaker 7

So very pleased with that. We do think that the digital business in total has a lot of great growth opportunities ahead of it. Obviously, we're doing a lot of things in whoo.com, improving features and functionality, which drives better retention. We're also continuing to acquire more customers and then we're And then we have a heavy focus on distribution, so more mobile funding, more mobile payout, more account funding, account payout in more geographies. We

Speaker 8

And maybe you can also mention the app downloads by phone. Yes.

Speaker 7

Yes. The app downloads, as we said in our press release and commentary, is still number 1 app download by far And then on the digital partnership side, we have a pipeline of partners that are coming. You will see some more that are activated this year. And then we have that's a long term growth opportunity. Not all the partners on the digital side need to be like Saudi Telecom or Sberbank, which has really far exceeded our But if we can get a partner or 2 in every market in 200 countries, that becomes a really big opportunity for us Long term.

Speaker 7

So we are very pleased and we can certainly talk more offline if you would like about just generally how we feel about the business.

Speaker 1

Okay, great. Thank you.

Speaker 7

Sure.

Operator

And ladies and gentlemen, our final question today comes from Jamie Friedman with Susquehanna. Please go ahead.

Speaker 13

Hi. Let me echo the congratulations on the results and the transaction. If you were to map Slide 8, which Jeff was just referencing over To Slide 11, like the geographic footprint, what would that look like? Are there any call outs or characteristics on that? Like what does the geographic footprint of woo.com specifically look like?

Speaker 8

On who.com, obviously, we are very much focused on we have in 75 countries and we are very much focused on the scent countries because by nature, who. Is a sent agent, right? We happen to own it and it's us what we are doing. That's the 9,000,000 customers sending money to the loved ones to 200 countries. Most of the transactions are due to happen in North America and in Europe, European Union And recently very strong growth also in the Gulf states with our WU.com transaction to sending From 75 countries.

Speaker 8

But we recently also saw that some receiving countries, traditional receiving countries started to Send money also certain customer segments with a higher band. There are different customer segments really supporting like Their children, cross border or doing medical payments, doing really biobastunion.com And this kind of transactions are really driving the growth of Combusiness. And Reginald, maybe you want to add something? Yes.

Speaker 7

Let me see if I can also answer part of your question, Jamie. The heaviest concentration of the digital business from a geographic standpoint We'll be in North America and Europe and CIS. The next two probably are Middle East and Asia Pacific, Because we've seen some good concentration there. I would say the part of our business that is least leveraged on digital is Latin America. And that's why you actually saw Some significant growth rates in Latin America because it was more heavily impacted negatively last year because it didn't really have a digital business to mitigate some of the decline.

Speaker 7

And this year in the Q2, you see the big pop upward, because there's no digital business there really to speak of. And so The Chile and Peru launches for wu.com this year and this quarter are going to be important components as we keep building that digital business in Latin America. So There continues to be opportunity around the world to keep going from a geographic expansion standpoint.

Speaker 13

Got it. Thank you very much.

Operator

Thank you. Ladies and gentlemen, this concludes today's question and answer session and today's conference call. We thank you all for ending today's presentation. You may now disconnect your lines and have a wonderful day.

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Novan Q2 2021
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