Matt Cagwin
Chief Financial Officer at Western Union
Thank you, Devin, and good afternoon, everyone. I'm pleased to be here with you today to walk through our fourth quarter results and our 2023 financial outlook. Information for the full year results can be found on our -- in our press release and the attached financial schedules.
Fourth quarter results were in line with our expectations and our 2022 adjusted full year financial outlook, although well below what we believed to be our long-term potential. Overall, 2022 was a challenging year with the start of the conflict between Russia and the Ukraine, the increase in macroeconomic uncertainty given high inflation, rising interest rates, and a slowing global economy. We also announced the migration of two key retail European agents, the first of which took effect in Q4. While headwinds will continue into 2023, we are confident that we can move the needle in the right direction as we can continue to lay the building blocks for our Evolve 2025 strategy. We'll go through our 2023 outlook in more detail shortly.
Before I do that, let's move into the fourth quarter results. Fourth quarter adjusted revenue was down 6% to $1.1 billion. The suspension of our operations in Russia-Belarus impacted revenue by 3%. Q4 included a number of dynamics, including the net impact of promotional pricing activities and the loss of a European agent, which negatively impacted our revenue by 2% in the quarter and was partially offset by the growth of other and a 1% benefit from Argentina inflation. Adjusted operating margins was 15.8% in the quarter compared to 24.9% last year, which was positively impacted by 60 basis points from the inclusion of Business Solutions last year. Full year operating margin was 20.4% landing in the midpoint of our range of our outlook.
As Devin highlighted earlier, we accelerated investment in the quarter, supporting our Evolve 2025 strategy including the expansion of our financial ecosystem, the implementation and scaling of our new go-to-market Branded Digital strategy, and the design and build of our new point-of-sale system. The decrease in fourth quarter operating margin was driven by lower revenue, the rollout of our new Branded Digital strategy as well as the increase in technology investments. The adjusted effective tax rate in the quarter was 14.7% compared to 12.1% in the prior year period. The increase in adjusted effective tax rate was primarily due to discrete tax benefits in the prior year period.
Now, moving on to adjusted EPS, which was $0.32 in the quarter compared to $0.64 in the prior year period. The decrease in adjusted EPS was primarily driven by lower operating profits, a $0.05 negative impact of currency, a higher effective tax rate partially offset by lower share count. Additionally, in the prior year period, Business Solutions and operations in Russia-Belarus contributed $0.08 and $0.06, respectively.
Now, turning to our C2C segment. Revenue decreased 9% on a constant currency basis driven by softness in our retail business and promotional activities related to our new Branded Digital go-to-market strategy. Transactions in our C2C segment declined 12% in the quarter. Russia-Belarus negatively impacted revenue and transactions by 3 percentage points and 9 percentage points, respectively. When you look at our Branded Digital business, revenue declined 6% on a constant currency basis. In contrast, transactions grew 2% by our new go-to-market strategy, which was launched in the U.S. during the third quarter. Earlier, Devin spoke about how our strategy drove a 30% growth in new U.S. outbound Branded Digital customers in the quarter and reversed the decelerating transaction trend that we had seen in the business for a number of quarters. And in the fourth quarter, global new Branded Digital customers grew approximately 14%.
Now, moving on to the regional results. In the fourth quarter, North America continued to decrease 7% while transactions declined 2%. The U.S. domestic business and the U.S. outbound business to Russia continued to be a drag on our results. While revenue was also adversely affected by 4% from the promotional price activity in the quarter as discussed earlier, we were pleased by the continued momentum that we saw in our new U.S. outbound Branded Digital customers. We saw a 3 percentage point transaction growth in North America Branded Digital business, which was a 600 basis point improvement versus Q3, which we believe is another proof point that our strategy is moving in the right direction.
Revenue in Europe and CIS region was down 17% on a constant currency basis with transaction declines of 31%. Russia and Belarus adversely impacted adjusted revenue by 8 percentage points and transactions by 26 percentage points. The region continues to face difficult macro backdrop, competitive pressures and was impacted by the loss of a key retail agent during the quarter. Even with the agent loss, revenue trends improved in the fourth quarter versus the first half of the year, excluding the impact of Russia and Belarus.
Revenue in the Middle East, Africa, South Asia region 7% on a constant currency basis while transactions decreased 5%. Softness in retail and digital white-label businesses were partially offset by growth in our Branded Digital business. Revenue growth in Latin America and Caribbean regions accelerated and was up 13% in the quarter on a constant currency basis with transaction growth of 8%. The solid performance in the quarter was led by strength in Ecuador, Venezuela, and Nicaragua. And finally, revenue in APAC region was down 14% on a constant currency basis with transaction declines of 12% due to softness in Australia, Japan, and Korea.
Now, turning to other revenue, which primarily consists of retail bill payments in Argentina and the United States, and retail money orders in the U.S., which represents 7% of total company revenue and grew 20% year-over-year on a reported basis.
During the fourth quarter, we completed the closing of the second -- second closing of Business Solution divestiture transferring the United Kingdom operations. The third closing, which includes the European operations, is currently expected to occur in the second quarter of 2023 subject to regulatory approvals. As a reminder, we've already received the full proceeds from the sale.
Now turning to cash flow and balance sheet. In 2022, we generated $582 million of operating cash flow, which included a transition tax payment of $64 million paid in the second quarter. These transition tax payments resulted from the 2017 U.S. Tax Act and will increase annually over the next three years and stop after 2025. In 2022, we also returned $713 million to shareholders through a combination of dividends and share repurchases, continuing our strong track record to returning capital to our shareholders.
Today, we announced that our Board of Directors approved a $0.235 quarterly dividend payable on March 31, 2023. We also want to talk about our capital expenditures which were down -- which were $208 million in 2022, which was down 3% versus 2021, with a mix shifting from agent signing bonuses to more software development.
And finally, at the end of the quarter, we have cash and cash equivalents of $1.3 billion and debt of $2.6 billion, down roughly $400 million from a year ago. With our leverage ratio now sitting at 2.4 times and 1.2 times on a net basis, which supports our strong balance sheet position and provides us flexibility for potential M&A while we target to maintain our investment-grade credit rating.
And then, finally, as part of our ongoing operating expense redeployment program to optimize our expense base, in 2022, we invested approximately $50 million. This program allowed us to increase our funding in various strategic initiatives by building out our digital wallet, our financial ecosystem, and creating our new point-of-sale system, enhancing our digital transaction platform, and creating an integrated omnichannel experience. We are already making good progress on reallocating expense in 2023 and I look forward to providing additional updates as the year progresses.
Now moving to our outlook. Today, we reaffirmed the 2023 adjusted financial outlook we provided at our 2022 Investor Day. Our outlook assumes no major changes in macroeconomic conditions, including changes in foreign currency. We expect adjusted revenue to be down 2% to 4%. As I mentioned earlier, 2023 will face headwinds from Russia and Belarus in Q1 and the loss of two European agents throughout the year. We expect the adjusted operating margin to be in the range of approximately 19% to 21%. In the first half of 2023, we expect margins to be at the -- be below our full year range as we continue to make product investments, expense redeployment related to our cost efficiency program, and lapping the impact of Russia and Belarus.
And finally, adjusted EPS is expected to be in the range of $1.55 to $1.65. The expected year-over-year decrease in adjusted EPS includes $0.18 related to the sale of Business Solutions, agent losses, Russia and Belarus, and currency impacts.
Lastly, we'd like to provide an update on our four key performance indicators that we talked about at Investor Day. In 2022, we improved retail retention by 46 basis points year over year. Our goal is to improve this metric by 200 basis points annually, driven by technology improvements and improvements in our agent and customer experience.
Our second performance goal is to grow our new Branded Digital customers by double digit. Given the success of our new Branded Digital go-to-market strategy, I'm pleased to report that we've achieved a 14% new customer growth in the fourth quarter. Our third KPI is a 20% omnichannel customer growth. This metric was flat year over year in 2022, in-line with our assumptions as we believe we need to make improvements to our customer journey and loyalty programs before we will be able to meaningfully improve our omnichannel customer growth.
And finally, the last KPI we talked about at Investor Day was our ecosystem. Our ecosystem added 15,000 customers a month on average over the past three months. We believe our longer-term goal of 100,000 a month will be possible with the rollout of large consumer bases like the United States, Brazil, and we look forward to launching our digital wallet in those countries in the coming quarters.
To recap, last year, we delivered our adjusted full year financial outlook and launched our Evolve 2025 strategy, which aims to put us on a path towards sustainable long-term growth. So far, we've made good progress on laying the foundation of our strategy, including accelerating investments and we look forward to providing more updates as we continue our journey.
Thank you for joining our call today, and, operator, now we're ready to take questions.
