Good day and welcome to the Western Union Second Quarter 2022 Results Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Brad Windbigler, Head of Treasury and Investor Relations. Brad, please go ahead.

Thank you. On today’s call, we will discuss the company’s second quarter 2022 results, our updated financial outlook for 2022 and then we will take your questions. 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. On our call today is our CEO, Devin McGranahan; and our CFO, Raj Agrawal. Today’s call is being recorded and our comments include forward-looking statements. Please refer to the cautionary language in the earnings release and in Western Union’s filings with the Securities and Exchange Commission, including the 2021 Form 10-K for additional information concerning factors that could cause actual results to differ materially from 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 to the most comparable GAAP measures on our website, westernunion.com under the Investor Relations section. We will also discuss certain adjusted metrics. The expenses that have been excluded from adjusted metrics are specific to certain initiatives, but maybe 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, Devin McGranahan.

Thank you, Brad. Good afternoon, everyone. Thank you for joining us today to discuss our second quarter 2022 financial results, and a broader business update. Over six months into my tenure as CEO of Western Union, I am not only excited, but I am privileged to lead this great 171 year old organization. Each and every day, I have now had enough time and experience in the seat to be able to fully scope the transformation required to reenergize broad based growth. This transformation will likely take the better part of the next 18 to 24 months to drive the important changes like our new point of sale system, or our new digital experiences across all of our channels, partners and markets. It requires us to move from a model focused on growing revenues through geographic expansion, and price optimization independently across our retail and digital channels, to one that focuses on growing customer counts, and customer relationship value on an integrated basis across our channels, and our geographies by providing a market leading experience and a wider range of product and services. This means bringing together products, platforms and people across geographies, and partners. As I have previously indicated, I continue to believe that the company's brand recognition, global reach large digital business and our purpose driven culture focused on improving the lives of our customers through broader financial inclusion, our true sources of competitive advantage and form a strong foundation to build upon. As we move towards this new model, we will be managing the business using a regionally based operating model is accelerating the development of better end-to-end customer experiences across both retail and digital products, moving to a more granular corridor level marketing strategy, and using our pricing capabilities to maximize customer growth and customer lifetime…

Thank you, Devin and good afternoon everyone. Today I will discuss our second quarter results and our revised 2022 financial outlook. For the second quarter, revenue of $1.1 billion was down 12% on a reported basis or 4% constant currency excluding the contributions from Business Solutions. The suspension of our operations in Russia and Belarus, which occurred late in the first quarter impacted revenues by 3.3%. Currency translation net of the impact from hedges reduced second quarter revenues by approximately $42 million compared to the prior year period. In the C2C segment revenue decreased 9% on a reported basis or 6% constant currency and transaction declined to 13%. The suspension of operations in Russia and Belarus impacted revenues by 3% and transactions by 8%. Excluding Russia and Belarus, C2C transactions were down compared to the prior year period due to softness across channels. Total C2C cross border principle declined 12% on a reported basis or 9%, constant currency due to softness across channels. Suspension of our operations in Russia and Belarus impacted cross border principle by 6%. Digital money transfer revenue, which includes our branded digital product and digital white label partnerships, was down 6% on a reported basis or 3%, constant currency largely driven by the suspension of our operations in Russia and Belarus, which impacted revenues by 6%. Moving to regional results, in the second quarter, North America revenue decreased 2% on both a reported and constant currency basis on transaction declines of 6%. Softness and retail money transfer was partially offset by revenue growth in the digital business. The U.S. domestic business continued to be a drag on results, representing 4% of consumer revenues in the quarter, while U.S. outbound to Russia reduced revenues by 1%. On a positive note, our partnership with Walmart continues to ramp…

[Operator Instructions] Our first question comes to us from Ken Suchoski from Autonomous Research. Please ask your question.

Hey, good afternoon, everyone. Thanks for taking the question. You call out the two key retail partners rolling off over the next 12 months; can you just elaborate on that a bit? What, what drove their decision to leave the platform? And I guess what can you do differently moving forward, if anything to ensure that the key partners stay with the company?

Ken, its Devine, thanks for the question. As you know, in particular parts of the world and in particular, in Europe, there is a secular shift towards moving away from cash. Both of these agents are retaining their relationship with Western Union. We are going to support them on a digital basis in one case, and as Raj indicated on a digital and kiosk basis and another. Both have taken the decision to eliminate the retail cash oriented part of their business and with it retail cash oriented cross border remittances. We believe that as we and I, as I have said, focus on getting the right agent partners with the right distribution in the right locations. This will not be an on-going headwind. Raj, I don't know if you want to add anything.

I think you've hit the main points here Devine.

Alright, great. And then I just from my follow up, I think you mentioned that you created some capacity a little bit quicker. I think on the expense side and that, that you expect to accelerate investment in the back half of the year, can you just talk about how much of this reinvestment I guess continues into 2023. And are we going to see some ketchup in it looks like the SG&A expense line came in better in the back half of the year or the first half of next year.

Ken, we're very comfortable with our 20 to 21 margin guidance like that we're pleased to have been able to bring that up. And as you know, the timing in our businesses we've gone from quarter-to-quarter is timing of expenses, an important element of our margin in any given quarter. I've talked extensively about the need to reinvent our retail point of sale, and invest in our digital experiences. We're going to take advantage of the back half of this year to accelerate some of those types of investments. And we'll look forward to updating you on plans for 2023 when we have our investor day.

And Ken you know that our margins vary from quarter-to-quarter, depending on the revenue growth and the level of spending. And so that's going to be the case again in the back half of this year. And I wouldn't read anything into that, with respect to next year. Next year will be about what level of revenue growth, the level of investment we're doing and a number of other factors. So, I think it just speaks to the power of our business model where even though we're in a lower revenue environment, we're able to optimize our investments and spending and create this capacity for continued investment in the business to drive that growth.

And Ken you heard me on the previous two calls. Talk about honing our operating model and finding room within our three point billion dollar expense base, the organization has reacted very well to that. And in my comments I noted probably quicker than Raj and I had thought, and so I think this is a good sign.

It's very helpful. Thank you, Devin. Thanks, Raj.

Thank you Ken.

Our next question comes to us from Darrin Peller from Wolfe Research. Please ask your question.

Hey, thanks, guys. Can we just touch on the digital transaction growth rates and the opportunities that you see ahead of you in terms of really investing in that business and the payback from that investments? Obviously, the trend [Indiscernible] during the pandemic, it looks like it, obviously, decelerating event. Even I think excluding Russia, you said it was what 3% revenue growth rent. So just touch on the path for that now going forward and what you foresee being able to do to really help accelerate that business back to what we think should be a double digit story long term.

Darrin, I think we do want to disaggregate that. As you said, I think when you take out the fact of our exit from Russia and Belarus. And then when you also look under the covers, you see the impact of our U.S. domestic money transfer business is a significant drag as well. As we've talked about previously, that is a business that with the advent of wallet based P2P in the U.S. is largely going away, you get another negative two points embedded from the U.S. domestic DMT business. So if we're working off that base, we see opportunities and you heard in my prepared comments, to be able to redirect marketing spend to the highest return places and North America certainly is at the top of that list. We believe with targeted marketing, focused and you heard in my comments, and prioritize new customer acquisition programs, we can re accelerate net new customer growth, which will then return the business to strong revenue growth.

Yes, and I'll just add to that, I'll do the math for you, Darrin. If you adjust for those two things, you get to mid-single digit type of outcome for digital, that's not where we want the business to be. We really do believe that the business can get back to the levels of growth that it has had historically. But it's going to take us some time to do some of the things that Devin talked about a news commentary. So we continue to feel very good about the digital part of the market, it's going to be the growth driver for the space that we're in. And we're very well positioned there.

Okay, that's helpful. I mean, maybe just a quick follow up would be on timing that you'd expect to see some of the trade off on the investments there to help us get back to some element of acceleration on the digital front. And then Devin, you talked in the past about omni channel and the way to look at your customer base, more predominant omni channel lens or do you think that the value is not just digital and not just retail, but really a combination. So I'm curious if you're seeing any evidence of that further as you invest in your business. What that can mean for you guys, both from an investment and a growth rate standpoint?

We clearly see and you heard the idea that we have unique scale in both retail and digital. and the customers that we can attract that value both at retail and digital experience are both higher value customers from a revenue standpoint, but they're also more loyal customers from a retention standpoint. Going forward, part of that redirecting of our marketing spend is on our own customer base and on beginning to activate that retail to digital escalator so we can try to create more of those omni channel customers than just happened organically in the past. We see that both as a cost effective driver for new customer new digital customer acquisition from our own retail base, and are going to invest both in products. As one of the things I talked about being able to do cross channel customer recognition and loyalty programs, so that those customers who are inclined to be omni channel find the experience with Western Union to be unparalleled.

Thanks guys.

Thanks, Darrin.

Our next question comes to us from Tim Chiodo from Credit Suisse. Please ask your question.

Great, thanks a lot. When you were talking about the macro impacts, and you were talking about the forecast, sort of going with what the prevailing economic forecasts are for softening in the second half. But you also mentioned in terms of the resilience and the recession resistance, if you will of the remittance market historically, but also called out that there are pockets of your customers that might be more impacted, but also implying that there are pockets that might not be maybe you could just expand upon the various aspects of your underlying customer set that might be more or less impacted by a recessionary scenario.

Tim, it's a great question. And it's one that we as a management team are spending a lot of time on. As the remittance business has traditionally been impacted most by changes in GDP growth rates between send and receive, or changes in employment between send and receive. Inflation, at this scale globally is a relatively new phenomena for us. And so we're studying closely the effects. And it's different in different parts of the world, as you indicated. We're obviously seeing a negative headwind in Europe, both from inflation, but other geopolitical and macroeconomic effects. But at the same time, the strength of the U.S. dollar is helping U.S. outbound to many places in the world, including to Latin America. We continue to look at it closely. We don't see much in the way of change in principle so far. While we would expect over time inflation will drive up principal balances. It's something we're keeping an eye on.

Right. Thank you for that.

Thanks, Tim.

Our next question comes to us from Rayna Kumar from UBS. Please ask your question.

Hi, Devin and Raj, thanks for taking my question. I just want to better understand the differential between your seed and seed transaction growth and, and, sorry, transaction declined 13% and revenue drop of 6%. That's a 7% differential, is that a component of pricing or mix?

It's largely related to the closure of Russia and Belarus. Russia and Belarus closure had an eight percentage point impact on the transactions. And then it had about three percentage point impact on the revenue growth number, their revenue declines that we showed for the C2C segment. So then, then you get to be much closer in terms of overall impact, we -- so that's really what's playing through there, and nothing more than that. And obviously, there's always going to be some mixed related impacts that are continuing in the business. But that sort of happens all the time. And then we're always moving pricing up and down. So there may be some net impact from those kinds of actions. But generally, I'd say that the headline is really about Russia and Belarus.

Got it. Okay. And then Devine, you spoke about 70, Western Union exclusive experience stores. And I thought that was a very interesting concept, is that largely a lot in America strategy. And please just give us a better idea of timing and key milestones to watch out for with that initiative. Thank you.

Rayna, we're very excited about the idea of an as you know, I'm very excited about the strength of our brand. So branded experience centers I think will be an important part of our go-forward distribution strategy. So we're looking at it, and in fact, have launched a few pilot locations in certain parts of Europe, to understand both where in the network it can have an impact, and the kinds of partners that we can work with to build those kinds of locations. And so the combination of the right partners willing to create the branded experience center, and our ability to put them in the right locations will dictate the role that they play, in our go-forward network. But as evidenced by my commentary on Brazil, if done well, they can be powerful.

Our next question comes to us from Ramsey El-Assal from Barclays. Please ask your question.

Hi, thanks for taking my question this evening. I wanted to follow up on Rayna’s question and ask about this concept of a retail to digital escalator that you mentioned that I know the brand experience centers was that was sort of one tool that you mentioned. But can you elaborate more on that concept of an escalator what levers technology and or cross sell strategies you might be able to deploy to kind of accelerate that that migration?

Certainly, and Ramsey as we talked about on the prior call, as part of our strategy development work, the team has uncovered this customer segment that we have affectionately referred to them as hoppers, which we have about 1.5 million of those customers transact with us across both retail and digital channels, and have a nearly two times revenue generation profile as either a pure digital customer, or a pure retail customer. So we are looking for ways to grow that customer segment. And we are looking for ways as I have talked about to accelerate our ability to generate customers for our digital business. Many of our retail customers around the world are becoming more digitally inclined. And as we further develop our power to account and as we focus on receivers, as part of our strategy, this idea of being able to migrate customers across our channels, given our unique breadth across both retail and digital is a very strong intrinsic capability for us. So we will talk more about it when we get to investor day. But it is an important concept of our go-forward strategy.

Great, thanks so much.

Our next question comes to us from David Togut from Evercore Partners. Please ask your question.

Thanks so much and good afternoon.

Hi, David.

Yes, thank you. Could you guage for us what your second half revenue growth expectations are for the digital solutions business? In other words, what's embedded in your new constant currency mid-single digit revenue growth declined specifically for digital?

Yes, I think David we haven't given us specific outlets for digital, like digital was down in this quarter. And I think you're going to see more of the same if you include all the impacts of Russia and those kinds of things. If you sort of take out the impact of Russia, Belarus, and you take out the impact of the domestic business, it was sort of mid-single digits in the second quarter, as we talked about earlier in the call. And, I'm not necessarily giving you a forecast for the rest of the year. But we've taken into account what we think is going to happen within the digital business, as well as in retail and our overall outlook. And as we had mentioned, we saw some specific softness in the European markets. With respect to our digital business, some of it is macro related; some of it is competitive in nature. So we're just working through those things. But, we're, we're just being prudent with our outlook with mid-single digit decline, given the macro backdrop that we have, and some of the current trends that we now see in the business. And that's really what's reflected there.

Understood, appreciate that. And just as a quick follow up, bridging to the earlier question on expense management, to what extent is this greater, expense control sustainable into 2023? In other words, if we're trying to model out your, adjusted EPS outlook to next year, should we assume that you're able to hold this, very disciplined level of expense control? Or should we assume that some of it kind of moves back into the cost structure, especially, wage expense, we're in an inflationary environment so most companies are actually seeing some upward wage pressure.

Yes, I don't think we're going to be different from other companies with respect to wages. But what I would just say is that and from an expense management standpoint, we can do a lot of things in the short term. But we want to also invest in the business for the long term health of the business, and it's all about getting to the right level of growth. You're going to see us put a lot more money back into the business, whether it's in technology or marketing, or in some of the digital platforms that we talked about in the second half of this year. That is not necessarily a run rate for next year. But it just gives you a sense of, each quarter, and each year might be a little bit different. Next year, is going to ultimately be about how much revenue growth are we getting. And what flexibility do we have to invest in the business. Our goal is to keep investing not necessarily to keep taking costs out. But we looked, the expense management that we had in the first quarter, just gives you a sense of the power that we have in our business model to do things in the short term. But we do want to keep investing for the long term.

Thank you very much.

Our next question comes to us from Vasu Govil from KBW. Please ask your question.

Hi, thanks for taking my question. Devin, in your prepared remarks, you mentioned the growth of the company is not where you think it should be. So I guess I’ll ask that question and probably it's a little bit of a precursor to the investor day, but what do you think is the right dose level long term -- initiatives that you're laying out? Maybe you could share some high level thoughts today?

Vasu, it's a great question. And I look forward to spending time in detail at our investor day outlining our longer term or medium term outlook for the growth of the business. Realistically, as we go through the next 12 to 24 months, as you heard from Raj, we're combating secular headwinds and some agent departures that we are going to mitigate the best that we can. And we need to figure out how to re accelerate the digital growth. And I've talked about focusing more on acquiring customers and growing our net customer count numbers, which will ultimately drive revenue growth, but in the near term, we are focused on reenergizing our ability to acquire new digital customers and new omni channel customers to the franchise.

Thank you. And I guess for my follow up, I just wanted to ask for an update on capital allocation. In the past, you've sort of shown a preference for doing M&A to double down on sort of the cross border assets you guys are building. Any more color you can offer us on the size and scope of deals you may be looking at. What geographies are focused on or like if it's the focus shifting more to buybacks, which given the macro environment we're in.

We look forward to continuing to have a disciplined capital allocation strategy, as we've historically done and continued under the seven months that I've been here. To your point though the market environment has become a lot more attractive for companies like ours who focus both on growth and profitability. And so we are actively looking at and evaluating how we can do tuck in acquisitions, acquire capabilities in either markets or product areas that could help accelerate our growth, under the pretext that we will remain a very disciplined capital allocator.

Thank you very much.

Our next question comes to us from Jason Kupferberg from Bank of America. Please ask your question.

Thank you. I just wanted to circle back on some of the pockets of weakness in the European Digital Business. I think you mentioned France, Germany and U.K. So wanted to understand what sort of remediation efforts are being employed there? And do you expect those regions to improve in the second half versus the second quarter? Thanks.

Thanks, Jason. There are a couple of factors at work happening in Europe, obviously, the aforementioned macroeconomic and inflationary environment, as well as just a reduction in the mobility of migrants, particularly from places like Romania, which have been very strong for us. The second is some significant competition and important corridors for us from certain of those countries into Africa, particularly in the digital realm with what I'll call corridor specific digital competitors that we're dealing with. And we're spending a lot of time looking at it, as European payment regulations have changed, being able to ensure that we have the best, what I will call top of funnel to bottom of funnel conversion rates across all types of possible input or pay in options, which creates an opportunity for us, given our existing funnel if we can improve on those metrics. Raj?

I think you answered it, Devin. Our goal, again, the broader picture is that we want to continue to drive significant growth and expansion in the digital part of our business. And that is really the objective longer term, whether it's Europe, any other or any other part of our business. So just like Devin said, we were very focused on doing that, whether it's in the second half or longer term.

And how are you planning to go about tapping into the receiver base and regions like Latam and is that mostly accomplished with marketing dollars, or…

I think it's a combination in many of these, let's use Latam markets that are strong receiver bases for us. We have a population of people who get cash from us every day. So it's a combination of marketing, but it's also really bringing to forward to products and services that can capture those inflow dollars. So whether they be virtual prepaid cards, whether they be digital wallets, whether they be partnerships with others, that allow us to participate in the use of the proceeds from the remittance, not so much just send the remittance. The other thing that's important for us and for our business, overall, is to remember, pretty much every sender started out in a receiver country. And so strong brand preference by investing in our receiver markets will help our send business as well.

I mean, one great example is the Germany, Romania, digital banking that we have launched, right. We have, as you heard, we have 20,000 customers, a lot of them are in Germany, but a lot of them are also in Romania. And that's a way of energizing the receiver base in many different countries around the world, to get them the money, but then let them cycle and do things within our ecosystem. That's a great example of what we're talking about.

Thank you.

Our next question comes to us from James Faucette from Morgan Stanley. Please ask your question.

Hi, good afternoon. Thanks for all the color. I'm going to go back quickly on the OpEx and obviously, you're demonstrating control, right now. And you've talked about reinvestment. But when you look at the competitive landscape, and particularly kind of how you're assessing where you're at in digital versus where you want to be, I guess, how are you trying to balance that out? And particularly when we start to think about implications for capital return, etcetera. And I'm just wondering if we shouldn't be expecting more of an incremental step up maybe then, then what some of us have modeled at least?

Yes, let me start with that. I think it's pretty clear, James that we're investing a lot more in the second half of the year. That's how we get to our 20% to 21% margin outlook. All right so I think you got to really think about what we're messaging care, we do want to invest in the business. We're not stepping away from it. Our main message is that we've created a bunch of capacity in the first half of the year, given how the quarters have played out. But we fully expect to deploy that capacity back in the second half of the year. With respect to capital return, we've already bought back more in the first half of this year than we did in the first half of last year. And then dividends continues to be a significant use of our operating cash flow. So capital return is not really taking a backseat that continues to be there. But look, we'll have a lot more to say at our investor day about all these components. And more to come there.

And James, I think, we've been pretty transparent and will continue to be so we feel good about the 20 to 21. So that can go in the model. And as we go forward, as Raj said, this is something that we will continue to be transparent about in terms of where we see growth rates, our expectations on being able to manage expense, our desire to invest, and therefore what we expect both from a income statement operating margin perspective, but also from a capital return to shareholders perspective.

Got it. And, and I appreciate that, and I understand, wanting to put together the, the messaging, etcetera for analysts a little bit later. How are you for later this year, I should say, how are you feeling, though about like your strategic planning and evaluation of the market? And what you'd like to do and what the costs are? I mean, do you feel like you've got that completely? Where you want it to be from a planning perspective? Or is there still more evaluative work to be done?

As I commented, we are in the final phase of the process that I launched in February to re-evaluate the overall strategy for the company to assess what markets and opportunities we have to drive growth. And then what is the platform and capabilities required to capture that. We're going to wrap that work up here in the next month or so. And it will be the foundation and basis for what we talked about in October when we're together with the investment community.

Great, thanks very much. Looking forward to it.

Thanks, James.

Our next question comes to us from Kartik Mehta from Northcoast. Please ask your question.

Hey Kartik, how are you?

I’m well Raj, how are you.

Good.

Just on the digital business, Devin, as you look at the digital business, is it that the competition has changed? Or is it that you feel as though Western Union maybe didn't execute on things they could have to grow the business. I'm just wondering what the dynamics are in the business, and how much is in Western Union’s control and maybe how much is not?

I believe that there is a lot in our control. As we continue to refine both the product experience and our marketing approach, we have the ability and will return the business to growth. As it's an exceptionally dynamic market, competitors continue to invest in their experiences, and in some cases continue to make uneconomic decisions on customer acquisition. We remain disciplined and believe that through allocation of our marketing expense to those high impact areas, and through refining our experience, from top of funnel to bottom of funnel, we can drive growth in customers, which will drive growth in transactions and revenue.

As a follow up, looking at the retail business, Devin do you believe this is a business that it can grow, even if it's low single digits versus a business that there's more now flat because of all the changing dynamics in the world that are happening?

Great question. I believe we can certainly achieve a stable retail business, recently looking at some work with the teams on our distribution strategy on the West Coast. And we have very strong presence in those markets from the U.S. to LACA. It's been a historic strength of the company. But when you also look at it in some of those same neighborhoods, there's other migrant communities that were not serving as well with that physical distribution. And so I think as you see us, you'll you heard in my comments, focusing on specific corridors and specific migrant communities, we can get more leverage out of our retail network than we have, which should help stabilize it.

Thank you very much. I really appreciate it.

And Operator, we'll leave it there. Thank you everyone for joining.

Thank you for joining today’s second quarter 2022 earnings call. We hope you have a great day.