Western Union - Earnings Call - Q3 2019
October 31, 2019
Transcript
Speaker 0
Good day, and welcome to the Western Union Third Quarter twenty nineteen Results Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Brad Windbigler, Head of Investor Relations.
Please go ahead.
Speaker 1
Thank you, Andrew.
Speaker 2
On today's call, we
Speaker 1
will discuss the company's third quarter results and our financial outlook, and then we will take your questions. The slides that accompany this
Speaker 2
call and webcast can be
Speaker 1
found at westernunion.com under the Investor Relations tab and will remain available after the call. Additional operational statistics have been provided in the supplemental tables with our press release.
Speaker 3
Today's call is being recorded
Speaker 1
and our comments include forward looking statements. Please refer to cautionary language in the earnings release and in Western Union's filings with the Securities and Exchange Commission, including the 2018 Form 10 ks 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've 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.
Although the expenses have been excluded from adjusted metrics are specific to these initiatives, the types of expenses may be similar to types of expenses that the company has previously incurred and can reasonably be expected to incur in the future. All statements made by Western Union officers on this call are the property of the Western Union Company and subject to copyright protection.
Speaker 2
Other than the replay noted in
Speaker 1
our press release, Western Union has not authorized and disclaims responsibility for any recording, replay, or redistribution of the tran or of any transcription of this call. I would now now like to turn the call over to Hikmet Ersak.
Speaker 2
Thank you, Brett, and good afternoon, everyone. Third quarter results were solid as we produced strong adjusted margins and improved consumer money transfer revenue growth and completed significant actions related to our previously announced restructuring program. Digital growth remained strong with digital money transfer, including westernunion.com and third party white label digital services increasing more than 20% in the quarter. Additionally, Westernunion Solutions delivered its fifth consecutive quarter of constant currency revenue growth. And we were able to again use our strong cash flow to return significant funds to our shareholders through share repurchase and dividends.
We now returned well over $700,000,000 year to date. Given our third quarter results and trends expected for the remainder of the year, we remain on track with our full year financial outlook. Raj will give you more details on the quarter and our restructuring activities in a few minutes. Before that, I would like to review the long term strategy and financial targets we announced last month, including a 23% operating margin in 2022 and a low double digit earnings per share compound annual growth rate for the next three years compared to our 2019 adjusted outlook. As noted at our Investors Day, we have tremendous assets for cross border money movement and payments.
Let me recap this briefly. We have a vast global network, a strong brand, a distinct global processing and settlement capabilities. Over time, our business and customers have proven to be resilient, and they trust us to move their funds quickly and reliably. In recent years, we have strengthened our compliance capabilities, added more digital services and expanded our network connections to bank accounts, mobile wallets and cards. We continue to progress our digital expansion and announced the opening of vaccine.com in India, where consumers will now be able to send funds cross border to our service.
Although India is a traditional inbound country, we believe there is an incremental opportunity for outbound business. India is one of the fastest growing emerging economies, and outbound remittances have been growing the last several years. We have also implemented real time cross border transfer and payments capabilities via different channels. In addition, we have taken operational steps to make our platform more agile by investing in new technology, implementing lean processes and adjusting our operating model. With this foundation in place, our new global strategy will focus on opening our platform to more third party use cases in both cross border money transfer and payment solutions.
We believe this will give us incremental long term revenue opportunities. This includes areas such as ecommerce marketplaces where we have already begun a collaboration with Amazon as well as white label consumer money transfer for third parties, cross border services for institutions, and many other opportunities. We mentioned some of the white label money transfer examples at our Investor Day, and Sberbank in Russia and Saudi Telecom are continuing to perform very well and add growth to our portfolio. We are now expanding this opportunity to other countries. We recently announced new white label and processing agreements with major financial institutions in Korea and Japan.
Our three year targets assume 2% to 3% revenue growth overall, but over the long term, we expect new cross border solution services for third parties will contribute incremental growth to our business. In our restrooms and consumer money transfer business, we expect revenue growth will be driven by three primary initiatives. First, we want to create deeper relationships with customers whether they ultimately transact in digital or retail. Second, we plan to leverage data to better customize the user experience and maximize lifetime value. This includes using technology and artificial intelligence to expand our dynamic pricing activities at an even more micro level and provide customized offers to consumers.
And third, we plan to increase the productivity of our network by providing specialized customer and agent experiences at the top agent locations based on scent revenue. This will include initiatives such as digital self-service, priority lanes, real time marketing offers, expanded product offerings, and differentiated agent incentives. In business solutions, we expect revenue growth to be led by adding more business verticals. We are continuing to expand existing high growth areas such as education payments, while also leveraging our edge platform and digital self-service offerings. As we discussed last quarter, we have also begun a restructuring plan and are undertaking our other efficiency initiatives to accelerate profit growth and cash flow for the next three years while the new platform revenue initiatives develop.
We anticipate these actions to generate $150,000,000 of incremental profitability by 2022 in addition to providing additional funds for reinvestment in the growth of the business. These savings combined with our revenue assumptions support our financial targets of improving operating margins by approximately 23% in 2022 and delivering a low double digit EPS compound annual growth rate over the next three years. We also expect to generate more than $3,000,000,000 of operating cash flow over the twenty twenty to twenty twenty two period and return $2,500,000,000 to $3,000,000,000 to shareholders through dividends and share repurchases. So we are excited about the future. Our cross border money transfer business is solid and digital business is growing strong.
Business solutions has delivered better growth, and we are expect expanding our presence in the very large B2B market. In addition, we believe that we have incremental long term growth opportunities by opening our platform to third parties. Overall, third quarter results were solid, and the efficiency initiatives are well underway. Now I would like to turn it over to Raj for a more detailed discussion about the third quarter financial results. Raj?
Thank you, Eichmann.
Speaker 3
Third quarter revenue of $1,300,000,000 declined 6% compared to the prior year period, while adjusted constant currency revenue, which excludes our divested businesses in the prior year period, increased 4%. Currency translation, net of the impact from hedges, reduced third quarter revenue by approximately $46,000,000 compared to the prior year, primarily due to depreciation of the Argentine peso. The decline in the peso negatively impacted reported revenue by 2%, while the effect of inflation on our Argentina businesses is estimated to have positively impacted both reported and constant currency revenue by approximately 2%. In the Consumer to Consumer segment, revenue increased 1% or 2% on a constant currency basis, while transactions grew 2%. Total C2C cross border principal increased 3% or 4% on a constant currency basis, while principal per transaction was flat or increased 2% constant currency.
The spread between C2C transaction and revenue growth in the quarter was 1%, with a negative 1% impact from currency. Pricing and mix offset each other as pricing positively impacted revenue, while mix had a negative impact. Turning to the regional results. North America revenue grew 2% on a reported and constant currency basis, while transactions declined 1%. Growth was led by The U.
S.-to Mexico corridor and other U. S. Outbound business, which was partially offset by continued declines in U. S. Domestic money transfer.
Domestic declines were generally similar to last quarter's trends. In Europe and in the Europe and CIS region, revenue declined 1% or increased 1% on a constant currency basis. With growth led by Spain, France and Russia, transactions in the region increased 6%, aided by the Sberbank white label business. Revenue in the Middle East, Africa and South Asia region grew 4% on a reported basis or 5% constant currency, while transactions increased 1%. Revenue growth was driven by strength in Saudi Arabia and The UAE, including benefits from the Saudi Telecom white label business and increased prices in certain corridors.
These benefits were partially offset by lost business due to hard currency limitations in certain African markets. The Latin American and Caribbean region continued to deliver strong constant currency revenue growth led by transaction growth in Ecuador and Chile. Revenue in the region increased 4% on a reported basis or 12% constant currency, while transactions grew 10%. In the APAC region, revenue declined 13% on both a reported and constant currency basis. Transactions were down 6% in the region.
Transaction trends improved sequentially, while revenue trends were similar to last quarter, partially due to pricing reductions implemented in certain markets. Westernunion.com revenue grew 16% or 17% constant currency with transaction growth of 16%. Wu.com represented 14 of total C2C revenue in the quarter. Cross border westernunion.com revenue increased approximately 25%, but this was partially offset by declines in domestic money transfer. Business Solutions revenue was flat on a reported basis or increased 3% constant currency and represented 8% of company revenues in the quarter.
Constant currency revenue growth was driven by strong performance generated from customers in Europe as well as increased sales in hedging products and strong growth in the education and financial institution verticals. Other revenues, which consist primarily of our retail bill payments businesses in The U. S. And Argentina, decreased 48% in the quarter, which reflects the impact of the Speedpay and Paymap divestitures in May. The Pagfacio walk in business in Argentina posted good increases in transactions and local currency revenue growth and increased in U.
S. Dollar terms as well. Other revenues represented 7% of total company revenues in the quarter. Turning to margins and profitability, we will focus on consolidated margins as segment margins are not comparable with the prior year period due to reallocation of corporate costs following the divestiture of the Speedpay business. We are also providing adjusted metrics to exclude restructuring expenses, merger and acquisition costs and related tax effects.
The consolidated GAAP operating margin was 15.1% in the quarter compared to 21.8% in the prior year period. The decline was primarily due to the impact of restructuring expenses from our previously announced initiatives. We incurred $92,000,000 of restructuring expense in the quarter with a significant majority attributable to severance. We continue to expect approximately $100,000,000 of restructuring expense for the full year and approximately $50,000,000 to be incurred in 2020. Adjusted operating margin in the third quarter was 22.3% compared to 22% in the prior year period, with the increase primarily due to operating efficiencies partially offset by the impact of the Speedpay and Paymap divestitures.
Speedpay and Paymap contributed about 50 basis points to last year's third quarter margin, while foreign exchange hedges provided a benefit of $10,000,000 in the current quarter compared to a benefit of $4,000,000 in the prior year period. We expect adjusted margins to be lower in the fourth quarter due to timing of spending and planned investments, and we are maintaining our approximately 20% adjusted margin outlook for the full year. The GAAP effective tax rate was 16.8% in the quarter compared to 21.7% in the prior year period, while the adjusted tax rate of 18% compared to 11.8% in the prior year period. The decrease in the GAAP rate was primarily due to changes in estimates for TaxAct provisional accounting in the prior year period. The increase in the adjusted rate was primarily due to non recurring benefits in the prior year.
GAAP earnings per share in the quarter was $0.32 compared to $0.46 in the prior year period with the decrease primarily due to restructuring expenses. Adjusted earnings per share in the third quarter was $0.49 compared to $0.53 in the prior year period due to dilution from the Speedpay divestiture and a higher adjusted tax rate partially offset by lower shares outstanding. Turning to our cash flow and balance sheet. Year to date cash flow from operating activities was $665,000,000 Capital expenditures in the quarter were approximately $19,000,000 At the end of the quarter, we had cash of $1,400,000,000 and debt of $3,200,000,000 We returned $224,000,000 to shareholders in the third quarter, including $84,000,000 in dividends and $140,000,000 of share repurchases, which represented approximately 6,500,000.0 shares. The outstanding share count at quarter end was $420,000,000 shares, and we had $1,100,000,000 remaining under our existing and new share repurchase authorizations, the majority of which expires in December 2021.
Turning to our financial outlook, we are affirming our three year financial targets and 2019 full year financial outlook. We continue to expect GAAP revenues for the full year to decrease mid single digits due to the divestiture of the Speedpay business in May. On an adjusted constant currency basis, excluding Speedpay and Paymap from both years and excluding any benefit from Argentine inflation, we expect a low single digit constant currency revenue increase. GAAP operating margin is expected to be approximately 18%, while the adjusted operating margin is expected to be approximately 20%. We expect GAAP effective tax rate to be in the range of approximately 18% to 19% and the adjusted rate approximately 19% for the full year.
We continue to expect the effective tax rate in 2020 to be in the mid teens range. GAAP EPS for the year is expected to be in a range of $2.47 to $2.57 while adjusted earnings per share is expected to be in the range of $1.7 expected to be approximately $800,000,000 while adjusted operating cash flow is expected to be about $950,000,000 We continue to expect to spend between 500 and $600,000,000 on share repurchases for the full year, and we have repurchased $475,000,000 through the third quarter. In summary, we are pleased with the quarter's results, and we remain on track with our full year financial outlook. We have begun implementing our new global strategy designed to drive profitability, efficiency and long term growth, and we have made significant progress on the restructuring. We have also continued to return significant funds to shareholders while maintaining a strong balance sheet.
We look forward to delivering our strategy and financial targets, and we will provide updates on key activities as we move forward. Thank you for joining our call today. And operator, we are now ready to take questions.
Speaker 0
We will now begin the question and answer session. The first question comes from Darrin Peller of Wolfe Research.
Speaker 4
Starting off on the revenue side, I mean pricing looked like it benefited you by, I think you said, 100 basis points. So I think we saw some of those trends in the World Bank data, too. I mean is that a broad based macro trend you're seeing from a competitive standpoint across the industry? Or are you actually already starting to see some of the customized efforts you talked about at your Investor Day taking hold where dynamic pricing is already being implemented?
Speaker 3
Well, yes, I'd say, Darrin, the pricing benefit, we didn't quantify. We said that pricing and mix have largely offset each other, but we have seen in the market generally that the pricing is relatively stable. So we haven't really seen any pricing pressure certainly on the downside and it has been quite stable. As we do more dynamic pricing and as we bring more technology into the equation, looking at location based pricing or day of week and time of day, it actually is more difficult to actually distinguish between what is a pricing increase or decrease. And so we really want to get away from getting that because it may not be actually accurate, right?
So we really are trying to drive the overall lifetime value of the customer as we modify our pricing strategy.
Speaker 2
But generally, would say, Darren, the pricing environment is stable and we feel we are quite competitive with our corridors. And as you know, Darren, being as Raj said, being in so many corridors and being so dynamic helps us, to adjust the prices and, you know, really focus on the customer long term value.
Speaker 4
Okay. Alright. That helps. And just one quick follow-up, guys. I mean, the you you know, you obviously call out a lot around the partnership model now and the the the ability to use your network for others, STC and Sberbank as as the notable ones.
You mentioned others coming on. I mean, I guess I'm just trying to figure out the materiality of these two year transaction growth rates and how how you'd expect them to impact transaction growth rates on the overall C2C business starting as early as 2020? I mean is this enough to move the needle? And what kind of numbers of larger partners are you adding beyond the ones you talked about already?
Speaker 2
So, the good thing is that, let me start with the good news. It's incremental. Right? Because, you know, we saw, in the Sberbank, for instance, the Sberbank transaction or bank transactions are happening anyway. But it's quite complex with the cross funded banking, and they are choosing us to do it easy way to transfer that.
That's really, an incremental, transactions and not cannibalizing in big picture our our business, our existing Western Union branded business. Right? I think from the, you know, it's still, as you know, four or five examples worldwide. I just came back from a world tour, and I just, we just signed an agreement in Japan. We just signed an agreement in South Korea, which we are very excited.
They are similar like Sberbank, big banks. They want to use the platform to drop money worldwide. And that's kind of, strategy is a long term strategy. As you also know, making agreements, financial institutions are long term agreements. At the same time, it takes some time to implement them because you have to you know, your your IT steer systems has to be matched with their systems.
But given our open IPI, we are very confident that we can really adjust it very fast. So I'm excited about that as to, you know, putting our platform and, to the banks. Because in that case, we are not offering a new product. We are really solving a problem of the banks and which they have, and the money moves their account to account anyway. But with our with our, real time, account payout, it's really, replacing their issue in most cases.
Speaker 4
Okay. All right. Thanks, Huckman. Thanks, guys.
Speaker 3
Thanks, Thanks, John.
Speaker 0
The next question comes from Jason Kupferberg of Bank of America Merrill Lynch. Please go ahead.
Speaker 5
Yes. Hey, good afternoon, guys. Just wanted to see if you afternoon. Have Hi. I just wanted to see if you guys had any preliminary thoughts on where 2020 revenue growth might land.
I'm just thinking about it obviously in the context of the three year guide, Some of these initiatives that you've been embarking on will presumably ramp to some extent next year, others may take longer. So just wanted to see where we should be thinking about a reasonable range potentially for next year, obviously, assuming no major changes in the macro backdrop?
Speaker 3
Yeah. Jason, I would say that we're still comfortable with the three year view that we gave. You know, our our assumption is that we're gonna go up 2% to 3%, and that's assumed just as a reminder, that assumed about 20% digital growth, which includes wu.com and some of these digital partners, but nothing that material. And we assumed a relatively stable retail business in that regard with the dynamic pricing and the engagement we'll have with the customer. And then we also assumed a mid single digit B2B growth over that three year period.
So we're not really ready to give specific guidance for next year, but we're comfortable with the three year view that
Speaker 2
we gave. And also the new opportunities, Jason, long term opportunities. And once they get material, we are very excited with the start, but once they get material, we will give definitely some more color on that. So it's early, but as Raj said that we feel comfortable with our three years assumptions on revenue.
Speaker 5
Okay. And you talked about the uptick in C2C constant currency revenue growth. I think we went from 1% last quarter to 2% this quarter. Does it feel like 2% is sustainable?
Speaker 3
Well, we know that the two percent to 3% outlook for the three years assumes that the consumer business in total is going to go 2% to 3% as well, right? The uptick in the quarter just specifically was related in large part to the significantly improved performance in The Middle East, right, with the and Saudi Telecom was a key part of that overall performance. So yes, we'd love to have it continue in that range. So let's see how things transpire here, but it was good performance.
Speaker 5
Just one more for me. I was curious just as you continue to roll out wu.com in more countries, if you're seeing any distinct patterns in terms of how, the usage patterns of the service tend to evolve when you when you actually launch in a new, country?
Speaker 2
Yeah. I think so. I mean, you know, the the India example which I gave earlier, it's a new, new example for us, you know, launching a .com business and a receiving mainly receiving country. But don't forget, India is 1,200,000,000 people and that's very fast growing economy with the millions of emerging middle class, and they are trading, and they are connected globally, and they do wanna send money. I think we have some opportunities there.
We have to create the brand awareness there, obviously, to send money also, not only to receive money. And, but we, you know, we are very excited about that. And also, just one thing on, on India, we recently announced the real time on an account in India. We made an agreement with UPI. You you it's UPI is a kind of a kind of ID, which Yes.
Yes. Bank. With and with the Yes Bank together. So we can drop immediate we can really drop immediately money just with the phone numbers and with the names, especially if the UPA name, to the accounts all to all, all Indian banks, which we are the first there, and we we we are the first financial institutions doing that for cross border transactions to India, and we are very excited about that also. So to your question on westernunion.com, it depends on the market.
It takes time, but it has still a huge potential. And I'm very proud to say that, you know, remember, Jason, a few years ago, you asked me how when are we going to have the 10% of the revenue of the total revenue total revenue. Meanwhile, we have 14% of our total revenues done by bestene.com, which and it's still growing with 20%.
Speaker 5
Right. Well, thanks for the comments, guys.
Speaker 3
Thanks. Thank you.
Speaker 0
The next question comes from Tien Tsin Huang of JPMorgan. Please go ahead.
Speaker 2
Great. Thank you. Hi, Tien
Speaker 6
Hey, Tien Happy Halloween to you guys. The margin, I want to ask the you're running a little bit ahead year to date, what, twenty point six, it looks like, ahead of your approximate 20. I think Raj, you mentioned it would be a little bit lower in the fourth quarter. What is that normal way seasonality spending? Are you doing something unique?
I'm just trying to get a good jumping off point here and whatever you can tell us on 2021. 2020 margin would be great too. That
Speaker 3
sounds like a slip of the tongue there. I would look at this year as being more this quarter as being timing related. It's similar to last year's pattern. It doesn't necessarily mean that that's going to happen every year, but there were some timing of spending and we do have some further investments in the fourth quarter. We could end up a little bit above or so or a little bit below, it just depends on how we spend the money in the fourth quarter.
But we're still comfortable with the approximately 20% outlook for this year. And as we had said at Investor Day, we do expect to get margin improvement each of the next three years. And so I won't get any more specific than that, but we are looking for margin improvement next year.
Speaker 2
But generally, we started our program, Tien Tsin, I will say that really the lean management tools helps the company, how we think about our how operative way, how we really look at our optimize business. But at the same time, the growth shows also that we have potential to further grow. So we are not holding back, not investing. And in Q4, believe that we're going to continue to invest for the growth initiatives that's but still improving the margin. So I'm very confident about that.
Speaker 6
Okay, great. Real quick, you don't mind, Hikmet. At Money twenty twenty, West Union, the people there was very clear talking about open platform strategy. It seems very clear everyone's on board. I'm curious the pipeline for new potential partners here now that you've been more vocal and visible with it.
How has that evolved here in recent weeks or recent days?
Speaker 3
Well, as a sales guy, I was
Speaker 2
on the road now the last ten days around the world. I have to say that I met several CEOs, and I have to say that, you know, we are really solving a problem for some big financial institutions, especially for their exotic currencies for opening our platform. And I'm very excited, and there are some, you know, some potential prospects here. And I believe that there's some more to come, and I'm excited about that. Actually, in Japan and, South Korea, we really signed ones.
Right? They are, you know, they are new partners there. They wanna use our platform to draw up money globally in a very efficient and compliant way and the fastest way, right, and real time to do to billions of accounts. And that that makes me very excited. And, also, you know, Amazon is one of the examples that we are opening our platform to collect funds for a third party.
It's their product, but it's our network. It's our machine. It's our engine. And, I believe that these are also contracts. They will you know, they are more more potential here.
I am confident I'm gonna you're gonna hear more about that, in coming years. And I it's too small, obviously, and it's just beginning of a big journey, but, you know, exacting journey because as we show those in the Investor Day, the facts are there and they are still growing.
Speaker 6
Yes. That'll be fun to track it.
Speaker 0
That's for sure. Thank you.
Speaker 3
Thank Mr. Jin.
Speaker 0
Next question comes from Brian Keane of Deutsche Bank. Please go ahead.
Speaker 7
Hi, guys. Happy Halloween. Hey, Brian. I wanted to ask on the earnings outlook. We're still at the adjusted EPS range of 1.7 to $1.8 which then makes $0.10 pretty wide range for the fourth quarter.
I was wondering if you could shade us to one side or the other of that range or maybe talk about what would get you to the high end or the low end of that range.
Speaker 3
Brian, this it just takes a number of factors are going to determine where we come out in that range. The level of spending that we have on various initiatives, will have an impact to the level of revenue growth. So I mean, we gave you a wide range, but we're very comfortable that we're going to be in that range. And where it comes out is just going to depend on a number of different factors that is hard to call at this stage. Just given the margin improvement that we had in the third quarter, that just depends on how much investment we make in growth initiatives.
So but we're comfortable with that range, and we'll see where that comes out. And again, as we had mentioned at Investor Day, we do expect to get low double digit type of earnings per share growth over the next three years. So it should set up well for next year and the years after.
Speaker 7
Is one of the wildcards for the fourth quarter just how much marketing or how much additional spend and investment goes in?
Speaker 3
Yes. Yeah. Marketing is certainly one of the key investment areas.
Speaker 2
I'm not sure it's a wild card. We know what we are doing. Yeah. No. I mean, it's not a it's not a
Speaker 3
wild card. We know what we're doing, but it just depends on, you know, how much we put forth there. And but yes, I wouldn't read too much into the wide range there. It's we're comfortable with where we are, and we're tracking according to our plans. Yes.
Speaker 7
Got it. And then wu.com, I mean, it moderated slightly. I think it was growing closer to 20%, moderated a little bit to twenty seventeen. Anything to read in there? Any tougher comps or something that created a little
Speaker 6
bit of a modest slowdown?
Speaker 3
Not really. I would just say that 80% of the business grew at 25% in wu.com, which continues to be the highlight of the business, the cross border piece. The domestic piece continued to decline. So that the domestic part of wu.com was slightly worse than last quarter, but in the same range. So that's certainly having an impact.
And then as you saw in our notes, overall digital growth, including the white label partnerships grew more than 20%. That includes also domestic. Yes, that also includes domestic. Obviously, all of that so the total digital business, including the white label partnerships, grew at above 20%. So we're pretty comfortable that we can continue to grow at that level with the total business.
So mean, iwe.com, we continue to have large expansion plans there. We think it's a great opportunity for the future and we continue to add geographies and channels to that business.
Speaker 7
Got it. Thanks for the help.
Speaker 2
Sure, Ryan.
Speaker 0
The next question comes from James Faucette of Morgan Stanley. Please go ahead.
Speaker 8
Hi, this is Priscilla calling for on behalf of James. Just a quick follow-up on the pricing question. Last quarter, you called out some pricing benefits, particularly in U. S. Domestic as you priced up some of your products there.
Was that also in play this quarter? Or was there something else?
Speaker 3
Yes, that's certainly a key part of the overall pricing lift. As you've seen, the transaction growth in North America was down 1%, but revenue growth was up 2%. So we are continuing to try to maximize the overall value of The U. S. Domestic money transfer business.
So there is some pricing embedded in there as well.
Speaker 8
Got it. And then just a quick question on India and how you're thinking about entering some of these new markets. You mentioned that you have to increase brand awareness. So how do you think about going to market there, increasing brand awareness? Is this providing potentially discounted digital services in India so people know what the product looks like?
Or is it just increased marketing spend? How are you thinking about that?
Speaker 2
I think it's a similar market approach where we do it everywhere, but don't forget that India have been for many, many years a receiving country. But the emerging, emerging new, you know, the mid class Indians want to send money, and they wanna use their account and westernunion.com to send money. More and more people, you know, they wanna use connect their debit cards, their credit cards, or their bank accounts to westernunion.com. And that's that's that's the thing. What we do it in every country when we launch a new country is awareness.
But we are excited about the India long term because, you know, we never did that in such a huge country, outspond business, and I believe that, this is a new opportunity. It shows an example of Western Union, how flexible Western Union is in many countries and how many opportunities we have, what kind of portfolio we have. And, you know, that that that part of investment will definitely happen, but it's nothing, you know, different than opening a new country.
Speaker 8
Great. Thank you.
Speaker 3
Next question
Speaker 0
the next question comes from Ramsey El Assal of Barclays. Please go ahead.
Speaker 9
Hi, thanks for taking my question. Also wanted to ask a bit about pricing, a bit of clarification. How far along are you with the sort of infrastructure to enable more of an enterprise wide rollout of the dynamic pricing? And maybe I've just missed it, that's already something that's in place. I just wanted to clarify whether the pricing power that you've displayed in the quarter was related to that?
Or is that something that's more of a future state sort of implementation? And then lastly, I kind of more conceptually on the same topic, I just wanted to kind of explore with you or have you comment on the degree to which that dynamic pricing, true sort of AI driven dynamic pricing might result in incremental pricing power as you're able to take price sort of more efficiently?
Speaker 2
Yes. I think, Ram, it's a good question actually. If you look at our business being in 20000 quarter plus, we've been doing dynamic pricing all the time. We adjust the pricing. You heard several quarters before and for several years, I was talking about street corner pricing and other activities.
This is what we have done here is that, you know, we really go through more corridors. We multiple the corridors with some product adjustment and pricing adjustments. And, also, if you download your rescuin.com, you will see also you can choose between different channels when you send money to different countries with different channels. It's like an airliner. Really adapting the pricing to the customer needs to the, you know, demands, and, that has been different definitely a power.
Now what we are doing is that we've tested in with artificial intelligence in certain corridors. We are really over the years, we will invest that because it's huge. Right? 200 countries, different corridors, different needs, and but artificial intelligence definitely something, will give us power. The other thing is also I wanna mention again, the pricing environment generally has been stable.
You know, we've been definitely, we have some competition, but we our products, our speed, our channels, our brand makes it our compliance programs, our settlement programs, our platform makes it happen that our pricing environment has been stable.
Speaker 9
Thanks for that. Just my follow-up is on B2B and on your business payment segment. Can you talk about sort of which strategies you see that's such a large opportunity, which sort of sub strategies you see within that segment that are available to drive growth? Is it focusing more on AP Automation or Global Disbursements? Is it something that we see a lot of other companies, especially some startups really making kind of hay out of?
Just curious in terms of where you the primary growth drivers in that or opportunities in that business.
Speaker 2
I think our core business is doing, you know, the volatility global volatility on our core business, like hedging helps on the FX trading part, but I'm very excited about the verticals. The vertical acquisition, like the university acquisitions globally, and we're gonna expand that also, like, middle tier tourism, the acquisition of hospitals, paying really the consumer, paying the bills in their local currencies and, you know, and able to study abroad. And or their parents paid in local currency and sent their kids, abroad to study. I think that's gonna continue. The vertical is gonna continue.
But, also, our edge platform, which serves the SMEs, exporters, and importers where they meet online on the on the on the platform and really connect them, that's also a growth opportunity. So I believe over years, we will definitely have a more payments focus. You will hear more about that because it's a huge market as we demonstrated at the Investors Day, and we have a small portion of the market. And SME small size SME exporter importers continue to be very exciting for us.
Speaker 9
Got it. Thanks so much.
Speaker 3
Thank you.
Speaker 0
The next question comes from Ashwin Shirvaikar of Citi. Please go ahead.
Speaker 10
Thank you. Chris. Ashwin.
Speaker 3
Hi, Ashwin.
Speaker 10
Hi. So I wanted to start with trying to get more of a more granular information with regards to the the segments and geographies, if you don't mind kind of going through because I do see that, you know, there's some pretty good acceleration in the Middle East, South Asia piece, which I'm thinking maybe this is because of things like Saudi Telecom, that agreement. But there's also deceleration in, in in of the other segments. And, normally, quarter to quarter, it's not these the the the size of a move. So I'm kinda trying to figure out from a segment basis if you can provide them clarity.
Speaker 3
Yes. I mean, just on Middle East, Africa and South Asia, just to reiterate some of my commentary, we had strong growth in Saudi Arabia and UAE. And then we had a slight offset from the hard currency issues in parts of Africa. But overall, the market improved dramatically from a revenue standpoint. So 4% revenue growth, 5% constant currency.
Saudi Arabia was driven by a couple of different well, driven by the performance of Saudi Telecom that had very strong performance, both transactions and revenue and then some price changes in certain corridors. And then UAE also had a good performance that was driven by some agent incentives and other things we're doing in the local area as well as some price changes. And then overall, the transactions also improved. So Saudi Telecom, I would say, would be the number one highlight for the region. If you look at some other regions, Europe and CIS stayed relatively stable.
Transactions improved there. That was largely driven by the Sberbank white label business that we have, which had high transaction growth, less of an impact to the revenue side. North America was relatively stable to last time. Latin America was a little bit softer, but Latin America has been growing in the double digit range for quite a while, right? So we saw Ecuador and Chile growing well, and that was largely business going to Colombia because of the migration patterns we're seeing from Venezuela to the neighboring countries.
And then Asia Pacific, we are doing price reductions there. So that helped the transactions trends a little bit. They're still negative, but it helped a little bit, but revenue for that reason stayed about the same. So does that give you a little bit more color, Ashwin, in what you're looking for?
Speaker 10
Yeah. It it it it does. I guess the the one part that I mean, I'm thinking, you know, any impact from Hong Kong and such in South Asia, maybe in in in East Asia. Sorry. But that that probably completes the picture there.
So then the the other question I had was with regards to you know, earlier this year, obviously, you guys, you know, took a took a look at the the the various businesses. You you divested divested certain assets. Is there anything else left in that process? I mean, I could and you kinda look at the stub of the other revenue piece, which, by the way, you guys continue to extract good EBITDA out of it, and then you look at look at b two b, anything that you could be doing inorganically, you know, adding, subtracting that that is left to do?
Speaker 3
Yeah. I I would say that, you know, if you look at our strategic focus, it is really around cross border, cross currency money movement. So things that fit within that strategy, we like and we'll continue to own, and and we may look for other things that help to supplement our strategy there. And things that are not in that definition are potential candidates for us to look at divesting, but there's not much left, really. The only domestic payments business we really have left of any size is in Argentina, and Argentina has its own issues, as you know.
So there's not much more left there, but we're always looking for acquisition opportunities that help to supplement our capabilities or can help to supplement what we wanna do strategically over the next few years.
Speaker 10
Got it. And and a quick clarification if I can on tax rate. You know, I was under the impression the tax rate over the next several couple of years would be stepping down, but in the quarter itself, it it ticked up just a tad. I'm assuming this is just quarter to quarter fluctuation and nothing's changed with regards to out year tax rate going down.
Speaker 3
Yeah. I would say the tax rate outlook for this year is very consistent with what we've been saying all year. So it's in that high teens range given the specific factors from this year, but we do expect it to step down into the mid teens range for the next few years. And specifically, we expect that for next year as well. So we're very much on track with what we've said about the tax outlook.
Speaker 10
Got it. Thank you.
Speaker 11
Thanks.
Speaker 0
The next question comes from Kartik Mehta of Northcoast Research.
Speaker 11
I
Speaker 3
wanted to ask
Speaker 12
you a little bit about your ability to use your physical distribution system for other channels and Amazon specifically maybe because it's so much in we've talked about it so much. But as you look at that particular product, has Amazon or you marketed the product outside The U. S. And some of the other emerging market countries? Or are you is that coming up?
Speaker 2
Yes, not really. It's coming up. This is really Amazon, I believe that's it's first of it's their product. They're gonna promote it. We're gonna upgrade you know, we we are, putting our, our platform there.
It's really the marketing activities really didn't start it. It's coming up, I guess. And, you know, Amazon knowing Amazon, they're very customer friendly. They want to have a 100% good customer experience and everything. So the big big global launch will happen.
At the same time, I have to say that, you know, so far, the test or how do you call it, the start is going pretty well. And, you know, we have countries like Colombia. It's doing very well, actually. And it's really a big launch is coming up hopefully soon, Kartik.
Speaker 12
So so, Hikmet, so it sounds like Amazon has shared with you that they want to launch this product globally so there's more consumer awareness. Is that a fair statement based on your answer? Yes. Okay. And then just one question on pricing.
Obviously, it's very stable. Is there a difference right now that you're seeing from just the physical distribution, the pricing in that channel versus the digital channel is more aggressive than the other or is more one more I guess that's it, is one more aggressive than the other.
Speaker 2
Which say it again, Kartik, digital is more aggressive than the
Speaker 3
Digital versus retail, do we see any differences on the corridors. Yeah. I think it really that's exactly the answer. It depends on the thousands and thousands of corridors that country pairs that, you know, we sometimes we're very aggressively priced, Kartik, and you know this quite well, but sometimes we're very aggressively priced. At other times, we don't need to be so aggressively priced.
In another quarter, if it's retail, for example, we are pricing to maximize the value of our domestic money transfer business. So it just depends. And I think as we migrate to more dynamic pricing capabilities, ultimately, our goal is going to be to drive better lifetime value of customers. So that might mean that we reduce prices in certain areas, we increase prices and we take advantage of conditions because ultimately, you know, as you saw at at Investor Day, we want that customer to not walk away without doing a transaction. So we wanna price the product so that they do that last transaction with us.
Right? So it's just as we evolve to the more dynamic pricing capabilities, that's really going to be how we look at the business.
Speaker 12
Fair enough. Thank you very much. Appreciate it.
Speaker 2
Sure. Thanks, Carter.
Speaker 0
The next question comes from James Friedman of Susquehanna. Please go ahead.
Speaker 11
Hi, it's Daniel. Thanks So for taking my I you you guys covered a lot of territory today. I'll just get two upfront. One, in terms of the compliance, I'm sorry if I missed this, but are we still rising in the 3% range? How should we be thinking about that?
That's the first one. And then the second one is oh, you mentioned Argentina rise. I realized that there's country specific issues there, but what is the narrative around that, Crystal? Is is that still a strategic option for you, or how should we be thinking about that? So one on compliance and the other on Argentina.
Thanks.
Speaker 2
James, it was very hard to hear you. But the first question was, I believe, compliance spend, and the second question
Speaker 3
on Argentina. On Argentina. Yes. Let me James, let me try to address, and then you can let us know if we didn't if we have to say more there. On the compliance spend, the last few years, we've been very consistently spending roughly $200,000,000 It's been in that 3.5 to 4% range.
We are trying to get away from giving specifics now on the compliance spend because it has been so stable. Obviously, we can never predict the future. It depends on where regulation goes, but we feel very good about our compliance capabilities and programs. So it's been very stable would be the message I would give to you there. And then on Argentina, I didn't quite understand your exact question there.
Do you mind repeating that one more time on Argentina?
Speaker 11
Yeah. I my recollection is and I'm sorry about the bad connection. I get the worst connection from Midtown Manhattan. But the pad the pad facil product, is that
Speaker 3
Pago facil?
Speaker 11
Pago facil, is that the strategic options there? Or is that something you're sticking with? Or how can we think about that?
Speaker 3
It's not well, it's a domestic bill payments business. So I would just say that it produces good cash flow, but it's not necessarily it doesn't necessarily fit within the broader strategic area that we want to focus, which is cross border, cross currency money movement. But we like the Argentina business. It's been a good producer for us, and it's it is a part of our portfolio, and that's what
Speaker 2
we have I think Argentina business has been, you know, part of our portfolio. We do use locations with part of our locations also for our inbound outbound business. And, you know, it has been a stable business for many years, and, you know, we have good management there. And, but, you know, our focus continue it's a very small part of our business. Our focus continues to be in cross border cross currency.
Speaker 11
Got it. Thank you.
Speaker 0
The next question comes from Andrew Jeffrey of SunTrust. Please go ahead.
Speaker 13
Hi. Pardon me. Appreciate you taking the question this afternoon.
Speaker 3
Maurice, how are you?
Speaker 13
I'm doing well. Thank you. It's interesting to see this, to me, this kind of juxtaposition between the revenue growth of the business, which clearly stabilizing and picking up in some cases, and then this commitment to return of capital, which I think the markets really like this year, by the way. What I'm trying to understand is, is there some point recognizing you've given us this multiyear plan where if you see real success with some of these newer initiatives that you're calling out, especially considering your compound multiyear revenue growth is essentially being driven by essentially 20% of the business, Where you choose to reinvest and maybe accelerate growth around some of these newer initiatives? Or how are you going to evaluate that versus just sort of being dead set on returning this capital to shareholders?
Speaker 2
We I mean, you know, capital we are very committed to return the capital to the shareholders, and our strength strong cash flow is continue to gonna be there, and we are very committed. But let me step back and tell you why, you know, we are so successful with our opening the platform, why we believe that we're gonna be successful. It's the correct me. And the first signs, it looks like we're gonna continue to be successful. We developed a platform over the years, which gives us the capability to offer our platform to the third parties, which the others don't have it.
The compliance capability, the settlement capability in 137 currencies, real time capabilities in accounts and wallets and cards, it's a huge platform for 200 countries, you know, capable legally capable to operate in 200 countries. These are huge competitive advantage, and we have them already. Now we just adjust our business model to open our platform to the third parties, which doesn't need additional big investments. Really, are looking at our processes, optimizing our process to open our platform to third party. That's a big advantage that maybe others don't have it.
So our platform in the past served the Western Union customers. Now we are really opening, to the platform to solve an issue about third parties. They're gonna move money anyway, but in a hard way. But if they use us, it will be easier way. And that's the incremental part of that revenue.
Of course, we will look at that. If there are incremental opportunities, we will going to invest there. But I don't assume that we will have a huge different investments, which will affect our margins. And we are very committed to our three years margin expansion.
Speaker 3
Yes. Only thing I would just add is that, as we had said, Andrew, on at Investor Day, we are saving we're driving for more savings than just $150,000,000 by 2022. And that is with an eye towards investing back in the business to drive some of these longer term growth opportunities. So we believe that we have enough investment allocated to some of these things, and we'll just have to see how the experience is over the next few years as these things develop.
Speaker 13
Okay. And then as a follow-up, the gross margin cost of service as a percent of sales has been pretty stable. It's been increasing a little bit. Are we to the extent you're driving operating leverage, is it coming more from OpEx as opposed to cost of goods? Because I noticed you haven't been capitalizing a whole lot of commission costs.
It certainly would seem like it's a fairly benign agent environment.
Speaker 3
Yes. Would say that we certainly the fixed expenses will be an area where we get significant amount of our savings. But we also, as you've heard, are driving for efficiencies in our cost of sales, right? And so both will certainly be a factor, but and we want to try to drive leverage. We look at commissions, it's our number one cost item in the company.
So we have to look at that. We have to find a way to be more efficient there, and we believe we have the right strategies there. And so yes, we're getting leverage on our entire cost structure, I would say, and that's a part of the overall formula. As we get the revenue growth, we also get leverage as we keep those costs pretty stable.
Speaker 13
Okay. Appreciate it. Thank you.
Speaker 2
Sure. Thanks.
Speaker 0
The next question comes from David Scharf of JMP Securities. Please go ahead.
Speaker 14
Yes, and thanks for squeezing me in. Wanted to just follow-up with one more question on the XP platform initiative. And I'm wondering, clearly, all the investments in compliance over the years have positioned this to effectively outsource those programs and relationships. And I just wanted to sort of double check. Is there any additional compliance risks or maybe just requirements that you could potentially foresee having to address based on opening up your API and inviting third parties to leverage the platform?
Speaker 2
Well, you know, moving money cross border, cross currency is always complex. It's very regulated. And, obviously, the complexity of the business, understanding the complexity of the business is a competitive advantage for us, and we know it how to do it. But at the same time, there is also risk always, of course. But, you know, we believe we are very well positioned to answer or to respond to many questions and many regulatory requirements that global regulators have.
If we think that in 200 countries and a 137 currencies definitely has something. I don't see additional risk because if you open your platform already to the banks, it's a kind of know your customer environment, you know, already done. But our team is very diligent to choose the right partner. Our team is very much investing to look what how we can move in a in a very compliant way worldwide, and we are very dedicated. We have a great compliance team.
We have a great legal team, and they are really, within the you know, advising us, and they are within the business model here. And that's we see that compliance and anti money laundering activities and responding to them as a competitive advantage.
Speaker 14
Got it. And I would imagine it's no different from the
Speaker 6
way you vet agents as well. Thank
Speaker 14
you very
Speaker 1
Thank you. Andrew, we have time for one more question.
Speaker 0
Thank you. That question will come from Tim Willey of Wells Fargo. Please go ahead.
Speaker 15
Great. And thank you very much for the time. Two questions. The first one was just a housekeeping on the modeling. Raj, could you go back through what the margin impact was from the Speedpay divestiture?
Just want to make sure I've got that accurate sort of in my model and thought process over the next couple of quarters.
Speaker 11
Yes. Yes. I mean, if you look
Speaker 3
at our financial tables, we have quite a bit of detailed information in the tables. So last year, Speedpay and Paymap generated about $370,000,000 of revenue and $110,000,000 of direct profit, and they had a margin benefit to the business of around 70 basis points. And then this year, we had a 40 basis point benefit in the first quarter and then no benefit in the second quarter, and then we sold it, obviously, in May. So no further benefit there. So it should give you a lot of details in the tables.
Speaker 5
Okay. Well, I'll go back
Speaker 15
through those. Thank you for pointing that out. The second question I had was just on on woo.com given the length that you've now had this business and the success. And and, obviously, once assuming lots of repeat customers that have probably been with you now for some time. I guess going back to an earlier question about pricing, just any insights or color you could share around as you sort of test and think about pricing and the stickiness of customers given the duration of how long they've been with you and just any sort of thoughts around engagement?
Do you think people are truly exclusive to woo.com, or do you think there are people out there that their activity might say, hey. They might have another digital money transfer relationship on their smartphone as well as they got comfortable with the ease of using wu.com, maybe thinking about trying out somebody else's service, or do you feel like people are still pretty exclusive to you?
Speaker 2
No. Tim, great question, actually. You know, as you know, the big difference between .com and VaultCon is that at the.com, you have to preregister yourself. You have it's really a customer acquisition in the beginning. And once you are on the system, when we do the our customer and everything, you're really the the loyalty is huge within the westernunion.com.
One of the reason is that no one can match our distribution, network worldwide. So you collect funds via .com, and you can send money anytime to, five one of the 500,000 locations or one of the billions of accounts and in real time. And it took us a while to develop to both sides, and that makes the customer loyal. Once you can send money to your grandmother in Uganda to the next corner and minute in minutes, drop money in a location or to India to an account in minutes, really going in in minutes without any issues. That loyalty is definitely something that we admire.
Saying that, in the new countries team, we are very focused on acquiring new customers, and the existing countries are real, you know, which we've been longer time with westernunion.com. It's all about customer experience and customer loyalty. And I am continue to be excited about westernunion.com. The strategy is definitely in westernunion.com, all about the customer.
Speaker 15
Great. Thank you very much. Really appreciate that.
Speaker 1
Thanks. Okay. Thank you. Thanks, everyone, for joining. Have a good evening.
Speaker 0
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.