Western Union - Earnings Call - Q4 2019

Transcript

Speaker 0

Good afternoon and welcome to the Western Union Fourth Quarter Earnings 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, Andrea. On today's call, we will discuss the company's fourth quarter and full year results and our financial outlook for 2020, and then we will take your questions. The slides for the company of 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. 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 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 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. Although the expense the expenses that have been excluded from adjusted metrics are specific to those initiatives, These types of expenses may be similar to types of expenses that the company has previously incurred and can be 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. 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. Before I turn the call over to Hikmet Erasek, I would I would like to take the opportunity to announce that we have brought in a new daily leader for Investor Relations, Brendon Matrano, who joins us from Evercore ISI, where he was an equity research analyst. You'll be hearing more from Brendon in the near future. Hikmet?

Speaker 2

Well, thank you, Brad, and good afternoon, everyone. I am pleased to say that our business delivered solid results in the fourth quarter, driven by continued strong performance in our digital offerings. Fourth quarter revenue increased 3% on an adjusted constant currency basis and adjusted EPS was $0.38 For the full year, our adjusted results were in line with the financial outlook we provided with third quarter results. Returning cash to shareholders remained a priority as we returned over $880,000,000 to shareholders in 2019. I am pleased that today, we also announced a 13% increase in the quarterly dividend, which reflects the strength of our business and strong profit expectations for 2020 and confidence in our new global strategy.

2019 was a pivotal year for Western Union as we made significant progress towards our vision of being the leader in cross border cross currency money movement and payments and delivered strong financial results. So I would like to take a moment to review some of the key strategic accomplishments from 2019. First, we simplified and created a sharper focus for the business, largely completing our exit from noncore operations with the sale of Speedpay U. S. Domestic bill payment service and The U.

S. Payment mortgage service in the second quarter. The $750,000,000 in proceeds funded enhanced cash returns to shareholders. With the divestitures and smaller domestic money transfers, our business is now primarily focused on cross border services for consumers, financial institutions, banks and other businesses. Our focus aligns with our core competencies in foreign exchange, cross border settlement, compliance and global retail and account payout network.

Second accomplishment in 2019 was we continued to expand our digital business. The westernunion.com service now accounts for 15% for consumer revenues, and cross border revenue increased 26% in the fourth quarter. We also began unlocking the value of our leading global physical and digital cross border cross currency platform, opening into third party partners. For example, we added two significant customers among others, STCPay and Sberbank. Our total digital money transfer revenues increased 24% reported or 25% constant currency in the fourth quarter.

Today, we operate one of the most extensive digital platforms for cross border cross currency money movement, whether branded direct offerings like westernunion.com or digital offerings like that enable our partners like TD Bank, Sberbank or STCPay. Both westernunion.com and white label offerings continue to have very strong growth potential. We have recently integrated digital services with three of Europe's largest postal institutions, France, La Vanc Postal, Italy's PostaPay and the UK Post. We also recently announced a new partnership with Barte Airtel, a global telecommunications company with operations across Asia and Africa. We will soon offer real time payments into millions of Airtel payments bank accounts in India and mobile wallets across 14 countries in Africa.

We have established non remittance white label payments use cases, such as our partnership with Amazon for global e commerce payments, further expanding our addressable market to consumer to business payments. And in business payments, Western Union Business Solutions continued its growth trend led by strong performance in the education and financial institution verticals, which translated into solid revenue growth of 4% on a constant currency basis for 2019. So it was a quite good year. While we made significant progress in 2019, we are not content and will continue to drive our business forward in 2020. We laid out our strategic vision at our September, and I would like to highlight three key strategic objectives we will focus on in 2020: enhancing our global network, driving our digital growth and optimizing our organization.

We will work to enhance our global payments network, improving the cost coverage and quality and further leverage it with additional third party partnership. Today, our vast platform capabilities include both digital and physical money movement networks with over 550,000 locations across more than 200 countries and territories, digital spend capabilities in over 70 countries and bank account payout capabilities in over 100 markets offering across to billions of accounts. We will continue to grow our network and will also improve the quality by adding new value added services like real time account payout, which we expanded during 2019. We now offer customers the ability to transfer funds into an account in real time in over 20 countries with plans to expand it to over 100 countries this year. The value added payout services should help us gain new customer segments such as e commerce and financial institutions.

We will drive our digital strategy forward to serve consumers whenever, wherever and however they desire and expand aggressively over the next few years, including large opportunities like the $120,000,000,000 outbound market in The Gulf States or the $25,000,000,000 outbound market in China and India. Our goal is to evolve in the world's ultimate agnostic network for payments and cross border money movements. We are also transitioning our West Union branded consumer business from a transaction based model to a lifetime value model, optimizing the customer experience and improving retention. To achieve this goal, we have further developing and applying strong data analytic capabilities to our rich pool of global data over 200 countries, allowing us to price dynamically, market more precisely and ultimately enhance our ability to drive revenue growth. Our third strategic objective is to strengthen and optimize our organization.

West Union has tremendous talent. Building on the foundation of Wu Way lean capabilities and the transformation office, we will leverage internal resources more effectively to improve execution, enhance profitability and drive margin expansion. In addition to that, we will continue to selectively add new team members who can impact our business. A great example is the recent addition of Shelley Swambach, our new president of product and platform. Shelley comes to Western Union from Accenture, where she was instrumental in building the firm's digital services.

Shelley reports directly to me and play a critical role in enhancing our global platform. Finally, while we will continue to focus on driving shareholder value with strong financial results, We will also focus on delivering value for all stakeholders to our environmental, social and governance efforts. The details of these efforts can be found in our 2018 ESG report. We plan to issue our 2019 ESG report later this spring. And one more thing, during the past month, we have also achieved a significant milestone in our U.

S. Joint settlement agreements. The term of the deferred prosecution agreement with the Department of Justice expired on January 19. Under the DPA, to close out this matter, the DOJ has ninety days from the expiration to file for dismissal of the charges. We understand that DOJ will make a motion to dismiss the DPA promptly.

We will continue to work to protect our customers and partners by maintaining strong compliance programs, which we believe give us a competitive advantage. In closing, we made significant progress in 2019, and we begin 2020 better positioned than ever before to capitalize on the significant opportunity in the large and growing money transfer and global payments market. I am confident in our ability to deliver the 2022 margin and EPS targets, and our outlook this year reflects our expectations for a strong start to achieve our goals. Raj will discuss our financial outlook and long term targets in more detail. I remain excited about our long term prospects and would like to thank to all our team members for their hard work and commitment.

And a big thank you to our business partners, agents, consumers and shareholders from all over the world for your trust and loyalty. With that, I'll turn the call over to Raj.

Speaker 3

Thank you, Hikmet. I will focus my comments primarily on the fourth quarter. The similar information for the full year can be found in our press release and the attached financial schedules. Given the impact of the divestiture on prior period comparison and restructuring costs from our productivity program, there are a number of puts and takes in our fourth quarter results. Our adjusted results remove most of the impact of the factors which will not affect our future results.

Fourth quarter revenue of $1,300,000,000 declined 7% compared to the prior year period, while adjusted constant currency revenue, which excludes our divested businesses in the prior year period, increased 3%. Currency translation, net of the impact of hedges, reduced fourth quarter revenue by approximately $42,000,000 compared to the prior year, primarily due to the depreciation of the Argentine peso. The decline in 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 1%. In the consumer to consumer segment, reported revenue was flat or increased 1% constant currency, while transactions declined 1% primarily due to some civil unrest, macroeconomic and market specific issues in a few countries. Total C2C cross border principal increased 1% or 2% on a constant currency basis.

Principal per transaction was flat or increased 1% constant currency. The spread between C2C transaction and revenue growth in the quarter was 1%, with a negative 1% impact from currency. Pricing was higher in the fourth quarter compared to the prior year and was largely offset by mix. The net impact was positive on revenue in the quarter. Turning to the regional results.

North America revenue grew 1% on a reported and constant currency basis, while transactions declined 4%. Revenue growth in the region was led by The U. S.-to Mexico corridor and other U. S. Outbound businesses, which was partially offset by continued declines in U.

S. Domestic money transfer. U. S. DMT trends were similar to last quarter, and we expect declines will continue this year as we manage the business for cash flow.

Revenue in the Europe and CIS region increased 1% or 2% on a constant currency basis, driven by Spain, Russia and France. Transactions in the region increased 5%, aided again by the spare bank white label business. Revenue in The Middle East, Africa and South Asia region was flat on both a reported and constant currency basis. Revenue trends in the region reflected slower growth in Saudi Arabia and The UAE in the quarter, civil unrest in Lebanon and continued hard currency limitations in certain African markets. Transactions declined 1% as strong growth in digital transactions was offset by declines in retail.

Sends from the region to India were negatively impacted by cash tax implemented in September that impacted our agents' ability to make cash payments. It was subsequently removed, but it may take some time to return to previous transaction levels. We are also making adjustments to marketing, pricing and other incentives in the region to improve growth. The Latin AmericaCaribbean region delivered strong constant currency revenue growth led by Chile and Mexico outbound despite civil unrest in multiple South American countries. Revenue in the region declined 2% on a reported basis or increased 6% constant currency, while transactions grew 4%.

In the APAC region, revenue declined 10% on both a reported and constant currency basis. Revenue trends improved compared to last quarter's rate, partially due to pricing actions in certain markets. Transactions were down 7% in the region, driven primarily by The Philippines domestic business, which has limited impact on profits. Digital Money Transfer revenues increased 25% on a constant currency basis in the quarter, including westernunion.com and third party white label services. Westernunion.com revenue grew 17% or 18% constant currency.

Wu.com now represents 15% of total C2C revenue in the quarter. Cross border westernunion.com revenue increased approximately 26%, which was partially offset by declines in domestic money transfer. Business Solutions revenue was flat on a reported basis or increased 1% constant currency and represented 7% of company revenues in the quarter. Constant currency revenue growth was driven by strong performance in Europe as well as strong growth in the education and financial institution verticals, which were offset by slower growth in hedging services. Other revenues, which consist primarily of our retail bill payments businesses in The U.

S. And Argentina, decreased 52% in the quarter, which reflects the impact of the Speedpay and Paymap divestitures in May. The Pago Facial walk in business in Argentina posted good increases in transactions and local currency revenue growth. 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 17.3% in the quarter compared to 19.3% in the prior year period. The decline was primarily due to higher marketing investment compared to the prior year period, the impact of restructuring expenses in the current quarter and the divestiture of the Speedpay in May 2019. We incurred $17,000,000 restructuring expense in the fourth quarter and $115,000,000 for the full year, which was slightly higher than we expected in 2019 due to the timing of some items, but we continue to expect a total of approximately $150,000,000 of restructuring expense with the remainder to be incurred this year.

Adjusted operating margin in the fourth quarter was 18.7% compared to 19.9% in the prior year period, with the decrease primarily due to higher marketing investment and the Speedpay divestiture. Speedpay contributed about 60 basis points to last year's fourth quarter margin, while foreign exchange hedges provided a benefit of $7,000,000 in the current quarter and a benefit of $4,000,000 in the prior year period. The GAAP effective tax rate was 31.4% in the quarter compared to 9.8% in the prior year period, while the adjusted tax rate of 24.5% compared to 6.8% in the prior year period. The increase in the GAAP and adjusted tax rates was primarily due to certain discrete benefits in the prior year period. Also, while we expected the fourth quarter to have the highest tax rate of the year, it was further increased by onetime settlements in certain geographies.

The GAAP rate also included additional taxes associated with the May 2019 divestitures. GAAP earnings per share in the quarter was $0.32 compared to $0.48 in the prior year period, and adjusted earnings per share in the quarter was $0.38 compared to $0.51 in the prior year. The year over year decrease in both GAAP and adjusted EPS was primarily due to a higher effective tax rate, the divestitures and higher marketing investment, partially offset by fewer shares outstanding. Turning to our cash flow and balance sheet. GAAP cash flow from operating activities was $915,000,000 for the full year, which exceeded our outlook primarily due to favorable working capital items.

Adjusted cash flow from operating activities was $1,100,000,000 in 2019. Capital expenditures were approximately $34,000,000 in the quarter and $128,000,000 for the full year. At the end of the year, we had cash of $1,500,000,000 and debt of $3,200,000,000 During the fourth quarter, we issued $500,000,000 in 2.85% notes. We redeemed $325,000,000 in notes due this year and reduced commercial paper. We returned $149,000,000 to shareholders in the fourth quarter, including $84,000,000 in dividends and $65,000,000 of share repurchases, which represented approximately 2,500,000.0 shares.

The outstanding share count at quarter end was $418,000,000 shares, and we had $1,000,000,000 remaining under our share repurchase authorization, which expires December 2021. As Hikmet noted, we're off to a good start to deliver on our strategic initiatives and restructuring plan, which is reflected in our strong operating margin and EPS growth outlook for 2020. Our outlook assumes no material change from current macroeconomic conditions. We expect GAAP revenues for the full year to be a flat to low single digit decline, primarily due to the divestiture of Speedpay in May 2019. On an adjusted constant currency basis, we expect low single digit revenue growth this year, which excludes the Speedpay revenues and any benefit related to Argentina inflation.

Operating margin on a GAAP basis is expected to be approximately 20%, while adjusted operating margin is expected to be approximately 21% as we continue to focus on generating efficiencies, and we will begin to benefit from restructuring savings weighted toward the second half. We continue to expect to realize approximately $50,000,000 of annual savings from restructuring in 2020, increasing to $100,000,000 in 2021. In addition to this, we expect to realize other efficiency savings of $50,000,000 by 2022 for a total of $150,000,000 of annual savings in 2022. We expect the GAAP and adjusted effective tax rate to be in the mid teens range this year. GAAP EPS for the year is expected to be in a range of $1.87 to 1.97 while adjusted earnings per share is expected to be in a range of $1.95 to $2.05 which represents growth in the teens.

Cash flow from operating activities is expected to be approximately $900,000,000 while adjusted cash flow from operating activities is expected to be approximately $1,000,000,000 We expect to spend approximately $500,000,000 on share repurchases for the full year. In summary, we delivered our full year adjusted financial outlook in 2019. We made good progress in our restructuring activities and our new global strategy designed to drive profitability, efficiency and long term growth. We generated strong cash flow and continue to return significant funds to shareholders. We look forward to delivering on our strategy and our long term financial targets of operating margin of approximately 23% in 2022 and a low double digit earnings per share CAGR for the three years ending 2022 off of adjusted 2019 EPS.

Thanks for joining the call today. And operator, we are now ready to take your questions.

Speaker 0

If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. And our first question comes from Brian of Deutsche Bank. Please go ahead.

Speaker 4

Hey, guys. This is Corey Marcello on for Brian Keene. I wanted to ask, I guess, first on the guidance. I know the three year outlook is calling for 2% to 3% growth in consumer, but any color just for next year in terms of how you think business solutions and maybe other revenue will shape up? I guess, in particular, you're going to have some lapping impacts from the divestiture, so I didn't know if you had any comments on sort of the quarterly cadence of revenue growth for the year.

Speaker 2

Well, I can, Raj, jump in, but let me start. Look. In the fundamentals, nothing has changed. We really assume that our business will perform, especially our digital expansion will perform. The digital expansion for us, is it branded or white labeling, will gonna go?

And that you saw the recent numbers on our growth numbers are quite impressive. And that's from a different base than the competitors have. Right? We have been investing here for a long time and growing very strong in digital expansion. That continue to go.

The other part is that dropping money on a on real time on accounts, that will kinda continue to go. And offering a retail cash payout and dropping money in real time is a huge competitive advantage within our capabilities. And look. We also started to drop money for businesses. Right?

I mean, we are collecting for Amazon, you know, from consumer in different countries businesses. We are doing transactions for third parties, and our business the business has had a good year growing by 4%. So, generally, I would say that nothing has changed from our investors' day. We are in a good momentum. We like our business.

We like how we are performing, especially also our transformational activities and our efficiency activities are very promising. And we are still in target with our 2022 goals. Anyone, you want to add something?

Speaker 3

I think you covered it. Mean, yeah. So I think we're good.

Speaker 4

Okay. Great. I guess just as a follow-up, you mentioned, obviously, Amazon and third parties there. Guess, can you give maybe a broader update on kind of what the what the pipeline looks looks like for those third parties? And in particular, maybe the Amazon partnership, any update there in terms of, plans for the year and market go live?

And is there anything kind of baked into the guidance from some of this stuff that, you know, you've called out as more longer term, I guess, for next year? Thanks.

Speaker 2

Yeah. I think it's a as you said, it's a longer term. We started in a very good, you know, very good strong digital growth. Definitely, partnership helps in our strong growth. Right?

Look, we go to market. We are talking. And, you know, in some countries, we're offering our .com business, in some countries on our digital white labeling part, depending on our partner, depending on the legal environment, depending on the consumer relationship. But the good news is that the partners are choosing our capabilities to move cross border, cross currency money. And that's that capability having two countries and capable operating in 200 countries is unique.

And so, I mean, it's still small, but growing very, very strong and has good potential. And we will definitely update with additional partners. I mean, we recently signed three big postal offices like the Lavang Postal, UK Post, and the Italy Post. Italy Post is, for instance, having access to 7,000,000 consumers, Italian consumers with their mobile phones. Right?

And, you know, they'll go they do transaction cross border by using our platform. So it's quite impressive, and we drop money in in real time for them. And that's gonna continue. It depends really on the partnership how how they choose, if they choose Western Union brand or, you know, being a partner like Amazon, which Amazon uses their own codes. We are for them a service provider to collect money for their online services.

Speaker 1

Alright. Thanks, guys.

Speaker 3

Thanks, Corey.

Speaker 0

Our next question comes from Darrin Peller of Wolfe Research. This

Speaker 5

is Andrew on behalf of Darrin. Wanted to drill into North America for a little bit. It looks like the delta between transactions and revenues has was relatively stable over the last couple of quarters and widened a little bit this quarter. I was wondering, is there any impact of the digital transactions in that number? Is that largely all domestic?

And if you can provide any other additional color on what you saw in domestic in the quarter and further into the outlook for 2020?

Speaker 3

Yeah. North America, you know, I would say that one of the key driver was really declines in our domestic money transfer transactions in The US. We also have a very small Philippines intra business that has a heavy number of transactions, which was also declining. So that has an impact on overall mix. The US to Mexico market also was just softer from a market standpoint, although we continue to gain share there.

And then, you know, we also put new principal limits in place for US to Cuba. So some of these things had an impact in the quarter. You know? But overall, I would say the, you know, the digital part of the business, if you look at the cross border part of of oo.com again, which, you know, North America is a contributor there, obviously, you know, that grew at 26%. So the digital part continues to do well.

The the domestic part of digital certainly was a little bit worse in the quarter than it was in the previous quarter.

Speaker 5

And then that new metric, the digital revenues that you called out, how should we think about that mix across all the different regions that you have? I mean, I think it's the first time that you've really been able to separate them like that. So maybe just letting us get a better sense of how we should think about that across segments. Yeah.

Speaker 3

I mean, right now, the digital, which grew 25% in the quarter, includes wu.com and as well as the digital white label partners. And we only have a handful of those right now, and the two primary ones are Saudi Telecom in Saudi Arabia and Sberbank in Russia. So those are the two primary ones that are driving a lot of the additional growth. So there's not much to cut in terms of where it is globally. It's in those two regions, if you will, in The Middle East as well as in Europe.

And, you know, so we're we certainly, we wanna sign more partners and more more opportunities. You know? We really look at the total digital as being one type of offering with branded and nonbranded offerings, and they're both leveraging our platform capabilities.

Speaker 2

Right? Basically use our same platform. You go to market, and it's the partner's decision if they use their their brand. In that case, in Saudi Arabia for Saudi Telecom did use it, but it's the Westernunion Dot Com platform. And our our platform westernunion platform and our network, we drop money over our network.

So it's really a digital transaction with different brand.

Speaker 5

All right. Thanks, guys.

Speaker 2

Sure. Thank you.

Speaker 0

Our next question comes from Ramsey El Assal of Barclays. Please go ahead.

Speaker 6

Hey, guys. This is actually Ben Budish on for Ramsey. I wanted to kind of follow-up on the white label wallets you guys talked about and just kind of looking at the growth in Europe versus The Middle East. I know you called out some onetime factors impacting The Middle East growth, but is there anything to read through there, like maybe the growth in transactions at Sberbank are growing better than those STC? Or is that really all related to kind of those onetime factors that you called out?

Speaker 3

Yeah. Would say most of it is related to the onetime factors. And we'll see how long the Lebanon civil unrest we called out. There's some in Syria. And then, obviously, the India tax is also the other factor, which, you know, the the issue was reversed.

So the tax came into play late in the third quarter, but then it was reversed in the fourth quarter. But we did have some customer attrition, and that's what we're working through right now. So we've assumed that in the first part of this year, we'll see some of that, but we should be able to work through that as the months come along here. So it's really related to those factors rather than any shift in mix, if you will.

Speaker 6

Okay. And then just kind of following up on, again, on the white labels. Would you say that performance has been kind of in line with expectations? I mean, we got like a little hint of it back at the Analyst Day,

Speaker 1

like things were growing quite nicely.

Speaker 6

Is there any any change to that, or does it seem like things are

Speaker 1

kind of moving along according to plan?

Speaker 3

Yeah. I would say things are moving along very much according to plan. They're doing quite well, and, you know, we're very excited about them. And we want to continue to add more and more partners to the mix.

Speaker 6

Okay, great. Thanks for taking my questions.

Speaker 3

Thank you.

Speaker 0

Our next question comes from Vasu Goval of KBW. Please go ahead.

Speaker 7

Hi, thanks for taking my question. I guess the first one on the pricing front, it seems like here that's been a tailwind for a couple of quarters now. Can you talk about whether you're starting to see an impact from your dynamic pricing initiative or it's just the underlying trends are better? Then if you could also comment on what's enabling the stability in the pricing environment because it doesn't seem like the competitive environment has necessarily abated.

Speaker 2

Well, pricing environment, obviously, as we said earlier, partly impacted by mix, partly with the strong pricing environment. We feel comfortable with our dynamic pricing activities. As you know, we adjust our pricing corridor by corridor, even ZIP code by ZIP code, customer behavior by customer behavior. And this effort started, and, you know, we start in few corridors, we will expand that globally. And that's something that we are very excited about that.

You can compare like a big airliner. You fly one direction. You have different customers with different needs, with different price payments. That's gonna happen, and that's what we are aiming to. And we started in some quarters, and we see good good return on that.

And that's just the beginning of the story, though, and we are quite excited about that.

Speaker 7

Great. Thanks. And just a quick follow-up on the transaction growth trends, Raj. I think you mentioned on a previous question that you're assuming that that will kind of continue to be weak in the first half. Is that true for just the India piece or all the various one timers that you saw this quarter?

And then just to confirm, does coronavirus have any impact on your business, positive or negative?

Speaker 3

Yeah. In terms of the onetime items that we called out for q four, obviously, the ones that are under our control, we're we're actioning those. There are some things that are more country specific issues, civil unrest. It's not really under our control, but we've assumed that some of these things will continue for the first part of this year. We don't expect them to continue for the entire year, but, certainly, we'll we'll, you know, update you as we as we see more.

From a coronavirus standpoint, we have not assumed any material impact for coronavirus. China for us is about 2% of our total revenues, and it's mostly inbound in nature. And that's you know, obviously, the conditions are evolving every single day, so we need to see how that plays out next year.

Speaker 2

On China, I mean, you know, first of all, we support our employees and look after them, and, you know, it's very important also agent locations. But most of the agent locations are active. And as you said, it's only 2% of our our business. But at the same time, I wanna mention that also we can drop money in in minutes on an account in China. So if people don't feel to go to the location and have a physical payout, they could also do it online, and this is one of the growing parts of our business.

And so we do really don't see big impact from coronavirus yet. Now I can't judge it generally, but we'll have that to general global economy, but that's the specific areas we don't see big impact on our business.

Speaker 7

That's very helpful. Thank you very much.

Speaker 3

Sure.

Speaker 0

Our next question comes from Andrew Jeffrey of SunTrust. Please go ahead.

Speaker 8

Hi, good afternoon. Appreciate you guys taking the question.

Speaker 1

No worries.

Speaker 8

Conceptually, I'm just wondering how you're thinking about the business, Rogers. I think you made a comment about the domestic business increasingly being a source of free cash and presumably return of capital. It would appear that strictly looking at wu.com, it's 100% of your C2C growth today. Should we think about that as sort of the future and the balance of the business as really being a cash cow for lack of a better term and fueling investments to support digital and returning capital to shareholders. Is that a reasonable framework?

Speaker 3

Yeah. I think, Andrew, as we laid out at Investor Day, you know, we, you know, our we we said that our assumption was for two to 3% overall growth over the next three years, and that has not changed. And the composition of that was a flattish type retail business. Obviously, we'd like to get a little bit of growth out of it, but we do believe that can be the case. And then we expected digital to grow in the 20% range.

And off of a base of $600,000,000 last year, that's quite a bit of contribution. And then we also expected and and continue to expect that the b two b business will grow in the mid single digit range. So those are the components we're thinking about. Obviously, we want to drive to more than just two to 3% growth. That's not satisfactory, and that's where really our platform strategy comes into play and signing more and more partners as we move along.

But just the last point on the on the domestic business, it was about 6% of our total revenues last year. So it's becoming a smaller and smaller piece overall of the company, and and that's probably a trend we're gonna see for a little while. So and that's what we've assumed in our outlook for this year as well.

Speaker 8

Okay. So still still hoping that that retail business, I guess, can can turn the corner for you.

Speaker 2

Yeah. Because yeah. Go ahead. Oh, yeah. I mean, you know, you know, we assume a flat business, but nobody has the strength of retail, I mean, compared with our, you know, our global coverage.

And most importantly, you connect digital with retail that we can pay out in different economical environments, different you know, we serve different customer segments on the send side. We do serve different customer segment on the receive side. And combining that, it's a big advantage for us that drives the growth of digital, paying out in cash or paying out in an account or paying out in a wallet. And that in real time, it's huge, and that's definitely gonna continue happening in the retail business.

Speaker 3

Yeah. And I think as you as you saw at investor day, and it continues to be the case, you know, the opportunity on the retail side is to drive more dynamic pricing capabilities. So time of day, day of week, location density, those kinds of things give us confidence that we can keep the retail business in the flattish type range because there's more opportunity there that we haven't fully maximized yet.

Speaker 8

Okay. And I apologize if I missed it, but it looks like yields on wu.com improved again this quarter. What's driving that?

Speaker 3

Yes. I mean, there was certainly some mix impact from the domestic business and things because we're running the domestic parts of our business for cash, if you will. And so that certainly has a positive mix on the revenue side. There was also some pricing that we did. As we've mentioned, net pricing was beneficial, net of the mix in the quarter.

And, you know, so we we feel good about where the overall digital business is. You know, we had 25% revenue growth in digital, but over 30% transaction growth in that digital business. So we're doing quite well overall on the digital side.

Speaker 8

Okay. So that's that's pricing specifically at @ wu.com or across

Speaker 3

On the branded wu.com offering. Yes. Okay. Alright. Thank you.

Sure.

Speaker 0

Our next question comes from Tim Chiodo of Credit Suisse. Please go ahead.

Speaker 9

Good afternoon. Thanks for taking my question. I wanted to talk a little bit about the unit economics of some of the digital white labeling programs. I know we've talked about in the past that the revenue per transaction is obviously a little bit lower, but maybe you could talk about the absolute EBIT dollars per transaction and how that might compare to a traditional Western Union transaction.

Speaker 3

Yeah. First of all, I would say it's still early stages on the white label partners, and we're gonna continue to learn on what kind of economics they can provide. But you're you're absolutely right. You typically will have a lower starting point from a revenue per transaction standpoint, but we also don't have much cost in that transaction either as we do in our branded offerings. You know, the in a wu.com transaction, we are paying you know, we're we're investing heavily in marketing to acquire customers.

We also have fraud losses and other things that we're paying for. But in a white label transaction, we are being delivered a customer who wants to do a transaction with us and has good funds. Right? So we don't spend the marketing dollars there, and we really have the processing cost. So the margins in the white label offerings can be quite high actually.

And we're going to learn more as we launch more of these partners. But based on our early experience, it can be a very profitable business. And last thing I would say is that we see it largely as an incremental business, so incremental revenues and incremental profits.

Speaker 9

Right on. Thank you.

Speaker 1

Yeah.

Speaker 9

And to get a little bit more at the absolute dollar. So I understand that the revenue is lower and the margin percentage could be higher, but could the act could the absolute dollar actually be similar?

Speaker 3

It depends. It depends. You know, I can tell you one of the examples we have that's currently going on is very profitable. The other one is not as profitable, but we're getting, again, incremental revenues and incremental profits. So it's not you know, obviously, it's important on how much money we're making per transaction.

But as long as we're getting incremental business for the company and it's within our overall framework, that's the most important thing for us. So, you know, we'll learn more over time, we wouldn't be doing this if it wasn't profitable for us.

Speaker 2

It's both are Both are profitable, and but it depends on the partner. I mean, also, the new additions of our the post offices will be very profitable, but it depends on the partner and the geography and which corridor you are placing that. And it's like, you know, started our westernunion.com business. As you know, as we started, it was only as we start to report, it was only 1% of our revenue. Now it's about 15% of our consumer revenue.

It's a huge part of that. And same same approach we think also could be done by by our digital business, like adding on the web combining.com and digital business will be a big part of the future of the company and will be very profitable.

Speaker 9

Great. Thanks a lot. That's really helpful. I appreciate it.

Speaker 3

Sure. No problem.

Speaker 1

Andrea, do we have anyone else in the queue?

Speaker 0

There's no one in the queue at this time. But if anyone else would like to ask a question, they may press star then 1.

Speaker 2

Okay.

Speaker 1

Great. Okay. Well, thank you, everyone, for joining. We'll end it here. Thanks.

Thank you.

Speaker 0

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.