Good afternoon and welcome to the Western Union Fourth Quarter Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] 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.

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 that accompany this call and webcast can be found at westernunion.com under the Investor Relations tab and will remain available after the call. Additional operational statistics have been provided in supplemental tables with our press release. 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 & Exchange Commission, including the 2018 Form 10-K, for additional information concerning factors that could cause actual results to differ materially from forward-looking statements. During the call, we will discuss some items that do not conform to generally accepted accounting principles. We have reconciled those items to the most comparable GAAP measures on our website, westernunion.com, under the Investor Relations section. We will also discuss certain adjusted metrics although 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 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 Ersek, I would like to take the opportunity to announce that we have brought in a new deal leader for Investor Relations, Brendan Metrano; who joins from – joins us from Evercore ISI, where he was an Equity Research Analyst. You’ll be hearing more from Brendan in the near future. Hikmet?

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 the 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 million to shareholders in 2019. I am pleased that – I am pleased that today, we also announced a 13% increase in the quarterly dividend, which reflects the strength of 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 non-core 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 million 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.…

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 comparisons and restructuring costs from our productivity program, there are a number of puts and takes in our fourth quarter results. Our adjusted results removed most of the impact of the factors which will not affect our future results. Fourth quarter revenue of $1.3 billion 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 million 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 principle 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…

[Operator Instructions] And our first question comes from Bryan Keane of Deutsche Bank. Please go ahead.

Hey guys, this is Korey Marcello on for Brian Keane. 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?

Well, I can 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 and Bill is going to 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 real-time on accounts that will continue to grow. And offering retail cash payout and dropping money in real time. It's 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 – from consumer in different countries, businesses. We are doing transactions for third parties and our business-to-business 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 affirming, especially those are transformational activities and our efficiency activities are very promising. And we are still in targeted our 2022 goals. Anyone you want to add something?

I think you've covered it. So I think we're good.

Okay, great. I guess just as a follow-up you mentioned obviously Amazon and third parties there. I guess, can you give maybe a broader update on kind of what the pipeline looks like for those third parties and in particular maybe the Amazon partnership, any update there in terms of like 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've called out as more longer term, I guess for next year? Thanks.

Yes, I think it's as you said, it's a longer term. We started in a very good stronger digital growth; definitely our partnership helps on our strong growth, right? And look, we go-to-market, we are talking and in some countries we offering our dotcom 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 of 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 La Banque Postale, UK Post and the Italy Post. Italy post is for instance having access to 7 million consumers – Italian consumers with their mobile phones, right. And they will go – they do transaction cross-border by using our platform. So it's quite impressive and we dropped money in real time for them. And that's going to continue. It depends really on the partnership how they choose, if they choose Western Union brand or being a partner like Amazon, which Amazon uses their own codes, we are referred them as service provider to collect money for their online services.

All right, thanks guys.

Thanks Korey.

Thank you.

Our next question comes from Darrin Peller of Wolfe Research. Please go ahead.

Hey guys, this is Andrew, on behalf of Darrin.

Hey, Andrew.

I wanted to drill into North America. Hey, how's it going Raj? I want to drill into North America for a little bit. It looks like the Delta between transactions and revenues was relatively stable over the last couple quarters and widened a little bit this quarter? I was wondering, is there any impact of the digital transactions in that number or 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?

Yes. North America, I'd say that one of the key driver was really declines in our domestic money transfer transactions in the U.S. 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 U.S.-to-Mexico market also was just softer from a market standpoint, although we continue to gain share there. And then we’ve also put new principal limits in place for U.S.-to-Cuba, so some of these things had an impact in the quarter. But overall I would say the digital part of the business, if you look at the cross-border part of wu.com again, which North America is a contributor there obviously that grew at 26%. So the digital part continues to do well. The domestic part of digital, certainly it was a little bit worse in the quarter than it was in the previous quarter.

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 the segments? Thanks.

Yes, I mean, right now, the digital, which grew 25% of the quarter includes wu.com and as well as the digital revenue for partners. We only have a handful of those right now. 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, certainly we want to sign more partners and more opportunities. We really look at the total digital is being one type of offering, with branded and non-branded offerings and they're both leveraging our platform capabilities, right?

They basically use our same platform, go to market and it's the partner's decision if they use their brand, in that case in Saudi Arabia for Saudi Telecom user, but it's the westernunion.com platform and our platform, by seeing platform and our network, we dropped money in our network. So, it's really a digital transaction with different brands.

All right, thanks guys.

Yes, thank you.

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

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

Yes, I would say most of it is related to the one-time factors and we'll see how long the Lebanon, civil unrest be called out, there’s some in Syria and then obviously the India tax is also the other factor, which the issue was reversed. So that 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.

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've got like a little hint at the back of the Analyst Day and it looks like things were going quite nicely, is there any change to that or does it seem like things are kind of moving along according to plan?

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

Okay, great. Thanks for taking my questions.

Thank you.

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

Hi. Thanks for taking my question. I guess the first one on the pricing front, it seems like clearly that's been a tailwind for a couple of quarters now. Can you talk about whether you are starting to see an impact from your dynamic pricing initiative or it's just the underlying trends are better. And 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 is necessarily abated?

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 a ZIP code by ZIP code, customer behavior by customer behavior and this effort started and we start in few corridors and 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 going to happen and that’s what we are aiming to and we started in some corridors and we see good return on that. And that’s just the beginning of the story though and we are quite excited about that.

Great. Thanks. And just a quick follow-up on the transaction growth trends, Raj. I think you mentioned on the 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?

Yes. In terms of the one-time items that we called out for Q4, obviously, the ones that are under our control where we’re auctioning 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 update you as we at least 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, obviously the conditions that are evolving every single day. So, we need to see how that plays out.

Yes. And China, I mean, first of all, we support our employees and look after them and it’s very important those agent locations, but most of the agents’ locations are active. And as you said, it’s only 2% of our business. But at the same time, I want to mention that also we can drop money 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, what we’ll have that go to general global economy, but at the specific areas we don’t see big impact on our business.

That’s very helpful. Thank you very much.

Sure.

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

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

Hi, Andrew.

just conceptually, I’m just wondering how you’re thinking about the business, Raj. 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 CTC growth today. should we think about that as sort of the feature and the balance of the business is 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?

Yes. I think Andrew, as we laid out at Investor Day, our – we said that our assumption was for 2% 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 million last year. That’s quite a bit of contribution. And then we also expected and continue to expect that the B2B 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 2% 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 last point 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 that’s probably a trend we’re going to see for a little while, so – and that’s what we’ve assumed in our outlook for this year as well.

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

Yes. Yes. Go ahead.

Yes. I mean, we assume a flat business, but nobody has the strength of retail. The mix compared with our global coverage and most importantly, you connect digital with retail, that we can payout in different economical environments, different – we serve different customer segments on the send side. We do serve different customers 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’s in real-time, it’s a huge, and that’s definitely going to continue happening in the retail business.

Yes. And I think as you saw at Investor Day and it continues to be the case, 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.

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

Yes, I mean there – 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 so we feel good about where the overall digital business is. 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.

Okay. So that’s pricing specifically at wu.com or across…

On the branded wu.com offering? Yes.

Okay. All right. Thank you.

Yes.

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

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?

Yes. First of all, I would say it’s still early stages on the white label partners and we’re going to continue to learn on what kind of economics they can provide, but 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. The wu.com transaction, we are paying, 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 costs. 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, that 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.

Right on, thank you. [Audio Dip] 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 be – could the absolute dollar actually be similar?

It depends. It depends. 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 – 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, we’ll learn more overtime and we wouldn’t be doing this if it wasn’t profitable for us.

Yes. it’s both are – sorry, 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 started our westernunion.com business. As you know, as we started, it was only – as we started 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 approach, we think also could be done by our digital business like adding on the combining wu.com and digital business will be a big part of the future of the company and will be very profitable.

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

Sure, no problem.

Andrea, do we have anyone else in the queue?

There’s no one in the queue at this time. [Operator Instructions]

Great. Okay. Thank you everyone for joining. We’ll end it here. Thanks.

Thank you.

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