Western Union CO Q1 FY2020 Earnings Call

Good day and welcome to the Western Union Company First Quarter 2020 Earnings Release Conference Call. All participants will be in listen-only mode. Please note this event is being recorded. I would now like to turn the conference over to Brendan Metrano, Vice President Investor Relations. Please go ahead.

Thank you. On today's call, we will discuss the company's results for the first quarter of 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. Western Union is still following a work from home policy. So on a remote call today is our CEO, Hikmet Ersek, our CFO, Raj Agrawal, and head of Treasury and Investor Relations, Brad Windbigler. 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 the 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, 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 are subject to copyright protection. Other than the replay noted in our press release, Western Union has not authorized and disclaims responsibility for any recording, replay or distribution of any transcription of this call. I will now turn the call over to our CEO Hikmet Ersek.

Well, thank you, Brendan, and good afternoon everyone. We hope you and your families are safe and well. Our thoughts are with all of those who have been affected by COVID-19. Western Union has been determined to do its part by living up to our responsibilities as one of the most trusted global brands delivering essential services to millions of customers worldwide during this unprecedented and challenging time. We are grateful to all of the frontline dealers and essential workers as well as our employees and partners who are working tirelessly to combat this global health and economic crisis. During our call today, our CFO Raj Agrawal and I will share how Western Union is navigating the current environment and discuss our first quarter results. We will also share our views on the market environment impacted by COVID-19 and provide our perspective on economic and customer trends. The COVID-19 pandemic has brought social and business life to a grinding halt. Stock markets have been volatile, global GDP growth projections have plummeted to near historic lows, and unemployment rates in many countries have surged. The effects of this pandemic are likely triggering one of the greatest economic shocks of the past century. Our industry is no exception and we are experiencing the impacts of the COVID-19 pandemic. Besides migration flows, economic indicators like GDP growth and employment levels are indicative of consumer behavior and business activity. However, I'm glad to say that the strategic decisions and investments we made especially during the past years have laid the foundation for us to navigate this unprecedented crisis from a position of strength. We have one of the most trusted global consumer brands. Our strong corporate balance sheet and healthy financial position are supported by a very strong annual operating cash flow and investment grade credit rating and an undrawn revolving credit facility. Our operating model and WU Way lead management tools give us the necessary financial flexibility to support our operations as well as our capital allocation priorities. Further, the backdrop of COVID-19 has highlighted the importance of the new global strategy laid out at our Investors Day in September of 2019. It has not only confirmed but also accelerated the implementation of our strategic priorities for 2020 and beyond, including the expansion of our digital capabilities, the diversification of our global payments network, and the off spinning of our cross-border platform to new use cases and partners. These fundamentals paired with the careful and diligent approach we have taken to navigate the first phase of COVID-19 will allow us to keep supporting our customers and clients as the world responds to COVID-19. While the timing for the recovery from the pandemic and rebound of the global economy is currently uncertain, we focus on best positioning our company for success both during and after COVID-19. Let me now take you through the pillars of our COVID-19 response. As an organization, our top priority during the crisis is the safety and well-being of all our stakeholders. So here's what we are doing. For our employees, we are supporting the safety, health, and financial security of our global talent with measures like expanded employee assistance programs, a work-from-home policy, and the technology infrastructure that enables our teams to perform at the same high level while operating under business continuity plans. For our customers, we are accelerating the rollout of digital services and introducing new solutions to help customers transfer money and make payments around the world. For example, we recently launched Westernunion.com in additional countries enabling our customers to send funds digitally from more than 75 countries. We introduced a digital location service in 10 countries that helps customers complete digital transactions with assistance through voice and video calls. Additionally, we are expanding our payout service by working with agents to provide home delivery of money transfers in select countries where curfews are restricting the movement of our receivers. We also fast-tracked the expansion of our real-time payout capabilities. For decades, we have been completing transactions in minutes in approximately 130 currencies within our vast global retail network. Over the last year, we have diversified our payout network to include more than 4 billion accounts and wallets in over 100 countries. Recent enhancements to our payout network now enable customers to send funds into bank accounts and wallets in 50 countries in minutes. Further, we are working with our global agent partners to create a safe retail environment by implementing social distancing measures and safety procedures designed to protect frontline associates and customers. While the majority of our agent locations remain open as essential services, we offer a global agent locator tool updated multiple times a day to keep our customers informed about the availability of our agent network for the communities. To support communities around the world, Western Union and the Western Union Foundation have pledged significant funds in the fight against COVID-19, which will support domestic hunger relief efforts and global healthcare systems. To show our appreciation to frontline heroes, this week we will launch fee discounts on our digital channels for first responders and essential service workers across the world. Lastly, and importantly, we also continue to strive to be stewards of shareholder capital. We put an increased focus on cost discipline, efficiency, and prioritization of investments. The careful management of our financial position ensures that we are prepared to meet current challenges and succeed in the long term. Our capital allocation priorities remain unchanged. Besides continuing to invest in our operations and in growth initiatives, we plan to continue to return cash through quarterly dividends to our shareholders. Let me now move into a recap of our first quarter performance. Our first quarter started out solid. Through mid-March, our business performed well and in line with our objectives. In the second half of March, our transactions dipped significantly due to the impact of COVID-19's global spread. In light of the observed performance trends and the rise in uncertainty caused by COVID-19, we withdrew our 2020 financial outlook on March 27th. First-quarter revenues declined 1% on an adjusted constant currency basis, including healthy digital revenue growth of 22%. Our adjusted operating margin expanded to 20.5%, and adjusted EPS grew 7% year-over-year to $0.44. As uncertainty regarding COVID-19 remains high and global economic implications are starting to unfold, we are not reinstating that 2020 outlook at this time. On a positive note, in recent days we are encouraged to see some indications that customer and transaction trends are stabilizing, even turning positive in a few outbound markets like Germany and Switzerland. We are also seeing positive developments in some key receive markets, where lockdown policies are loosening. I would now like to discuss some perspectives on the global market environment we currently operate in and the customer trends we observe. Early on, a number of industries that rely on migrant workers were hit hard by the economic impact of COVID-19. As a consequence, some workers have less capacity to send support back to their home countries. At the end of April, the World Bank issued a forecast projecting a 20% decline for global remittances in 2020. While we think this forecast is too pessimistic, we are expecting remittance volumes to be down this year. As we triangulate projections from various institutions, it is of utmost importance to keep our focus on the needs and sentiment of our customers. Despite the future economic outlook and respective employment uncertainty, we know through panels and surveys that our consumers still have a strong desire to continue sending money. Our consumers are highly motivated to support families and loved ones back home and are typically resilient in their efforts to do so. We witnessed an example of this during the global financial crisis. COVID-19 has also accelerated a shift in consumer behavior and led to an increased use of digital channels. Customers tell us that it is important for them to use a trusted brand when switching to digital send options. We think this is a factor that is contributing to our digital transaction success, combined with channel shifts by some existing consumers and strong new customer acquisition. Turning to our payments business, our Business Solutions segment was less affected by COVID-19 in the first quarter due to strong foreign exchange hedging revenue and some key payments verticals like financial institutions performing well. While COVID-19 will also impact our payments business in the near term, Western Union's strength as a franchise should benefit us as we navigate through this economic downturn. Over the long term, we believe our Business Solutions operations will continue to prosper. To summarize, COVID-19 is having a significant impact on our business. However, we expect this impact to be temporary. Western Union and our consumers are proactive, making adjustments to manage through this period of disruption. At the same time, we are preparing to capitalize on opportunities emerging from what we expect will be a phase of accelerated industry transformation. Based on the very early signs we see from a few countries in late April, we expect to be well positioned to capture these opportunities. Our vision to be a leader in cross-border, cross-currency movement and payment has been underlined by strong fundamentals, including a trusted global brand with over 90% brand recognition, a robust digital cross-border money movement platform, and an expanding, unmatched global payments network consisting of 550,000 retail locations and billions of bank accounts and mobile wallets to serve a base of 150 million global consumers and thousands of global businesses. Our resilient business model, delivering solid profitability, has proven vital once more in times of growth and even more in times of crisis. When the world emerges from the COVID-19 crisis, we believe Western Union will remain well positioned to compete in the large and fragmented cross-border payments and remittance market. While we are one of the largest players in the remittance market, estimated at $700 billion of annual principal, our share is still small, and we see plenty of opportunities to grow. We also see opportunities to grow our share within the cross-border payments market. I would now like to provide you with a brief strategy update. We continue to execute well against the new global strategy we laid out at our Investors Day in September, enhancing our global network, driving our digital growth, putting our platform to new use cases, and optimizing our organization. Built on the strength of our vast global retail network, we increased the breadth of our bank account payout network in the quarter, which now includes over 100 countries. You see evidence of these actions starting to pay off; in the first quarter, account payout network transactions grew over 90%. As part of our network optimization initiatives, we continued to generate commission savings through a combination of renegotiations and channel mix shifts. Also, our goal to optimize our organization and increase margins with our WU Way productivity program is progressing well. On the growth initiatives, our consumer digital business grew first-quarter revenue by 22% on a constant currency basis, and we are seeing accelerated transaction growth in recent months. In fact, for April, approximately 30% of our total C2C transactions were generated by digital channels. We are very pleased with this growth, and we are currently evaluating a number of initiatives to further enhance our digital business during this time when more consumers and partners are seeking reliable, high-quality digital services from trusted brands like Western Union. Our Business Solutions are also further advancing on its digital journey. We currently see about one-third of our business clients digitally self-serving their needs through our online platform, Edge. In the first quarter, we reached a significant milestone of 1 million transactions on Edge, with over a 90% repeat payment transaction rate. So overall, we are pleased with our long-term strategic initiatives. And before I pass it over to Raj to discuss the financial results in detail, let me once again recognize and thank the millions of our customers around the globe who placed their trust in our services, many of whom are the frontline heroes. They are nurses, grocery store workers, or ambulance drivers. While they put their lives at risk and support millions of people that shelter in place around the globe, at the same time, they are supporting their loved ones, often far away from them, by sending money home. I'm confident that as a global community and strong company, we will get through this challenging time together. I remain excited about our long-term prospects and would like to thank all our shareholders for their trust and the Western Union team for their hard work and commitment. With that, I'll turn the call over to Raj.

Thank you, Hikmet, and good afternoon everyone. Today, I will start off with a review of our first-quarter results and then offer some insights into our plans for managing through the COVID-19 crisis. To improve comparability with prior year results and to better reflect ongoing operations, our adjusted results exclude the impacts of the Speedpay and Paymap divestitures from revenue and costs associated with restructuring initiatives and mergers and acquisitions. Before we get into our first-quarter results, I would like to provide some context around the impact of COVID-19 during the quarter. Through mid-March, COVID-19's impact on our business was primarily limited to China, and to some extent, Italy. Overall, our business was performing in line with the expectations underlying our original 2020 financial outlook. In the latter part of March, as the spread of COVID-19 accelerated and stay-at-home orders were implemented, we began to experience significant declines in consumer-to-consumer transactions. In the final days of March, rates of decline were around 30%. Given the extent and uncertain duration of this disruption, it became clear that we could not reasonably project the impact of COVID-19 on our 2020 financial results. So on March 27th, we withdrew our 2020 financial outlook. The trend in April improved from March, with consumer-to-consumer transactions declining 21%. I will provide some thoughts on how COVID-19 may affect our business during 2020 in a few minutes. Moving on to our first-quarter results, first-quarter revenue of $1.2 billion declined 11% compared to the prior year period, primarily due to the divestitures while adjusted constant currency revenue, which excludes our domestic businesses in the prior year period, declined 1%. Currency translation net of these impacts from hedges reduced first-quarter revenue by approximately $47 million compared to the prior year, primarily due to the depreciation of the Argentine peso. The decline in the peso negatively impacted reported revenue by 3%, while reflected 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 declined 4% or 3% on a constant currency basis. Transactions declined 3% primarily due to the impact of the COVID-19 outbreak on outbound markets. We generally expect the demand for money transfers will remain strong for our inbound markets. But in the near term, the economic impact from the crisis will reduce senders' ability to meet that inbound demand. Our consumer-to-consumer cross-border principal was flat or increased 2% on a constant currency basis. Principal per transaction increased 2% or 4% on constant currency. The spread between consumer-to-consumer transaction and revenue growth in the quarter was 1%, with a negative 1% impact on currency. Pricing was higher in the first quarter compared to the prior year period, but was offset by the negative impact of mix. Turning to the regional results, my commentary today will focus on developments that reflect broader trends we're seeing in our business. In North America, revenue declined 2% on both the reported and constant currency basis, while transactions declined 5%. Pre-COVID-19 performance was on track with internal expectations. We saw strong growth in the US to Mexico border benefiting from the weaker peso while domestic money transfer transactions continued to decline. In North America, digital cross-border transaction growth remains strong, likely benefiting from some channel shifts from retail. Similarly, we saw an increase in account payout during the quarter. Revenue in the Europe and CIS region decreased 5% on both the reported and constant currency basis. Transactions grew 1% as growth in Russia benefiting from our fair bank partnership was offset by declines in Italy, the UK, and France. Both reported and constant currency revenue growth were negatively impacted by softening trends in retail due to COVID-19. However, our digital business continued to gain momentum, especially in March, with strong revenue and transaction growth. A notable positive trend to highlight is that in recent days, Germany, Switzerland, and the Netherlands are now back to pre-COVID-19 growth trajectories. Revenue in the Middle East, Africa, and South Asia region increased 3% on both the reported and constant currency basis on transaction growth of 1%. Our Saudi Telecom partnership continued to be a key growth driver in the quarter. Sends to India, especially from the Gulf region, negatively impacted growth. Revenue in the Latin America and Caribbean region decreased 11% on a reported basis or 3% on a constant currency basis on transaction declines of 5%. Civil unrest that impacted the fourth quarter of 2019 quite a bit eventually gave way to the impact of COVID-19. Argentina was the biggest source of pressure as COVID-19 policy responses resulted in significant location closures. Similar to other markets experiencing lockdown, we saw an increase in digital money transfer transactions and also adoption of digital wallet payout. Revenue in the APAC region declined 10% on a reported basis or 9% on a constant currency basis; transactions declined 14% in the region driven primarily by the Philippines domestic business, which has limited impact on revenue. For overall digital money transfer business revenues increased 21% or 22% constant currency in the quarter, including Westernunion.com and our third-party white label and co-branded digital partnerships. Digital money transfer revenues accounted for 16% of total consumer-to-consumer revenues in the quarter. Westernunion.com revenue grew 13% or 14% constant currency. Cross-border Westernunion.com revenue increased approximately 23%, which was partially offset by declines in domestic money transfers. For the month of April, Westernunion.com transactions growth accelerated. Business Solutions revenue increased 3% on a reported basis or 5% constant currency and represented 8% of company revenues in the quarter. Strong foreign exchange hedging revenue in Europe was a key contributor to constant currency growth. Other revenues, which consist primarily of our retail bill payments businesses in the U.S. and Argentina, decreased 59% in the quarter, which primarily reflects the impact of the 2019 divestitures. Pago Facil 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 a prior year period due to the divestitures and other cost allocation changes in the first quarter of 2020 and COVID-19 impacts on the segments. We are also providing adjusted metrics to exclude restructuring expenses, M&A, and related tax effects. The consolidated GAAP operating margin was 19.6% in the quarter compared to 18.8% in the prior year period. The increase was primarily driven by savings from our productivity program and lower compensation expenses, partially offset by the divestitures and changes in FX. We incurred $11 million of restructuring expense in the first quarter related to productivity initiatives. We continue to expect total restructuring expenses of $150 million related to our productivity program. To date, we have incurred $126 million. The adjusted operating margin in the first quarter was 20.5% compared to 19.3% in the prior year period, with the increase driven by the same factors stated above and adjusted for the restructuring and M&A costs. Fees paid contributed about 40 basis points to last year's first-quarter margins, while foreign exchange hedges provided a benefit of $10 million in the current quarter and a benefit of $5 million in the prior period. The GAAP effective tax rate was 12.5% in the quarter compared to 19.9% in the prior year period, while the adjusted tax rate was 12.5% compared to 20% in the prior year period. A decrease in the GAAP and adjusted rates was primarily due to project tax liabilities from the divestitures in the prior year period and greater discrete tax benefits in the current period. GAAP earnings per share in the quarter was $0.42 compared to $0.39 in the prior year period, and adjusted earnings per share in the quarter was $0.44, compared to $0.41 in the prior year period. The year-over-year increase in both GAAP and adjusted EPS was primarily due to productivity savings, lower compensation expenses, lower effective tax rate, and fewer shares outstanding, partially offset by the divestitures. Turning to our cash flow and balance sheet, GAAP cash flow from operating activities was $112 million for the quarter. The year-over-year decline in operating cash flow was primarily due to the timing of payables and liabilities. We expect continued strong free cash flow conversion in 2020. Capital expenditures in the quarter were approximately $36 million. At the end of the quarter, we had cash of $1.1 billion and debt of $3.1 billion. We returned nearly $310 million to shareholders in the first quarter, including $92 million in dividends and $217 million of share repurchases, which represented approximately 8.5 million shares. The outstanding share count at quarter end was 411 million shares, and we had $783 million remaining under our share repurchase authorization, which expires in December 2021. As Hikmet highlighted earlier, our company was in a strong position when the COVID-19 crisis hit. So we believe we can withstand this period of disruption better than many and come out of it with good momentum to execute our strategy and realize new potential opportunities. As previously noted, we are not reinstating formal financial targets for 2020 due to the high levels of uncertainty. I'll discuss some factors we consider in our planning efforts. Our business is tied to global economic activity, with higher exposure to developed markets. Current forecasts for 2020 global remittances vary anywhere from declines of 3.5% to 20%. There is no single factor that can predict accurately. So for the purpose of our discussion we’ll focus on the potential path for global economic activity over the course of 2020. The prevailing view from several forecasts appears to be that global economic activity should bottom out during the second quarter of 2020, and with easing of restrictive policies improve progressively through the second half of 2020 and into 2021. At this time, we think this is a reasonable trajectory to consider for our business. Under this type of scenario, we believe that we can deliver solid margins, although there is likely to be significant quarterly variation along with revenues. Our cost structure is approximately 60% variable and 40% fixed, which provides some inherent margin buffer. Additionally, there are other fixed cost adjustments we can make to align with revenue trends; for example, we have delayed new hiring, stopped all non-essential travel, and are reprioritizing investments. The level of additional short-term expense reductions we realize also depends in part on the length and severity of decline. We continue to target $150 million of annual cost savings through 2022 related to the productivity program we started last year and are on track to realize one third of those savings in 2020. Given our cash flow generation and solid balance sheet, our financial position remains strong. This is reflected by our investment grade credit rating, which remains a high priority for the company. We have an undrawn $1.5 billion revolving credit facility, standard financing short-term working capital needs through the commercial paper market, which was less than $100 million at the end of the first quarter. We have no significant debt maturities until 2022. Our capital allocation priorities remain unchanged. Our top priorities remain investing to support our existing operations and growth initiatives and returning cash to shareholders through the quarterly dividend. We continue to evaluate opportunities for M&A, and to the extent we have excess cash, we return it to shareholders through share repurchases. At this time, share repurchases have been temporarily paused as we feel it is prudent to conserve capital until there is better visibility into how the disruption from COVID-19 plays out. To recap, despite the current economic disruption, we believe we are well positioned for future success. We operate in a large and historically stable market. We have an operating model that provides flexibility with 60% of our costs variable. We're executing on our strategic objectives to drive growth, and we operate from a position of financial strength. Thank you for joining our call today. And operator, we are now ready to take questions.

We will now begin the question-and-answer session. The first question comes from Tien-Tsin Huang of J.P. Morgan. Please go ahead.

Thank you very much. Hi, hope you guys are well and safe and sound. I think how you laid out the outcomes on revenues makes sense and the withdrawal of guidance makes sense. But Raj, on the expense side, did I hear correctly? It sounds like we should assume that your expenses from here, the fixed side of it, should be relatively flat. And then we should assume that $50 million in savings is coming through. Is that sort of the base case? Is there an opportunity to maybe bring forward some of the extra $100 million into this year if need be?

Yes, I think the way to think about it, Tien-Tsin, is that we're still targeting the $150 million of run-rate savings in three years from the programs we launched last year. But we probably do have some additional opportunity this year with fixed cost savings. And it will largely depend on how revenue plays out too. So we've already stopped hiring any significant new roles. We've also limited travel obviously in this environment. We're also reprioritizing some of the key investments we want to make. So there's certainly more opportunity for cost savings beyond the $50 million on a short-term basis, I would say, Tien-Tsin.

Okay. Got it. And then just my quick follow-up on thinking about the second-order effects of the pandemic and the digital versus traditional mix shift. The assumption is what we're seeing is traditional customers converting to digital faster or the new digital customers are still primarily new to Western Union, just trying to understand that interplay? And then also maybe just an update on your profit margins on the digital side versus traditional? Thank you.

Yes, let me take the first part by saying that most of the customers on the digital side are new. As we have two digital segments; one is with digital partners, one is with westernunion.com. And that's especially through westernunion.com, we see new customers continuing to join. But we also see some conversions. As people are locked down and are subject to lockdown orders regulated in many countries, they just can't go out to the streets to make transactions; many people choose westernunion.com. They're very loyal to our brand. On the digital side, many customers are joining us as new customers, especially on the digital partner side. Raj, do you want to talk about the profitability there?

Yes. I think Tien-Tsin, in this environment it reinforces why our digital strategy is so strong and why it's going to continue to be very beneficial to us. Our digital business overall is very profitable, both the branded and non-branded offerings. We see it largely as incremental business, incremental customers. If you break it down a little bit, westernunion.com has a relatively high revenue per transaction. It's a little bit lower than retail but relatively close. The gross margins on that business on a percentage basis are not too dissimilar from retail. So, it's a very profitable business. And then on the partnership side, we are more of a processor for transactions. We don’t have a lot of costs involved in that process. So, we have a lower starting point in terms of revenue per transaction. But the margins are very high on the white-label side. It's still in early stages, and we don’t have a lot of those partnerships yet. So, we are still learning, but it certainly has driven a lot of good growth in the overall business.

And I would think the real-time account payout network building out quickly has got to help a little bit. So, okay, thank you.

Yes, it is obvious, Tien-Tsin.

Thank you.

Great. Thanks, guys.

Thanks. The next question comes from Jason Kupferberg of Bank of America. Please go ahead.

Hi, Jason.

Hey, good afternoon. I just wanted to start with a question picking up on some of the comments about April. I think you said down 21% for the month in terms of the C2C transactions versus the 30% exiting March, obviously some improvement there. Can you just talk about how you exited April, whether that's the last few days week and whatever you think the right way to talk about it is? Because it sounded like you had a couple of outbound corridors that got back to pre-COVID levels. So I just wanted to see where we actually have been in April.

Yes, Jason, we entered April about the same rate of decline, so about minus 30 or so, and it did improve sequentially throughout the month. So we exited the month better. I would just say we are really focused on the total month performance at minus 21. But certainly, we saw some positive signs as we moved through the course of the month. Certain markets began to open up later in the month like Germany and Switzerland, Netherlands, and that did have a positive impact. For that reason, we think that the second quarter is likely to be the lowest quarter for us from a revenue and profit margin standpoint. It should improve based on what's the forecast that exists externally after we get to the second quarter. So, it was a positive for the month of April, relatively speaking.

I think if you look at the digital growth in April, it was impressive. Obviously, as I mentioned earlier, our digital pledges are working. We were coming up with a higher 20% now in April, even seeing 32% growth on transactions in digital overall for that month. And don’t forget, we are one of the largest in digital; we had about $600 million revenue last year in 2019. We had $600 growing on that basis. We are now in 75 countries with our telecom business and then we have many digital partners like white label digital partners globally. So I am proud of what we have done; the team has committed to doing the right thing at the right time to meet the digital demand, especially during this crisis. It's really great to see.

Just to pick up on that, I mean, do you have a view at this point on how much of the uptake of digital will end up manifesting itself in terms of permanent consumer behavior change? There’s a lot of talk about that in broader parts of the payments industry and I'm curious how you're thinking about it within the remittance market once we're on the other side of the virus?

Yeah, I think, as you know, we have a wonderful network of digital and retail. Obviously, globally, we have about 550,000 locations and about 4 billion accounts. The current customers we are acquiring are mostly new to our network and they are sticking. We know that they are loyal, and we do have loyalty programs to keep them in our network. They stay within the network. I think that once you start with the -- especially during the crisis with the trusted environment, I think you stay. And we do have throughout the world about 150 million customers as I outlined in our last meeting at our Investor Day. We are focusing more on building an ecosystem around the consumer ecosystem. We are building that branding loyalty, adding additional products to encourage them to remain loyal to our brands. So the good news is that the digital customer segment and new customer segment, as you know, need to find on credit cards or bank accounts on the retail side continues to be found for customers using cash.

Just last quick one for me for Raj. I mean I know your adjusted operating margins were up 120 basis points here in the first quarter, you're going to obviously feel a good amount of revenue pressure in the second quarter. But on a full year basis, do you feel like your adjusted operating margins can increase year-over-year?

Yeah, I don’t really have an outlook to give you for that, Jason. A lot of it is going to depend on the level of revenue trajectory that we get. So, if we had a better feeling about the exact revenue outcome, we would be able to give you that answer. I do think we're going to drive strong operating margins. We're doing a lot of things, obviously to drive the original savings programs that we launched last year, and those are going very well for us. Then we're also looking at incremental cost savings this year. So we can mitigate the impact of some revenue decline, obviously not all of it. I expect the second quarter to be the lowest from a revenue and profit standpoint. But hopefully will improve from there. You can look at the first quarter; it's not necessarily indicative of the entire year, but we were down in revenue; we were actually able to increase our margins year-over-year, and that's positive. So we're going to do everything we can to maximize profits without impacting the long-term investments we're going to continue to make.

Okay. Thanks for the comments.

[Operator Instructions]. Next question comes from Darrin Peller of Wolfe Research. Please go ahead.

Hi, guys. Can you hear me okay?

Yes.

All right, great; glad everyone's doing okay. When we look through 2020 into '21, the competitive dynamics in the landscape is probably going to shift a lot. And so you hopefully will be doing a lot more digital, and that's good for growth. We'll see how it plays out on revenues and margins. But positions you well, I think there's also potentially, maybe more competition on digital than retail, but there may be some very large retail competitors, who may not exist or could be challenged given their liquidity positions relative to you guys. Can you touch on your positioning to maybe take share through this from a competitive standpoint, especially in the retail side?

Sure. Let me take that. As you know, we are both in home offices. So we coordinate that answer side. Hi, Darrin, how are you? Look Darrin, first of all, on digital success that's going to continue to happen, I believe, especially through the combination of our digital network globally, and the efforts we put behind that and our payout network. And also in real-time payouts, that's huge. We believe we are gaining market share here. I think even though we have huge competition, we are indeed gaining market share compared to competitors. I think some of the competition on retail money transfers, we are always looking at the environment. As you know, our capital allocation strategy has not changed. We're going to continue to invest in our business. We are also looking for any synergies or bigger acquisition opportunities, and we will definitely look if it fits in our strategy and has a good return. The environment is definitely something we continue to examine. But the most important thing also is that we will return cash to our shareholders via dividends. This will continue to happen. If there is an opportunity that fits within our strategy in the digital side or any retail side, we will definitely look at that.

And Darrin, the other thing on the digital side is that the thing that other competitors don’t have as much as we do is a great retail network, which when you combined that with our digital capabilities really offers a unique proposition. Even in this environment, our retail payout capabilities are highly sought after. We're also extending into the other digital account payouts as well. So it's different from the rest of the competition.

Okay, thanks. Raj, just the follow-up is now for you on the liquidity position and the dividend. And again, it's great to see your liquidity position and commitment there now. I guess if April trends, which were down around 20%, continue, if the world doesn't get that much easier given unemployment levels, do you think any considerations of how we can pay the dividend without having to worry about credit ratings shifting or anything along those lines? How confident are you about that and what kind of environments do you think we can operate in?

I think there are a lot of 'ifs' in what you asked and it's hard to predict exactly how things are going to play out. But we don't believe that the dividend is at risk. We feel very good about where we are. We had a strong position coming in. We continue to generate strong cash flows. I think we would have to be in a very different world than what we're in today for us to think that way. The dividend is very important to the board of Western Union and we understand that it's very important to shareholders as well. That's something we remain very committed to.

Okay. That's great guys. Thank you.

The next question comes from James Faucette of Morgan Stanley. Please go ahead.

Great. Thank you very much. First question I wanted to ask was, you've given some pretty good color in terms of where you've seen improvement and improving flows. I'm wondering if you can dive in a little bit there and provide some more nuanced commentary on where you are seeing improvement. Can you tie it back to whether, how much maybe related to or what the lag was to beginning of reopening of economic activity versus perhaps consumer stimulus funds that were being distributed? Just looking for some color of how you're thinking about like what's driving the improvement and then how that could be extrapolated out.

Yes, I think that's a great question. If you look at -- let me start very recently first decline where it started. It's obviously linked to lockdown. So it's subject to lockdown orders by governments especially from our dedicated locations. There were shelter-in-place orders, and people couldn't go into the retail space to make a transaction. That impacted us. But we believe that also the financial pressure is probably the main factor which has applied our decline. And that combined with that, so we saw in late March the significant decrease in our transactions. So if you look at then the time over time as the lockdown eases, the stimulus packages are rolled out; primarily in the U.S., but mainly Germany, Netherlands, Austria and Switzerland, we see improvements there. As people could get their stimulus packages and their economic situations improve, they start sending money. We also noted some strength from the peso weakness against the U.S. dollar, allowing for stronger growth amid transactions sent to Mexico from the U.S.

Yes.

Our numbers have been improving. It’s hard to give a general answer: it depends much on specific situations, but the financial pressures from government stimulus and the lockdowns have been significant.

That's really useful. And then my follow-up question is just on the matter of pricing. If you can talk a little bit about what you've been seeing in the pricing environment, variations or changes, and whether any changes may be coming from and how you're factoring in potential pricing pressure or competition into at least your general outlook for the rest of the year.

Yes, I would say that the pricing environment has continued to be relatively stable when you look at a global macro basis, so, no big changes there. We are continuing to look at all of our thousands of corridors where it's productive to change pricing, and we're always adjusting pricing up and down. But I think the primary goal we have is to ensure that we maximize lifetime value for our customer sends. We may do promotional pricing, we may do other things that attract the customer, and that's really what we're going after. We're doing a variety of different things in all of our quarters and by different channels too wherever it makes sense. I don't think the pricing in this environment is really going to be a major factor compared to what it's been historically or, at least in recent periods.

Great. Thank you so much. And thanks for all the hard work keeping critical lifelines for a lot of people open. Thanks.

Thanks so much.

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

Hi, guys. Thank you for taking my question tonight. I want to follow up on Jason's question from earlier. Speaking about the April trends and the end of April trends. Has government stimulus had any impact on outbound volumes from any place, obviously in the U.S.? In other words, is that something that benefits your user base? And then I also wanted to ask about the improvement you're seeing in April. Did you see improvement across the business in terms of walk-in versus digital, or was it really more digitally focused? I wouldn't be surprised to hear that but wanted to ask.

Yes, really good questions. I would say that the pressure on the business initially in late March, and early April was really driven by people having to stay at home and not being able to get out; that really continued on even in the month of April. We did see some uptick when stimulus checks and other payments were being made around the world, so that certainly has helped our consumer base. Even though there may be some unemployment negatively impacting people, that was offset to some degree by all the payments going out to individuals and that could be sustained for a little while until things get back on track. With respect to April trends, it was a more broad-based improvement; certainly we saw acceleration in our digital business, but we also saw improvements in retail as things opened up. Germany is a great example, where people were back doing what they were doing before. So not only did digital accelerate, but we have also seen improvements in the retail business, which is positive for us.

Okay, that's really interesting. And then a quick follow-up. I was wondering if you could speak to the tax rate expectations for the year, as the number came in a little lower than our models, I just want to figure out how to model that after the rest of the year. And lastly, home delivery, is that something you could scale up? Could that be a new model that accrues a little more importance for Western Union over time, or is it more that the cost structure may not support it?

Yes, let me address the tax question and then I'll give it to Hikmet on the home delivery. The tax rate was 12.5% in the first quarter. It's roughly where we expect to get to the mid-teens for the full year. A number of different scenarios could play out this year and we don't know exactly which revenue scenario will materialize. We have modeled several different potential outcomes, and they all seem to indicate something in the mid-teens range for tax rates. That aspect is not really the biggest driver this year. I'd expect it to average out. We have some discrete benefits that helped us in the first quarter, but regarding the home delivery question...

That's a good question. Well, we did start home delivery in several countries, especially in developing countries in partnership with our agents. Some of our agents already have home delivery express services. We have done home delivery in countries like Colombia or the Philippines, and the usage is quite good. Due to the lockdown, some of our customers, especially elderly people or individuals who couldn't go to the location, had no other option but cash. We are delivering money to their homes. It could be a service that is valuable globally, especially in developing countries. It’s really a partnership with our agents to reach customers in rural areas effectively through direct delivery.

Great. Thanks so much for taking the question.

Thank you.

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

Hey, guys, good afternoon, thanks for taking the question. I'm wondering about as we think about all the emphasis on the expansion of digital globally, which makes a ton of sense. What are some of the gating factors? I'm thinking along two lines; one would be the four-plus billion accounts. I guess what are going to be the key factors of your unique influence in terms of driving payout to those accounts? Assuming a lot of it's dependent on changing the sender behavior. And two would be just how the company talks about accelerating digital expansion. I'm wondering, is that opportunistic? What factors are gaining the ability to expand more rapidly into digital markets globally?

Well, Andrew, that’s a good question. The investments over the years that we have been making are now paying off. If you remember, just a few years ago, 2% to 3% of our general revenue was, or transactions were digital. Now, in April, we are expecting 30% of our transactions to be initiated through digital channels. This trend will continue as more customer segments become part of our network. We do offer payouts through both cash and accounts. This is significant. We do have real-time payouts in 50 countries, with billions of available accounts for real-time payment. This is critical, and it will continue to grow. It really depends on customer segmentation; whether customers want to have money in accounts or need cash. We excel at facilitating both sides efficiently.

Okay, I appreciate it.

Our next question comes from Bryan Keane of Deutsche Bank. Please go ahead.

Hi, Bryan.

Hi, guys, how are you doing? Just thinking about that move towards digital? Can you just talk a little bit how the digital competition differs from retail competition for you guys? Go ahead.

I would say that one of the key things we've said earlier is that our digital business is distinct. The majority of the revenues we earn today are still earned from a retail-oriented payout in our total digital business, and that’s not really where other digital players are trying to make headway. Because that’s where the brand reputation plays a larger role in terms of the end-to-end transaction. And looking at the other digital players, we already have a very large space to operate from. We believe we can expand our capabilities all over the world faster than others might be able to do. We already have more than 75 sending countries. We have account funding capabilities in many of them. We have mobile capabilities as well in many of those sending markets. Then we can send into accounts into 100 markets and reach into real-time in 60 countries. By enhancing our network and infrastructure, we’ve been on an accelerated path to develop great omnichannel capabilities on both sending and receiving sides which isn’t something others can easily match when you think about both retail and digital combined.

In that 30% percentage of volume that’s going into digital and that's generated, does that include any retail in it; any initiation through retail on one side of the transaction, or is that 100% digital?

Initiated digital is 100% digital on the send side, Bryan, and the payout could be through either retail or on an account.

Got it. And as your mix of that of the payout is the digital proportion versus retail?

The majority of that is retail, but the strong growth comes from account. As I mentioned earlier, the account payout was in April, I believe 90% growth.

Got it. And then the only other question I have is just thinking about migrant movement. What you guys are seeing there? Did you see many migrants either moving back home during this time? And how do you think the impacts will be on any restrictions on immigration going forward from borders being put up by other countries? Thanks.

Well, for the last six to seven weeks since COVID-19 really started, even earlier in China and Italy, we did not see any significant changes on the migrant movements or migration patterns. The big question mark is what the economic landscape will appear to those individuals. The rising unemployment rate and GDP growth are indeed valuable indicators. That is an unknown factor. That’s one of the reasons we are not providing a 2020 guidance due to the volatility, but we have not seen significant changes on migrant movement or a reduction in migrants during this period.

Got it. Thanks, and stay healthy.

Thank you. You too.

Thanks, Bryan.

The next question comes from Tim Willi of Wells Fargo. Please go ahead.

Hi, thanks, and good afternoon. Just one question on marketing. Given the shift in the business and your comments around efficiency and costs, can you talk a bit about what you're doing with marketing and branding in terms of how much of that is moving digital versus maybe traditional? How that plays into digital growth, productivity, and costs?

We are continuing to invest in marketing. Because you could see also during the crisis, the trust of our consumers is huge in our brands, and the brand awareness of being with them during both good and bad times has always increased. That's going to happen continuously. We are investing significantly from direct marketing activities on the digital side where we gain new customer segments. At the same time, our agents continue to promote our brand on the retail side because, as we’ve said earlier, the combination of digital and retail payout is huge. The brand awareness on the receive side drives the transactions; it is well-defined. If you are in a rural area in the Philippines, you can text your relative in the UK to say, 'Send me money using Western Union' because the next corner I can pick it up in minutes, or you can send it directly into your bank account. This brand awareness is growing significantly in receiving countries. We actually have about 90% brand awareness within our consumers, which is probably one of the highest. Our marketing investments are driving conversions and transaction growth. During the pandemic, several holidays like Mother's Day and Ramadan are coming up, and we will continue to run promotions to attract customers to our branches and promote digital alongside the trustworthiness we prioritize.

At this time, this concludes our question-and-answer session. I would like to turn the conference back over to Hikmet Ersek for any closing remarks.

Thank you, Andrew. Thank you everyone for joining the call today. It's a special call during this crisis with COVID-19. It's not easy for the world, and it’s challenging for communities. I would like to take this opportunity to express gratitude to our shareholders for their trust in Western Union. But also, I would like to thank especially the customers for their loyalty and their resilience. Many of our customers, as I mentioned earlier, are heroes — nurses, ambulance drivers, grocery store workers. They're really on the frontlines; they are fighting and helping many people. At the same time, they think about their loved ones back home. Helping people while worrying about family members far away is not easy. One of the things they do immediately is send money home. The trust we've built over the decades is helping us operate strongly. I would also like to thank our employees for their dedication and hard work during these trying times; it puts us in a unique position as a company. We’ll remain committed to serving our communities and our shareholders. With that, I want to thank you for joining the call.

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