Western Union CO Q1 FY2021 Earnings Call

Good day, and welcome to the Western Union Company First Quarter 2021 Earnings Release Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note, today's event is being recorded. I would now like to turn the conference over to Brendan Metrano, Vice President of Investor Relations. Please go ahead.

Thank you. On today’s call, we will discuss the company’s first quarter 2021 results, our financial outlook for 2021, and then we will take 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. On our 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 and Exchange Commission, including the 2020 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. The expenses that have been excluded from adjusted metrics are specific to certain initiatives, but may be similar to the types of expenses that the company has previously incurred and can reasonably expect to incur in the future. All statements made by Western Union Officers on this call are the property of The Western Union Company and subject to copyright protection. Other than the replay noted in our press release, Western Union has not authorized and disclaims responsibility for any recording, replay, or distribution of any transcription of this call. I will now turn the call over to our CEO, Hikmet Ersek.

Thank you, Brendan, and thank you all for joining us this afternoon. As noted in today's press release, our business is off to a good start in what we believe is a very important year for Western Union. We weathered COVID-19 better than many companies in 2020 owing to our resilient fundamentals and the foresight behind our leading digital business that had us ready for accelerated demand for digital services. Before I give you an update about the encouraging first quarter results and share my thoughts about the rest of the year, I would like to take a moment and mention that although we do see some modest economic improvements and there are signs of some COVID-19 recovery like in the U.S., parts of Europe, and parts of Asia Pacific due to progress with vaccinations. At the same time, I am saddened by the heartbreaking current situation in countries like India, Brazil, and many others. Our thoughts are with all of the people who are currently navigating this challenging situation. The recent outbreaks in many countries show us that as a global community we still have a lot to do in the fight against the virus. However, at the same time, I am hopeful and I know that all my colleagues and all our partners in more than 200 countries will do their best to recover from the virus as soon as possible. Back to our business, the conditions were fairly stable in the first quarter. I am pleased that trends for our business improved over the quarter and held up well in April, giving us confidence to push forward with an ambitious agenda and reaffirm 2021 financial targets on an adjusted basis. Raj will discuss our outlook in more detail in a few minutes. With that, let's review business highlights for the quarter. Starting with the big picture, our costs for the consumer to consumer or C2C business grew principal 28%, which was the highest quarterly growth in years and the third consecutive quarter with growth over 20%. This really shows the momentum we are seeing today, especially when compared to focus from third parties projecting modest growth or even declines in principal for 2021. Total company revenue grew 2% on a constant currency basis, around a 300 basis points increase from declines in the third and fourth quarters of last year. C2C revenues and transactions grew 4% and 9% respectively, and both digital and retail revenue trends improved sequentially. Digital performed exceptionally well again, with revenues up from the fourth quarter and grew 45% year-over-year to over $240 million, putting us on target to exceed $1 billion in 2021. Digital comprised 34% of transactions and 23% of revenues for the C2C segment and was a key source of new customers and incremental profit. Wu.com delivered impressive results and showed the potential we see as the foundation for a consumer ecosystem. This is the fourth consecutive quarter of transaction growth of 50% or more and average monthly active users growth of over 40%. Wu.com led money transfer peers in mobile app downloads by a wide margin and grew principal 7% to 8% of an already large base which we believe is well ahead of the markets. Our customer engagement efforts also appear to be paying off with favorable trends in retention, transaction per customer, and principal per customer. Digital partnership revenue more than doubled year-over-year and it has exceeded our expectations over the past 18 months since we announced it in late 2019. We continue to have more encouraging developments in the pipeline. Retail trends improved sequentially from the fourth quarter to the first quarter despite the effects of additional waves of COVID-19. While the business is not back to pre-pandemic levels yet, it has demonstrated resilience and we expect continued improvement for the rest of the year assuming the pandemic and global economy don’t worsen. Our business solutions trends also improved. We made progress on key initiatives, including launching our payment solutions in Spain and implementing technology upgrades that will allow us to add differentiated solutions and capabilities. We are optimistic that the business will continue to rebound over the course of the year. Shifting to an update on operating and strategic objectives during this quarter, starting with wu.com, we continue to invest in consumer acquisition and marketing, which drove 46% growth in average monthly active users for the first quarter. On the branding side, we launched one of our highest-rated television campaigns in recent years, 'Send More Than Money', which featured wu.com. We also made progress on a number of product initiatives to improve our customer experience, faster registration, better webpage performance, and enhanced visibility into transaction status. We achieved an important platform milestone by completing a major phase of our multiyear settlement transformation project. We also advanced a number of initiatives that will make us more nimble and efficient like the cloud migration and adding artificial intelligence and machine learning in the processes to release projects on time and enhance analytics. Moving on to our global network, the team has done a great job optimizing commission costs while still enhancing the quality of our global payments distribution capabilities. During the quarter, we have renewed agreements with 34 existing agents and added 41 new agents with favorable terms. Over 50% of our global account payout transaction volume was delivered real-time. Our launch with Walmart is off to a good start and we look forward to getting all 4,700 U.S. locations up and running in the second quarter. To wrap up the first quarter discussion, despite ongoing challenges from the pandemic, we are off to an encouraging start with financial and operating performance on course with our expectations for 2021. Given the strong customer trends we have seen over the last year in our C2C business, including almost 9 million wu.com annual active users in 2020, the agenda for the rest of 2021 is largely centered around enhancing the customer experience. Convenience, reliability, and speed are fundamental for a good customer experience in payments, which makes a high-quality network important. On the digital side, we can reach billions of accounts today, but we are expanding access to even more accounts with new partnerships. Speed is increasingly valued by customers and we already have one of the broadest real-time cross-border payment networks in the industry. While the focus this year is making it more robust by adding additional direct third-party relationships and multiple partners in markets, our retail distribution will continue to benefit from ongoing agent optimization, upgrading the caliber of agents and filling in gaps in distribution. Platform initiatives for 2021 include upgrading and modernizing technology, incorporating cutting-edge solutions, and bolstering our executive talent. This will enhance the customer experience in a number of ways, such as better processing speed and enabling more innovation. Ultimately, we are working towards building a best-in-class platform that can support the range of cross-border use cases including C2C, C2B, B2C, and B2B, and serve as the foundation for ecosystems. I'm really excited about the slate of product initiatives this year that can be impactful for customer experience. A few examples include improving the functionality of our mobile app, advancing dynamic pricing, revamping our customer loyalty program, and the pilot in Europe with our Western Union International Bank later this year extending our offerings to a wider set of financial services. Given the customer-centered agenda we have for 2021, I think it makes sense to discuss why we are so optimistic about the long-term prospects of serving our core customer segment, the global migrant community. Let me start by saying we are extremely proud and privileged to serve the global migrant community, and we are honored that they trust Western Union with one of the most important financial aspects of their lives: supporting loved ones in home countries. As highlighted in our ESG reports for 2018, 2019, and our 2020 report coming in June, we are proud of the contribution our business makes around the world by promoting economic growth and prosperity for the people we serve. Our purpose underpins our market position and strategy, and we believe our business offers strong potential value creation for all stakeholders. First, the migrant and their loved ones form a large customer segment for Western Union. According to the United Nations, there are more than 270 million migrant residents globally, and many of them send remittances. The number of remittance recipients in home countries, who also use our services, could more than double the potential customer base to over half a billion people. Second, migrants are a growing, hard-working, and upwardly mobile group. They are expected to drive a significant share of future population growth in higher-income countries and help leverage labor participation rates, higher rates of entrepreneurship, and contribute significantly to innovation. The third and final point is that migrants have significant spending power. According to a 2019 American Economic study, migrants represented $1.3 trillion of spending power in the U.S. alone; globally, this amount is even higher. To summarize, we believe migrants and their families and loved ones are a special group of people that have an important role in societies and economies around the world. Serving our customers' needs is a good business that offers Western Union organic growth and opportunities to expand into new services. On top of this, the cross-border expertise and capabilities we gain through serving our core customer segments enables us to offer our cross-border platform for financial institutions and other third parties, extending our market opportunities beyond our own Western Union consumer services. In closing, I am pleased with the direction of our business. Based on what we see internally and in the markets, we are confident in the strategy and plan for the year, and we are off to a good start. With that, I'll turn the call over to Raj.

Thank you, Hikmet, and good afternoon everyone. Please note that in my comments I will refer to first quarter results compared to the prior year period unless otherwise noted. Moving to first quarter results, revenue of $1.2 billion increased 2% on both a reported and constant currency basis. Currency translation, net of the impact from hedges had a limited impact on first quarter revenues. In the C2C segment, revenue increased 4% on a reported basis or 2% constant currency with transaction growth partially offset by mix. B2C transactions grew 9% for the quarter, led by 77% transaction growth in digital money transfer. Retail money transfer transactions were down in the quarter, but the business continued to move in the right direction with trends improving sequentially from the fourth quarter. The mix impact from the high growth of digital white label partnerships and account-to-account digital transactions both lower revenue per transaction continued to contribute to a spread between C2C transaction and revenue growth in the quarter. We expect this gap to moderate over the next three quarters. Total C2C cross-border principal increased to 28% on a reported basis or 26% constant currency, driven by growth in digital money transfer and retail. Total C2C principal per transaction was up 15% or 12% constant currency, led by retail and wu.com. Evolving business mix coupled with changes in consumer behavior contributed to higher principal per transaction. Digital money transfer revenues, which include wu.com and digital partnerships, increased 45% on a reported basis or 44% constant currency. Similar to the broader C2C business, the mix impact from digital white label partnerships and account-to-account digital transactions contributed to a spread between transaction and revenue growth, and from our vantage point, the pricing environment in the digital market remains constructive. As Hikmet mentioned, wu.com had another very strong quarter. Revenue grew 38% or 37% in constant currency on transactional growth of 55%. Cross-border revenue was up 49% in the quarter. Principal per transaction trends were impressive and we saw continued double-digit growth. Digital partnerships transactions and revenues more than doubled in the quarter. As you may recall, the business experienced a step up in transactions in the second quarter of 2020 with the initial global wave of COVID-19, and then another step up for the second half of 2020. The strong prior year growth is expected to cause some moderation in growth over the rest of 2021. Moving to the regional results, North America revenue was flat on a reported basis or increased 1% constant currency on transaction growth of 1%. The increase in constant currency revenue and transaction growth was driven by U.S. outbound, partially offset by declines in U.S. domestic money transfer and Cuba where current U.S. regulations limit our ability to operate. Revenue in the Europe and CIS region increased 8% on a reported basis or 4% constant currency on transaction growth of 28%. Constant currency revenue growth was led by France and Russia. Growth in Russia was driven by the incremental digital white label business, which continued to contribute to the spread between transaction and constant currency revenue growth. Revenue in the Middle East, Africa, and South Asia regions increased 1% on a reported basis or was flat constant currency, while transactions grew 13%. Qatar had solid constant currency revenue growth in the quarter, while the United Arab Emirates continued to experience soft trends. Incremental digital white label business in Saudi Arabia was the primary driver of the spread between transaction growth and constant currency revenue growth. Revenue growth in the Latin America and Caribbean region continued to improve sequentially and was up 3% or 8% constant currency on transaction declines of 8%. Constant currency revenue growth was driven by a broad increase in principal across the region, with higher principal per transaction driving the spread between constant currency revenue growth and transactional growth in the quarter. Revenue in the APAC region increased 9% on a reported basis or 3% constant currency, led by strength in Australia. Transactions declined 2%, primarily driven by the Philippines domestic business, which has a limited impact on revenue. Business Solutions revenue decreased 2% on a reported basis or 8% constant currency as COVID-19 continued to impact certain verticals and hedging activity. However, revenue trends continued to improve sequentially, and we expect to remain on an improving trajectory for the remainder of the year with a broader recovery in cross-border trade. The segment represented 8% of company revenues in the quarter. Other revenues represented 5% of total company revenues and declined 18% in the quarter. Other revenues primarily consist of retail bill payments in the U.S. and Argentina and retail money orders. The revenue decline was due to the ongoing impact of COVID-19 and the depreciation of the Argentine peso. Turning to margins and profitability, consolidated operating margin in the quarter was 19.2% compared to the prior year period margin of 19.6% on a GAAP basis and 20.5% on an adjusted basis, which excluded costs related to our restructuring program. A decrease in the operating margin primarily reflects how COVID-19 impacted the level and timing of certain expenses and investments in 2021 compared to 2020, including investments in strategic initiatives and marketing and compensation related expenses, partially offset by changes in foreign exchange. Foreign exchange had a negative impact of $4 million on operating profit in the quarter and a benefit of $10 million in the prior year period. Moving to segment margins, note that segment margins exclude last year's restructuring charges. The B2C operating margin was 19.6% compared to 20.7% in the prior year period. Since our C2C segment comprises almost 90% of total company operating income, the decrease in operating margin was driven by the same factors that impacted total company margins. Business Solutions operating margin was 13.1% in the quarter compared to 14.1% in the prior year period. The decline in operating margin was primarily due to an increase in compensation related expenses. Other operating margin was 22.6% compared to 26.1% in the prior period, with the decline primarily due to lower revenue. The effective tax rate in the quarter was 10.4% compared to a 12.5% effective tax rate on both GAAP and adjusted basis in the prior year period. The decrease in the company's effective tax rate was due to changes in composition between higher tax and lower tax foreign earnings and an increase in discreet tax benefits. Earnings per share or EPS was $0.44 compared to the prior year period GAAP EPS of $0.42 and adjusted EPS of $0.44. Year-over-year comparisons of EPS in the quarter reflect benefits of revenue growth, a lower effective tax rate, and share repurchases, offset by increased investments in strategic initiatives, marketing, and compensation rate expenses. Earnings from our cash flow and balance sheet, cash flow from operating activities in the first quarter was $176 million. Capital expenditures in the quarter were approximately $97 million, driven by agent signing bonuses and should be in a normal range for the full year. At the end of the quarter, we had cash of $1.5 billion and debt of $3.2 billion. During the quarter, we took advantage of historically low interest rates to issue new notes. Most of these were used to prepay a portion of the term loan in the first quarter, and we repaid our notes due in 2022 in early April. We returned $172 million to shareholders in the first quarter, consisting of $97 million of dividends and $75 million in share repurchases. The outstanding share count at quarter end was 410 million shares, and we had $708 million remaining under our direct share repurchase authorization, which expires in December of this year. As Hikmet noted a few minutes ago, in today's earnings release we updated our 2021 financial outlook, affirming expectations for revenue growth and operating margin, and raising GAAP EPS. We are also on track to achieve our digital revenue target exceeding $1 billion. The increase in GAAP EPS reflects the sale of an investment, partially offset by expenses related to the early retirements of the company's notes due in 2022. Both of these items will be reflected in second quarter results. Excluding the impact of these two items, the 2021 EPS outlook will be unchanged, which we have reflected within the adjusted EPS outlook. Note that our outlook assumes no material worsening in current global macroeconomic conditions or the COVID-19 pandemic. We expect full-year 2021 revenues will grow mid-to-high single digits on a GAAP basis or mid-single digits on a constant currency basis, which also excludes the impact of Argentina inflation. Operating margin is expected to be approximately 21.5%, reflecting revenue growth and benefits from our three-year productivity program that we expect to generate approximately $150 million of annual savings by the end of 2022, partially offset by higher operating expenses and investments in strategic initiatives. We expect our effective tax rate will be in the mid-teens range on a GAAP and adjusted basis. GAAP EPS for the year is now expected to be in a range of $2.06 to $2.16, including approximately $0.06 net benefit in other income on an investment sale and debt retirement expenses that occurred in the second quarter of 2021. Adjusted EPS, which excludes those items is expected to be in a range of $2 to $2.10. Given the variability that COVID-19 caused on 2020 quarterly results, I will provide some context for how we think results may progress over the remainder of the year. Note that our underlying assumptions include no material worsening in the effects of the pandemic and moderate improvement in global macro environment as the quarters progress. Starting with revenue, we saw continued positive momentum in April and for the second quarter we expect to see the strongest year-over-year growth rates as we cycle over the largest quarterly decline of the prior year. For the third and fourth quarters of 2021, given the stability we had in the back half of last year, we expect general stability and trends and similar year-over-year growth rates. Keep in mind that as a result of COVID-19, our digital business delivered exceptional growth from the second quarter onwards in 2020. So growth rates this year should moderate somewhat for the remainder of 2021, although we still expect to generate more than $1 billion in digital money transfer revenues this year. Our retail business experienced a significant decline in the second quarter of 2020, and while it began to come back quickly, we expect recovery will occur gradually. As a result, we expect retail will generate growth in 2021. Our Business Solutions segment and Other Revenues were adversely impacted by COVID-19 in 2020, so we expect that those businesses will continue to rebound this year. Moving on to margin, based on our current year, we expect that the second quarter margin will be below the full-year margin outlook, while the back half of the year will be above the full-year margin outlook. To wrap up, we are off to a solid start to the year, optimistic that the macro environment will remain constructive, confident in our competitive position and underlying fundamentals, and we are enthusiastic that our strategic agenda for the year will position us to realize the significant opportunities we see for our business over the next few years and beyond. Thank you for joining our call today and operator we are now ready to take questions.

The first question comes from Jason Kupferberg with Bank of America. Please go ahead.

Thanks, good afternoon guys. Nice job here on the quarter and that's what I wanted to start with here. So your adjusted constant currency revenue growth came in at up 2%. I think you had been expecting it to be more in line with Q4 which was down 1%, so that was materially better. And I wanted to get a sense of whether the upside surprise here was primarily the digital side of C2C or were there other areas of the business that also outperformed your expectations?

I think it's a good question, Jason. Hi, how are you doing? I believe that all over the company we see really the business coming back. Obviously, the digital business has been extraordinary again delivering. And if you think that the growth rates coming from a huge base already compared with the competition, and I think we are targeting $1 billion plus for year end, and we are well on the way. We assume dotcom business has been performing very well, and we see also a lot of customer acquisition on western.com business new customers, and that has been doing well. And the most important one, a big part of our retail business is recovering. Right? And this is added to our 2% growth and as we see, look, the COVID-19 is not over. It's still there, but we do see some recoveries and that helps our business. People are using more digital, but certainly coming back to our retail business.

And just a quick one maybe the wu.com constant currency revenue growth accelerated to 37% from 26% last quarter. It looks like the transaction growth there was pretty stable, so just wondering if there were some mix factors that worked in your favor during the first quarter in wu.com? Thanks.

Yes hi, Jason, not really. We continue to get growth throughout the dotcom business. I would say that the yields on dotcom were relatively stable from Q4 to Q1, and but in the transactions we all stayed quite stable to Q4 as you said, and so that just provided the overall lift in the business, and the RPT was quite stable as well. And I think it's really playing out according to our expectations and we see good things for the entire digital business this year.

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

Hey guys, thanks. If we look at the trends, if you can give us a little more detail on the trends, call it second half March exiting the quarter into April, specifically on the digital side because I think folks are looking into how sustainable that growth rate will be as we start to lap the big growth you had in digital, sometime last year? And then the second part of this question is, also on the retail growth, you're saying it's going to grow. When we compare retail to 2019, do you actually anticipate getting back to those levels again? So if we can get that on top of digital strength, it would be good to see. Thanks.

Yes, hi, Darrin. Let me try to address both questions. The first one, as we have mentioned when we gave the outlook initially earlier this year, Digital is going to moderate in the second, third, and fourth quarters, and that's what we expect to happen because we got the largest growth and strongest growth beginning in the second quarter of last year. And, then yes, so that's what you should expect, but we're still going to get above $1 billion in total digital revenue. So that should give you a sense of the overall growth potential in that business. With respect to retail, we're probably not going to get back to 2019 levels this year, but it's going to be, it really depends on what happens. Certainly, there'll be some rollover impact, but we have other things that are coming into the business, like a Walmart and other initiatives in the second half of the year. So those will also play a big part in where the retail business goes.

Okay. I guess my follow-up is really around the digital transformation you have in the company. Hikmet, there's been a lot of discussion over taking some of this active user growth on westernunion.com and trying to monetize it more. And I think you alluded to some of the profile of underbanked or migrant customer base being pretty strong. So what kind of progression can we expect to see from you guys around that throughout this year? Thanks again.

Yes, good question. Obviously, via westernunion.com we have direct access to customers. It's really where we communicate directly with our customers, and we know that westernunion.com customers are more loyal to Western Union. They use more often, and we can communicate directly with them. And what we do, we are in 75 countries and these customers are migrant customers. For instance, UK to Albanian customers we speak in Albanian, in Italy to Romanian customers we speak in Romanian. Right? And they trust us. They also tell us that they really want new products besides Western Union services. The financial services will be the focus area, which we are looking at that. We started tests this year in Europe with our Western Union International Bank license, and we are going to learn more on that. But long-term I really see a big opportunity here. We have about 9 million customers in westernunion.com and it's growing. You just saw the numbers coming in the new customer acquisition, and this is a big opportunity. Besides having our core business which is the money transfer business, really adding additional services long-term.

Understood. Thanks guys.

Thanks.

Our next question comes from Tien-tsin Huang with JP Morgan. Please go ahead.

Thanks, good afternoon. I appreciate the discussion on the digital. I'm curious about the 9 million active user figure. If I remember and I could be wrong, I think at some point you disclosed 150 million active customers in your traditional retail business, so I'm curious how you think about that 9 million today and where it can go, how much of it is new, anything that you've learned in terms of customer acquisition costs, things like that? Thank you.

Sure. Hi Tien-tsin. Great question you asked me that earlier also, I remember. We have about 150 million customers globally; more than half of them are senders and half of them are kind of receivers. Right? So our focus obviously with the financial services, additional customer segment at westernunion.com is obviously from the send side in the beginning but also on the receive side, we know that the customers want to get more services, is it in Romania, is it in Poland, or is it in Morocco; they tell us we did some customer service here. So, there are two ways to go. First of all, we are going directly with our westernunion.com business, which we are the agent directly to our customers acquiring them, and we know their usages more often with that. The second thing is that we do have, as you know, some locations we have higher traffic, kind of focus on the ethnic groups, saying that okay they would like to send money from France to Morocco, they like to send money from Germany to Turkey, and this kind of customers we have dedicated locations, and these are also repeat customers. And we are also acquiring them and building our consumer ecosystem because they tell us also they would like to have additional services. One example is our test with insurance services, with AXA. As you know AXA is one of the largest insurance companies worldwide. And with them, we are doing a test in France, and really expanding our tests to the next stages, seeing that our customers want additional services, and I see long-term really a revenue opportunity for the company.

Okay great, now that's great to hear. And listening to our conversation segment that's, I'm glad that you're able to share that. My quick follow-up, if you don't mind, just on the India front and it's really great that you guys are doing a relief effort there by the way. I'm curious if you could see any interesting trends there, because I know India is an important receive nation for you?

India is extremely significant for us. We have billions of customers there who make transactions when they receive money. Our thousands of employees in India have faced challenging times, which is also true globally. We are closely monitoring the situation daily. From a business perspective, all our locations in Tien-tsin remain open and are considered essential services, including our post office and bank locations. We have a substantial network, along with dedicated retail locations that are operational. The major growth is coming from account payouts; we have a vast network for sending money directly to accounts in real-time, which many people are utilizing. While this segment may not have the largest numbers in absolute terms, it is the fastest-growing area of our business. This service is crucial for people in India who are dealing with a tough situation, and we see a similar trend globally, with people sending money to support their relatives for essential needs like health services. Thank you for your question.

Thank you.

Thank you. Our next question today comes from Rayna Kumar with Evercore. Please go ahead.

Good evening Hikmet and Raj. As you mentioned in your commentary, there was a spread between your C2C revenue and your transaction, which was largely driven by the white label partnerships. Could you talk specifically about if there were any pricing changes, positive or negative, that may have impacted that spread? And also I will ask my follow-up upfront. You've had a dynamic pricing initiative in place for quite a while now, can you talk about how that's performed versus your expectations? Thank you.

Yes, Rayna. I'll address the first part. The year-over-year variations are driving the spread. In terms of pricing, yields have remained relatively stable since the third quarter of last year, and the digital white label mix is also influencing this. As I noted earlier, we expect the spread between revenues and transactions to narrow over the next three quarters, and you'll observe that. There are reasons we won't see a significant increase in transactions from digital white label. Additionally, pricing for wu.com is stable, and retail is experiencing a notable rebound this year, starting in the second quarter. Therefore, the spread is expected to diminish considerably. Regarding dynamic pricing, we are actively implementing several initiatives and continually testing various technological improvements.

Yes, we recently held another business review, and it's a great question that significantly impacts our growth and customer acquisition while keeping our revenues in a strong growth area. We initially launched this at westernunion.com, and we are now expanding it into the retail business, particularly in specific locations where we see a positive return. This dynamic pricing strategy could potentially become one of the best globally in the future, especially since we have brought on board exceptional talent who are experts in this field. I am very optimistic about our dynamic pricing efforts, which allow for greater pricing flexibility.

Thank you. And our next question today comes from James Faucette with Morgan Stanley. Please go ahead.

Thanks very much and thanks for all the details and color on your business thus far this year. A couple of questions from me to kind of follow-up on things that you've mentioned, last year particularly in the June quarter and as the pandemic was first setting in, I mean you talked a little bit about how the nature of some of your wu.com customers, their profiles and their activity was different. I am just wondering if you have any color on how retention of those customers that were added at that period has developed, if you continue to see ongoing engagement from them? I'm just trying to get a little bit of idea if there has been any incremental change in your customer profile generally?

I would say, James, this is Raj. I would just say that the profile of the customer has continued to be very strong. The retention levels have continued to increase. These customers are transacting at a frequent level and at a higher principal per transaction in the business, and that's really having a positive impact on the overall company. The digital part of the business was one of the key drivers of the overall principal growth, so it's a high-quality customer.

Digital partner, to provide some context, we announced this in late 2019 and since then, the revenue from our digital partners has doubled. This is a significant milestone for our core business. Regarding our customers on westernunion.com, we know they tend to be more loyal and use our services more frequently, with around 80% of them being new to the Western Union experience, which is excellent. This represents a different customer segment with behaviors distinct from retail customers. They may send higher or lower amounts per transaction, showing more flexibility. Additionally, they often transfer funds to wallets or accounts, which adds to our growth. It’s important to note that we are not just seeing a shift of retail customers to Western Union; instead, we have broadened our offerings and increased our market share, which is encouraging.

Yes, and I think the other factors that need to receive money hasn't gone away, it's higher than ever before in terms of people and receive markets wanting to get money and the digital customers continue to send money at a frequent pace.

Thank you. Our next question today comes from Rayna Kumar with Evercore. Please go ahead.

Good evening Hikmet and Raj. As you mentioned in your commentary, there was a spread between your C2C revenue and your transaction, which was largely driven by the white label partnerships. Could you talk specifically about if there were any pricing changes, positive or negative, that may have impacted that spread? And also I will ask my follow-up upfront. You've had a dynamic pricing initiative in place for quite a while now, can you talk about how that's performed versus your expectations? Thank you.

Yes, Rayna. I'll address the first part. The spread you're noticing is primarily due to year-over-year exchanges. From a pricing perspective, yields have remained fairly stable since the third quarter of last year, and the mix of digital white label offerings is also having an effect. As I noted earlier, the gap between revenues and transactions is expected to become narrower over the next three quarters. You'll observe this trend, as there are reasons we anticipate fewer incremental transactions from digital white label. Additionally, pricing for wu.com remains stable, and retail is experiencing a significant recovery this year, which will become evident starting in the second quarter. So, the spread will narrow significantly. Regarding dynamic pricing, we have implemented several initiatives and are continuously testing various technology improvements.

Yes, we recently had another business review, and it’s a great question as it significantly influences our growth and customer acquisition while maintaining strong revenue growth. We have expanded our efforts, starting with westernunion.com, and we are also engaging in retail, particularly in select locations, where we see positive returns. I believe that our dynamic pricing may become one of the best globally in the future, largely due to our hiring of excellent talent who are experts in this area. I am very optimistic about our dynamic pricing initiatives, which ensure that our prices remain very flexible.

Thank you. And our next question today comes from James Faucette with Morgan Stanley. Please go ahead.

Thanks very much and thanks for all the details and color on your business thus far this year. A couple of questions from me to kind of follow-up on things that you've mentioned, last year particularly in the June quarter and as the pandemic was first setting in, I mean you talked a little bit about how the nature of some of your wu.com customers, their profiles and their activity was different. I am just wondering if you have any color on how retention of those customers that were added at that period has developed, if you continue to see ongoing engagement from them? I'm just trying to get a little bit of idea if there has been any incremental change in your customer profile generally?

I would say, James, this is Raj. I would just say that the profile of the customer has continued to be very strong. The retention levels have continued to increase. These customers are transacting at a frequent level and at a higher principal per transaction in the business, and that's really having a positive impact on the overall company. The digital part of the business was one of the key drivers of the overall principal growth, so it's a high-quality customer.

Digital partner, to put things in perspective, we announced in late 2019 that our digital partners' revenue has doubled since then. This is truly a significant achievement for our core business. Regarding our customers on westernunion.com, we recognize that they are more loyal and transact more frequently. Approximately 80% of these customers are still new to the Western Union brand, which is encouraging. They represent a different customer segment with behaviors distinct from retail customers. They often send varying transaction amounts and demonstrate greater flexibility. Additionally, they frequently transfer funds to a wallet or account. This adds value to our business and signifies that our approach has broadened our offerings and increased our market share. That's the positive takeaway here.

Yes, and I think the other factors that need to receive money hasn't gone away, it's higher than ever before in terms of people and receive markets wanting to get money and the digital customers continue to send money at a frequent pace.

Thank you. Our next question today comes from Rayna Kumar with Evercore. Please go ahead.

Good evening Hikmet and Raj. As you mentioned in your commentary, there was a spread between your C2C revenue and your transaction, which was largely driven by the white label partnerships. Could you talk specifically about if there were any pricing changes, positive or negative, that may have impacted that spread? And also I will ask my follow-up upfront. You've had a dynamic pricing initiative in place for quite a while now, can you talk about how that's performed versus your expectations? Thank you.

Yes, Rayna. On the spread, what you're observing is primarily due to year-over-year exchanges affecting it. From a pricing perspective, yields have remained fairly stable since the third quarter of last year, and the digital white label mix is also influencing this. As I mentioned earlier, we anticipate the gap between revenues and transactions to close in the next three quarters. You will notice this change, and there are factors contributing to a reduced number of additional transactions from the digital white label. The pricing for wu.com remains stable, while retail is experiencing a notable recovery this year, which will become evident starting in the second quarter. Therefore, the spread is expected to narrow significantly. Regarding dynamic pricing, we have been implementing several initiatives and consistently testing various technology enhancements.

Yes, we recently had another business review on that topic, and it's a great question because it significantly influences our growth and customer acquisition, while still maintaining strong revenue growth. We have expanded our services to westernunion.com and are also enhancing our retail business, particularly in select locations, where we've seen positive returns. This dynamic pricing strategy has the potential to become one of the best globally, thanks in part to the exceptional talent we have brought on board, particularly in technology. Their expertise is showing us how effective this can be, and I am quite optimistic about our dynamic pricing initiatives, which allow for greater pricing flexibility.

Thank you. And our next question today comes from James Faucette with Morgan Stanley. Please go ahead.

Thanks very much and thanks for all the details and color on your business thus far this year. A couple of questions from me to kind of follow-up on things that you've mentioned, last year particularly in the June quarter and as the pandemic was first setting in, I mean you talked a little bit about how the nature of some of your wu.com customers, their profiles and their activity was different. I am just wondering if you have any color on how retention of those customers that were added at that period has developed, if you continue to see ongoing engagement from them? I'm just trying to get a little bit of idea if there has been any incremental change in your customer profile generally?

I would say, James, this is Raj. I would just say that the profile of the customer has continued to be very strong. The retention levels have continued to increase. These customers are transacting at a frequent level and at a higher principal per transaction in the business, and that's really having a positive impact on the overall company. The digital part of the business was one of the key drivers of the overall principal growth, so it's a high-quality customer.

Digital partner, to give some perspective, we announced in late 2019 that our digital partners' revenue has since doubled. This truly marks an important milestone for our core business. Regarding our customers on westernunion.com, we know they are more loyal and transact more frequently. About 80% of customers are still new to Western Union, which is promising. This represents a different customer segment with behaviors that differ from retail customers. They often send varying amounts per transaction and tend to be more flexible. Additionally, they frequently send funds to a wallet or account. This is beneficial for us and illustrates how Western Union has expanded its portfolio and market share without losing retail customers, which is the positive aspect here.

Yes, and I think the other factors that need to receive money hasn't gone away, it's higher than ever before in terms of people and receive markets wanting to get money and the digital customers continue to send money at a frequent pace.

Thank you. Our next question today comes from Rayna Kumar with Evercore. Please go ahead.

Good evening Hikmet and Raj. As you mentioned in your commentary, there was a spread between your C2C revenue and your transaction, which was largely driven by the white label partnerships. Could you talk specifically about if there were any pricing changes, positive or negative, that may have impacted that spread? And also I will ask my follow-up upfront. You've had a dynamic pricing initiative in place for quite a while now, can you talk about how that's performed versus your expectations? Thank you.