Good day, and welcome to the Western Union Third Quarter 2021 Results Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Brad Windbigler, Head of Treasury and Investor Relations. Please go ahead.

Thank you. On today's call, we will discuss the Company's third quarter 2021 results, our Financial Outlook for 2021, 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. Our call today features our CEO, Hikmet Ersek, and our CFO, Raj Agarwal. Today's call is being recorded and our comments include forward-looking statements. Please refer to the cautionary language in the earnings release and the Western Union 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 that may be similar to the types of expenses 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, Brad. And good afternoon, everyone. We appreciate you joining us today to discuss our third quarter results and the progress of our business. Our business continues to revamp from the effects of the COVID-19 pandemic, delivering double-digit revenue growth in digital and business solutions as well as strong profitability and operating cash flow during the quarter. Additionally, we are continuing to make good progress on our key initiatives, including our pricing evolution and platform enhancements. Now, let's take a closer look at the third quarter results. Overall, we achieved revenue growth in the quarter of 2% on a reported and constant currency basis, which was driven by 15% growth in digital and 31% growth in business solutions. While these two businesses grew nicely, the retail business was affected by the slower economic recovery, in particular, recovery in the labor markets, where employment of migrant workers remains below 2019 levels. As a result, our CTC revenue was flat on a reported basis or down 1% in constant currency terms with transaction growth down 1%. Both principal per transaction and cross-border principal increased approximately 4% during the quarter. Year-to-date, our cross-border principal increased 19%, reflecting the elevated levels of support that our customers provide to their loved ones during the period of uneven economic recovery. With that, based on the latest World Bank forecasts, we believe we are gaining market share. Our digital business continues to generate strong growth. Revenue generated during the quarter was $266 million, maintaining the record high level that we achieved in the second quarter, and putting us well on pace to exceed $1 billion in revenue this year. Most of our digital business is westernunion.com, which grew at a healthy pace in the third quarter with 16% principal growth and 12% revenue growth. WU.com average monthly active users increased 8% in the quarter. Although good outcome growth is moderating as expected, as we grow from a much larger base and compare results against the prior-year's accelerated growth levels, we anticipate growth to remain healthy as we continue to invest in marketing, product, and customer experience. We were particularly encouraged by the results we are seeing in our business, which is the fastest-growing portion of our business. The other component of our digital business is digital partnerships. Momentum is building in this business as we expand relationships with existing partners and launch new partners. We recently completed our previously announced acquisition of a minority stake in STC Bank, formerly known as STC Pay, which was a leading digital wallet service provider and is now in the process of launching as one of the first digital banks in Saudi Arabia. In addition, we are planning to launch a number of new partners in the upcoming months. Our progress confirms that the capabilities we have built to serve our branded direct digital business are also well-suited to serve the needs of leading banks and digital wallet providers. Our solution emphasizes flexibility and choice, built on a strong foundation of compliance and technology. We are able to offer our branded solution partners who want to feature our leading brand in cross-border payments, or we can offer capabilities that partners incorporate as a white-labeled solution. Our real-time account payout capabilities currently available in over 100 countries improve on incumbent solutions while also providing choice for consumers who prefer to direct transfer to our agent network. We recently announced that Western Union International Bank has joined the SEPA Instant Credit Transfer Scheme as a direct participant, further enhancing our real-time payment capabilities in Europe. Our capabilities have focused on cross-border remittances historically, but partner needs are evolving to include broader use cases. Thus, as we have integrated with traditional payment systems in the past, our platform can also be extended to incorporate future use cases related to digital currencies. Key to our success, whether serving our direct consumers through our branded offering or serving the customers of our partners is our omnichannel capabilities, which enabled payouts to more than 200 countries and territories in over 130 currencies to our extensive global network of billions of bank accounts, millions of wallets and cards, and approximately 600,000 retail locations. We continue to invest in expanding our payment capabilities to provide our customers and partners with additional options and convenience across platforms, devices, borders, and currencies. Turning to our profit performance in the quarter. Profitability was strong with operating margin increasing to approximately 25% as a result of solid business solutions revenue growth and lower planned marketing investments, which was partially offset as we continue to invest in our technology and global omni-channel platform. Earnings per share for the quarter were $0.57 on a reported basis and $0.63 on an adjusted basis. Before turning it over to Raj to discuss our financial performance for the quarter in more detail and our updated 2021 financial outlook, I'd like to provide an update on a few key strategic initiatives. Starting with business solutions, our planned divestiture remains on track. The majority of the business and the entire proceeds are expected to transfer in the fourth quarter of 2022. As we announced earlier today, we are expanding our ecosystem strategy. We are on track to launch our digital bank pilot in Germany and Romania in the fourth quarter, offering customers a digital banking and integrated money transfer solution through our Western Union International Bank. The digital banking offering, Western Union branded WU Plus, is an important part of our ecosystem strategy, which is focused on bordering and deepening our relationship with customers by offering them additional relevant products and services. Another component of our ecosystem strategy is WU Shop, a shopping and cashback rewards program that enables our customers to shop internationally at over 12,000 online stores and send gifts directly to their families and friends in other countries while receiving cashback on their purchases. WU Shop is now live in Germany and Austria. Several more countries, including the U.S., are targeted to launch by year-end. Overall, despite an uneven economic recovery and the continuing effects from the pandemic, our business proved resilient and we are on solid footing as we finish the year. With that, I'll now turn it over to Raj to discuss the third quarter results in more detail.

Thank you, Hikmet. And good afternoon, everyone. Today, I will discuss third quarter results and our full-year 2021 financial outlook. Third quarter revenue of $1.3 billion increased 2% on a reported and constant currency basis. Currency translation, net of the impact from hedges, benefited third quarter revenues by approximately $3 million compared to the prior year. In the C2C segment, revenue was flat on a reported basis or decreased 1% in constant currency. BS transactions declined 1% for the quarter as the slow recovery from COVID-19 impacted retail money transfer, partially offset by 19% transaction growth in digital money transfer. The spread between C2C transaction and revenue growth was 1 percentage point on a reported basis and flat on a constant currency basis. Total C2C cross-border principal increased 4% on a reported basis, or 3% constant currency, driven by growth in digital money transfer. Total C2C principal per transaction continued to grow and was up 4% or 3% constant currency driven by mix and changes in consumer behavior. Digital money transfer revenues, which include wu.com and digital partnerships, increased 15% on a reported basis or 14% constant currency. WU.com revenue grew 12% or 11% constant currency on transaction growth of 9%. WU.com cross-border revenue was up 16% in the quarter. Regionally, WU.com revenue growth was led by North America and Europe and CIS. Digital partnerships continued to show solid growth across revenue, transactions, and principal on the quarter. Moving to the regional results, North America revenue decreased 2% on both a reported and constant-currency basis on transaction declines of 5%. Constant currency revenue was impacted by U.S. outbound, including U.S. regulations concerning Cuba, that limit our ability to provide services there and continued declines in U.S. domestic money transfer. Revenue in the Europe and CIS region declined 3% on a reported basis, or 5% constant currency, on transaction growth of 3%. Our digital business continues to generate strong transaction revenue growth, offset by softness in the retail business. The digital partnership business in Russia was the primary contributor to the spread between transactions and constant currency revenue in the quarter. Revenue in the Middle East, Africa, and South Asia region declined 2% on both a reported and constant currency basis, while transactions grew 2%. The digital partnership business continues to generate strong performance, driving regional transaction growth in the quarter and was the main contributor to the spread. Constant currency revenue declines were driven by the retail business. Revenue growth in the Latin America and Caribbean region was up 25% or 26% constant currency and transaction growth of 10%. Currency revenue growth was generally broad-based as the region recovers from prior year economic dislocation due to COVID-19, with growth led by Mexico, Chile, and Ecuador. Driver of the spread between transactions and constant currency revenue growth was due to business mix. Revenue in the APAC region increased 1% on a reported basis and declined 1% on a constant currency basis, while transactions declined 13%. Constant currency revenue in the region continued to be impacted by COVID-19. Business solutions revenue increased 31% on a reported basis or 28% constant currency. Revenue growth was driven by increased payment services activity and the education vertical, while trends remained on a positive course with a continuing recovery in cross-border trade. The segment represented 9% of company revenues in the quarter and benefited from growing over lower revenue in the prior-year period. Other revenues represented 5% of total company revenues and increased 3% in the quarter. Other revenues primarily consist of retail bill payments in the U.S. and Argentina, and retail money orders in the U.S. Turning to margins and profitability, the consolidated GAAP operating margin in the quarter was 24.8%, compared to 22.7% in the prior-year period, while the consolidated adjusted operating margin was 25.2% in the quarter, compared to 23.5% in the prior-year period. The GAAP and adjusted margin increases were primarily driven by revenue growth and lower planned marketing investments, partially offset by higher technology investment. The GAAP operating margin also benefited from prior-year restructuring costs. Adjusted operating margin excludes M&A expenses in both the current and prior-year period, and last year's restructuring expenses. Moving to segment margins, note that M&A expenses are included in other operating margins for both the current and prior-year period and segment margins exclude last year's restructuring charges. BTC operating margin was 24.3% compared to 24.6% in the prior-year period. The slightly lower operating margin was due to higher technology spending as we continue to invest in our platform, partially offset by lower planned margin investments. Business Solutions operating margin was 32.9% in the quarter compared to 10.5% in the prior-year period. An increase in operating margin was primarily due to increased revenue. During the last 12 months, the Business Solutions segment generated $402 million of revenue and $86 million of EBITDA. Other operating margin was 18.3% compared to 20% in the prior-year period due to higher M&A costs this year related to the divestiture of Business Solutions. The GAAP effective tax rate in the quarter was 20.2% compared to 12.4% in the prior-year period, while the adjusted effective tax rate in the quarter was 13.7% compared to 12.7% in the prior-year period. The increase in the GAAP effective tax rate was due to deferred taxes recorded on the pending sale of Business Solutions. GAAP earnings per share or EPS was $0.57 in the quarter, compared to $0.55 in the prior-year period, while adjusted EPS was $0.63 in the quarter, compared to $0.57 in the prior-year period. The increase in EPS reflects the benefit of revenue growth and lower planned marketing investment, partially offset by a higher tax rate and higher technology investment. GAAP EPS includes a $0.05 in tax related to the deferred taxes recorded on the pending sale of Business Solutions. Turning to our cash flow and balance sheet, year-to-date cash flow from operating activities was $686 million. Capital expenditures in the quarter were approximately $35 million. At the end of the quarter, we had cash of $1 billion and debt of $2.9 billion. We returned $170 million to shareholders in the third quarter, consisting of $95 million in dividends and $75 million in share repurchases. The outstanding share count at quarter-end was 404 million shares and we had $558 million remaining under our share repurchase authorization, which expires at the end of this year. Moving to our outlook for 2021. Today, we provided an updated financial outlook reflecting recent business trends and macroeconomic conditions. As Hikmet mentioned earlier, the pace of recovery from COVID-19 has created a fluid environment. For example, GDP expectations were revised downwards in recent months, and labor markets have not fully recovered. Our outlook assumes that the macroeconomic environment will be similar to what we experienced in the third quarter, while our previous outlook assumed a moderate improvement. We now expect full-year 2021 GAAP revenue growth will be approximately 150 basis points higher in constant currency revenue growth. Our previous GAAP revenue outlook called for a mid-to-high single-digit increase. Constant-currency revenue, excluding the impact of Argentine inflation, is expected to grow between 3% and 4%, while our previous outlook called for a mid-single-digit increase. Our operating margin outlook has not changed, with the full-year GAAP operating margin expected to be approximately 21%, while the adjusted operating margin is expected to be approximately 21.5%. Compared to the third quarter, fourth quarter margins are expected to be closer to the full-year average as we anticipate incremental investment and lower revenues from Business Solutions in the fourth quarter which benefited from seasonal factors like tuition payments. We continue to anticipate our effective tax rate will be in the mid-teens range on a GAAP and adjusted basis. GAAP EPS for the year is expected to be in a range of $1.80 to $1.85 compared to the previous outlook of $1.82 to $1.92, reflecting the tax impact related to the pending sale of Business Solutions. We are also raising the bottom-end of the range for adjusted EPS with a new range of $2.05 to $2.10, which compares to $2.10 in our previous outlook. To summarize, we're pleased with the progress we continue to make toward achieving our long-term strategic objectives.

We will now begin the question-and-answer session. At this time, we will pause momentarily to assemble our roster. The first question comes from Tien-Tsin Huang with JPMorgan. Please go ahead.

Thank you. It's great to connect with you all. I'd like to start by asking about the impact on retail that you mentioned regarding labor and our migration. How widespread has this been, and are there any notable differences from a regional perspective? Is it primarily related to COVID, or does it seem to have a national component, including in Cuba, from a competitive viewpoint?

Yeah, let me start on the... obviously, the micro environment has not been as supportive as we thought, right? We hoped that after vaccination became widely available, that in the U.S. and Europe the economy would be in a much better position. That impacted especially our retail business; our migrant customers have not been employed as we thought. In fact, the labor market has not normalized in the U.S. as we hoped, and the one example I can give you is that U.S. foreign-born employment still sits at 1.2 million people. So the U.S. foreign-born employment is 1.2 million people, which is today the same as it was in 2019. So this environment has been impacting our retail business. However, on the other side, we have seen very good performance in our digital business. Our digital business has been performing very well, and that drives our C2C growth. And within the digital business, the business has been performing extremely well as people use their accounts and money and utilize our platform. So that has been a good factor in that. And then regionally, I would say that the U.S. and Europe have definitely been impacted on our retail business. But digitally, we are seeing good growth across the board. And that's going to continue, and I am very optimistic. As I said in my opening remarks, we are trending towards hitting a billion dollars, and I don't see any competitor who has a billion-dollar revenue to report and is growing that strongly from a very solid base.

Yeah, Tien-Tsin Huang, the macro factors relate primarily to impacts to our retail consumer as you noted. And North America is related a lot to U.S. events concerning Cuba because we shut that down late last year. So that's getting to be annualized soon. And then U.S. TMT continues to decline. Latin America was probably the one brighter spot that continues to recover a little bit from last year because Latin America has less relative digital business growth and so last year was hit harder and this year it's recovering more because of that factor. And then there are a lot of other nuances throughout the rest of the world, but it is generally impacting our retail consumer more than anything else.

Thanks for sharing all that. Maybe just my follow-up on digital banking trials here. What are you looking to learn from the pilots in these two countries in the second quarter and then what do you see, how quickly can you expand on this in those two countries and even in some other countries as well?

Great question. Our digital banking strategy focuses on expanding our ecosystem with our main platform, westernunion.com. We have millions of direct relationships with customers worldwide. We're enhancing our digital banking services by leveraging our brand, global platform, and our international bank license, which enables us to offer banking services. Customers have expressed interest in our new services launching in Germany and Romania, including WU Shop, which lets customers shop online in Germany and Austria and send gifts and money internationally. This service is unique and was requested by our customers. In the future, we may also allow the purchase of airline tickets and additional online shopping options. We aim to launch this in the U.S. soon within this quarter, and we are definitely expanding our digital banking efforts globally. We possess capabilities that few companies have, and our unique migrant customer base is seeking more services. I'm very enthusiastic about this, and I will share more details and metrics of success once the products are launched.

Okay. Thanks. Excited to learn more about it. Still appreciate it.

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

Thanks, guys. Just wanted to start by building on Tien's question regarding the migrant worker employment dynamic. When do you think that starts to turn around? What do you think it takes for that to improve? And why do you think it's not affecting your digital business, just the retail?

As you know, the digital business customer and migrant retail customers are different segments. It has been reiterated that digital customers are indeed incremental to our brand and do not cannibalize our retail business. Digital customers by nature typically have a bank account or credit card to send money globally. On the receive side, most transactions are picked up in retail by cash. However, one of the fastest-growing parts is that comp payout. This showcases our capabilities in an omnichannel environment. The impact, Jason, to your question, is that retail, most of the customers have been impacted, or probably the cash customers. Some facts obviously, the global GDP decreased from 7% in the last few months ago to around 5%. In the U.S., GDP growth decreased from 7% to 2%. So these factors definitely impact our customer’s behavior, and Western Union has historically been a first indicator of economic environments. Our cash customers feel the impact significantly, and retail customer transactions have been negatively influenced. Digital customers typically have a more stable income and funds available in their accounts and continue to provide support to their loved ones. Despite the downturn in retail this quarter, it is still a strong, very resilient business. I'm optimistic; we are expanding our retail business and today announced that we crossed approximately 600,000 locations. We are expanding and gaining new agents.

Okay. So if we are trying to hone in on the potential performance of the digital business in Q4, I'm just looking at last year. I think it was up around 4% quarter-over-quarter. I would assume there are probably some seasonal tailwinds around the holidays. Is that a decent proxy for how Q4 digital growth could come in this year?

Jason, just to clarify, you're comparing it to last year's Q4?

I'm saying Q4 '20 versus Q3 '20 was up around 4%. So if we take that into consideration.

Yes, it's hard to compare growth rates and sequential impacts from last year because there was so much happening last year. When you look at the overall growth this quarter with the mid-teens growth for total digital and then low double-digits for WU.com, that does not necessarily indicate what the business will do in the future. I think it depends on all the marketing activities, the platform upgrades that we're doing, and the distribution we have around the world. We have a lot in the pipeline. That will have an impact on where the business ultimately goes. Q3 to Q2 was relatively flat from an overall revenue standpoint. In our outlook, we have not assumed something too significant for this year. But in terms of the longer-term, we continue to see good opportunities for growth for the digital business.

Okay. Just last one real quick. The housekeeping thing, just you bumped up the midpoint of EPS guidance a little bit, even though you lowered revenue and maintained margins and tax, is that just a function of buybacks and your share count?

No. We have ranges for each of these line items that we established coming into the year, and they do not always all move in unison. We have a number of factors that can impact revenue or expenses or levels of investment. Obviously, we are saving some money this year with expense management, which is helping us achieve overall margin goals and bottom-line and EPS levels, even while revenues have not hit the original objectives. As we typically move through the course of the year, Jason, we will tighten those ranges based on what we are seeing. So it's nothing really more than that.

We feel comfortable with our investments. We continue to invest heavily in technology and innovation. We are really expanding on that. So we are comfortable and Raj has not talked about it. We feel confident in our guidance on EPS and margin guidance.

Okay. Thanks, folks.

Also obviously on the expanded revenue guidance, not the new revenue guidance. Thanks, Jason. Operator, can we have another question?

Yes. The next question comes from Darrin Peller with Wolfe Research. Please go ahead.

Thanks, guys.

Hey, Darrin.

While there's been a lot of progress made on the WU.com business, and as you mentioned, it's now become the largest digital money transfer business. When you consider the sequential change, just to follow up on that, it was pretty flat from a revenue standpoint from last quarter to this quarter, and I think you have average users who set up 8%. So can you help us understand what kind of dynamic we can expect over user growth for WU.com going forward? It was obviously much higher. It's off a larger base now but we haven't heard an update to that 9 million metric in a while. I'm just curious what you think you can do. What kind of growth normalized into '22? And what tactics are you going to employ from a marketing standpoint to execute on user growth going forward?

A lot has happened during the last couple of years. At the end of 2019, I am sure you recall that we anticipated that the digital business, which is primarily WU.com back then, could grow in the 20% range for the following two to three years or so. And I think that was what we said at our Investor Day last fall. Last year, it doubled that growth, so it was almost 40% revenue growth; this year it's probably going to be in line with what we would have expected in a normal year. We will be sitting at over a billion dollars in size and with a much larger customer base now. We do believe that there will continue to be good growth in those various metrics. But a lot of it will depend on the level of traction we get on the digital partnerships side. So that's going to be a key component. The opportunity for WU.com lies in the digital part of the remittance market. We will continue to invest in marketing for customer acquisition, and we are also spending a fair amount on the technology side to continue to upgrade the features and functionality, which ultimately increases customer retention. So we feel good about the business and the continued customer growth in the digital business.

On that note, I am very happy with the digital side of things. While economic conditions and industry trends have been impacted, not only us but across all industries, I've heard from other calls; our digital business has been performing pretty well and is extremely resilient and continues to grow. The former base for comparison is crucial here. Think about it, westernunion.com is in 75 countries, and of those, about 50 are relatively new launches, really starting to attract new customer segments. There is significant potential moving forward with westernunion.com connecting 200 countries. This provides a prime opportunity for customer acquisition.

For the full year, monthly active average users, the annualized number will be similar to where the revenue growth will be for WU.com. The quarterly growth was only 8%, but that reflects the much higher base of customers we had in last year's third quarter. The overall customer level is much higher than it has been.

And engagement levels on these users are obviously notably higher than retail. I'm not sure if you've ever disclosed; it would be great to hear if you can give us a sense of the number of transactions you see from WU.com users versus more traditional users. Also, what that can turn into with this WU Shop initiative and WU Plus initiative, and what timing you expect around WU Shop, since I'm curious to hear more around your strategy on that initiative.

First of all, we don't publish those numbers yet, but that's a good suggestion. Long-term, we should consider disclosing more of that, especially when we discuss our ecosystem and customer loyalty metrics— how long we retain customers and how many transactions they conduct, compared to traditional retail transactions. By nature, customers on westernunion.com need to have an account to use the service, whereas retail customers can walk into a location to complete a transaction. Digital customers, by nature, tend to be longer-term customers. We should definitely consider instituting or disclosing that in the future. Regarding strategy, we have shared updates and our ongoing efforts in our ecosystem. We will continue to showcase it in future earnings releases. I am excited and we discussed this initially at our Investor Day at the end of 2019. We're executing what we outlined and this presents an exciting opportunity for Western Union, beyond just money transfers, to meet the needs of migrant customers over the long term.

That's helpful. Assistant, could you provide additional color about WU Shop and the opportunity there in terms of investment? What you'd expect to see in about, say a year from now, regarding that initiative?

We've just launched WU Shop, and we're conducting financial services testing this quarter as well. We will gather more feedback in the first quarter of next year to evaluate traction levels. It truly offers a seamless way to shop online.

Operator, we have time for one more question.

Thank you. And that will come from Vasu Govil with KBW. Please go ahead.

Hi. Thank you for accommodating me. I have a couple of quick questions. First, regarding the trends in October. I understand that you mentioned you're expecting the same trends from Q3 to carry into the fourth quarter in your guidance. However, have you noticed any improvements in October, or have the trends stayed relatively consistent?

We won't comment on October trends, but we're comfortable with the outlook that we're giving today, and I expect that that's the way it will turn out. That's why we provided the outlook that we did today.

Got it. And the next quick one I had was on Walmart. I know you called that out earlier, Raj. Any color on how that channel is performing relative to expectations? And I don't know if you can provide any quantification as to how much of a tailwind that might have been in the quarter?

Well, let me start. We are very happy with Walmart. We enrolled 4,700 locations in the U.S. We were previously active with Walmart in Canada and Mexico, and the performance is picking up. We are starting our marketing activities. If you have the opportunity to visit a Walmart location, you will see Western Union everywhere there. Frontline associates have been trained, and many customers are beginning to use our services across many corridors. We are gaining new customers from Walmart to our networks, which is great.

The business continues to gain traction every month since we launched. We believe it will contribute even more significantly next year, and we are doing numerous promotional and marketing activities to raise awareness. So we are pleased with it.

Thank you for your questions today. I look forward to our next call in February. We are pleased with the resilience of the business, and we are very proud of Western Union. Thank you for dialing in.

Thank you, everyone.

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