Good day, and welcome to the Western Union Fourth Quarter and Full Year 2022 Results Conference Call. All participants will be in a 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. Brad, please go ahead.

Thank you. On today's call, we will discuss the company's fourth quarter 2022 results, our financial outlook for 2023, and then we will take your questions. The slides accompanying 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, Devin McGranahan; and our CFO, Matt Cagwin. Today's call is being recorded, and our comments include forward-looking statements. Please refer to cautionary language in the earnings release and in Western Union's filings with the Securities and Exchange Commission, including the 2021 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 with the most comparable GAAP measures in our earnings release attached to our Form 8-K as well as on our website, westernunion.com, under the Investor Relations section. I will now turn the call over to our CEO, Devin McGranahan.

Good afternoon, and welcome to Western Union's fourth quarter 2022 financial results conference call. Our reported revenue in the fourth quarter was $1.1 billion, and excluding contributions from Business Solutions, decreased by 6% on a constant currency basis. This growth reflects a negative impact of 3 percentage points from the suspension of operations in Russia and Belarus, continued softness in our retail business, as well as our new branded digital marketing strategy, which includes promotional pricing. Adjusted earnings per share were $0.32 in the quarter compared with $0.64 in the prior year period, which included a contribution of $0.08 from Business Solutions and $0.06 from operations in Russia and Belarus. The decrease in adjusted EPS was driven lower by lower operating profit, a $0.05 negative currency impact, and a higher effective tax rate, partially offset by lower share count. We continue to focus on maximizing cash flow and returning capital to our shareholders. In 2022, we returned over $700 million to shareholders, including $175 million of share buyback in the fourth quarter. Matt will further discuss our financial results in more detail and provide an update on our 2023 financial outlook. On the macro front, 2022 was a challenging year for many businesses, with interest rates rising to the highest levels in over a decade and global inflation at its highest point in multiple decades. Despite that backdrop, our customers continued to show their resilience, with constant currency principal per transaction up 4% in the fourth quarter and for the full year. The IMF updated their global growth forecast last week. They now expect GDP growth of 2.9% in 2023, which will be down from 3.4% in 2022. We believe that remittance volume closely tracks with global GDP growth. As such, global remittance volume continues to remain strong, according to the World Bank's most recent migration and development brief, which was published in November. They estimated that global remittance flows to the low and middle-income countries grew at 5% in '22 and project a further 2% growth in 2023. We continue to monitor macroeconomic variables that could influence our business, but our expectation is that the backdrop for 2023 will remain similar to what we have experienced in 2022, and we have included these assumptions in our 2023 outlook. Last October, we launched the Evolve 2025 strategy to return Western Union to growth by becoming the market leader in providing accessible financial services to the aspiring populations of the world. To achieve this goal, we have been working to revitalize our core retail and digital remittance businesses and launch new products and services to expand our value proposition to our 120 million-plus customers around the world. In August, we outlined our plan to accelerate investment in the back half of the year. We achieved this goal with increased investment in our technology platforms and in our digital marketing. These investments are focused on building core new technology to better enable world-class customer and agent experiences. As we highlighted yesterday, improving customer retention is an important driver of returning Western Union to positive growth. We are laser-focused on creating world-class experiences across our channels and products that will make it easier for customers to want to transact with us the first time and every time after. While our investment levels were heavier in the fourth quarter than I would expect on an ongoing basis, we recognized that in order to compete with many of our digital-first competitors, we need comparable customer experiences. We want to continue to iterate and innovate every step of the customer journey. A few notable examples of investments in the fourth quarter include: First, in our digital bank, in February of 2022, we launched a digital bank in Germany and Romania with the goal of creating a digital wallet-based payment platform. As we evolve our model from a transaction-based relationship to an account-based relationship, we expect to see increased customer engagement through more frequent interactions and ultimately improve customer retention. We believe an account-based model will provide us with a better platform also for the expansion of new products and services. In Q3, we expanded our digital bank offering to Poland, and in Q4, we added Italy. By ending send-and-receive country pairs, we are experimenting with how this approach can maximize the benefits of our two-sided network. The project is progressing. In the countries we have now launched, we have a total of approximately 150,000 onboarded customers. Our goal for 2023 is to expand our digital wallet and financial ecosystem to a number of additional markets. In the fourth quarter, we made investments to enable us to launch our digital wallet in two additional European countries as well as our first two launches outside of Europe, including the United States, the largest remittance end market in the world, and Brazil, the largest economy in Latin America. In addition to our digital bank, in the quarter, we also continued the development of our new retail point-of-sale system. We believe this new POS will improve both agent and customer experience and will help change the trajectory of our retail business. We began a pilot of the new POS in select locations in the U.S. in December. We believe that removing friction from our retail transaction process will improve not only transaction abandonment rates but will allow our agent partners to serve more customers, ultimately creating a better experience for both our agents and our customers. Finally, driven by our new go-to-market strategy in the U.S., we made the decision to invest increased investment in our marketing program in digital customer acquisition in the fourth quarter so that we could test and learn. We added additional dollars behind the strategy in the United States and also rolled out similar strategic programs in a few European markets as we continue to scale the program worldwide. As we discussed at Investor Day, returning our digital business to positive customer and transaction growth is our top priority. We are shifting our approach for maximizing revenue per transaction, maximizing customer acquisition, and growing customer lifetime value. This change has required us to rethink our approach to new customer offers and our approach to maximizing top-of-funnel effectiveness on every marketing dollar. I am pleased to tell you we believe it is working. We reported to you last quarter that new U.S. outbound branded digital customers increased by 26% year-over-year in the month of September. Today, I am pleased to report that the momentum we saw in September continued through the fourth quarter with new U.S. outbound branded digital customers up 30% year-over-year, which is now contributing to an improvement in our transaction trends as well. In Q4, we saw U.S. outbound branded digital transactions grow at 5%, a clear reversal of the decelerating trends we've seen in the business earlier in the year and the fastest transaction growth rate since the fourth quarter of 2021. Growing customers and transactions is important, but so is increasing customer lifetime value. In the near term, increasing retention is the lever and our focus. By simplifying repeat send experiences and increasing our ongoing CRM efforts, we are starting to see improvements. As a case example, if we look at fourth quarter retention rates for our newly acquired U.S. outbound September cohort, going back several years for comparison, the 90-day retention rate for that cohort is the highest we've ever seen. Not only are we acquiring now more U.S. outbound branded digital customers, but we are retaining those customers at a higher rate than we have in the past. While it is clearly too early to definitively say what the ultimate lifetime value of these new customers will be, early results show promise, as typically around 75% of the full year retention value is captured in the 90-day retention rate. Given what we are seeing with transaction growth and retention rates among this new cohort, we believe these new customers are clearly value accretive even at a lower revenue per transaction. The last topic that I'd like to discuss is the success we are seeing in Latin America, which has continued to perform with double-digit revenue growth in the fourth quarter. Latin America is a great example of where we are improving our distribution both via owned locations in conjunction with our agent partners. As we discussed on the second quarter call, our corporate-owned locations in Brazil, while only 5% of our retail footprint, accounted for over 50% of the revenue in that country. In 2022, we opened over 50 new corporate-owned locations in Latin America, including new locations in Argentina, Peru, and Brazil. Given the right mix of distribution like we have in Latin America, we are seeing results. In Q4, LACA saw 16% new cross-border customer growth with cross-border monthly active users up 11%. Marginally increasing our footprint of exclusive Western Union branded corporate-owned and concept stores in high-volume locations allows us to better control the customer experience, increase the number of products and services we offer, promote the retail to digital escalator, and assist with the eventual adoption of our digital wallet and our financial ecosystem. Importantly, we are able to add these kinds of locations at attractive economics with low capital and oftentimes generate above corporate average operating margins. Our goal is to concentrate corporate-owned and concept stores in high-density areas of the network while continuing to maintain and expand our extremely broad and valuable agent footprint. Given the success we have seen in Latin America, our plan for 2023 is to open another 50 corporate-owned locations in the region and also expand this model of controlled distribution into other parts of our network. Europe in 2022, we opened 15 new concept stores across the region and one new corporate-owned location in the Central Madrid train station. In a quick update, Melody, our partner in Rome that we highlighted at Investor Day, will now have 7 stores live, branded Western Union, that includes a new store in Italy that she is opening this week. She and we together are enabling us to better serve the Filipino community across Europe. Before I turn the call over to Matt to discuss our financial results in more detail, I would like to highlight a few key partnerships. First, we are pleased to announce the signing of 7-Eleven stores across Mexico. Mexico is one of the largest inbound remittance markets in the world, and we look forward to offering our remittance services at over 1,800,711 locations across the country. Next, we are pleased to announce the extension of our long-term and exclusive relationship with Rite Aid, signing a new 5-year partnership. Rite Aid is one of the leading consumer retail stores in the United States and a long-term valuable partner of Western Union. Finally, I'm very pleased to announce that Matt Cagwin was appointed the Chief Financial Officer of Western Union. Matt joined us in July of last year as the Head of Business Unit Financial Planning and Analysis and served as the interim CFO since September. Matt brings a wealth of experience to the role, having most recently served as the CFO of the Merchant Acceptance division of Fiserv First Data. Thank you for your time, and I will now turn the call over to Matt.

Thank you, Devin. And good afternoon, everyone. I'm pleased to be here with you today to walk through our fourth quarter results and our 2023 financial outlook. Information for the full year results can be found in our press release and attached financial schedules. Fourth quarter results were in line with our expectations and our 2022 adjusted full-year financial outlook, although well below what we believe to be our long-term potential. Overall, 2022 was a challenging year with the start of the conflict between Russia and Ukraine, the increase in macroeconomic uncertainty given high inflation, rising interest rates, and slowing global economy. We also announced the migration of two key retail European agents, the first of which took effect in Q4. While headwinds will continue into 2023, we are confident that we can move the needle in the right direction as we continue to lay the foundation for our Evolve 2025 strategy. We'll go through our 2023 outlook in more detail shortly. Before I do that, let's move into the fourth quarter results. Fourth quarter adjusted revenue was down 6% to $1.1 billion. The suspension of our operations in Russia and Belarus impacted the revenue by 3%. Q4 included a number of dynamics, including the net impact of promotional pricing activities and the loss of a European agent, which negatively impacted our revenue by 2% in the quarter and was partially offset by the growth of other and a 1% benefit from Argentina inflation. Adjusted operating margin was 15.8% in the quarter compared to 24.9% last year, which was positively impacted by 60 basis points from the inclusion of Business Solutions last year. Full year operating margin was 20.4%, landing in the midpoint of our range of our outlook. As Devin highlighted earlier, we accelerated investment in the quarter, supporting our Evolve 2025 strategy, including the expansion of our financial ecosystem, the implementation and scaling of our new go-to-market branded digital strategy, and the design and build of our new point-of-sale system. The decrease in fourth quarter operating margin was driven by lower revenue, the rollout of our new brand digital strategy, as well as the increase in technology investments. The adjusted effective tax rate in the quarter was 14.7% compared to 12.1% in the prior year period. The increase in the adjusted effective tax rate was primarily due to discrete tax benefits in the prior year period. Now moving on to adjusted EPS, which was $0.32 in the quarter compared to $0.64 in the prior year period. The decrease in adjusted EPS was primarily driven by lower operating profits, a $0.05 negative impact of currency, a higher effective tax rate, partially offset by lower share count. Additionally, in the prior year period, Business Solutions and operations in Russia and Belarus contributed $0.08 and $0.06, respectively. Now turning to our C2C segment. Revenue decreased by 9% on a constant currency basis, driven by softness in our retail business and promotional activities related to our new branded digital go-to-market strategy. Transactions in our C2C segment declined by 12% in the quarter. Russia and Belarus negatively impacted revenue and transactions by 3 percentage points and 9 percentage points, respectively. When you look at our branded digital business, revenue declined by 6% on a constant currency basis. In contrast, transactions grew by 2% due to our new go-to-market strategy, which was launched in the U.S. during the third quarter. Earlier, Devin spoke about how our strategy drove a 30% growth in new U.S. outbound branded digital customers in the quarter and reversed a decelerating transaction trend that we have seen in the business for a number of quarters, leading to a growth of approximately 14% in global new branded digital customers. Now moving on to the regional results. In the fourth quarter, North America continued to decrease by 7% while transactions declined by 2%. The U.S. domestic business and the U.S. outbound business to Russia continued to be a drag on our results. While revenue was also adversely affected by 4% from the promotional price activity in the quarter, as discussed earlier. We were pleased by the continued momentum that we saw in our new U.S. outbound branded digital customers. We saw a 3 percentage point transaction growth in North America branded digital business, which was a 600 basis point improvement versus Q3, which we believe is another proof point that our strategy is moving us in the right direction. Revenue in the Europe and CIS region was down 17% on a constant currency basis with transaction declines of 31%. Russia and Belarus adversely impacted adjusted revenue by 8 percentage points and transactions by 26 percentage points. The region continues to face a difficult macro backdrop, competitive pressures, and was impacted by the loss of a key retail agent during the quarter. Even with the agent loss, revenue trends improved in the fourth quarter versus the first half of the year, excluding the impact of Russia and Belarus. Revenue in the Middle East, Africa, South Asia region remained stable on a constant currency basis, while transactions decreased by 5%. Softness in retail and digital right-label businesses were partially offset by growth in our branded digital business. Revenue growth in Latin America and Caribbean regions accelerated and was up 13% in the quarter on a constant currency basis with transaction growth of 8%. The solid performance in the quarter was led by strength in Ecuador, Venezuela, and Nicaragua. And finally, revenue in the APAC region was down 14% on a constant currency basis, with transaction declines of 12% due to softness in Australia, Japan, and Korea. Now turning to other revenue, which primarily consists of retail bill payments in Argentina and the United States and retail money orders in the U.S., which represents 7% of total company revenue and grew by 20% year-over-year on a reported basis. During the fourth quarter, we completed the closing of the second closing of the business solution divestiture, transferring the United Kingdom operations. The third closing, which includes the European operations, is currently expected to occur in the second quarter of 2023, subject to regulatory approvals. As a reminder, we've already received the full proceeds from the sale. Now turning to cash flow and balance sheet. In 2022, we generated $582 million of operating cash flow, which included a transition tax payment of $64 million paid in the second quarter. These transition tax payments resulted from the 2017 U.S. Tax Act and will increase annually over the next 3 years and stop after 2025. In 2022, we also returned $713 million to shareholders through a combination of dividends and share repurchases, continuing our strong track record of returning capital to our shareholders. Today, we announced that our Board of Directors approved a $0.235 quarterly dividend payable on March 31, 2023. We also continued to increase our capital expenditures, which were $208 million in 2022, which was down 3% versus 2021, with a mix shifting from agent signing bonuses to more software development. Finally, at the end of the quarter, we had cash and cash equivalents of $1.3 billion and debt of $2.6 billion, down roughly $400 million from a year ago. With our leverage ratio now sitting at 2.4 times and 1.2 times on a net basis, which supports our strong balance sheet position and provides us flexibility for potential M&A while we target to maintain our investment-grade credit rating. And finally, as part of our ongoing operating expense deployment program to optimize our expense base, in 2022, we invested approximately $50 million. This program allowed us to increase our funding in various strategic initiatives like building out our digital wallet, our financial ecosystem, and creating our new point-of-sale system, enhancing our digital transaction platform, and creating an integrated omnichannel experience. We are already making good progress on reallocating expenses in 2023, and I look forward to providing additional updates as the year progresses. Now moving to our outlook. Today, we reaffirmed the 2023 adjusted financial outlook we provided at our 2022 Investor Day. Our outlook assumes no major changes in macroeconomic conditions, including changes in foreign currency. We expect adjusted revenue to be down 2% to 4%. As I mentioned earlier, 2023 will face headwinds from Russia, Belarus in Q1 and the loss of two European agents throughout the year. We expect the adjusted operating margin to be in the range of approximately 19% to 21%. In the first half of 2023, we expect margins to be below our full year range as we continue to make product investments, expense redeployment related to our cost efficiency program, and lapping the impact of Russia and Belarus. Finally, adjusted EPS is expected to be in the range of $1.55 to $1.65. The expected year-over-year decrease in adjusted EPS includes $0.18 related to the sale of Business Solutions, agent losses, Russia and Belarus, and currency impacts. Lastly, we would like to provide an update on our four key performance indicators that we talked about at Investor Day. In 2022, we improved retail retention by 46 basis points year-over-year. Our goal is to improve this metric by 200 basis points annually, driven by technology improvements and improvements in our agent and customer experience. Our second performance goal is to grow our new branded digital customers by double digits. Given the success of our new branded digital go-to-market strategy, I'm pleased to report that we've achieved a 14% new customer growth in the fourth quarter. Our third KPI is a 20% omnichannel customer growth. This metric was flat year-over-year in 2022, in line with our assumptions, as we believe we need to make improvements to our customer journey and loyalty programs before we'll be able to meaningfully improve our omnichannel customer growth. And finally, the last center we talked about at Investor Day was our ecosystem. Our ecosystem added 15,000 customers a month on average over the past 3 months. We believe our longer-term goal of 100,000 a month will be possible with the rollout of large consumer bases like the United States, Brazil, and we look forward to launching our digital wallet in those countries in the coming quarters. To recap, last year, we delivered our adjusted full-year financial outlook and launched our Evolve 2025 strategy, which aims to put us on a path toward sustainable long-term growth. So far, we've made good progress on laying the foundation of our strategy, including accelerating investments, and look forward to providing more updates as we continue our journey.

Now we're ready to take questions.

I appreciate you guys going through all the detail here. So the LACA acceleration, I thought that was really interesting. You noted 3 countries, but is there a way to elaborate on some of the acceleration and maybe the attribution in terms of what you've done to create that and whether or not that is sustainable or applicable to some other region that we should be tracking here?

Tien-Tsin, thank you for calling in today. LACA is a great example of when our strategy comes together, how it can be successful. And so there are 3 elements going on in LACA. One is, as I highlighted, the investment in optimizing our retail network and in making sure that we have high-quality distribution in the right places to serve our customers. The second, as you can see, LACA is starting the evolution that's happened in much of the rest of the world to go digital. We are positioned well in many of those countries, particularly in Brazil, Argentina, and Panama. And so we've seen very strong digital growth. The third is we have a strong operating model in LACA, and we've invested marketing dollars in increasing our brand awareness and the effectiveness we have in those markets, which is paying dividends. Matt can give you a bit more detail on specific countries or quarters.

Tien-Tsin, just as you think about it, those are the three large ones that are driving it. As Devin just highlighted before, we're seeing high double-digit, low triple-digit growth in our digital business, and we're seeing very solid growth across most of the region when you look at it from a retail standpoint.

I think we believe it’s quite sustainable, and early returns I would say, 2023 will show strong performance in LACA again, as we saw in 2022.

I appreciate the complete answer there it definitely stood out to us. So my quick follow-up, if you don't mind, maybe for you, Matt, you mentioned being below for the first half of the year. I just want to make sure I caught that correctly from a modeling standpoint. I know there's a lot of investments going on with additional banks and whatnot. So I just wonder if we caught that correctly.

Absolutely, you did. So I would view Q4 here as a low watermark, but our guidance was 19% to 21%. We'd expect to be below that for the first half of the year and then progress into the range and close up in the range for the full year as the year progresses.

The trend we're seeing on the digital customer acquisition, specifically in the U.S. outbound, was obviously very strong. And it continued to move in the right direction from last quarter into this quarter. I guess maybe just in a bigger picture way, if you can talk to revisit the strategy of what's working there? What kind of lag effect you'd expect us to see around that turning into transactions?

Yes. So Darren, it's great to hear you. Thanks for joining the call. We are excited about the work that first we did in the U.S. and now we're starting to see similar, although a little bit more muted results in other places in the world where we've launched the program. The program has 3 fundamental levers. First, as you highlighted, being in the market and being competitive with new customer offers and making sure that new customer segment pricing again reflects market and competitive reality. The second is to optimize our marketing funnel efficacy, getting the mix right, getting dollars downloaded in the funnel, and making sure that we are creating the highest return for each marketing dollar. Finally, we are optimizing the new customer experience and targeting people's ability to get through our onboarding and KYC process with as few steps as possible, which is increasing conversion rates for new customers to Western Union. Those 3 elements and different mixes we use around the world depending on where we are from a market position, we are seeing strong results everywhere we're launching it, although the U.S. is so far the strongest result that we've seen.

Thank you, Devin, and Darrin, I appreciate your question. Regarding the cohort aspect, we launched in the middle of Q3 and have seen great results over the last two quarters, particularly in new customer growth in the digital space globally. Looking at it from a cohort perspective, we anticipate positive revenue growth within a couple of quarters over the next year, although this can vary by region. Our teams are diligently exploring additional ways to optimize this, while also aiming to increase our customer base. I see this as a positive development for the year.

It's great to hear. I have a quick follow-up. I'm probably the only one asking about this, but the C2B segment seems to have performed better. I understand there are some moving parts, but could you provide a quick update on what drove that strength and whether it is sustainable?

Darrin, I wanted to clarify that the area mainly comprises our biller business in the U.S. and Argentina, along with our money order business in the U.S. Last quarter, the results were muted for a couple of reasons. First, we faced some currency challenges in Argentina, and second, we rebalanced our substantial investment portfolio related to our money wear business last quarter to leverage the current market conditions. The currency situation has improved and is now providing us with some advantages. Additionally, we are seeing a significant benefit from the rebalancing of our investment portfolio. We anticipate a strong underlying business and favorable results from the investment side for the remainder of this year.

I appreciate the call-out on Europe and CIS, which you've talked about previously, the loss of some large European agents besides the, say, Russia and Belarus headwinds. If we strip those out and think about Europe and CIS on a go-forward basis, perhaps normalize in mid-2023, early 2024, what do the transaction and revenue dynamics look like in such a large international region for you?

So let me start, David, great to have you on the call. Thank you. And I'll let Matt pick up. We have a varying landscape in Europe. And so if you look at a country like Spain, we have a very strong performance there. Mainly because the corridors out of Spain go to Loco where we have strong market and strong brand. If you look at Central Europe to Africa, that's been under pressure from competitive forces and for migratory results almost the entire year. So on a kind of country-by-country and quarter-by-quarter basis, we have a high degree of variability in Europe. If you strip out the impact of Russia, Belarus, and eventually the impact of losing those two large agents, I believe we're approaching kind of flattish overall transaction trajectories. As Matt said, the back half of the year strength and growth of transactions will give room to returning to revenue neutrality, given the size and competitive nature of the region. But again, it's highly variable by country and by corridor segment.

Just to build on what Devin has talked about. I mean, I think you can get these numbers out there. But our overall transaction growth, including Russia and Belarus, is down 31% this quarter. That's an improvement of 1% versus last quarter, and it's a couple of hundred basis points improvement from the first half of the year. When you strip out Russia and Belarus, it actually got worse by about 100 basis points quarter-over-quarter, but that's because we lost an agent, and about half of our decline this quarter was due to losing the agent. That's how you can think about the core business itself, is it starting to trend towards the right direction, making pretty meaningful improvement in the first half with the headwinds we have on the lost agent here in Q4.

I wanted to ask you about the owned concept retail locations and just whether we should sort of think of your efforts there as the beginning of a longer-term shift to a more direct distribution model. I guess the question is, when you look out five years or so, should we expect there to be a great deal more direct distribution at some point, maybe even the majority of the distribution?

So I would say no. The way we are looking at it is kind of a peer of efficacy and control. So at the very top of the pyramid are the Western Union owned and managed locations. In a given market, there'll just be a handful. So if we got to a couple of hundred in a region like Europe, that's going to be a lot. In LACA, we're kind of between Argentina, and we're at a couple of hundred and we'll add maybe 50 or 100 more over time. The next is this notion of branded exclusive with an aging partner, which we call concept stores. We seek particularly in markets like Europe, where the market is much more independent. We have highlighted some losses with our historic large exclusive agents, a desire to build out that model, I'll call it the Melody model, that I highlighted, and help those agents expand on a branded and exclusive basis. Underneath that, we have our large strategic partners. I highlighted our Rite Aid renewal. We still have several very privileged post-office relationships around the world, which in general are branded and exclusive. And then under that, we have the large independent agent, many times non-exclusive networks.

One follow-up for me. Can you talk about the monetization strategy for the digital wallet and how your thinking there is kind of evolving? I'm not sure if there's a revenue and/or margin profile that is worthwhile talking about today. If there is, please enlighten us. But how do you think about that being a contributor over time in terms of monetization revenue profit?

So the business case on the development and delivery of the wallet-based ecosystem is based entirely on increases in retention. Our ability to increase retention through a more interactive and account-based experience is the justification for the investment in the platform. That’s just around our core economics of international money transfer from the digital platform. Incrementally, over time, we expect to see some benefit from the value of interchange that comes from issuing debit cards, the value of prepaid that comes from linking that to a digital wallet or digital experience, the value of accelerating our bill payment business from mostly a retail footprint today into the digital ecosystem, and the ability to bring foreign exchange services and multi-currency aspects to the digital wallet for people who want to buy and hold different kinds of currency. So we do see incremental revenue streams over time that will develop as we enroll a greater percentage of our digital customers in an account-based or wallet-based model.

The only thing I'd add, just a reminder, a 1% improvement in our retention, which is the largest driver of this, is about $30 million to $40 million benefit to us.

Congratulations, Matt, on becoming the CFO. I have a question about pricing. Are you expecting any additional pricing changes this year in your digital or cash-to-cash business? Since you introduced your promotional pricing strategy, have you noticed any shifts in the competitive landscape?

So Rayna, we continue to optimize our prices. As you well know, we compete in 20,000 corridors, and we price on the basis of geography, corridor, customer segment, and in some cases, even time of day. So our pricing is a very dynamic model, and we intend to and will continue to adjust that almost in real-time accordingly around the world. You can expect to continue to see us optimizing pricing to drive our business. It was interesting. One of our competitors called out on their most recent earnings call the inefficacy of new customer offers. So clearly, someone's paying attention and listening and commenting on what we're doing. Our experience has been, and as I highlighted, the customers that we're acquiring with our new offers are resulting in a higher quality customer with greater near-term attention ability and greater second and third transaction timing than we saw when we were not offering promotional pricing offers for new customer acquisition.

Rayna, this is Matt. And again, thank you very much for my congratulations. I'm very excited to be here at this iconic company. There's a lot of moving parts that could do that. It's hard to predict what will happen with the macroeconomic conditions, what will happen with our competitor situation. So I wouldn't want to speculate here on this call.

Rayna, because I'm a CEO and not a CFO, the single greatest contributor to achieving the higher end of the margin would be above-expectation growth. So this is a business model that has a moderate fixed cost base that if we are able through these programs that we're driving to be at the top end of our expected range, that will help us have a better than bottom end of our range margin contribution. Growth would be the elixir.

Devin, I want to clarify my understanding regarding the World Bank, as I believe you experienced a 5% growth last year and a 2% growth this year. On this slide, it mentions that the C2C principal transaction in constant currency is growing at 4%. Can you confirm whether our growth aligns with the market? Additionally, how do you view our share gains or losses in comparison to the market at this time and your aspirations for the future?

I think it's clear that due to overall market growth, we have been losing market share for a significant period. As I've mentioned before, much of the substantial growth of our competitors has come at the expense of Western Union. As we revamp our market strategy and reinvest in our retail platform, marketing, and branding, we expect to stop losing market share to our competitors. We are already seeing evidence of this, as indicated by significant gains in app downloads in our digital business in North America during the fourth quarter. This suggests we are no longer losing market share in that region. We aim to be not just a non-share donor but also a share winner, though that is something for the future.

And the point I just want to make sure I got it on the principal per transaction that's been pretty darn consistent at 4%, it's just the steadiness of the market?

That has been our experience, and our customers have benefited from increased wages while suffering the consequences of high inflation. The net of that has been 4% larger transactions across our entire footprint. It obviously varies by geography and by corridor where some are seeing greater and some less, but the net take for us is that the business is fairly resilient in the face of moderate to significant economic headwinds around the world. My follow up. Just thinking once we come to that positive branded digital growth, is that coming to a normalized growth rate you guys thinking come at year or two once we make that turn. I will tell you what our aspiration is. Our aspiration is to get back to high single-digit, low double-digit revenue growth in our digital business, which we believe given our scale and the diversity of our markets will reliably enable us to outgrow the market and be a market winner in most of the important places of the world.

This is Chris Zhong at Credit Suisse. So the first one related to the critical produce transaction that prior mentioned, we've definitely been very strong growth going up 1 year to 2 year and 3 year constant currency basis. And wanted to zoom in a little bit on the underlying assumption for the revenue guide in 2023, where the global macro outlooks. But are you seeing the principal project transaction growth holding up in 2023? Or is there any direction probably have? And this is the first one. I'll follow up with the next one.

Chris, this is Matt. There's lots of moving parts in our guidance. The prices, there's principal, there's new customer acquisition. So I'm not going to comment on micro topics within our overall guidance. But we are confident that we can obtain our outlook we gave out this year on this call today as well as Investor Day.

And for one of the factors to achieve your medium-term outlook, we're seeing some early days in your progress. It's up 36 basis points reduction in the attrition or just increasing in the retention. I think previously you called out they have the source of attrition mainly due to pricing and transaction time per customer interaction. Can you just share maybe some of the thoughts on how much of the retention is coming from different sources, noticeably? It's probably going to be less pricing intentionally, but if your transactions shift incrementally towards digital? Is that also going to be a factor as well?

So a couple of things embedded in there, Chris. Thanks for calling in today. The focus on retention really started in the second half of the year as we rolled out the Evolve 2025 strategy. So we were encouraged by the retention results that we got by focusing on it and believe that a continued focus can ultimately get us to our long-term aspiration of improving retention by 200 basis points a year. Secondly, some of the work that we have been doing, and remember, we have a complicated ecosystem of multiple generations of point-of-sale systems, including gateway applications for our large strategic agents in one of those, which we call WUPOS 2.0, we've been working hard on increasing transactional efficiency. In the second half of the year, we saw hundreds of basis points of improvement in transaction completion rates. It is incremental improvements across our entire ecosystem to move transaction completion rates from something in the 80s to something in the 90s that can help us increase retention and drive the overall number.

Guys, can you hear me?

That's Will.

Or is it Ken? It's Will.

Will, go ahead.

Sorry about that, the technical issues. I wanted to follow up on Tien-Tsin's question earlier on the operating margins for the first half versus second half. I'm just wondering if you could kind of talk through some of the moving pieces and kind of bridge first half to second half. The types of investments you guys are contemplating. Obviously, I know you made some pricing investments in the fourth quarter. But I guess, what specifically do you have visibility to investment sort of dropping off in the back half of the year to drive that operating leverage embedded in the guidance?

Will, it's Matt. It's really consistent with what we talked about for Q4 here, just the completion of some of those initiatives. So we're very focused on continuing to roll out our wallet or ecosystem in a number of different countries. As Devin highlighted in the earlier part, we've got the U.S. and Brazil coming up quickly, a couple more players within Europe. So we've got a fair bit of investment there. We're also putting some investment into additional products that go along with our ecosystem, things like prepaid, which we look to have go live this year as well. So it's things of that nature that we're really working on in the first half of the year and wrapping up things we started this side at year-end.

It's great to see the momentum with the U.S. outbound branded digital customers. Can you discuss how customer acquisition costs have changed after the adjustments to your pricing strategy? Additionally, what are your expectations for these trends throughout the year?

So we are working hard to balance customer acquisition costs with customer lifetime value. As I've talked about, we're getting that equation right for us is really important, and making sure that we're getting high returns on all of our marketing dollars, which is part of the program we launched in the U.S. When we increased marketing spend in the fourth quarter, which I highlighted previously, part of that was in this kind of test and learn approach to say, where can we effectively apply dollars. What we have found is the application of dollars to things like social media, has a better return for us than applications of dollars like paid search. We are honing the model as we roll out a more market-competitive pricing for new customers to enable us then to apply the dollars to effectively manage CAC to lifetime value. I think we're still in the learning phase. We're making real progress, and we're seeing results that align with how we believe we can execute and continue to drive the digital new customer growth and ultimately transaction growth, which will lead to revenue growth throughout 2023, globally, in our branded digital business.

I just want to follow up on that last discussion. Could you talk about what you're seeing in terms of repeat usage and transactions around your promotional programs? I think the goal is to attract customers with that discount on the first transaction and then get back to more normal pricing on that second and third transaction. So what are you seeing in terms of that price sensitivity from customers on those later transactions? And any comments about their willingness to do that second, third, or even fourth transaction or retention rates would be great.

Ken, thanks for joining the call. It's always great to have you. As I highlighted, we are very, very indexed on repeat transaction performance from the new customer offers. Right? In many cases, the new customer offer is first transaction free. We are quite cautious to make sure that we are not offering a first transaction free for a customer that doesn't return. We are highly focused on what we consider to be second and third transaction, which then creates a pattern of repeat usage, which allows us to then measure ongoing retention. In the previously discussed remarks, I highlighted the September cohort, which is the most aged since we launched this program. The 90-day retention rate for that cohort is the highest we've ever seen. So we are seeing improved performance on second and third transactions from those new customer offers, and we are seeing improved retention of that cohort at least through the first 90 days.

Is the retention we're discussing at levels significantly higher than the 46 basis points we saw in 2022? Any additional context would be appreciated.

To clarify, the 46 basis points is retail retention, not digital retention. As you know, on very large bases of customers, retention is measured in basis points. When we talk about improvements, we're talking 50 basis points to 150 basis points of improvement whenever we see it with a goal of obviously getting to 200 points across the footprint in retail and similar expectations about what we might do in digital. So we're not talking about 1,000 basis point retention improvements.

If I could just squeeze one more in, just so I understand the impact of the roll-off of the agents. I just want to make sure I have it right. I think the agent, the roll-off had a 2 percentage point impact in the quarter. Did that 2 percentage point headwind kind of roll through the next three quarters? And then, I guess, what's the expected size of the headwind from the next agent just so we can model it correctly? And then any offsetting factors on P&L, like does this help agent commission costs or anything like that would be helpful.

Ken, this is Matt. So basically, we talked about this at Investor Day, each agent is about 1% of revenue. So the first one exited here at the beginning of Q4. So we'll lap that at the. The other agent we expect to part here in the middle of the quarter?

Middle of the year.

Middle of the year, thank you. Sorry, middle of the year.

Our next question comes to us from Ramsey El-Assal from Barclays. Please ask your question.

I wanted to ask you about the owned concept retail locations and just whether we should sort of think of your efforts there as the beginning of a longer-term shift to a more direct distribution model. I guess the question is sort of when you look out 5 years or so, should we expect there to be a great deal more direct distribution at some point, maybe even the majority of the distribution?

So I would say no. The way we are looking at it is kind of a peer of efficacy and control. So at the very top of the pyramid, are the Western Union owned and managed locations. In a given market, there'll just be a handful. So if we got to a couple of hundred in a region like Europe, that's going to be a lot. In LACA, we're kind of between Argentina, and we're at a couple of hundred and we'll add maybe 50 or 100 more over time. The next is this notion of branded exclusive with an aging partner, which we call concept stores. We seek particularly in markets like Europe, where the market is much more independent. We have highlighted some losses with our historic large exclusive agents, a desire to build out that model, I'll call it the Melody model, that I highlighted and help those agents expand on a branded and exclusive basis. Underneath that, we have our large strategic partners. I highlighted our Rite Aid renewal. We still have several very privileged post-office relationships around the world, which in general are branded and exclusive. And then under that, we have the large independent agent, many times non-exclusive networks.

Thank you for the clarifying that.

We have no additional questions at this time. Thank you for joining the Western Union Fourth Quarter and Full Year 2022 Results Conference Call. We hope you have a great day.