Good day. And welcome to the Western Union First Quarter 2023 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 that this event is being recorded. I would now like to turn the conference over to Tom Hadley, Head of Treasury and Investor Relations. Tom, please go ahead.

Thank you. On today's call, we will discuss the company's first quarter 2023 results, 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. Joining me on the call today is our Chief Executive Officer, Devin McGranahan; and our Chief Financial Officer, 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 2022 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 and 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 Chief Executive Officer, Devin McGranahan.

Good afternoon, and welcome to Western Union's first quarter 2023 financial results conference call. We are pleased with the progress we are making on our Evolve 2025 strategy and are generally positive about our first quarter results. As we have discussed previously, we see our evolution as a two to three year journey to return the company to sustainable positive revenue growth. In the near term, changing the trajectory for new customer acquisition and transaction growth has been our priority. Our reported revenue in the first quarter was $1,037 million. Excluding contributions from Business Solutions, this decreased 1% on a constant currency basis. This reflects several underlying dynamics, including a negative impact of three percentage points from the suspension of operations in Russia and Belarus, and a positive impact of two percentage points each from the business performance in the Middle East and Argentinian inflation. Adjusted earnings per share came in strong at $0.43 in the quarter, compared to $0.51 in the prior year, which included a contribution of $0.05 from Business Solutions and $0.04 from operations in Russia and Belarus. Matt will further discuss our financial results in more detail and provide an update on our 2023 financial outlook. As you can see from these results, we are progressing against our Evolve 2025 strategy. We are making headway on stabilizing our retail business and accelerating growth in our digital business. Recall some of our Evolve 2025 goals include stabilizing the retail business and returning our digital business to low double-digit growth rates. As we reported today, we saw sequential improvements in transactions across all regions compared to where we exited last year. More importantly, for the first time in almost two years, we saw positive transaction growth in North America in the first quarter. We also saw a 200 basis points sequential improvement in transaction growth in our European operations when adjusted for the suspension of services in Russia and Belarus. Transactions in our Middle East region also improved by 200 basis points sequentially, and transactions in APAC improved significantly as well. Latin America continued to be the top-performing region in the company with transactions up 9% year-over-year, and an acceleration of 100 basis points over the growth rate we experienced in the fourth quarter. Our results demonstrate that our focus on improving the core operational performance of our business, focusing on winning new customers and improving retention can be achieved. Stepping back for a moment, on the macro front, the first quarter of 2023 continued to be challenging, with persistent high inflation despite elevated interest rates around the world. Even with that backdrop, 2023 Central Bank remittance data indicates the resilience of the cross-border remittance market with average principal volume up mid-single digits in the countries which have reported. We are also seeing resilience in our own customer base with constant currency principal per transaction up 5% in the quarter. Our PPT is benefiting from our decision to suspend operations in Russia and Belarus, but even excluding Russia and Belarus, constant currency PPT remains positive. Last October, we launched our Evolve 2025 strategy to return Western Union to positive revenue growth by becoming the market leader and providing accessible financial services to the aspiring populations of the world. In addition to accelerating our core retail and digital remittance businesses, we have been working to launch new products and services to expand our value proposition to our existing 120 million customers. We have successfully launched our digital bank in Germany, Italy, Romania, and Poland. We are now in friends and family testing in Brazil and the US with our digital wallet product. We have expanded our bill pay business in LACA, relaunched our US corrections pay platform, have entered into partnerships in Argentina and Australia to help connect customers to lending products and are nearing the relaunch of our prepaid product in the US as well. While in the short term, these products and services will not materially contribute to our overall revenue growth, they are the foundation of expanding our value proposition, increasing our relevance, improving our customer retention, and providing platforms for future revenue growth. As we gain more traction, I look forward to sharing more with you. Returning our branded digital business to positive customer and transaction growth has been a top near-term priority over the last three quarters. We launched a new go-to-market approach in August of 2022 and shifted from maximizing revenue per transaction to maximizing customer lifetime value to customer acquisition cost. We launched new customer segment offers and, more importantly, revamped our approach to marketing funnel management. We are now far enough into this journey to tell you we believe it's working and durable. We reported last quarter that new US outbound branded digital customers were up 30% year-over-year, which contributed to 5% transaction growth in the fourth quarter. I am happy to report that in Q1, we saw a continuation of these trends with US outbound branded digital customers growing at 21% and transactions growing at 11%, the fastest transaction growth we have seen in the US since 2021. Our expectation has always been that we would see new customer growth first, followed by transaction growth and ultimately revenue growth, which we expect to begin in North America in the third quarter of 2023. In the near term, growing new customers and transactions is an important part of the equation to jumpstart revenue growth. But sustaining that growth at scale longer-term will require us to increase customer lifetime value and improve our cost of customer acquisition. Our work in these areas is also starting to bear fruit. In the first quarter, while increasing our new US branded digital customers by 21%, we were also able to lower our average customer acquisition costs by roughly 20% in North America. Additionally, retention rates of our US outbound September cohort, the first of our new approach, continue to perform at or above the levels of our existing customer base. In conclusion, we are acquiring more new US outbound branded digital customers than in the recent past. We are acquiring them at a lower cost of acquisition, and early signs indicate we are also retaining them at similar if not higher levels than in the past. As we mentioned in the last quarter, we have expanded our digital go-to-market program to several of our large European markets. As a result, we have begun to see a similar trajectory across key countries in Europe. New branded digital customers in France, Spain, the UK, and Germany were all up double digits in Q1, which is a meaningful improvement from recent trends in those countries. Additionally, we've also seen improvements in transaction growth across the same countries, and we look forward to sharing more with you on future calls. Our retail growth strategy centers around having the right value proposition for customers delivered with the right partners in the right locations, and on driving location-level productivity, as opposed to just increasing the number of active locations. Frequently, these partners include some of our largest networks, many of which have been partners for decades. Strategic network partners, as we refer to them, are an important element of our overall retail network strategy, as in most cases, they're exclusive to Western Union and provide the customer with a unique value proposition around convenience. Over the past six months, we've been working to better understand how we can improve the in-store experience as well as individual location productivity of the stores in these large networks. Initiatives being developed include creating a more omnichannel offering, introducing new products and services, integrating loyalty programs, improving stage and pay options, simplifying refunds, and focusing on reducing friction in the transaction flow. Beginning in the second quarter of 2022, I began discussing the opportunities to reduce friction for both our retail customers and our agents to improve the overall Western Union retail experience. Over the past year, we have launched many such initiatives, including streamlining our refunds processes, reducing friction in our compliance processes, and increasing transparency of the flow of funds through our track transfer services. I am pleased to let you know that this focus on agent and customer experience has led to a 30% year-over-year drop in per transaction agent support calls to our call centers. While this is obviously beneficial from a cost perspective, ultimately, we believe it will help us increase retention; we realize we still have a lot of work to do, but are pleased with the progress we are making, and we'll continue to work to improve the overall experience for our agents and our customers alike. As part of our retail network strategy, we continue to pilot our new point of sale system in the US. We have developed this new system using a modular architecture and have built a services layer that we can access across multiple front-end technologies, including our legacy point of sale systems around the world. This type of modular development allows us to bring to market product enhancements that will improve the customer experience in advance of the full-scale rollout of our new point of sale system. Two functions we have developed in recent months are quick resend, and an improved customer lookup tool, which we call remember me. The goal of quick resend is to allow customers to complete repeat transactions to known receivers more quickly and can reduce transaction times by up to 75%. We've tested this product enhancement on our legacy technology in select agent locations in the United States in the first quarter and have now begun to roll it out across our entire US footprint. Finally, I would like to give you an update on the progress of our ecosystem strategy. In recent months, we have focused heavily on improving the onboarding and transacting experiences for new customers. In particular, we've been focusing on making it more seamless for existing and former Western Union customers to migrate to the digital bank. As we continue to evolve, we believe that these migrated customers and returning customers will continue to be the most valuable and the easiest to retain. Today, our digital bank has enabled us to reengage with more than 20,000 lapsed Western Union customers. Our offer has not only brought them back to Western Union, it has given them access to an improved money transfer experience, our multicurrency digital wallet, and a Visa debit card. Secondly, converted Western Union customers and prior lapsed customers are doing more than twice the number of transactions they were doing prior to the conversion to the digital bank. These transactions include P2P, top-up, funds in and out, and debit card payments, in addition to traditional money transfer. Finally, and potentially most surprisingly, we have seen that the cohort that converted from our retail network to our digital bank is among our very best performing, with more money transfer transactions and more revenue than they were providing prior to the conversion. This will be a clear opportunity for us going forward. Now, we realize it is still a small sample relative to our existing customer base, and we will need to continue to scale our efforts more broadly. But early results leave us optimistic about the possibility to provide broader financial services and increase retention with our 120 million customers around the world. Before I turn the call over to Matt to discuss our financial results and outlook in more detail, I would like to highlight a key partnership renewal. We are pleased to announce the extension of our exclusive long-standing relationship with Swiss Railways. They have been a valued partner of ours for nearly 30 years, and we look forward to continuing to serve our Swiss customer base at 135-plus Swiss railway locations for many years to come. 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 today to discuss our first quarter results. First quarter adjusted revenue was down 1% to $1.1 billion. Given our results are better than our initial expectations, I'd like to walk you through several dynamics in the quarter that led us to this outcome. First, we continue to see a negative impact on our results from the suspension of operations in Russia and Belarus, an agent loss, and promotional pricing activities related to our new branded digital go-to-market strategy. Russia and Belarus negatively impacted Q1 adjusted revenue by three percentage points. Second, Argentina inflation benefited first quarter adjusted revenue by two percentage points. And finally, we continue to see strength in LACA and a meaningful improvement in the Middle East. The improvement in the Middle East was driven by a change in monetary policy in Iraq during the first quarter. Our leading compliance capabilities and agent network allowed us to react quickly and meet the needs of customers in Iraq, and thus drove a two percentage point benefit to adjusted revenue. At this time, it's unclear at what level or for how long this trend will continue. In the first quarter, we saw improving trends from our fourth quarter exit rates on nearly all important dimensions. Our retail money transfer business while still down improved sequentially, and we believe it is now moving in the right direction. Our branded digital go-to-market program is progressing as Devin mentioned, driving 7% branded digital transaction growth across the company in the quarter, with new global branded digital customers up 14%, excluding Russia and Belarus. We also continue to see double-digit growth in other revenue primarily driven by the retail money order business due to the benefit of higher interest rates, the Q3 2022 optimization of our float portfolio, and strong transaction growth, as well as strength in our consumer bill pay business in both Argentina and the United States. Adjusted operating margin was 20.5% compared to 21.8% last year. The year-over-year decrease in margin was due to increased technology investments primarily related to our Evolve 2025 strategy and a slower reduction in cost relative to our lower revenue. When looking at operating margins on a sequential basis, it improved by nearly 500 basis points, which was above what we initially expected and we shared our outlook in early February. The sequential improvement in our operating margin was due to a few factors: first, lower third-party spend and marketing expense which was expected; two, quicker than expected expense reductions related to our cost redeployment program. We have been able to take actions which will allow us to free up more than $35 million in 2023, with almost half benefiting in the first quarter; and third, better adjusted revenue than expected thus increasing leverage of our cost base. The adjusted effective tax rate in the quarter was 13.5% compared to 13% in the prior year period. The increase in adjusted effective tax rate was primarily due to discrete expenses in the current period. Adjusted EPS was $0.43 when compared to $0.51 in the prior year period, which included a $0.05 contribution from Business Solutions and a $0.04 contribution from Russia and Belarus. Now turning to the C2C segment, revenue decreased 5% on a constant currency basis, while transactions declined 6%. Russia and Belarus negatively impacted revenue by 3% and transactions by 6%. Softness in our retail business and promotional pricing activity related to our branded digital go-to-market strategy are partially offset by growth in Iraq. For our branded digital business, revenue declined 6% on a constant currency basis, as Devin highlighted earlier. We anticipated that our go-to-market strategy would first lead to an increase in new customers, followed by an increase in transactions, and lastly an increase in revenue. As a result, promotional pricing activities negatively impacted revenue in the quarter, while global transaction growth accelerated from 2% in the fourth quarter of last year to 7% in Q1, with new customer acquisition up 14% year-over-year in Q1, excluding Russia and Belarus. We remain excited about the progress of our new digital customers and transactions and expect to see positive revenue growth in the back half of this year. Now moving into the regional results. In the first quarter, North America revenue decreased 8% while transactions grew 1%. The US domestic business and US outbound business to Russia continue to be a drag on our results. While promotional pricing activities related to our new go-to-market strategy negatively impacted revenue growth. Branded digital transactions grew 8%, leading to the first quarter of positive overall transaction growth in North America since the second quarter of 2021. Revenue in Europe and CIS was down 13% on a constant currency basis, while transactions declined 23%. Russia and Belarus, which will anniversary next quarter, negatively impacted revenue by 6% and transactions by 19%. The region faces continued headwinds from an agent loss, a difficult macro backdrop, and ongoing competitive pressures, but trends have continued to improve for both revenue and transactions for the second consecutive quarter. Revenue in the Middle East, Africa, and South Asia accelerated meaningfully, growing 6% on a constant currency basis, while transactions decreased 3%. Iraq led the region with a higher principal per transaction driving revenue growth, partially offset by continued softness in our retail business. Revenue in Latin America and the Caribbean accelerated and was up 17% on a constant currency basis, while transaction growth was 9%. The solid performance in the quarter was led by strength in Argentina, Ecuador, and the Dominican Republic. Finally, revenue in APAC was down 5% on a constant currency basis, while transactions declined 2% due to softness in Japan, Australia, and Korea. Now moving to other revenue, which primarily consists of retail bill payment in Argentina and the United States, and the money order business in the US. Other revenue represents a percent of the total company revenue and grew 23% year-over-year on a reported basis. As I discussed earlier, this strength was driven by our retail money order business and our consumer bill pay businesses in both Argentina and the United States. Now turning to our cash flow and balance sheet, in the first quarter, we generated $137 million of operating cash flow compared to $200 million in the prior year period with the decrease due to timing of payments. Additionally, our annual transition tax payment related to the 2017 US Tax Act will increase to nearly $120 million in the second quarter. These payments will continue to step up over the next couple of years and will end after 2025. Capital expenditures were $57 million in the quarter, with a large portion due to a single agent signing bonus, which we entered into early last year. As a reminder, agent signing bonuses can vary from quarter to quarter, and we anticipated a mix that will shift away from agent signing bonuses. We continue to maintain a strong balance sheet with cash and cash equivalents of $1.2 billion and debt of $2.5 billion. Our leverage ratios were 2.4x and 1.2x on a gross and net basis, which continues to provide us flexibility for potential M&A while we target to maintain our investment-grade credit rating. Now moving to our outlook, today, we reaffirmed our 2023 adjusted financial outlook. We have included improved trends in Iraq and our forecast for the outlook through April but have assumed no incremental revenue for the remainder of the year due to the degree of uncertainty regarding the level and duration. Our outlook assumes no material changes in macroeconomic conditions. As a reminder, we expect adjusted revenue to be down 2% to 4%. We expect adjusted operating margin to be in the range of 19% to 21%. And finally, adjusted EPS is expected in the range of $1.55 to $1.65. To recap, we are off to a good start. We're optimistic about the trends we're seeing and the progress that we're making in our Evolve 2025 strategies.

Our first question comes from Rayna Kumar from UBS.

Hi, good afternoon. Thanks for taking my question. I want to ask about promotional pricing. Can you give us an update on the spending behavior of your newly acquired customers through promotional pricing? How many of the customers are returning to make subsequent transactions at market-based pricing?

Rayna, thanks for the question. Thanks for joining the call. As we have said previously, and we will continue to reiterate, the customers that we acquired with new customer promotional pricing, which in many cases was first transaction free, have exhibited the same, if not better characteristics in terms of subsequent transactions, and retention rates over three and six month periods. In fact, we have seen an acceleration in the progress of subsequent transactions over our traditional customers acquired not through promotional pricing. So we feel good, as we commented that the strategy is working and durable.

Our next question comes to us from Darrin Peller from Wolfe Research.

Hey, thanks, guys. Can we just touch on where you think you are now in terms of the promotional pricing changes for digital transaction growth? And maybe just as a quick follow on to that, I mean, it looks obviously like it's been having an effect on adding digital users. If you can remind us on the stepping stones from here to a more positive inflection on revenue growth that is sustainable, just remind us on the key variables that get us from where we are today, whether it's anniversary pricing and anniversarying some of the headwinds from Russia, et cetera all the way to a positive inflection would be really helpful.

Hey, Darrin, thank you very much for joining the call. As we've talked about in past calls, we're rolling this out in a cohort fashion. So we started the program last year in August here in the US with 50 corridors. And then we've been continuing to bring on customers on a monthly basis since then. So it's now been in the market for going on eight, nine months now. We rolled it out in Q4 to our European business in the same effect, so if you go through and think about modeling our market-based pricing relative to our attrition rate, which I know we've never disclosed publicly for our digital, but it's largely a little better than our retail we disclosed, that will help you get your head around this. But as we've talked about, also, we expect to have positive revenue growth in the second half of this year.

Darrin, we have historically said, we anticipated somewhere between 12 and 18 months to anniversary or lap the effects of the new customer and new segment based pricing. I think we are pleased, as we comment in this call that we expect in North America, where we first launched it, to move into positive revenue territory. That is happening quicker than we originally modeled, due to both, as I explained on the first question, and accelerated return of customers for second, third and fourth transaction, as well as similar if not elevated levels of retention.

Thanks, Devin. I mean, if I have time for a quick follow up, just the margin strength was pretty notable in the quarter. And so but we didn't see a change in EPS guidance. So was it just remind us again, was it below the line items, anything nuanced there, or maybe you can remind us on the cadence of margins as the year progresses?

Hey, Darrin. So really, when you think about our outlook for the year, we are very excited about the start of the year; it's giving us a whole lot more financial flexibility. But it is early in the year for us making any kind of guidance changes, and we're looking for places where we can make investments and accelerate our path to long-term sustainable growth.

Our next question comes to us from Ken Suchoski from Autonomous.

Hi, good afternoon, everyone. Thanks for taking the question here. I just wanted to ask about the trends in the physical to retail business. If I do some macro math, it looks like the transactions in that retail business declined, maybe in the mid-single digit range, year-over-year, this quarter is down kind of low double digits in the prior three quarters. Maybe there's some Russia impact in there. But I'm just curious should we expect that year-over-year growth rate to continue to improve? And I guess is this a business that could get to positive growth later this year.

Again, as we have stated, thanks for joining the call. Our goal is to get the retail business to stable. We are trying hard to put in place a retail strategy as we highlighted on Investor Day and have been executing on since, that would allow us to attract and retain customers. More importantly, to increase the retention of the large customer base that we have. Those efforts are beginning to take effect. And you can see that in the change around the world of the retail customer accounts and transactions that we've been reporting. I do not anticipate that will accelerate enough to get us to flat or stable by the end of the year. But we anticipate that being able to achieve that during the course of our Evolve 2025 time period.

Okay, that's helpful, Devin. Just as my follow up. I mean, you talked about some of the momentum in the branded digital business transaction growth accelerating to 7% this quarter, what's the expectation there, I guess in terms of transaction growth for the rest of the year, and then I guess, how should we expect that to translate into revenue growth just because the pricing just came in a little bit softer?

Hey, Ken, this is Matt. I mean, so obviously, we're rolling out our new digital go-to-market strategy, and you can see the continued improvement in our transactions. You get a larger portion of our customer base that is on that as we grow our customer base; it's hard for us to forecast but actually don't provide guidance on digital growth. So I can't really answer that question. But I think you can model that if you think through just the path we've seen. It's been pretty sequential now for customer growth now being in the double digits, and you're seeing the transactions working their way towards that level.

And, Ken, I think you can look at, I think we've been pretty clear about what we're seeing in North America x the Russia and Belarus progression since we launched it. We're now in double-digit transaction growth in North America. That trajectory we feel pretty good about, and so as we roll that around the world, you can assess where we're going to be by the end of the year.

Our next question comes to us from Tien-Tsin Huang from JPMorgan.

Hey, thanks so much good quarter here. I maybe ask a similar question in a different way that's been asked already just thinking about the spread on the digital branded business, the spread between revenue growth and transaction growth, is that more likely to widen out before it narrows again? Or can we see that start to narrow ahead, so not looking for explicit numbers, just thinking about the relationship between the two. That's another way to look at where we are in the promotion.

This is Matt Cagwin; it's a pleasure to see you. As you think about the rest of this year, I think you're going to see it could have widened a little bit more potentially. But I think you're going to see the high watermark now going into Q2 and start narrowing as you get into the back half of this year and we started generating positive revenue growth.

Particularly given the scale of our business to generate, we chose North America to start because it's the key market. And so as that turns to positive revenue growth in the back half of this year, almost regardless of what we did in the rest of the world, you're going to start to see that narrow.

Yes, makes sense. That's encouraging. I look forward to seeing that. And my follow-up and Devin, maybe for, I think maybe it was Ken that asked it. On the retail side, you did say that it's headed in the right direction. Is your statement driven by the improvement more on the retention side or the acquisition side and just thinking about from a priority standpoint, what's more important to you from a retention perspective?

Yes. On the retail side, the most powerful lever, and this is why we shared it at the Evolve 2025 Investor Day, is small increases in retention on a very large base can make a meaningful improvement in the trajectory of that business. The breadth and depth of our retail network is always a great catchment for new customers. Continuing to have them transact with us because we have great experiences, we're easy to do business with, and we've got a good value proposition should hopefully help us improve retention. And we're doing modifications, as we talked about on prior calls, in terms of what our network looks like, and its ability to attract new customers into our branded locations from both an exclusive standpoint, but also competing head to head in the independent channel through our improvements with our point of sale and our ongoing efforts with customer loyalty programs and things like that.

Hey, on the Iraq front, we talked about earlier on the call it was about 2% of revenue in Q1.

Our next question comes to us from Tim Chiodo from Credit Suisse. Please ask your question.

Great, thank you for taking the question. I want to dig into your recent partnership or announcement of being a part of the initial group of apps and neo banks and fintechs that are participating in Visa plus. And if you could just start off by maybe just giving us a little bit of the background or context on how you made the decision to join and what you thought some of the advantages might be?

Tim, great question. Thanks for joining the call. As you know, that particular offer/products/ partnership aligns with the launch of our digital wallet in the US. We have always been what we would consider to be an open-loop network. So we take funds in from most of the digital wallets. And we pay out funds out around the world to many digital wallets, whether that's Paytm in India or bKash in Bangladesh. So our basic philosophy of opening of operating a funds in and funds out network is central to who we are. So the Visa plus product offer is consistent with how we've constructed and managed our business. And with the addition of a digital wallet in the US, it seemed to make a lot of sense.

Great, thank you. And if you don't mind a brief mechanical follow-up. So our understanding is that it was discussed on the Visa call that currently the offering is domestic only but could or potentially could become more cross-border. Should we think about this as just another payout method, meaning there's retail and store, they're sent to an account, they're sent to a card. And now it would be sent to another app, potentially in another country, meaning doesn't necessarily have to be sent to the Western Union app.

So I think yes, let me try to clarify. So yes, it's US only. We have not agreed to anything beyond that at this point. We do today send to apps all around the world. And so for us, this is simply an extension of what we already do. In fact, we have one of the largest payout networks in the world of any kind. An important component of that is pay out to account and pay out to digital wallets all around the world. So for us we already have our own network, we do that if we could expand the network for what else we pay out to, I think over time, that would make sense for us.

Our next question comes to us from Will Nance from Goldman Sachs.

Hey, guys, appreciate you taking the question. Nice results today. I wanted to follow up I think on this question earlier on some of the moving pieces and adjusted revenue. And the assumptions, the basis of the guidance for the remainder of the year, it sounded like the two-point contribution from Iraq, two-point contribution from Argentina, were some of the major pieces that drove revenue above your expectations this quarter. So could you just kind of clarify when you're saying you're not assuming that material change in the macro, are you guys assuming that it continues or does not continue in the guidance for the remainder of the year? And I guess just a point of clarification hasn't continued so far, it sounded like maybe there might still be some activity ongoing?

Yes, hey, Will. So on the Iraq front, we've assumed that it continues through the end of this April. We've assumed nothing beyond April for Iraq. As far as Argentinian inflation is concerned, we've always had a fair bit; we call that out. Our actual outlook excludes Argentina inflation. So if you wanted to take our headline number of the down 1%, add back two, that kind of gives you the comparable number to compare to our down 2% to 4%. And we'll continue to back that out because it has bounced around too much for us to try to build it into our guidance. So it's one of the it's constant currency. And we back our Argentina inflation.

Yes. Okay, that makes sense. So I guess the Iraq continuing beyond April would be a source of upside.

Correct. And as you think about, Devin mentioned earlier, one of the earlier answers, I mean, for us, if it does continue on, it gives us a whole lot of financial flexibility to accelerate our investments, our objective as a target, being within our range, accelerating as fast as possible to our journey to drive us to long-term sustainable growth, since it's going to give us a lot more levers.

Got it. So maybe just follow up on another lever, you might have the customer acquisition costs down about 20%. We've heard similar statistics from others in the industry on the digital customer acquisition front. So I'm just wondering if you could maybe drill down and provide a little color on what's driving that. How much of that has just been kind of broad-based reduction that digital advertising costs versus some of the channel optimizations or kind of specific actions that you guys are taking?

Yes, well, the majority of ours comes from our optimization of the marketing funnel program that we've talked about on prior calls. So finding the productive, the most productive parts of the funnel that allow us to increase conversion for dollars spent. I can't comment on others.

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

Thanks so much. Could you give us a bit more color on the Iraq policy change? What exactly was that helped boost revenues there?

So our understanding is the Iraq Central Bank changed their policy with regard to how banks can move money out of the country. We as a remittance provider were not subjected to those same policy changes, and as a result, customers that were traditionally using banks to move money out of Iraq migrated to providers like us.

Okay, and then maybe you could give us a bit more color in terms of your reengagement with lapsed customers, what are the techniques that you're using there to reengage, and any levers that you're working to get that cohort moving again?

So one of the things we've been working on over the last 12 months has been improving what we refer to as contact ability. So the ability to have marketing permission rights to our customers around the globe, in accordance with individual country privacy requirements. That contact ability allows us if a customer lapses, whether they lapse for one transaction, one month, one quarter, or one year, to communicate with them, to provide offers and incentives to come back, and to reengage with them in a manner that allows them to return to Western Union. In Europe, particularly in Germany, and Italy, as we launched the digital bank, we ramped up our efforts around our lapsed customer base, encouraging them to try our new product, with a different experience and a different value proposition. As I was pleased to report today, we're having some success with that. And we're pleased, and I think it is a platform for us as we further roll out the digital wallet product with some of the added and enhanced benefits that we are now able to offer in Germany, Italy, Romania, and Poland.

Our next question comes to us from Vasu Govil from KBW.

Hi, thank you for taking my questions. I guess for the one for you, Matt, just on the outlook, I kind of got your comment that it's too early in the year to change the guide. But you clearly saw 1Q outperformance and you're also expecting at least US to turn to be better in the back half. So should we think about the unchanged guidance, basically more conservatism baked into the back half? Or are there any timing-related factors that might be sort of leaving the guide unchanged? Or are you expecting to accelerate investment to the extent there is upside, just if you could sort of give us your thought process there.

Good afternoon, Vasu. As I've mentioned a couple times in the call, it's giving us a lot more flexibility to make investments and look at how we can accelerate our path to long-term sustainable growth. We've not identified where we're going to go do that. But we're also unwilling to commit to a different guide with the macroeconomic conditions we're living through, the uncertainty around Iraq, the stage we are on our Evolve 2025 strategies, as well as we are looking for ways that we can accelerate those strategies. So we look forward to updating everybody three months from now when we come back and we've gone through that.

And Vasu, as we have said, since our Investor Day, we are taking what we believe to be a very pragmatic and measured approach to achieving and meeting our public financial commitments while continuing to rapidly evolve Western Union towards our vision of becoming a broader based financial services provider to the aspiring populations of the world. And so we will look forward to continuing to update you as the quarters go on. But we're pleased with the progress that we've made in the first quarter.

Great. And then question for you, Devin. I sort of thought all the color you gave on sort of positive metrics you are seeing in the US from the promotional activity, any meaningful differences that you were seeing in terms of retention improvement across the other regions where you are expanding promotional pricing?

Yes, I'm actually going to take this one, Vasu, more recently. But the results are a little bit earlier. Because we launched Europe and some other parts of countries around the world, we've put the promotional pricing into. What we have seen in the early days, it's comparable to the US. But remember, it's 60 to 120 days, less mature than the US which is why we're continuing to focus on the US on this call.

And, Vasu, remember, it is a multi-part program. I just talked about the contact ability and increasing the level of ongoing communication we have with our customers. But also, in addition to the new customer offer, whether that be first transaction free, first transaction 50% off. In combination with the program, we're also putting second, third, fourth transactions into more of a market-based pricing basket, which is helping drive increased retention relative to some of our historical pricing practices.

Our next question comes to us from Bryan Keane from Deutsche Bank.

Yes. Hi, can you hear me, all right? Sure, thanks. Well, what's been the response from the competitors from promotional pricing and digital? Has there been much of a response that they come back to cut price on their own?

No, we have not seen a particularly quote unquote, aggressive response from the players. Those that were historically at the lower end of the market have stayed there, and the players that were historically similar or above us have stayed there as well. In any given corridor or market, there's a give and take, and they're always particularly corridor-specific, particularly in Europe, with players that continue to operate in what I would consider a value-destroying manner, in terms of their pricing overall. But in general, the market is fairly rational. And people have continued doing what they were doing before we made our change.

Got it. And how much more promotional pricing do you guys expect to do throughout the business? Are there more areas, either in retail or just further in digital that you expect to roll this out? Or is it kind of the majority of it is complete that you plan to do?

We've tackled this question before, given that we operate in 20,000 corridors around the world, from 150 countries give or take, and territories. There are always opportunities to optimize high-volume corridors, long-tail corridors. We price at everything from street corner level to time of day; we have a constant and ongoing optimization algorithm and model that's always running. And we continue to tweak that to the best of our ability to get the right combination of customer value proposition, incentives and alignment with our distribution, and our ability to grow transactions. Remember, the big shift is we're really focusing on acquiring customers, managing, and increasing their lifetime value which includes retention, versus maximizing revenue per transaction at a transaction level.

Our next question comes to us from Andrew Schmidt from Citi.

Hey, Devin. Hey, Matt. Thanks for taking the questions. Apologies if I missed this, but on operating margin is good performance in the first quarter here. But how should we think about the cadence as the year progresses or anything lumpy we should be considering from an investment perspective? I understand there's some of this sounds like there's some flex in the cost base. But just curious to hear your perspective there. Thanks a lot.

Andrew, thanks for joining the call today. As I highlighted earlier, there's really two major drivers of why it was different and why it was expected when that maybe six, eight weeks ago. The drivers there were the benefit we've gotten from Iraq, just think about 200 basis points of revenue, with a normal fall-through rate there, and then also we were able to execute on our cost optimization program at a faster pace. We were able to invest it; both those things were unknown and positive surprises to us as we evolved through the quarter from early February until now. So our plan is to go and invest that money. We had always intended to save the OpEx that we were able to identify and save. So those investments will come in the later part of this year as the year progresses. And as I mentioned previously, we are looking for monitoring how Iraq evolves, we're looking at other investment opportunities to use any upside we have relative to our guidance. And if we have some valuable way to use that to drive long-term sustainable growth, we will make those investments.

Got it. Thank you very much for that. And then a follow up just on the independent channel. Maybe you can comment on the early results from the new POS system, how for the productivity of those agents might have the new POS system compared to the independent base as a whole. Any comments that would be helpful. Thank you very much.

Yes, so to clarify, because it is a pilot, and we are in a pilot in actual Western Union exclusive locations in the US, partially because we wanted agents who were willing to work with us as we launched the technology and refined the experience. We won't be putting it into the independent agent channel until the back half of this year. So largely, the pilot results are really measured around, as you heard me talk about transaction times for customers for specific things like repeats and around customer’s ability to or the agent's ability not to have to re-enter data and things like that. So the pilot agents are all friendly, hand-selected to work with us through the launch.

Our next question comes to us from James Faucette from Morgan Stanley.

Hey, guys, this is Jeff Goldstein on for James, can you guys hear me, okay? All right. Great. So I wanted to ask about Europe. Can you talk about some of the trends there? What countries were primarily driving revenue down 13% in the quarter? And then I think in your prepared remarks, one issue you called out for the region was competitive pressures. So I'm just curious what you're seeing there in particular and how you're kind of going about navigating that backdrop if anything's different there, as opposed to other regions?

Yes, so just a couple of things, right. Remember, those results also still include, through the end of the first quarter, the exit of Russia and Belarus, which Matt highlighted was a moderately significant headwind on revenue growth in Europe, which was by far the most impacted region we had. Second, Europe continues to be one of the most, if not the most competitive on both the retail and the digital side. In particular, Central and Northern Europe to North Africa continues to face corridor-specific competitors, as I highlighted, who are maximizing customers and transactions and potentially not revenue. So that is an ongoing headwind for us and anyone who competes in those corridors.

Hey, Jeff, just to build on Devin's point here, just a couple things we remind you of, we did also have one agent loss in Europe that started last year and continued through Q1. And then as you think about the countries contributing to it, I mean, we've got some really good strength in Spain, Italy, and a few other places. But Russia is the biggest place where we're obviously having a drag, as we've highlighted a couple times in the call. And then we've got some softness in Germany and France.

Helpful. Thank you. And then second, as my follow-up, you mentioned starting to pilot your digital banking product in the US and Brazil in the quarter, I believe. Just curious if you're learning, I know it's new, but just curious if you're learning anything as those rollouts began, especially in the US. And then can you also remind us of the ongoing rollout plans by geography going forward?

Yes. So a couple of important just note in both US and Brazil, we are in what we define as friends and family, which is largely employees and employees' families. And it is truly just a testing; we have not brought non-Western Union affiliated consumers into the offer. Second, in both Brazil and in the US, we are working towards what we have affectionately called on these calls one app. So as you know, in Europe, we are conducting business across two apps, a digital banking app, which we call Western Union One, or in some markets, WU +, and the traditional westernunion.com app, which is a transactional money and send. When we launch the new product in the US and Brazil, we will be operating under what we call one app, which will include both the traditional transactional-based service which has a lower KYC burden and a full-on digital wallet. We will also be able to offer transactional customers a one or two-click upgrade to the digital wallet. So that is all in process, and we're obviously learning a lot about how to integrate the two experiences into one. And as we learn more, I look forward to updating you.

Our final question comes to us from Tyler DuPont, from Bank of America.

Thank you. Good afternoon, everyone. This is Tyler DuPont on for Jason. Thanks for the question. I know bumping up on time, so I'll try to be quick with these. So it seems LACA continues to be the bright spot geographically. Can you just speak a little bit more to the success and sustainability of that growth level and maybe just to the level to which you can apply that playbook to other geographies?

Tyler, thanks for joining. LACA is unique on many dimensions, but there's a couple of things in specific that we benefit from. One, we have a very strong retail footprint in the country. And as we've highlighted, it's a great combination of owned and controlled, as well as Western Union branded independent. We have some particularly strong master agents in the region that we've been working with for many years that provide excellent product service delivery and customer service to their customers. And the second is, as we rolled out westernunion.com, we had a strategy of maximizing our footprint around the globe. So we were early on our digital business in LACA, as a result, we have a strong presence in many of those markets, and a strong customer base. Finally, we have an excellent management team that has been in place for many years, that does a great job of driving that business.

Great, thank you, appreciate that. And just briefly following up with inflation, and it looks like just the majority of the regions you serve continued to see inflation cooling pretty significantly. Can you just briefly walk me through kind of how you're thinking about inflation and how that kind of trickles down through the P&L?

Yes, thankfully, most of our largest portion of our expense base is commission-based, which is driven off as a percentage of revenue. We also have a large portion of our base, which is fixed through depreciation or long-term contracts that don't have any kind of price increases. And then we've got a little bit of labor that we're obviously working our way through. So thankfully, we're well protected from inflation.

Tyler, I think you can look at the success we've had in Argentina, which I think is facing 100% inflation this year, on the durability of our business and our ability to manage, not just through the transitory inflation that many countries around the world are seeing, but sustained and high inflation like we have in many countries in LACA.

Thank you for joining the Western Union first quarter 2023 results conference call. We hope you have a great day.