Earnings Call
Western Union CO (WU)
Earnings Call Transcript - WU Q2 2020
Operator, Operator
Good day, and welcome to The Western Union Company Second Quarter 2020 Earnings Release Conference Call. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Brendan Metrano, Vice President, Investor Relations, Western Union. Please go ahead.
Brendan Metrano, Vice President, Investor Relations
Thank you. On today's call, we will discuss the company's results for the second quarter of 2020 and then we will take your questions. The slides that accompany this call and webcast can be found at westernunion.com under the Investor Relations tab and will remain available after the call. Additional operational statistics have been provided in supplemental tables with our press release. Western Union is still following a work-from-home policy. So on our remote call today is our CEO, Hikmet Ersek; our CFO, Raj Agrawal; and Head of Treasury and Investor Relations, Brad Windbigler. Today's call is being recorded, and our comments include forward-looking statements. Please refer to the cautionary language in the earnings release and in Western Union's filings with the Securities and Exchange Commission, including the 2019 Form 10-K, for additional information concerning factors that could cause actual results to differ materially from forward-looking statements. During the call, we will discuss some items that do not conform to generally accepted accounting principles. We have reconciled those items to the most comparable GAAP measures on our website, westernunion.com, under the Investor Relations section. We will also discuss certain adjusted metrics. Although the expenses that have been excluded from adjusted metrics are specific to these initiatives, the types of expenses may be similar to types of expenses that the company has previously incurred and can reasonably be expected to incur in the future. All statements made by Western Union officers on this call are the property of The Western Union Company and subject to copyright protection. Other than the replay noted in our press release, Western Union has not authorized and disclaims responsibility for any recording, replay or distribution of any transcription of this call. I will now turn the call over to our CEO, Hikmet Ersek.
Hikmet Ersek, CEO
Thank you, Brendan, and thank you all for joining our earnings call this afternoon. We hope you and your families are safe and well during these unprecedented times. On today's call, Raj and I will discuss the company's performance during the second quarter, underlying business conditions, and plans to drive our growth strategy forward. As you all are aware, the second quarter continued to be a difficult time for people around the world facing the COVID-19 pandemic. At the onset of the pandemic, Western Union took swift action to support the safety and wellbeing of all our stakeholders with a focus on Western Union employees and customers, but also on our agent partners and the communities we operate in. We continue to operate with the same diligence. In addition, during the quarter, concerns over social justice came to the forefront globally. Western Union has long stood for values of equity and inclusion, which are core to our mission as a socially conscious company with a diverse customer base and workforce. For details about our holistic COVID-19 response and Western Union's social values, please refer to our annual ESG report published in June and available on Western Union's Investor Relations website. I am personally proud and humbled to lead a company with these values. Now, let me give you some insight on business performance. On our first quarter earnings call in May, we noted that COVID-19 had caused a sudden and steep decline in our business in the later part of March and early April, prompting us to withdraw our 2020 financial outlook. I'm pleased to say that since then, our business began to bounce back. Our C2C segment finished the quarter with solid transaction growth of 6% in June, which increased to 10% in July. In fact, our C2C cross-border principal increased by 3% on a constant currency basis in the second quarter. For June, our C2C cross-border principal grew over 20%, which also carried into July. For the first half of the year, our cross-border principal grew by 2% on a constant currency basis. This contrasts sharply with the World Bank's forecast for a 20% decline in remittances for 2020, which we believe indicates that we are winning in the marketplace for both retail and digital money transfers. This isn't surprising to us. We have invested substantially over the past decade to build a leading omnichannel platform for cross-border, cross-currency money transfers and payments. Western Union can deliver money and payments effectively through multiple channels to more places than anyone else in our space. The disruptive impact of the current environment has actually enhanced the competitive advantage of our combined physical and digital capabilities. When COVID-19 hit, we were ready with a proven digital platform when consumers sought fast, convenient and reliable methods to transfer money on their smartphones or computers. This enabled strong digital customer acquisition, with westernunion.com monthly average active customers up 45% year-over-year. According to the mobile marketing firm Sensor Tower, we are leading significantly in downloads of westernunion.com mobile apps compared to peer money transfer companies. The strong momentum of westernunion.com, combined with acceleration in digital partnership transactions, drove 50% constant currency digital revenue growth for the second quarter to approximately $220 million. Digital-initiated transactions accounted for 31% of C2C segment transactions, up from 15% in the second quarter of 2019. Importantly, this digital growth is largely incremental to our business and has strong profit and customer lifetime value. Customers also knew they could turn to Western Union to send money virtually anywhere with confidence given the quality of our network. Most of our agents are well-established essential businesses like financial institutions, postal institutions or large retailers. So the large majority of our agent locations have been open and able to serve customers during the crisis, unlike some other providers. Our research shows the availability of our platform was one of the reasons money transfer consumers switched to Western Union during the quarter. Our resilience in the second quarter shows the strong fundamentals of our business, which combined with the new growth strategy we outlined at the Investor Day last September, positions Western Union for profitable long-term growth. For the second quarter, revenues declined 11% on an adjusted constant currency basis but grew in June. While the digital business demonstrated impressive results, retail trends improved over the quarter and drove monthly improvement in overall C2C trends. We continued to deliver solid profitability with adjusted operating margins of 20.4% due to targeted productivity savings and expense management enabled by the WU Way lean program and organizational efficiencies. We generated healthy cash flow, returned capital to shareholders through our quarterly dividends, and continued to maintain a strong financial position. Our business is moving in the right direction, consumer behavior appears to be relatively stable, and the macro environment has improved from the significant drop-off in March and April. However, there's still uncertainty from COVID-19, evidenced by concerns of second and even third waves in some markets. We think these conditions warrant continued caution, and therefore we are not reissuing 2020 financial targets at this time. Raj will provide a detailed review of our financial results and offer some additional insights into our expectations in a few minutes. Looking forward, we have a robust agenda for the second half of the year that should help position the company to emerge from this disruptive time in a very strong competitive position. We will continue to focus on three key objectives of our new strategy: driving digital growth, enhancing our global network, and optimizing our organization. The current environment has benefited the broader digital money transfer market, bringing in new consumers. Some are coming from informal channels or the banking system, and others have recently developed new needs. To keep the westernunion.com momentum going, we will continue to invest in acquiring new customers and enhancing services like real-time payments. Our partnerships have been a significant contributor to our digital money transfer business this year; offering our unique cross-border, cross-currency platform to third-parties gives us access to a previously untapped segment of the remittance market that currently relies on correspondent banks. While the sales cycle is longer than agent signings, we have a strong pipeline of potential business focused on financial institutions and a dedicated team capturing this exciting long-term growth opportunity. Moving on to our network, we continue to enhance our industry-leading diverse global distribution network. So far this year, we have renegotiated agreements with nearly 150 existing agents with over 125,000 locations, added over 60 new agents with 16,000 locations, and increased our real-time account payout capabilities to over 60 countries at the end of June. We also added additional wallet and card capabilities. I am pleased with the progress here and we will continue to focus on improving the coverage, cost and quality of our network. In Business Solutions, we continue to evaluate new ways to help businesses address their needs for cross-border services. We also continue to develop our payment network and make progress on our edge platform that will enable customers to digitally self-serve. On the organization efficiency front, our WU Way lean program and effective management mindset have enabled good progress in creating a more effective organization. We are on pace to deliver at least $50 million in annual productivity savings we targeted for this year, as well as a three-year target of $150 million. In closing, I am very pleased with our performance under challenging circumstances in the second quarter. While macro uncertainty remains, we are focused on serving our customers globally and executing against our growth agenda for this year. Looking at the longer term, we are well-positioned in a resilient market with a strong financial position, and we are pursuing a growth strategy that will enable us to drive meaningful, profitable growth for the years to come. With that, I will turn the call over to Raj.
Raj Agrawal, CFO
Thank you, Hikmet, and good afternoon, everyone. My comments today will start with the second quarter performance of our business, and then I'll offer some thoughts on our expectations for the remainder of the year. As Hikmet discussed earlier, we faced a challenging business environment in the second quarter. Therefore, we are encouraged to see a faster improvement in our business than we expected just a few months ago, accentuated by positive consumer transaction growth and very strong cross-border principal growth in June and July. Second quarter revenue of about $1.1 billion declined 17% compared to the prior year period, while adjusted constant currency revenue, which excludes the 2019 divestitures, declined 11%. Currency translation net of the impact from hedges reduced second quarter revenue by approximately $46 million compared to the prior year, primarily due to the depreciation of the Argentine peso. In the consumer to consumer segment, revenue declined 12% or 11% on a constant currency basis due to transaction declines and other mixed impacts. Transactions declined 8% for the quarter, driven by decreases in the retail business, which were primarily attributable to reduced consumer mobility resulting from COVID-19. Retail transaction declines were partially offset by exceptional growth in digital money transfer, which I will elaborate on shortly. As conditions stabilized and economies began to reopen over the quarter, we saw substantial and broad improvement in trends across our geographies and channels. We ended with 6% transaction growth in June and carried on with 10% in July, somewhat bolstered by holiday benefits. Global C2C cross-border principal increased 1% on a reported basis or 3% constant currency, with principal per transaction (PPT) up 7% or 9% constant currency. The increase in PPT was primarily due to higher PPT in our retail business, which we believe was largely due to a shift in customer mix and changes in customer behavior. Changes in the mix of our digital money transfer business also contributed to the higher PPT, notably more account to account transactions and digital partnership transactions. The spread between C2C transaction growth and revenue growth in the quarter was 4% or 3% constant currency, largely attributable to mixed shifts in our business resulting from the faster growth of certain digital transactions with lower yields. Digital money transfer revenues, including westernunion.com and digital partnerships, increased 48% or 50% constant currency and accounted for 22% of total C2C revenue and 31% of C2C transactions in the quarter. The spread between digital revenue and transaction growth was attributable to a greater mix of digital partnerships and strategic pricing actions for westernunion.com. We continue to drive forward with our dynamic pricing strategy, focusing on agile pricing capabilities to drive more customers, transactions, and revenue over the long term. Westernunion.com revenue grew 33% or 34% constant currency with cross-border revenue up approximately 48%, partially offset by continued domestic decline. Westernunion.com’s transactions increased by 50%. Our digital partnership business continued to gain momentum in the quarter as transactions ramped up in our digital white label business. Turning to the regional results, in most geographies and channels, trends improved sequentially from lows in April to June and into July. North America, revenue declined 6% on a reported basis and 5% on a constant currency basis. Transactions declined 7%, but both revenue and transaction trends improved steadily each month throughout the quarter. U.S. outbound growth was largely offset by declines in domestic money transfer, with digital continuing to drive the results. U.S. domestic money transfer continued to weigh on revenue results, but it represents only 5% of total company revenues and will likely be less meaningful over time. Revenue in the Europe and CIS region decreased 10% on a reported basis or 9% on a constant currency basis. Transactions grew 4% due to strength in Russia, benefiting from our partnership with Sberbank. Strong digital growth was more than offset by retail declines. However, we are encouraged to see retail transaction trends improved throughout the quarter. Indeed, some countries, including Germany and Switzerland, even had transaction trends that were better than pre-COVID. It seems that Europe is benefiting from a strong social safety net in many countries, which should help to maintain stability along with strong customer acquisition. Revenue in the Middle East, Africa, and South Asia region decreased 13% or 12% on a constant currency basis, and transactions declined 1%. The spread between revenue and transaction growth was attributable to strong growth in Saudi Arabia, driven by our partnership with Saudi Telecom. The UAE experienced softening trends as the service-related industry slowed in the quarter. Revenue in Latin America and the Caribbean region decreased 45% on a reported basis or 35% on a constant currency basis on transaction declines of 41%. Declines in the region were due to restrictive government policy responses in many countries. We anticipate that recovery in this region may lag due to a later onset of COVID-19, more restrictive government policy responses, and a smaller social safety net in many countries. Revenue in the APAC region declined 14% on a reported basis or 13% on a constant currency basis on transaction declines of 18%. On a positive note, Australia, which is an important market, grew revenue and transactions in the quarter, including for retail. Business solutions revenue decreased 17% on a reported basis or 15% on a constant currency basis and represented 7% of company revenues in the quarter. Revenue declines were the result of softening trends in verticals with more exposure to COVID-19, including education, travel and tourism, and small and medium-sized enterprises. Other revenues, representing 5% of total company revenues, declined 56% in the quarter. The decline was largely attributed to 2019 divestitures, the impact of COVID-19, and depreciation of the Argentine peso. Other revenues primarily consist of retail bill payment services in both Argentina and the U.S., as well as money orders. Turning to margins and profitability, I will focus on consolidated margins, as segment margins are not comparable with the prior year period due to the divestitures and expense allocation changes implemented in the first quarter of 2020. Consolidated GAAP operating margin for the quarter was 19.9%, compared to 19.3% in the prior year period. This increase was primarily due to productivity savings and additional cost management measures, partially offset by revenue declines associated with COVID-19 and the 2019 divestitures. Additional cost savings realized in the quarter reflect both the timing of certain expenses and specific actions such as delaying hiring, limiting travel, and reprioritizing investments. We incurred $5 million of restructuring and related expenses in the second quarter related to our productivity program. We continue to expect total restructuring-related expenses of approximately $150 million, and to date, we have incurred $131 million. Adjusted operating margin in the second quarter was 20.4%, compared to 20.3% in the prior year period, with expansion driven by the same factors stated previously and adjusted for restructuring and M&A costs. Foreign exchange hedges provided a benefit of $7 million in the current quarter and a benefit of $6 million in the prior year period. The GAAP effective tax rate was 16.2% in the quarter, compared to 17.5% in the prior year period, while the adjusted tax rate was 15.7%, compared to 16.8% in the prior year period. The decreasing GAAP and adjusted effective tax rates were primarily due to the effect of the 2019 divestitures. GAAP earnings per share in the quarter was $0.39, compared to $1.42 in the prior year period. The decrease is primarily attributable to the gain on sale from the divestitures in 2019 and to a lesser extent, current year revenue decline associated with COVID-19 and the divestitures. Additionally, productivity savings, additional cost management measures, and lower share count in the current year period helped offset some of the impact. Adjusted earnings per share in the quarter was $0.41, compared to $0.45 in the prior year period, a decrease due to the factors stated previously and adjusted for the gain on sale and restructuring M&A costs. Turning to our cash flow and balance sheet, year-to-date cash flow from operating activities was $348 million. Capital expenditures in the quarter were approximately $49 million. At the end of the quarter, we had cash of $1.2 billion and debt of $3.1 billion. Our financial position is among the strongest in the industry; we have an undrawn $1.5 billion revolving credit facility and no significant debt maturities until 2022. We returned nearly $93 million in dividends to shareholders in the second quarter. The share repurchase program was on pace. The outstanding share count at quarter end was 411 million shares, and we had $783 million remaining under our share repurchase authorization, which expires in December 2021. Now moving to our 2020 business updates. As Hikmet mentioned, we will not be providing an outlook at this time, but instead, we'll provide some perspective on the second half of the year. We considered a variety of forecasts to inform our understanding of the economic environment and how it will impact revenue generation. We think the prevailing macro outlook for gradual improvement over the second half of 2020 is a reasonable baseline for the business. However, we anticipate some quarterly variation related to growth in the digital white label business and strategic pricing actions taken in the second half of 2019. Additionally, we recognize that recovery may not be linear in certain geographies. For our C2C segment, we expect the overall remittance market will be down for the year. However, the World Bank’s current quarter 2020 forecast, which calls for a 20% decline in total cross-border principal, appears too pessimistic. Our total cross-border principal grew 2% on a constant currency basis in the first half of the year and grew over 20% in June and July. Based on these trends, we think we're gaining share in the market. Lastly, for our Business Solution segment, we consider global trade forecasts in our projections, and the prevailing view calls for gradual improvement in the second half of the year. Moving to margins, we believe that we can deliver solid margins in the second half of the year despite softer revenue trends. As we mentioned last quarter, we have a flexible cost structure; 55% to 60% of our costs are variable and 40% to 45% are fixed. Additionally, we are still on track to reach at least $50 million in cost savings in 2020, and we may realize more based on recent shifts in the timing of initiatives and investments. We continue to target $150 million of annual cost savings through 2022. Furthermore, we will manage appropriately across the revenue environment. For example, we’ve increased marketing investment in westernunion.com from the first quarter to the second quarter to address the growing digital opportunity. If business trends continue to improve, investments could potentially increase in the back half of the year. Finally, we expect both the GAAP and the adjusted effective tax rates to be in the mid-teens range for 2020. To recap, we are pleased with our results in this quarter in a very challenging environment. Delivering solid margins and positive transaction growth for June, which continued into July. We see these as major wins, given the current backdrop and believe it indicates we are likely outperforming the competition. Moreover, we think the exceptional performance of the digital business this quarter confirms the digitally focused strategy we laid out last year and puts us on the right path to drive durable long-term values for all our stakeholders. Thank you for joining our call today, and operator, we are now ready to take questions.
Operator, Operator
We will now begin the question-and-answer session. The first question comes from Tien-Tsin Huang of J.P. Morgan. Please go ahead.
Tien-Tsin Huang, Analyst
Hey, good afternoon. Thanks for all the details. I think you can hear me, I’ve no Wi-Fi here. But the – I think about how to ask this quickly. So transaction growth 6% and 10% in June and July sounds like principal growth is up 2% the first half of the year, but you're expecting it to be down for the full year. So just trying to think about that dynamic and ask maybe is there a danger to assume the 6%-ish continues the year into the third quarter. I'm just trying to think about why does it might be a good proxy for the near-term?
Raj Agrawal, CFO
Yes. Hey, Tien-Tsin, it’s Raj. Let me just try to address a couple of points there. On the cross-border principal growth, the World Bank is at minus 20%. We're – and we think that's quite pessimistic. We're not going to be at minus 20%, we think that the market will decline this year, but there are wide range of estimates for where that will be. Contrast that with what we're experiencing in the first half of the year; we grew low single-digits in our cross-border principal and we saw over 20% growth in June and July on the cross-border principal. That’s what leads us to believe that we're heading in a very different direction from a principal growth standpoint. As for the transaction growth June was 6% and July was 10%, but July did benefit from some holiday impact. Still, if you adjust to that, it was pretty consistent with what we saw in June. Now, what we did say, and I stated in my comments, that in the second half of the year, we'll see a natural rollover from the digital white label business, which largely began in the third quarter and more so in the fourth quarter. We're also continuing to do our dynamic pricing behind the wu.com business, which is translating into a lot of customer acquisition, and a lot of revenue, especially in Q4 of last year, particularly in dot com. So that's also going to translate into growth in the second half of this year. We're still expecting very strong transaction growth and we feel very good about where the year is going thus far.
Tien-Tsin Huang, Analyst
Okay. Got you. And then as my follow-up, just the white-label business, which you just alluded to, Raj, that was pretty big, doubled sequentially I think, so big performance there. I know the comps are going to get a little tougher, but I think when you talked about a pipeline, I'm just curious if you can maybe quantify that or give us a little bit more detail. Is it more bank oriented the partnerships or tech partners or telecom partners? Just anything else you can share would be great. Thank you.
Raj Agrawal, CFO
Sure. We are very happy with the performance of our white-label business; it’s a new incremental business for us and it adds incremental transactions. I am really happy with the performance. We did add some white-label partners, and the performance takes time; the new partners also contributed to that success. The main success comes from the existing partners, but we added new partners in South Korea and Japan. We have a pipeline of adding new partners, most of which are financial institutions, where we believe that we have a better service than the correspondent banking opportunity. The team is focused on financial institutions with telecom backgrounds looking to improve their customer offerings through our white labeling. It’s an exciting opportunity, but the sales cycle does take longer than signing agents because, as a financial institution, you have to adapt your systems to our systems, which takes a little longer.
Tien-Tsin Huang, Analyst
All right, great. Thank you for the update.
Raj Agrawal, CFO
Thanks, Tien-Tsin.
Operator, Operator
The next question comes from Darrin Peller of Wolfe Research. Please go ahead.
Darrin Peller, Analyst
Hey guys. Thanks. Nice to see these trends. I want to hone in on the mix on the digital versus the cash or the retail side. It looks like these customers are new customers coming to your business. And so, if we think about that, what is it 30% of transactions on digital, driving your overall transaction growth to the high single-digits? It looks like there is about a four-point spread between transactions and revenue. Should we be counting on like just a more sustainable higher growth profile for transactions now into the second half and longer-term? In other words, are these customers that have come on, are they actually new from other single card players or banks? And is there any reason why they're not going to keep – you're not going to keep having a call it 30% mix on digital?
Raj Agrawal, CFO
Yes, hey Darrin, this is Raj. We’re very excited about digital growth; it really is doing even beyond what we had initially expected coming into this year. Two key data points, and then I'll get back to your mix question: 80% of the new customers that are visiting us on wu.com, which is the lion's share of digital, continue to be new to Western Union. They have not used us in the past couple of years. So it's largely new customers, who seem to be either new to the category, or they're coming from other parts of the remittance market, maybe from banks or other digital players. This seems to be a very high-quality customer. They're sending high principal amounts per transaction, and they seem to be transacting at the same level that we have from our current customers. Most of them have indicated that they intend to continue utilizing Western Union in the future. As for the mix question, I think you're going to continue to see transactions grow faster than revenue, just because of the digital white label mix and the overall wu.com mix on the business. Indeed, digital is driving a lot of the growth here in recovery, but it's also coming from recovery in retail, as digital has been growing consistently over the last few months, retail has been steadily gaining ground to where it was before.
Darrin Peller, Analyst
Okay. So, I mean, it does seem like the mix, assuming retail is coming back, the mix could stay a little more positioned towards digital than really you've ever had before by a pretty decent amount. I guess I’d just – I’d be curious to know, number one, how much stimulus is – you think stimulus has helped that trend, and maybe just the overall transaction trend from into maybe May and June and even into July, perhaps? And then maybe just remind us lastly, at a yield differential, can you guys calculate between wu.com and your traditional retail business? I know the bank side, the white label is lower, but really wu.com I think is the lion’s share. Thanks, guys.
Raj Agrawal, CFO
Yes, Hikmet, do you want to start first? And then I can take that.
Hikmet Ersek, CEO
Yes. I'll take the macro part and you can get the yield part, Raj, is that okay? From the macro perspective, the government actions, obviously, help the economy and help people who need money, but we don't see the big difference. We asked the customers, and they are here to support them. It doesn't have a direct impact – we asked them; it doesn't have a direct impact due to stimulus packages on their sending principals. I think we asked them about their support for their loved ones and that’s great. The new customer business I mentioned earlier does impact our higher principal amounts, but these are new customers behaving differently. They are newer segments, which is great; they are incremental. They send higher principals. But stimulus packages, in general, could have a little impact, but it’s not the performance based solely on the stimulus package. I believe that during times like this, customers are looking for a trusted brand. They are looking for a network that is globally available, which is why we are gaining market share. Raj, do you want to add?
Raj Agrawal, CFO
Yes, let me just add a couple of additional key data points: The digital business in total in this quarter was about 22% of consumer revenues, and that's up 900 basis points from where it was a year ago in the same period. While that growth has taken place, the overall margins for the company have expanded. The unit economics on the westernunion.com side, which is the lion's share of digital, are actually quite similar to what we have in retail. Now, you have averages of how you send money, how you're funding it, and where you're paying out in the corridor is involved, contributing to the dollar contribution on a gross margin basis. The percentage contribution is also very similar between retail and digital. However, because we view marketing spend in the context of an enterprise-wide effort, that marketing spend has been shifted more towards digital, but it hasn't increased overall for the company, so the profitability of wu.com is very strong. As for digital white label, we are playing a different role; we are a processor in the transaction. We're not paying for customer acquisition costs or fraud losses. So we're really getting a customer delivered to us that has good funds wanting to move money. The rest of that process is relatively low cost, leading to higher margins. Thus, the performance of both those businesses is largely incremental, which is why you're seeing the overall results we have for the company.
Operator, Operator
Next question comes from Jason Kupferberg of Bank of America. Please go ahead.
Cassie Walker, Analyst
Hi, this is Cassie on for Jason. First, I just wanted to ask a little bit more, just get a little more color about the growth within specific corridors or geographies. I know you guys said it was broad-based strength, but just wanted to know trends specifically in Europe or North America. And on that same side, I kind of wanted to ask if you potentially see any threats of trends reversing, especially for some areas where economies are potentially reclosing or policies are being more restrictive? Thank you.
Raj Agrawal, CFO
Sure. Yes, just in terms of trends, we really – because we have a global business, we see different trends in different parts of the world, but generally, I would say we saw broad-based improvement through the course of the quarter. Each month, we saw successive improvement across most of our key geographies and channels. That's the backdrop of what we're discussing. Some regions like Latin America did not perform as well as others due to being later to see the COVID issue. Their economic situation was not as strong going in. However, they also improved during the course of the quarter. In Europe, as I mentioned, Germany and Switzerland actually did better than we saw before COVID even hit. In terms of whether we can expect these trends to continue, we can note that June and July were stable. Digital has trended in the 100% range from a transaction standpoint for the last few months. Retail has been improving accordingly. So while there are still uncertainties from a COVID second or third wave, we’re very pleased with the progress made. Moreover, the cross-border principal growth of over 20% in June and July is a significant positive, indicating we are gaining share in this space.
Cassie Walker, Analyst
Thank you. Just following up on that. I know you're not giving an outlook, but wanted to know sort of some of the puts and takes that we should consider for 3Q and 4Q. Some of the restructuring should yield benefits in the back half of the year. Should we expect sequential revenue growth and margin growth going forward? Still expecting in terms of revenue growth to lag transaction growth? Just a little more details. Thank you.
Hikmet Ersek, CEO
Sure. Yes, as I mentioned in my comments, we will see some grow over impact on the digital business due to the growth that we had in the second half of last year, especially in Q4. The margin outlook is hard to determine as it primarily depends on revenue performance. Nonetheless, based on our experience thus far, we believe we can maintain strong margins despite the ongoing challenges, given how well we've managed costs; however, the exact margin levels will be driven by the forthcoming revenue figures.
Operator, Operator
The next question comes from Rayna Kumar of Evercore ISI. Please go ahead.
Rayna Kumar, Analyst
Good evening. Thanks for taking my question. It's really good to see that 50% federal money transfer revenue growth. I was just wondering, a lot of your competition is also calling out strength in Digital—PayPal calling out, solid results from Zoom, Euronet, and Moneygram also speaking about strength in digital. Now that you're also seeing sustained digital growth, could you talk a little bit about what distinguishes your digital platform versus your competitors?
Hikmet Ersek, CEO
Sure. Let me take that question, Raj, feel free to add. Great question. If you look at our business, we are moving money, cross-border, cross-currency. We have a unique platform for this, being present in 200 countries. Our digital send function is available in 75 countries; nobody else has that to my knowledge worldwide. This gives us a strong diversification of our portfolio and growth. We're certainly growing at 50%, which is commendable, but we had a substantial $600 million revenue in 2019 in this area. So we are growing at a big pace or maybe leading the industry. We have a competitive advantage in our capability to move money across borders and currencies as specialists in this area. Besides that, our white labeling is growing fast as well, contributing significantly to our digital growth. We are unique due to our payout network, which has 550,000 locations. You can send money from New York instantly via mobile, and someone in Dhaka can pick it up in their local currency. We provide broad coverage from Australia to Argentina, which sets us apart. It takes time to build this capability; therefore, competition has a long way to catch up.
Rayna Kumar, Analyst
That's very helpful. Just as a follow-up, at your Investor Day, you spoke heavily about your dynamic pricing initiatives. Can you talk a little about what changes you’ve seen in your transaction growth directly tied to this initiative? And also, are there any other corridors or channels where you plan on implementing dynamic pricing in the near term? Thank you.
Raj Agrawal, CFO
Yes, we have observed good results from the dynamic pricing strategy. Customers are really behaving as though they're shopping around, and our pricing stability has been appreciated over several quarters. App downloads indicate strong interest. We are leading the industry significantly in this regard. Dynamic pricing enhances brand trust, positioning us differently from competitors. We implement corridor, channel, street corner, ethnic, promotional, and holiday pricing, all tailored to 200 countries and 40,000 corridors, driven by strong intelligence. We are continually advancing this month by month. The customer growth reflects the success we’re seeing in this area, which is important for us.
Rayna Kumar, Analyst
Great. Thank you very much.
Hikmet Ersek, CEO
Thank you.
Operator, Operator
The next question comes from James Faucette of Morgan Stanley. Please go ahead.
James Faucette, Analyst
Great. Thank you very much. I appreciate all the color and detail on kind of the ebbs and flows and the dynamic nature of traffic, particularly over the last few months. I'm wondering, as you look at those traffic and traffic patterns where you're seeing kind of a resumption of previous patterns that you can identify? And really as well, how are you thinking about the things you would like to see or need to see in order to identify new ones, especially given how dynamic all the current environment is?
Raj Agrawal, CFO
Yes, James, let me start. Maybe Hikmet can add. I think we're in a period of a few months where we have not seen things revert to what they used to be. We’ve seen significant acceleration of digital; most customers coming to digital are still new to Western Union. They're often transacting with higher principal amounts. As we've grown our active average customers and mobile app downloads, these have gone up significantly over the past months. Retail transactions have also been quite encouraging, signaling a recovery trend. While this environment is definitely different, we were well prepared for acquiring new customers prior to COVID-19. We had strong growth in digital even before the pandemic hit. The landscape has changed, and customers are increasingly seeking trusted brands.
Hikmet Ersek, CEO
One thing to add, James: the COVID-19 environment is undoubtedly unique, but this change wasn’t sudden. We were ready with our digital platform for acquiring customers during COVID-19, bringing in different customer segments typically unused to sending money. Customers are increasingly aware of our trusted network, and that readiness has positively impacted our digital interactions.
James Faucette, Analyst
Got it. Now, I’m wondering if you can speak to it. You highlighted a little bit what's going on in Europe and in other places, I'm wondering if there's anything that you can draw in terms of correlation at least or maybe causation in terms of different openings or closings of regions in core? And what the impact is on corridor behavior and anything that could be drawn from that perhaps?
Hikmet Ersek, CEO
Let me start, Raj can add. First of all, most of our locations are deemed as essential businesses. When compared with our competition, many of our locations have remained open. Our retail locations encompass banks, post offices, and large retailers are deemed essential services. There were some lockdowns and curfews which impacted our business, but generally after April, we have seen that customers return in strong numbers. Regionally, I would state that Europe has been demonstrating strong recovery. The increased number of clients, including newer customers, is also contributing to our growth rates returning to pre-COVID numbers. Areas with strong social safety nets like Germany and Switzerland are doing particularly well.
Raj Agrawal, CFO
Yes, I think you covered most of it. We are seeing strong transactional behavior which gives us optimism. It's important to highlight variations when looking at growth by geography and understanding how individual regions recover.
Operator, Operator
The next question comes from Ashwin Shirvaikar of Citi. Please go ahead.
Ashwin Shirvaikar, Analyst
Hi, Hikmet. Hi Raj. Hope you can hear me.
Raj Agrawal, CFO
Yes, how are you?
Ashwin Shirvaikar, Analyst
I'm good without power and internet, but…
Hikmet Ersek, CEO
Yes, I heard, I heard. Thank you for joining.
Ashwin Shirvaikar, Analyst
Sure, absolutely. As I kind of look at your best performing geos from a transaction growth perspective, pretty good turnaround in those like Europe and CIS, Middle East, South Asia. What I heard was a large difference between transaction growth and revenue growth; something you would have expected because of the progress of white-label partners. Are there any kind of volume thresholds or anything on those sorts of partners where you can maybe close that gap or can you tell us about the progression of how some of these work as they get bigger?
Raj Agrawal, CFO
Yes, I don’t think about it in terms of closing the gap. My understanding is you are not seeing it as a gap to close. We view the white-label, it’s very profitable business and often incremental. We're seeing it as a different venue versus prior growth standards. The dollar contribution may appear different, but profitability remains high. The performance is a reward of effective exploration, and we see it as good incremental business without implying a need to close anything.
Ashwin Shirvaikar, Analyst
Understood. Purely processing, got that. And then on the Business Solutions segment, you’ve done a good job lowering the cost base in that segment over the last couple of years. To what extent is the current impact caused by business shutdowns reflected in your outlook? It seems like the incremental margin side, when volume comes back, could be pretty good. You’re operating at your fixed cost basis right now. Can you talk about that outlook?
Hikmet Ersek, CEO
I can talk generally about the environment; Raj can add on the cost side. In general, Business Solutions has had a good run until recently. They faced impact due to COVID-19, particularly in verticals like international education. However, we are beginning to see signs of improvement there. Although the environment remains challenging, we’re seeing gradual recovery.
Raj Agrawal, CFO
Yes, on the margin side, Ashwin, you're right. As the business performs and if we see revenue growth, given the largely fixed costs in that segment, we should start recognizing improvement again. Margin performance per year to date is close to the 19% range for EBITDA, and while not where it was last year, it’s performing reasonably well given the circumstances.
Operator, Operator
Next question comes from Jeff Cantwell of Guggenheim Securities. Please go ahead.
Jeff Cantwell, Analyst
Hi, thanks for taking my questions. I appreciate all the new data you're providing us. I just had a follow-up on your wu.com app downloads, which is something we closely watch. How should we think about the number of monthly downloads that you think you could generate post-lockdown? Are you optimistic that you'll maintain high numbers of downloads for wu.com? If so, could you elaborate on the most likely sources of these downloads? Any data points you can share would be very helpful. Thanks.
Raj Agrawal, CFO
Yes, clearly you watch it closely, Jeff. Those are specific questions that we will provide more thought on. In general, our app downloads have been significantly above market levels. We presented this data because the shift in market behavior is telling. We haven't established specific monthly download targets; we're closely monitoring the trends as they develop.
Hikmet Ersek, CEO
The new customers are clearly generating app downloads. As customers seek money transfer options, they are increasingly choosing our services. Our app has improved significantly, adapting to each country’s unique preferences, and this has facilitated downloads, allowing us to maintain a competitive advantage.
Raj Agrawal, CFO
The composition of digital transactions remains predominantly in cross-border. We also expect about 90% of revenues from that aspect, while digital white-label businesses will be driven from U.S. outbound and Europe outbound. Overall, as the business improves, we should expect positive profitability growth as well.
Operator, Operator
Next question comes from Bryan Keane of Deutsche Bank. Please go ahead.
Bryan Keane, Analyst
Hi guys. Congratulations on some of these numbers; they look quite impressive, especially with 20% cross-border principal growth in June and July.
Hikmet Ersek, CEO
Thanks, Bryan.
Bryan Keane, Analyst
I'm just trying to understand, maybe the World Bank has it wrong that COVID was going to create a downturn, and maybe COVID has had a one-time positive impact, or do you think this trend is more sustainable than that?
Raj Agrawal, CFO
You want to start, Hikmet, or should I?
Hikmet Ersek, CEO
I will start. The COVID environment is certainly unique and hard to predict. However, what we know is many customers have turned to digital, and they're new to us. Digital capabilities have proven valuable and enduring. As time progresses, we expect customer loyalty, particularly among these new users, will help drive growth. Given the sizable investments we made into the digital space, I feel confident that our offerings can support sustained growth over the long term.
Raj Agrawal, CFO
We're seeing strong growth and performance across various digital aspects, and I firmly believe in the positioning of our services relative to the market. The share we're gaining in digital is noteworthy, and it is consistent with our operational and financial goals. So in summary, while the ultimate outlook remains uncertain due to macroeconomic factors, the underlying trends in consumer behavior are favorable.
Operator, Operator
This concludes both the question and answer session and the Western Union second quarter 2020 earnings release conference call. Thank you for attending today’s presentation. You may now disconnect.