西聯匯款 (WU) 2022 Q3 法說會逐字稿

Good day, and welcome to the Western Union Third Quarter 2022 Results Conference Call. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Brad Windbigler, Head of Treasury and Investor Relations. Brad, please go ahead.

Thank you. On today's call, we will discuss the company's third quarter 2022 results, our financial outlook for 2022, 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 the supplemental tables with our press release.

On our call today is our CEO, Devin McGranahan; and our Interim CFO, Matt Cagwin.

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 2021 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've reconciled these items to the most comparable GAAP measures in our earnings release attached to our Form 8-K as well as on our website, westernunion.com, under the Investor Relations section.

I will now turn the call over to our CEO, Devin McGranahan.

Good afternoon, and welcome to Western Union's Third Quarter 2022 Financial Results Call. Given our Investor Day was just 2 weeks ago, today, we will recap some of the highlights of that discussion and then elaborate a bit on the third quarter. Thank you to all who attended on October 20.

Building on the discussions we've been having on these calls, we shared our approach to becoming the global leader in providing branded payments and accessible financial services to the aspiring populations of the world. Our strategy, Evolve 2025 is positioned as an evolution rather than a wholesale transformation. It builds on the strong and hard to replicate foundational elements of our existing business, including our large retail distribution network, our strong risk and compliance capabilities and our existing customer base of over 120 million customers worldwide.

At its core, we are shifting our model from one focused on transactions to one focused on customer relationships. Our customer relationship in most instances, will still begin with the first cross-border money transfer, but we'll expand across products and ultimately should increase longevity.

Our expanded offering supports our customers' ability to save, spend and transfer. We also highlighted a focus on stabilizing the retail business and returning our digital international money transfer business to growth.

We discussed how building an omnichannel customer experience can both increase retail retention and enable retail to become the gateway to Western Union more broadly. These strategies are underpinned by investments we have made this year in our retail point-of-sale system, our next-generation digital platform and our digital wallet and bank offering. Each of these platforms is in the process of being fully commercialized with expected rollout to continue over the course of 2023. At Investor Day, we had demonstration platforms on-site for people to see how these new experiences are.

One highlight of the event was our announcement of having onboarded over 100,000 customers in the digital bank in Germany, Romania and Poland. Recall, our current offering is an integrated money transfer experience, a multicurrency bank account and a Visa debit card. We discussed our goals for expanding the geographical reach to 10 countries and over time, also expanding the products we offer.

Now I would like to spend a couple of minutes talking about our results in the third quarter. The quarter results were in line with our expectations, and we continue to manage expenses well in the quarter. As you can see in our outlook, we expect to be able to accelerate investment in the fourth quarter as we continue to roll out our platform investments that are intended to put the company on a path towards a more sustainable growth profile.

As in past quarters, we continue to experience year-over-year declines in transactions across our business broadly, although the pace of the decline slowed relative to the second quarter, with the third quarter benefiting from the implementation of our new marketing program in the United States. In the short term, as we highlighted at Investor Day, this new marketing program will have a negative effect on revenue due to introductory and new customer segment pricing, but should enhance our ability to accelerate our digital new customer acquisition engine in North America.

Our reported revenues in the third quarter were $1.1 billion, and excluding contributions from Business Solutions decreased 6% on a constant currency basis. This growth rate was negatively impacted by 3 percentage points from the suspension of operations in Russia and Belarus, and reflects the continuing softness in our retail business as well as the slowing of our digital business.

Despite these challenges, our business continued to show its resilience by generating nearly $216 million of operating profit, excluding the impact from Business Solutions. Adjusted earnings per share was $0.42 in the quarter compared with $0.63 in the prior year period, which included a contribution of $0.09 from Business Solutions and $0.06 from the operations in Russia and Belarus. The decrease in adjusted EPS was driven by lower operating profits and a higher effective tax rate, partially offset by lower share count.

I would like to pivot to provide an update on the status of some of the key initiatives that we have been working on that we believe with time, will help change the trajectory of our business. As we shared last quarter, we have been working on a new digital customer acquisition model. In the second quarter of this year, we launched this project in the U.S. for customers sending money to Jamaica and Mexico.

Given the early success we saw in those 2 initial corridors, we made the decision to further expand the project in August to the top 50 U.S. outbound corridors, which account for the majority of both digital transactions and revenue in the United States. This new model is a combination of promotional offers, including new customer segment pricing, targeted lower funnel marketing and a focus on rapid issue resolution and was successful in driving a 26% year-over-year increase in U.S. outbound new digital customers in the month of September. It also provided a 40% lift in new customers returning for their second transaction in weeks 2 and 3, and provided a 24% increase in transactions from previously lapsed customers.

To put into context, prior to implementing this new model, we hadn't seen positive new digital customer growth in North America in over a year. I am pleased to report that the new customer acquisition momentum that we saw in September has continued. As highlighted earlier, we continue to advance the rollout of our digital bank and ecosystem in Europe. We launched Poland in the third quarter and expect to go live with Italy in the fourth quarter. Early evidence shows that active customers that we are acquiring in our digital bank are doing 2.5x more transactions than our traditional branded digital customers. We believe that increasing the frequency of customer interactions is likely to lead to an increased affinity towards the brand and improve customer retention. The progress we have seen to date further strengthens our belief that a wallet-based experience in our major markets, both send and receive will improve the long-term potential of our business.

Expanding our digital wallet ecosystem drove our recent decision to acquire the Brazilian digital wallet company, TNVA. We believe this acquisition, while not material in price, likely accelerated our time line to bring our digital wallet to Brazil by roughly 12 months.

The last topic I would like to discuss today is our retail distribution network. We were happy to announce at Investor Day that our next-generation POS system will now be in testing in the market in the United States this month. We plan to test the system in select locations with the goal of accelerating the rollout across our footprint starting in early 2023. We believe this new point-of-sale system will provide both agents and customers with a better user experience, and our objective is to cut both transaction times and clicks by over half.

Before I turn it over to Matt to discuss our financial results and outlook in more detail, I would like to highlight a few key partnerships. First, we are pleased to announce a new digital white label partnership. Western Union has partnered with Move Money FX in Brazil to offer our global remittance services to their customers via their recently launched app. We also recently expanded our retail presence in France through a new partnership with [B] Media, one of the leaders in point-of-sale collection systems.

Next, we renewed our contract with Walmart Canada to offer cross-border remittance services at all Walmart locations across that country. In addition, we will be integrating our cross-border money transfer platform into walmart.ca to offer online services to their Canadian digital customers.

And the last partnership we are pleased to announce is the extension of our long-standing and exclusive partnership with Walgreens for an additional 5 years. As a result, customers will continue to have access to Western Union money transfer and bill payment at more than 9,000 Walgreen locations across the United States.

Finally, I'd like to announce a couple of additions to the Western Union executive team. Sheryl McKenzie joined in mid-October as Chief Product Officer, and Jeff Johnson joined in early October as the global leader of prepaid. Sheryl brings more than 20-plus years of experience in the financial services industry. She joins us from Mastercard, where she was responsible for global consumer products and digital innovation. Prior to Mastercard, Sheryl was the Head of Products at Bread Financial and spent 15 years at American Express. Her strong expertise in product, loyalty programs, marketing and sales strategy will be an asset in her new role at Western Union.

Jeff joins us from Quantus, a fintech e-banking and e-commerce provider of Digital Financial Services, where he served as the CEO. Jeff has over 20 years in the payment industry with a concentration in the prepaid vertical. Prior to Quantus, Jeff was the SVP and GM of Commercial Prepaid for NetSpend. Thank you for your time today, and I will now turn the call over to Matt.

Thank you, Devin, and good afternoon, everyone. I'm pleased to be here today and walk you through our third quarter results and our 2022 financial outlook. But before I get into that, I want to take a moment to again thank everyone that was able to join us at our Investor Day. If you didn't have a chance to tune in, you can find our replay on our Investor Relations website.

As Devin mentioned, the third quarter results were in line with our expectation, and we believe that we remain on track to meet our 2022 financial outlook. However, macroeconomic uncertainties remain elevated across the globe due to inflation and geopolitical pressures. Third quarter adjusted revenue was down 6% to $1.1 billion. The suspension of our operations in Russia and Belarus impacted revenue by 3 percentage points. Adjusted operating margin was 20.6% in the quarter compared to 25.2% last year, which was positively impacted by 90 basis points from the inclusion of Business Solutions and 22.6% for the first half of 2022. The change in our year-over-year margin was driven by higher technology spend, increased marketing expense and higher compensation expense.

As Devin mentioned last quarter and implied in our guidance, our expectation is to have lower operating margins in the back half of the year as we invest to put the company on a path towards sustainable growth. The adjusted effective tax rate in the quarter was 15.5% compared to 13.7% in the prior period. The increase in our adjusted effective tax rate was primarily due to mix of earnings and the effect of changes in U.S. tax rules.

Adjusted EPS was $0.42 in the quarter compared to $0.63 in the prior year period. The decrease in adjusted EPS was driven by lower revenue and operating margins, a higher effective tax rate and partially offset by lower share count. In the prior year period, Business Solutions contributed approximately $0.09 to EPS, while operations from Russia and Belarus contributed approximately $0.06.

In the C2C segment, adjusted revenue decreased 8% on transaction declines of 12%, driven by softness in our retail business as well as slowing of our digital business. Russia and Belarus negatively impacted revenue and transactions by 3 percentage points and 9 percentage points, respectively, in the quarter.

Moving to our regional results. In the third quarter, North America adjusted revenue and transactions decreased 5%. As Devin highlighted earlier, we're in the process of accelerating our new customer acquisition engine in our digital business. So far, we have been encouraged with the results, which includes a 26% year-over-year increase in our U.S. outbound digital customers in September. However, we expect revenue growth to be adversely affected in the near term due to promotional pricing. This program was launched in August, but scaled in September.

Adjusted revenue in Europe and CIS region was down 16% with transaction declines of 32%. The suspension of our operations in Russia and Belarus, including our digital white label partnership, substantially impacted results in the quarter, reducing adjusted revenue by 8 percentage points and transactions by 26 percentage points. The digital white label business in Russia had a much lower revenue per transaction than our corporate average due to our roles of processor. Excluding the impact of Russia and Belarus, the regional experienced softness across all channels. We saw a difficult macro backdrop in the region as well as increased competition in both retail and digital.

Adjusted revenue in the Middle East, Africa and South Asia region declined 3%, while transactions decreased 1%. Softness in the retail and digital white label were partially offset by growth in our branded digital business. Adjusted revenue growth in our Latin America and Caribbean region was up 4% with transaction growth of 3% as the region has started to return to more normalized growth profile post COVID-19.

And finally, adjusted revenue and transactions in APAC region declined 11%, and this region represents 6% of our C2C revenue in the quarter. Other revenues, which primarily consist of retail bill payment in Argentina and the United States and retail money order in the U.S. represents 6% of the total company revenue and was flat year-over-year on a reported basis. During the quarter, the company agreed with Goldfinch Partners and Baupost Group to complete the divestiture of Business Solutions in 3 closings instead of 2.

The first of which occurred in March. The second closing, which includes United -- is currently expected to occur in December; and the third closing, which includes the European Union is currently expected to occur in the first quarter of 2023. The final 2 closings are subject to regulatory approvals.

Now turning to cash flow and balance sheet. Through the end of the third quarter, we raised $522 million of operating cash flows, which includes a transition tax payment of $64 million paid in the second quarter.

As previously disclosed, these transaction -- transition tax payments resulted from the 2017 U.S. Tax Act and will increase annually over the next 3 years and stop after 2025. Through Q3, we returned $450 million to shareholders through a combination of dividends, share repurchases, continuing our strong track record of capital return. Capital expenditures were approximately $148 million through Q3. At the end of the quarter, we had cash and cash equivalents of $1.2 billion and debt of $2.6 billion with a leverage ratio now sitting at 2.1x and 1.2x on a gross and net basis.

Now moving on to our outlook. Today, we reaffirmed our 2022 full year financial outlook, reflecting the combination of existing macro environment. And finally, I'm excited about our Evolve 2025 strategy and the early progress we're starting to see so far. Thank you for joining the call. Operator, now we are ready to take questions.

(Operator Instructions) Our first question comes to us from Will Nance from Goldman Sachs.

I just wanted to follow up on the comment on expense control. Obviously, very nice expense control in the quarter. Where are you finding opportunities to trim on the expense base? And I know you've talked about a number of expense opportunities to reinvest into the Evolve '25 program. How do you think about the cadence of those expense cost savings coming in, in kind of like the near to intermediate term?

Great question, Will. Thanks. I would bucket the expense savings into 2 or 3 categories. The first is what I would consider to be expense avoidance. And you heard some of this when we were at Investor Day in terms of the servicing platform, some of the technology that we're using that are allowing us to allow our customers and our agents to self-serve, which is allowing us not to have to answer phone calls.

The second is we are reallocating expense dollars from legacy technology projects that we've largely completed. These include important ones like moving our core processing platform to the cloud. We left our mainframe Unisys system in the third quarter and our ongoing project to modernize our settlement platform. That is freeing up dollars to enable us to invest in the new technology platforms. And then finally, we just continued good expense management through procurement, through real estate and personnel costs.

Got it. Makes a ton of sense. And then just maybe a comment on the macro, kind of couple of questions just broadly how you're thinking about the impact of elevated inflation around the world on the remittance market in general. What have you guys seen kind of recently? And how are you thinking about that impacting the numbers on a go-forward basis?

It's a great question. We are spending a lot of time, Will, thinking about looking at and monitoring the effects. As you heard from Matt, we continue to see secular macro effects in Europe. We are still waiting for the benefits of increased oil prices in the Middle East and the rebound of Asia post COVID. On the metrics we look at in terms of principal per transaction, transaction frequency, we aren't seeing any material effect yet that could be attributed to inflation. But we are paying very close attention by region, by channel and by customer segment to see if and when we do begin to see something, it would be worth discussing.

Yes. Devin, the one I'd add to that is to your point, we are still continuing to see a 4% constant currency principal uplift. So we're not seeing our numbers, but we are watching very closely.

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

I guess 2 quick ones. First, on the digital revenues, those decelerated sequentially even after you adjust for the Russia and Belarus impact. And I got your comments on the pricing promotions in August. So was that the bulk of the decel that we saw in the quarter? Or if there were any other factors that (inaudible) a little bit?

Vasu, this is Matt Cagwin. Pleasure to meet you. The answer to your question is yes. We've put in place a very robust marketing program with targeted marketing, promotional pricing, and as Devin talked about a minute ago, we're seeing an uplift in new customer acquisition and subsequent activity from those customers. Our objective is really focusing on lifetime value of the customer.

Got it. And so that was the bulk of the decel we saw from last quarter to this quarter in the digital revenue growth?

Correct. And we have seen an uplift in our transactions quarter-over-quarter, corresponding to the customer uplift.

Got it. I guess my follow-up was on the Walmart partnership in North America that you guys signed last year. Is that pretty much fully in the runway at this point? Or is that -- is there a potential for that to be a further ramp of that? And I don't know if you could share anything in terms of wallet share that you have been able to gain at Walmart, that would be super helpful.

Yes. So not showing specifically targets at Walmart. But as far as your question, we are still seeing growth in it month-over-month. So we're very bullish and positive on our relationship with Walmart.

Our next question comes to us from Tim Chiodo from Crédit Suisse.

One of the topics discussed at the Investor Day was around agent locations and making sure that you're going after the most productive and the best agent locations. In terms of attracting them, so that's a strategy that's been very effective by Intermex in terms of targeting some of the most high dense customer areas. When you're going after those locations, what are you -- what's the discussion sound like? Can you bring it to life in terms of -- is there a commission discussion? Is it unit economics? Is there some sort of upfront marketing support? Is it equipment? Is it special levels of customer support? Or what can you do to entice those agent locations that are in the real high-quality, high-density locations?

Tim, great question. Thank you. Thank you for joining us. Thank you for coming in to Investor Day. There's a lot to unpack there, but I'm very excited about it. First, as you saw at Investor Day, we are spending time, energy and analytic horsepower to identify exactly as you stated, the highest quality locations based on demographics and patterns for our target customer in terms of their shopping behavior, their commuting behavior. So we are using analytic horsepower to identify key locations.

Second, you've heard me talk extensively about the investment we're making in our point-of-sale technology to, at a minimum, bring us on par with our competitors in terms of ease and convenience of use, and of end-to-end customer experience. So bringing that platform forward is an important part of the conversation with any new agent. And then as you stated, the rest of the conversation is a mix of the right incentives, the right marketing dollars and most importantly, the right branding approach. In particular, here in North America, we have options with OV, Vigo and Western Union. Outside of the United States, that conversation tends to go to Pago Facil or to Western Union, but bringing the power of our branding to those agents in many cases, is a powerful part of the conversation.

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

I wanted to ask just on the fourth quarter outlined in relation to what we saw in the third quarter, the minus 6%. Can we assume stability or potential deterioration or maybe improvement? Because I'm just trying to reconcile the September scaling of your promotions together with it sounds like general stability trend-wise. So just, I don't know if you have any more to add to that. But any thoughts on the fourth quarter would be great.

I think you can expect trends that you see in the third quarter to continue. As Matt said, we're reaffirming our guidance for the year with that mid-single-digit decline. Given where we were in the beginning of the year, our overall outlook remains consistent what we've seen year-to-date and what we expect in the fourth from a revenue standpoint. We also indicated we intend to continue to accelerate investment into the fourth quarter. And so you can see into our guidance based on where we finished the year, what we expect the expense rate to look like in the fourth quarter, Tien-Tsin.

Understood, Devin. Very clear. So on the promotional side, it sounds like you're quite happy and you should be, the 26% figures is encouraging. At what point would you decide to extend that, Devin, and team to the other areas, regions, et cetera? What are you looking for?

Right. And if you recall -- and again, this comes to managing the fourth quarter. If you recall, there are 3 elements engaged in the process. There is promotional introductory pricing, there's new segment pricing and there's lower funnel optimization. All 3 are proving to be effective to varying degrees. And so both in the fourth quarter and as we think about rolling it out, and we do fully expect to roll it out as we get a little bit more experience around the world, we have all 3 of those levers to manage both the rate of customer acquisition, transaction growth and obviously, the impact on both near-term and long-term revenues. Hopefully, that's helpful.

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

Maybe we could just go back to the growth of the digital user base, which I know accelerated nicely in September. And I think you mentioned, Devin, in your prepared remarks that it continued into October. So I guess the pricing dynamic, the more dynamic pricing as well as different approach around marketing and customer acquisition is paying off. If you could just go into a little bit more detail on what you're doing, what's been successful, what's sustainable and what you expect that to be going forward? I'd love to hear more color on that.

Yes. Thanks, Darrin. Thanks for joining us at Investor Day. It was great to see you. There's a couple of components to it, as I was just highlighting. One is, in fact, coming back to what I would call market reference price points. So understanding by corridor, where is the market and what is then the ability to influence market behavior, particularly for new customer acquisition based on market-based pricing. And so we are doing that corridor by corridor. I talked about expanding it to the top 50 corridors in North America, and then understanding where the elasticities are on that market reference price relative to our ability to influence new customer acquisition.

The second component to it is then applying marketing dollars, particularly to the lower funnel part of our acquisition funnel, where we find those elements of the elasticity curve to be attractive from an ROI standpoint. So understanding where the market price is, understanding where we can effectively compete and influence and use marketing dollars to drive customer behavior. The last, which is in the prepared comments, making sure that those customers become customers and not first-time transactors. And so paying a lot of attention to second time and third time transaction from those new to the brand customers, ensuring we're starting to build a track record and some longevity in the relationship.

Part of that is also going back to customers who we have not seen recently within the digital franchise and remarketing and communicating to them as a way of, again, driving transaction volume against this marketing program and effectively getting returns for the marketing spend.

Our next question comes to us from Rayna Kumar from UBS.

You mentioned that you renewed your Walgreens relationship for 5 years. Anything to highlight there in terms of changes in agent commissions or additional products Western Union may be providing to Walgreens.

Substantially, the same. We don't discuss individual contract renewals publicly for obvious reasons, right? But the contract is relatively consistent with prior contracts, prior economic models. We continue to be excited about the Walgreens relationship, probably Walgreens successfully implemented a kiosk-based system in which Western Union is proud to be part of. Walgreens is also a leader in pushing forward with the delivery of financial services products into their customer base, and we are in conversations with Walgreens, how to be a partner and support some of their ongoing expansion efforts that parallel many of the things that I talked about at Investor Day in terms of bringing accessible financial services to the aspiring populations of the world. It's a strong partnership that we value.

That's helpful. And then just a question on capital allocation. You used $8 million of cash to repurchase shares in the quarter. Any color on how we should think about share repurchases going forward?

Rayna, it's Matt. It's very consistent when we talked about a couple of weeks ago at Investor Day. We're very focused on our dividend, maintaining our dividend levels. We're focused on strategic M&A and anything left over, we do plan to return to our shareholders if we don't have a better use for it internally.

Appreciate it.

I think we emphasized at Investor Day, and I'll reiterate here, we aspire to maintain Western Union's history of being strong stewards of the owner's capital and return that capital at every available opportunity when we don't have good ROI alternatives for it.

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

I wanted to ask about some of your plans regarding kind of leveraging the retail distribution network to sort of help drive growth. My question is, is there any risk of channel conflict when you have a digital escalator or even omnichannel, where you're sort of including the retail side and in terms of acquisition, but then maybe graduating that customer more to the digital side of things. How are you kind of communicating that and working through that with your retail base?

Ramsey, there is obviously, certainly always the opportunity for channel conflict, and we are working hard and value the retail partnerships that we have and part of the work that we're doing is to reemphasize the importance of our retail network and the importance of our retail partners. Both our retail business and our retail partners have been suffering the loss of clients to our digital competitors for the last couple of years. And so our goal is to help our retail partners retain some of the economics. Is that ongoing and migration continues, and to expand our ability in conjunction with our retail partners to serve those customers in an omnichannel manner before they depart -- in their retail network.

Additionally, early pilots and programs have indicated that a significant portion of our retail partners are open to the idea of partnering with us, particularly when the economic incentives are aligned to helping build an omnichannel product and experience that extends the overall retention and relationship of that customer with both Western Union and our retail partners. If you remember from Investor Day, we highlighted our average retention in the retail business is less than 50%, and a high percentage of those customers are onetime customers with Western Union. The more we can do with our retail partner to expand that relationship to get those customers to return and to become the omnichannel is beneficial for both us and our retail partners.

I see. So there's mutual interest there to pursue the strategy. A quick follow-up for me is, you mentioned also extending marketing to the receivers to try to tap into the potential (inaudible) group. Could you elaborate a little bit more on how you reach that population? Obviously, you know that. And what is that deepening of the reflect from a marketing perspective, how do you -- what are you saying to them? How do you communicate with them? Or anything you can share on those lines would be helpful.

Yes, it's great. The retail business and particularly the receiver in the retail business, plays an influential role in determining where the sender, which partner the sender chooses and influencing that from the receiver side as part of what we talked about at Investor Day. We are working on the model.

It is one that Western Union had many years ago, and I'll just use an example. In the Philippines, we used to be a sponsor with the Filipino government of helping prepare people who are going to leave the Philippines for expat opportunities in other places in the world in terms of work permits, visaing, all of the things that go into someone leaving their home country and traveling to another country and search an economic opportunity. And it is forums and opportunities like that, where you can connect with the community, where you can connect and build relationships on both the center and the receiver side that we are looking to reignite from something that we did quite successfully several years ago.

Our next question comes to us from Jason Kupferberg from Bank of America.

I just try to come back to the digital side of things, again, just looking at the underlying revenue growth, ex FX, ex Russia and Belarus, you talked about the deceleration in the quarter because of the U.S. promotional pricing, obviously understandable. So I was curious, what is your expectations here for Q4 relative to Q3? And what's baked into the initial 2023 outlook that you provided at the Analyst Day?

Pleasure to meet you, Jason. From a 2023 standpoint, we'll give you more color on that in February. As you think about the fourth quarter, as we talked about a few months ago, we launched our promotional pricing in the U.S., middle of the quarter, fully pushed it out in the last month of quarter, that is going to continue throughout the fourth quarter. And we're also looking at other geographies around the world as we get into the latter part of this year and early part of next year. We are also looking at different ways to test and learn for what actually works to maximize our lifetime value for our customers. So the impact you see may not be the exact same as you saw in the third quarter, if you extrapolate that out as we learn from this process.

Right, right. Okay. Yes, there could be a little bit more detail in Q4, I guess, because you'll have a full quarter as opposed to Q3 where you had like half a quarter, it sounds like -- which makes sense.

I think that's right. I think the other thing that you heard in Matt's commentary, right, is we are taking a more proactive and potentially managed approach with indices on driving customer acquisition than maybe we have in the past, right? And as you heard me with Tien-Tsin talk about the multiple levers that we have to strike that right balance between driving new customer acquisition and maintaining our existing business, there's certainly some test and learn, as Matt discussed, that we're going to continue to hone, and we're going to continue to try to strike the right balance between building the business for the future and delivering in any given quarter.

Okay. And then I just wanted to switch over to Europe for a second. I think you had mentioned in your prepared remarks some increased competition. I wanted to just hear a little bit more about heightened competition and perhaps how Western Union is reacting to that in the region?

We see strong competition in specific corridors. So I'll just highlight a couple, Central and Southern Europe to Africa, there are a number of corridor specialists. That market has gone exceptionally digital, and you see competitors engaging in what I would consider to be irrational pricing in an attempt to acquire market share and gain a foothold in some of those important corridors. You see the same thing coming out of the U.K. and particularly U.K. to Europe due to SEPA and due to the ability to move money into the European Union from the U.K. at very aggressive pricing strategies, as again, people compete for market share and visibility in a very digital market in the United Kingdom. Those are just examples of what we're seeing. I think as the macroeconomic effects of Europe have taken hold. You're seeing people compete very aggressively in order to either maintain or try to gain share.

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

I just wanted to step back and think about the digital business, kind of the big picture. Forever wu.com or the Western Union business, digital business did well and grew in that industry growth rate that I think you highlighted at the Analyst Day of 10% to 20%. But obviously, starting in really third quarter of last year, it's decelerated. And then now it sounds like the reason for kind of WU losing their ways on digital was more pricing that pricing competition got to you guys, and that's kind of the cause of why you guys are growing below industry before you make the changes?

One of the things that we spent a lot of time during the strategy development process, trying to understand, is the effect of pricing, customer experience, retention, and the ability to influence ongoing behaviors from customers. The market became increasingly competitive post COVID, as you know, COVID floated a lot of boats because retail was closed. Customers were migrating if they could to the digital channels. And we and most of our competitors benefited from a swell in the digitization and the move to digital from the migraine communities around the world.

As COVID ebbed and people could both go back to the retail environment, some of which we have seen in different parts of the world, and the sheer influx of people slowed, you saw competitors become increasingly aggressive in order to maintain their strong customer growth rate numbers which for a number of people was the defining metric. We probably were slow to react to that change in competitive environment as you highlighted in the third quarter and fourth quarter of 2021.

By the mid of 2022, I think we came to realize, particularly in some of the most competitive corridors in the largest market that was going to be required, while at the same time, influencing our ability to drive those other dimensions in terms of customer experience transaction completion rates, ongoing retention and loyalty programs, all of which add up to, ultimately, the ability to return the digital business to strong growth rates.

Got it. So the follow-up then is the industry growing post-COVID at 10% to 20%? Or is there a round number you think that it's growing at -- and then two, how much have you guys had to do promotional pricing to get back in line to win back some of the share that you're hoping for?

So we believe the market -- the digital market is, in fact, growing between 10% to 20% on an ongoing and secular basis. And we'll continue to see both new entrants enter into the digital market and some ongoing migration from the retail business to the digital business. Additionally, we believe that as the market continues to mature, and we've highlighted it, and this has been true for other digital experiences, the omnichannel ability to interact with customers and allow customers to move seamlessly across the retail and the digital experience will become more prevalent and will become a stronger value proposition than a pure digital or a pure retail-only customer.

Got it. And is there a percentage number we can think about of how much the discounting is in digital?

It varies a great deal corridor by corridor, segment by segment. So I think any generalized amount would probably be inaccurate.

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

Devin and team, thanks for the update. I just wanted to follow up on Ramsey's question on channel conflict. And I believe you mentioned that this strategy of using retail as the gateway to the entire platform could work when the economic incentives are aligned. So can you just talk a little bit about how those commissions or those payments to the agent might be made? Is it a large upfront fee would they participate in some way and the ongoing transactions done by that customer. Any thoughts on that would be great just because I think it's an important piece of the story here.

Ken, it's great to hear from you. Thanks for coming to Investor Day. It is an all-of-the-above strategy, right? And it is both a result of the nature of the product interaction that we're able to deliver in that omnichannel. So in some cases, if we're able to deliver a prepaid card as is historically the norm, the merchant or a retail partner would participate in the ongoing economics of the prepaid relationship. If it is merely an acquisition of an omnichannel, i.e. someone who conducts a digital transaction with us in addition to their retail relationship, it's probably more of a bounty.

So as we align the nature of the products and services to the nature of the partner conversations and is -- you also know each of these are very unique and almost at a partner-by-partner basis is what's going to make sense, and that's why we've got a great sales team that's out having conversations with partners every day about how to structure these. So -- and again, I emphasize, so it is in the mutual interest of both Western Union and our retail partners. We are not looking to disintermediate our retail partners, we're looking to strengthen our collective ability to retain, which, again, coming back to Investor Day, with less than 50% retention to retain those customers and generate ongoing economics for both us and the retail partners.

Okay. All right. That makes a lot of sense. And then I wanted to take your temperature, Devin, just on the promotional pricing, I mean what are some of the key KPIs that are going to determine how long you keep that promotional pricing in place? And I guess, have you seen any competitors respond to some of the pricing actions that you've taken?

So Ken, there was a nuance in what I talked about earlier with Tien-Tsin, which is promotional pricing would imply pricing below market levels. We are working hard to price at or near market levers, understanding where those are and then applying marketing dollars and the strength of our brand to influence customer choice. We are not looking to significantly alter market pricing levels and our attempt to grow our business. We will and can adjust accordingly because of our pricing capabilities by all the dimensions that we historically price on, which is corridor, geography, all the way up to time of day as a way of maintaining and managing our revenue mix model.

Our next question comes to us from David Togut from Evercore.

In light of the 2 key agents in Europe and CIS that have chosen to leave the retail category, can you address the security of your existing agent relationships. And in particular, I'm thinking of kind of the agent contract waterfall. Are there any major agent contracts that are up for renewal soon? The second piece of that is what percentage of your agent book is now exclusive versus not?

David, this is Matt. I think we've previously talked about this before publicly, but we don't have any agents that are larger than 5%. They cascade out over an average typically around a 5-year term, similar to what we talked about earlier with the Walgreens renewal. We love our strategic partners. We work very closely, as Devin just talked about trying to find that harmonious way to drive a strong relationship between us and our customers and them. So it's something we're going to work very actively, but there's nothing else on the horizon that we're working towards or worried about, but we're monitoring it every day and trying to drive a strong relationship.

David, the other thing I would add, right, and I agree with everything Matt said about it's pretty evenly spaced out across the geography and across agents. It was unfortunate that 2 happened in the same geography at the same time. But it does give us a chance and one of the things the management team is spending a lot of time on, and we talked a little bit about at Investor Day is the history of Western Union is driven by very strong strategic agent partnerships in many parts of the world. We are very proud of those, as I evidenced by the renewal of our Walgreens relationship.

And in many cases, we have the privilege of working with postal systems or other institutionalized players in many of these markets. With the change in Europe that allows us to adapt our distribution model and to enhance our network, focusing our sales and development teams and building new and different kinds of relationships that might be more flexible and more advantageous than maybe some of the historic, more strategic relationships that dominated in some of these geographies.

So just to clarify, you're confident that you don't have any other agents, i.e., under 5% in your book that could be at risk of shifting out of the retail category in the near term?

To be clear, I cannot predict what any of our agents will or won't do on any given day. What we said was we have a good visibility into the pipeline. We feel reasonably comfortable that it's well managed and that we understand both at the agent level and the geography level, which contracts are coming up for renewal and doing everything we can to ensure those partnerships remain intact.

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

Good to see the step up in terms of digital customer acquisition in the U.S., albeit some of it seems like it was promotionally driven. On that note, could you comment just in terms of how customer acquisition cost is trending? Is it more of a rightsizing in terms of what's required to acquire a customer these days? Or is there a structural kind of step up in the environment just in terms of CAC. Obviously, CAC is not the only part of the equation, is also LTV to consider, which I think you've alluded to throughout the conversation. But love to get your thoughts on CAC levels here.

Yes, Andrew, thanks. And you -- that is, in fact, the exact equation, right, which is what is the LTV, which is a combination of the price per transaction or the revenue per transaction, the number of transactions, the durability of the relationship and obviously, the marketing costs that we spent to acquire that relationship. And so we are working hard. And historically, we have not talked publicly about either CAC or LTV, but it is embedded in the organization, and we are driving hard to make sure we strike the right balance to get the equation right for shareholder value creation.

And as I said, we're playing with multiple levers of that, both for the acquisition part in terms of the right promotional pricing and the right marketing, particularly in the lower funnel, but also ensuring that we're acquiring the right customers and we're getting those second and third transactions so that we're making sure we're getting lifetime value out of the investments we're making to acquire customers.

Got it. And just as my follow-up, I think one thing to stick out to me at the Analyst Day was just increased ability to kind of iterate product. And part of that was reducing the number of mobile app instances you have, I think, down to a handful globally. What's the time line to get that done? And in the meantime, can you continue to iterate in terms of UX capabilities. Just curious to your thoughts there.

Great question. So we are on a path, as I have highlighted, to continue to roll out both our next-generation digital transaction platform, which is now in Canada and Australia and recently launched in Austria as well as digital wallet bank experience that we profiled and highlighted at Investor Day, which is now in Germany, Poland, Romania and soon to be in Italy. The combination of accelerating the rollout of both of those platforms will mitigate, as you described, the historical approach, which entailed individual apps per country. And so we are working to get to as many countries with the new scalable platforms as quickly as we reasonably can, given investment resources, management resources and market delivery capabilities.

Our aspiration is to be able to have the world on 3 to 4 versions of the transactional app and on less than a handful of versions of the digital wallet, which will, in fact, enable us to iterate much faster. We continue to iterate the current platform pretty much at the same rate we've historically done. But as I noted in the Investor Day, we are cognizant of the fact that our ability to iterate fast enough in many places in the world relative to our digital competitors is part of what motivated this idea of moving to a more contemporary technology stack that allows us to iterate on a faster basis globally.

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

Appreciate all the time and details today. I wanted to follow up a little bit on one of the last questions there. How should we think about the time that's going to be required for you to assess how you can get customers, especially as you expand their financial services to be able to figure out what their lifetime value potential is, what the right amount of investment is going to be. I can imagine starting from where you are now, it may be hard to gauge that at the outset. But I'm just trying to dimensionalize our own expectations for -- over what time frame we can start to get a view of that so we can assess is this good investment or not?

Great question, James. And now that we have on-boarded 100,000 customers and frankly, 2 markets, Germany and Romania. We're starting to get profiles, what does a receive market customer look like, what does a new to franchise customer look like, what does a customer that migrated from our branded digital to our bank look like. As we gain scale and we're able to expand it to a few more markets. As you know, there are some peculiarities with the German market and even the Romanian market. We will then have a better ability to draw the profiles of those different kinds of customers and then paint for you a picture of what the economics look like by either customer type or segment. So we're continuing to see positive indications both on kind of lifetime value of customer, transaction of customer, retention of customer, recognizing it's only 6 months in, which is causing us to continue to invest in rolling out the platform to gain more experience. But we will be coming back to you as we get to hundreds of thousands of customers instead of just this 100,000 and provide more transparency on what that looks like.

Got it. And then just quickly as a last follow-up, the acquisition in Brazil and the accelerated time to market, looks pretty interesting to me. I'm wondering in that time to market there, do you gain some additional leverage in being able to take that technology and use that in other markets? Or is that going to be pretty market specific?

Great question. As you know, we picked Brazil because it is an interesting market with a large base of potential customers for us and our brand. We have a strong retail presence there, and I've highlighted we own 68 locations, which are 50% of the volume of the country, which again allows us to manage that retail to digital interaction quite easily. And we have a banking license already in Brazil. So it is a natural to the earlier question about how are we testing and learning in a manner that gives us confidence to then move further afield. Brazil is a natural laboratory for us in order to really do this. Getting into that market quicker is what drove the acquisition. And we believe as we learned, it will be scalable across LACA and give us, again, the ability in markets where we might not have quite as strong a position to then be able to enter and grow.

That concludes our Q&A session at this time. Thank you for joining today's third quarter 2022 results conference call. We hope you have a great day.