Western Union (WU) In-Line Q4 Revenue, Offers Outlook

Western Union Reports Fourth Quarter and Full Year Results

February 13, 2018 4:06 PM EST

Solid fourth quarter business performance with strong digital growth

Revenue increases 5%; Net income impacted by U.S. tax reform and goodwill impairment

Company expects solid business performance in 2018; Quarterly dividend increased 9%

ENGLEWOOD, Colo.--(BUSINESS WIRE)-- The Western Union Company (NYSE: WU) today reported financial results for the 2017 fourth quarter and full year, and provided its financial outlook for 2018.

In the fourth quarter, the Company generated revenue of $1.4 billion, which increased 5% compared to the prior year, or 4% on a constant currency basis. Improved trends in the Companys consumer money transfer business and continued strong growth in the bill payments businesses drove the revenue growth.

GAAP earnings per share in the quarter was negatively impacted by United States tax reform legislation enacted in December 2017 (the Tax Act) and a non-cash goodwill impairment charge related to the Business Solutions reporting unit. GAAP earnings / (loss) per share of ($2.44) compared to ($0.73) in the prior year period, while adjusted earnings per share of $0.41 compared to $0.47 in the same period last year.

Our consumer money transfer revenue growth accelerated in the fourth quarter, and our business continued to demonstrate resilience, said president and chief executive officer Hikmet Ersek. Solid business performance was again led by our digital channel, as westernunion.com money transfer delivered a 22% revenue increase and represented 10% of our total consumer-to-consumer business in the quarter.

Ersek added, We remain focused on leveraging our cross-border capabilities to drive more global funds and transactions through our platform in 2018.

Executive Vice President and Chief Financial Officer Raj Agrawal stated, We generated strong cash flow and allocation to shareholders in 2017, returning more than $800 million through share repurchases and dividends. Our WU Way business transformation initiatives also delivered solid results and should continue to fuel operating efficiencies and growth initiatives.

The new quarterly cash dividend of $0.19 per common share, which represents a 9% increase over the previous dividend of $0.175, is payable March 30, 2018 to shareholders of record at the close of business on March 16, 2018.

Q4 Business Unit and Financial Highlights

Consumer-to-Consumer (C2C) revenues, which represented 80% of total Company revenues in the quarter, increased 5% on a reported basis, or 4% constant currency. Transactions grew 3%, driven by growth in westernunion.com. Geographically, revenue growth was led by transactions originated in Latin America and North America.Westernunion.com C2C revenues increased 22% on both a reported and constant currency basis, on transaction growth of 22%. Westernunion.com represented 10% of total C2C revenue in the quarter. Western Union Business Solutions revenues declined 4%, or 8% on a constant currency basis, primarily due to declines in Europe. Business Solutions represented 6% of total Company revenues in the quarter. Other revenues, which primarily consist of bill payments businesses in the U.S. and Argentina and represented 14% of the quarters revenues, increased 11%, or 14% on a constant currency basis. Growth in the quarter was driven by the Speedpay U.S. electronic and Pago Facil Argentina walk-in bill payments businesses. GAAP operating loss in the quarter was ($253) million, which compares to ($314) million in the prior year period, while adjusted operating income of $258 million compares to $271 million in the prior year period. GAAP operating losses include a $464 million non-cash goodwill impairment charge in the current quarter and a $571 million expense related to the Joint Settlement Agreements (as defined below) with federal and state governments in the prior year period.The non-cash goodwill impairment charge is related to our Business Solutions reporting unit, as the estimated fair value of the reporting unit declined below its carrying value. The reduction in estimated fair value primarily resulted from a decrease in projected revenue growth rates and EBITDA margins and the impact of the Tax Act. The financial projections were reevaluated due to the declines in revenues and operating results recognized in the fourth quarter of 2017, which were below managements expectations. The December 2017 enactment of the Tax Act also effectively eliminated contributions to Business Solutions fair value previously derived from cash management strategies that optimized the Companys U.S. cash flow management utilizing principal payouts for Business Solutions transactions.GAAP operating margin was (17.6%), which compares to (22.9%) in the prior year period. Adjusted operating margin of 17.9% in the quarter compares to 19.7% in the prior year period, with the decrease primarily due to timing of expenses, including incremental marketing spending to drive revenue growth, and the negative impact of foreign exchange. Tax expense in the quarter includes an estimated incremental expense of $828 million related to the Tax Act, primarily due to taxes on certain of the Companys previously undistributed foreign earnings, partially offset by benefits from remeasurement of U.S. deferred tax assets and liabilities and other tax balances. The Companys 2017 U.S. federal tax cash liability, including the effects of the Tax Act and other Company income and tax attributes, is estimated at $780 million and will be payable over the next eight years, with 8% payable in each of years one through five, 15% in year six, 20% in year seven, and 25% in year eight. Due to the complexities and uncertain interpretations of many aspects of the Tax Act, certain of the 2017 impacts have been provisionally estimated and additional effects may be recorded in 2018. The Company returned $92 million to shareholders in the fourth quarter, consisting of $12 million of share repurchases and $80 million of dividends.

2017 Full Year Results

The Companys full year revenue increased 2%, or increased 3% on a constant currency basis, compared to the prior year period. Foreign currency translation, net of hedge benefits, negatively impacted revenue by $61 million.

GAAP operating margin of 8.6% compares to 8.9% in the prior year. Adjusted operating margin was 19.9%, which compares to 20.4% in 2016. The adjusted margin decline from 2016 was primarily attributable to the impact of foreign exchange.... More