Q3 2023 Western Union Co Earnings Call

Participants

Devin B. McGranahan; President, CEO & Director; The Western Union Company

Matthew Cagwin; CFO; The Western Union Company

Thomas Hadley

Andrew Garth Schmidt; VP & Analyst; Citigroup Inc., Research Division

Bryan Connell Keane; Research Analyst; Deutsche Bank AG, Research Division

Cristopher David Kennedy; Research Analyst; William Blair & Company L.L.C., Research Division

James Eugene Faucette; Managing Director; Morgan Stanley, Research Division

Jason Alan Kupferberg; MD in US Equity Research & Senior Analyst; BofA Securities, Research Division

Ramsey Clark El-Assal; Research Analyst; Barclays Bank PLC, Research Division

Tien-Tsin Huang; Senior Analyst; JPMorgan Chase & Co, Research Division

William Alfred Nance; Research Analyst; Goldman Sachs Group, Inc., Research Division

Presentation

Operator

Good day, and welcome to the Western Union Third Quarter 2023 Results Conference Call.
(Operator Instructions)
Please note this event is being recorded.
I would now like to turn the conference over to Tom Hadley, Head of Investor Relations. Tom, please go ahead.

Thomas Hadley

Thank you. On today's call, we will discuss the company's third quarter 2023 results, and then we will take your questions. The slides that accompany this call and webcast can be found at westernunion.com under the Investor Relations tab and will remain available after the call. Additional operational statistics have been provided in supplemental tables with our press release.
Joining me on the call today is our CEO, Devin McGranahan, and our 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 2022 Form 10-K, for additional information concerning factors that could cause actual results to differ materially from the forward-looking statements.
During the call, we will discuss some items that do not conform to generally accepted accounting principles. We have reconciled those items 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 Chief Executive Officer, Devin McGranahan.

Devin B. McGranahan

Good afternoon, and welcome to Western Union's Third Quarter 2023 Financial Results Conference Call. It was just a little over a year ago today, that we presented our Evolve 2025 strategy to the investment community in New York City. We laid out a 3-year journey that focuses the company on successfully delivering everyday branded financial services to the aspiring populations of the world. We articulated a strategy that focused on driving the business through customer level economics, including improved LTV to CAC and emphasis on improving retention and an expansion of our TAM by launching new transaction-based financial services products.
We painted a financial picture that would fund the required investments for this strategy within our strong operating margin range of 19% to 21% and with the goal of returning Western Union to sustainable and profitable revenue growth by 2025. Shortly thereafter, we reported Q3 2022 C2C transaction growth of negative 12% and adjusted revenue growth of negative 6%. And just 1 year later, today, we reported Q3 2023 transaction growth of 5% and adjusted revenue growth of 7%. Even absent the benefits of the Iraq Central Bank's policy changes, we have achieved global C2C transaction growth now of 4% and 800 basis point reversal in the trajectory of the underlying business.
Potentially most important and initially viewed with some skepticism, we committed to returning our retail business to stability. I am thus pleased to announce that we have now, excluding Iraq, returned our global retail transactions to flat on a year-over-year basis in the third quarter.
Switching to digital. When we launched our new go-to-market program, I highlighted that we would first grow new customers, then we would grow transactions and finally, we would start to grow revenue.
In the quarter, we achieved positive revenue growth of 3% for our global branded digital business, a full quarter ahead of our previous target. We have also begun to narrow the delta between transaction growth, which has been sustained at 12% and revenue growth.
While it is still too early in our journey to declare success, as I reflect on the last year and the progress we have made against our Evolve 2025 goals, I am particularly pleased with the following: the strength of the management team that we have been able to assemble which I believe is a great mix of the old and the new. The broad-based engagement of our employees around our purpose-driven strategy and the recognition of our need to drive for everyday execution in everything we do. The impact of our revised go-to-market strategy that is driving accelerated new customer acquisition at much more favorable tax.
A streamlined operating model that we believe is delivering both increased customer and agent satisfaction while achieving efficiencies that power our nearly $50 million in run rate savings. A fundamental shift in our product and technology roadmap from delivering back-office modernization to building customer and agent-facing product and experience innovation.
Finally, I'd like to recognize the strong support of our Board of Directors over the past 18 months as we've executed our strategy. We believe the success of these programmatic building blocks will help us to continue to power our journey to achieve our Evolve 2025 goals.
Shifting now to our Q3 results. Our total revenue for the third quarter reached $1.1 billion, reflecting a 7% increase on a constant currency basis, when excluding the contribution from Business Solutions, compared to the same period last year. This growth was driven by several factors, including the increase in revenue from Iraq, the benefit of Argentinian inflation and the improving fundamentals in our core business.
Adjusted earnings per share came in the quarter strong at $0.43 and included our continued investments in our Evolve 2025 strategy. Matt will further discuss our financial results in more detail and provide an update on our 2023 financial outlook.
Shifting to the macro, despite significant and potentially rising uncertainty and disruption in the world, we remain pleased with the resilience we continue to see in the Western Union customer base. While much has been written recently on the receding power of consumer spending in the U.S. and Europe, we continue to see a strong employment environment in our major markets, which we believe is translating into a continued willingness for our customers to send money home.
Our transaction growth trends are very positive, as I previously highlighted, and our average PPT, excluding the higher PPT from Iraq, has remained relatively stable year-over-year at down only 1%. Despite this increasingly uncertain macro backdrop, we continue to see enough opportunities within our own customer base to support our belief in the ability to drive our Evolve 2025 strategic outcomes.
At our Investor Day in 2022, we highlighted the fact that we found ourselves in the unenviable position of having a digital business that was shrinking on a transaction basis. This circumstance was the result of a strategy designed to maximize in-period revenue per transaction, to rectify the situation and drive long-term transaction and revenue growth, we unveiled a new go-to-market strategy, which was designed to maximize customer LTV to CAC. Our new go-to-market strategy is a holistic program focused on accelerating our new customer acquisition by targeting the right audiences, launching promotional pricing offers, improving funnel conversion and ensuring a high-quality conversion ratio from first transaction to repeat usage.
As you have now seen over the last year, our new customer acquisition is up meaningfully. We have returned our branded digital business to double-digit transaction growth rates and most importantly, we have achieved revenue growth for the first time in over a year with global branded digital revenue growing over 3% in the third quarter.
We've accomplished all of this on a CAC that has declined by over 20% year-to-date, largely led by efficiencies in our marketing program. Not only is our strategy driving more customers, transactions and now revenue but it is doing so more cost effectively with retention rates generally in line or better than our historic norms.
As we have started to lap the impact of our promotional pricing launch last year, we continue to see strong growth in new customers and transactions. This ongoing performance is being driven by a relentless focus on improving execution and experience at a country and even a corridor level. One example of this more granular focus has been our recent efforts to ensure our offers and our messaging resonate in high payout to account corridors. And as a result, our digitally initiated payout to account transactions grew 27% in the third quarter.
Moving now to our retail business, which is powered by our extensive agent network of over 400,000 active locations providing accessible financial services to those customers who prefer in-person transactions.
When we began our Evolve 2025 journey due to the sheer size and scale of our retail business, we knew that improvements in this business would be both more gradual and potentially lumpy. With the exit of Russia and Belarus, the looming loss of 2 large and important agents in Europe, and the ongoing operational and executional challenges in the third quarter of 2022, we shrank transactions in the global retail business by 8%.
Beginning with the launch of our Evolve 2025 strategy, we began investing in our retail point-of-sale system and platform in a more meaningful way than we had in many years with a focus on improving and simplifying agent and customer experiences. We launched a program to grow our footprint of controlled distribution through concept stores and owned locations and we realigned our sales and account teams to focus much more on agent and network productivity versus total agent count.
One year later, I am pleased to report that we have been able to achieve flat year-over-year retail transaction growth in Q3, excluding the benefits of Iraq, which continued the best sustained transaction growth improvement we've seen since 2018. Additionally, our largest region, North America, grew retail transactions 3%, excluding our U.S. domestic money transfer business and had its first quarter of positive transaction growth in over 6 years. As we drive more customers to our platform and continue to make enhancements to the customer and agent experience, we are also beginning to see improvements in our retail retention rates in large markets like the U.S.
However, given ongoing challenges in markets like Europe, our global year-to-date retention rate has been relatively flat to 2022. Additionally, I would like to highlight the progress we continue to make on our controlled distribution strategy, supporting our focus on network optimization. We began to roll this model out in Europe last year, primarily through concept stores where we partner with our agents to provide an exclusive Western Union branded experience. We are pleased to share that we opened our 100th concept store in Europe during the third quarter.
As of September, the average concept store opened more than 6 months was doing 8x the transactions of our broader retail footprint in Europe. While we do not expect these types of locations to be a large portion of our overall distribution. They highlight the power of our brand and help position us to better meet the expanding needs of our customer base.
Finally, we began testing a new retail go-to-market program earlier this year with an emphasis on reinvesting in retail marketing and aligning our value proposition to market levels in important corridors. We have been pleased with the results we have seen including an impressive turnaround in one of our more meaningful European markets. In this market, we expanded our controlled distribution. We increased our marketing presence and we implemented a much more dynamic pricing strategy that adjust pricing based on market insights multiple times a day.
Since its implementation, our transaction growth in this country has more than doubled. And after initial dip following its implementation, our revenue growth rate is now growing at an even higher level than it was before. Recent progress in our retail business validates our conviction that we can indeed stabilize this business on a global basis.
Now switching to our third pillar, ecosystem. The foundation of our accessible financial services strategy is to provide products and services that can meet the unique needs of our migrant customers, which will translate into a more account-based relationship and thus, ultimately higher retention.
Traditional financial services can often be intimidating to our customers and may require account minimums and/or impose deep fees. As a result, our research indicates that there is significant unmet need amongst our customers for fair, transparent and accessible transactional financial services and a need for broader access to credit.
To address these needs, we have relaunched our prepaid card in the U.S., developed and launched a digital wallet in Europe and South America and have piloted partner-based lending solutions in Australia and Argentina. Our wallet provides a foundational set of financial services, including a multicurrency bank account, P2P transfers as well as a Visa debit card, all integrated into our Western Union digital money transfer experience. Since last year, this service has been available in 4 countries in Europe.
And In the last quarter, we launched friends and family in Brazil, the largest economy in Latin America and an important digital market for us. This quarter, we also launched a wallet in Argentina under our Pago Facil brand in that country. In the coming quarters, we continue to prepare for a launch in the United States. We have now onboarded nearly 200,000 customers to our ecosystem and in the process have gained several insights.
Our traditional money transfer customers are more attractive than customers seeking a pure digital banking offering. Our best wallet customers are those that have migrated from either our traditional digital or retail offerings, including recently lapsed customers.
Onboarding and customer service matter more when enrolling someone in a more complicated product offering than in our traditional transactional-oriented money transfer services. As our product experience has improved, we have seen monthly transactions per active customer nearly doubled from 4.5 in January to 8.5 in September.
Our customers have a clear preference for physical debit cards over digital with a ratio of 5:1. We clearly see the need to rationalize our offering into 1 app instead of the 2 we currently have in the market in these 4 countries. We plan to begin this consolidation in the first half of next year.
While we are in the early days of this journey, I am pleased with the progress we are making, the learnings that we are developing and our ability to serve our customers in the future with a broader set of products and services. While we do not expect our ecosystem strategy to be a material contributor to revenue nor profits in the short run, we do think it can improve customer retention rates over time and position us to provide additional products and services to meet the needs of our nearly 120 million customers worldwide.
I'm also excited to announce that our U.S. prepaid debit card has now moved from friends and family to a commercial pilot and is available in a number of agent locations in the U.S. with plans to roll it out more broadly throughout 2024. The card will provide customers with a convenient and secure payment solution, allowing them to manage their finances with greater flexibility. By reintroducing a prepaid card solution, we aim to expand our product offerings and provide additional value to our customers.
The final pillar of our Evolve strategy, which we laid out a year ago was to improve the customer experience and drive ongoing operational excellence. We view this pillar as the force multiplier of the strategy. Over the last several quarters, we've talked about improvements in our process flow, such as Remember Me, Quick resend, One-Step Refund, all of which are aimed at removing pain points from the transaction process and creating a better customer and agent experience.
Recall last quarter, we said that 30% of all transactions completed on our Vigo brand in the month of June were initiated using our Quick Resend transaction process. This process allows an agent to complete a transaction in a fraction of the time than was historically required. I am pleased to report that the usage of this tool in North America has continued to accelerate with now 45% of all transactions in the quarter on our Vigo brand being initiated using Quick Resend technology and enabled Western Union branded agents to perform at an even higher level.
This technology has been rolled out to roughly 25% of our North American agent base and we look forward to continuing to expand it across our network globally. We are also excited about the rollout of our One-Step Refund, which is now available at 80% of our agents around the globe, and we hope to have this functionality ubiquitous across our global network over the next few quarters. This functionality allows us to solve an important customer pain point and simplify the refund process.
As part of our continuous improvement mindset, we've also created over a dozen other self-service tools to allow agents to do things like password resets, check the status of a transaction, check their transaction history. These improvements help reduce friction, calls and make for a better experience for our agents and customers alike.
Finally, I'd like to highlight a new partnership and some additions to our executive team. First, we are pleased to announce our exclusive partnership with Cencosud. Cencosud is the largest retailer in Chile and the third largest retailer across Latin America. This partnership will allow consumers to send money internationally from more than 250 of their establishments in Chile to more than 200 countries and territories where we operate.
Next, I would like to announce the addition of Ben Hawksworth, to our management team as our new Chief Technology Officer. Ben brings with him a wealth of experience, including more than 25 years of global technology leadership roles across multiple high-transaction fintech organizations. Ben was most recently the Chief Technology and Product Officer, with Progressive Leasing and prior to that, he was the Chief Information Officer at Fiserv's/First Data's merchant acquiring business.
I would also like to announce that Rodrigo Garcia, President of our Latin American business has now assumed the role of President of North America. Rodrigo has been with Western Union for nearly 20 years, having helped build our Latin American business over the past 2 decades. For the last several years, he has been successfully managing and growing our Latin American operations to now be the fastest-growing region of the company and we look forward to that leadership here in North America.
Looking ahead, we remain optimistic about our strategic direction and the positive progress we are making. We are pleased with the change in the trajectory of our business driven by improved transaction trends across both our retail and our digital businesses. We are excited about the launch of our new prepaid card solution in North America and the opportunity that, that presents as part of our expanding ecosystem offering. We remain committed to delivering value for our customers, our shareholders and other stakeholders while we adapt to this rapidly evolving market dynamics.
I would now also like to thank our 8,000-plus employees for their dedication and commitment to our customers and our partners. Their focused, passion and efforts every day have enabled us to make the progress discussed here and will enable us to continue to meet our Evolve 2025 goals.
Thank you for joining the call today, and I will now turn it over to Matt to discuss our financial results in more detail.

Matthew Cagwin

Thank you, Devin, and good afternoon, everyone. I look forward to sharing our financial performance over the past quarter and highlighting some of the key achievements. I will also outline our updated outlook for the remainder of the year.
Starting with a review of our financial results. In the third quarter, Western Union delivered revenue of $1.1 billion representing a 7% increase year-over-year on a constant currency basis. This is excluding contributions from Business Solutions. Results exceeded our expectations due to revenue increase from Iraq, a 300 basis point benefit from Argentinian inflation and improvements in our retail and branded digital businesses.
As Devin highlighted earlier, we achieved positive revenue growth in our branded digital business globally, a full quarter ahead of expectations.
During the third quarter, we continue to see elevated volumes in Iraq relative to historical levels due to a change in monetary policy, which began impacting our business in the first quarter of this year. In Q3, Iraq benefited adjusted revenue by 8 percentage points, with over half of this benefit coming in July. For the remainder of the year, we expect Iraq volumes to be significantly lower going forward as we recently saw levels come down closer to 2022 levels due to changes in the regulatory environment. I will discuss our forward-looking assumptions when we get to our financial outlook in a few moments.
We continue to make progress in our Evolve 2025 strategy, growing C2C transactions 5%. This is led by continued momentum in our branded digital business, which grew transactions 12% in the quarter and flat retail transactions, excluding Iraq, which had been in decline since 2019.
Adjusted operating margins was 19.6% compared to 20.6% last year. The decrease is due to higher variable costs and technology spend associated with our Evolve 2025 strategy, partially offset by lower SG&A expenses associated with the actions related to our operating expense redeployment program.
As you may remember, last October, we launched a 5-year $150 million operating expense redeployment program. Since launching, we have taken actions that will allow us to free up more than $50 million in 2023, with over $40 million of total savings already benefiting this year. So far in 2023, our ability to save has continued to outpace our ability to invest, benefiting adjusted operating margin.
Adjusted EPS was $0.43 versus $0.42 last year with the current period benefiting from higher revenue, a lower share count partially offset by higher adjusted effect taxes.
Now turning to our C2C business. Revenue grew 3% on a constant currency basis, led by Iraq, with transaction growth of 5%. All regions drove sequential transaction improvement except for APAC.
For our branded digital business, revenue was up 3% on a constant currency basis on transaction growth of 12%. This was driven by our go-to-market strategy launched last year. This was the first quarter in over a year of positive revenue growth in our branded digital business.
Now moving to the regional results. In the third quarter, North American adjusted revenue decreased 3%, which is a 500 basis point improvement relative to the first half of 2023. This is driven by North American branded digital business, which grew 4% on a constant currency basis, reaching our goal of positive revenue growth in the third quarter. Transactions accelerated and grew 7%, led by our branded digital business and improving transaction trends in our retail business, which had a positive transaction growth for the first time since 2017.
The North American region has begun to turn a corner and is benefiting from our Evolve 2025 strategy and the continuous operational improvements to our customer and agent experience that we have made over the last several quarters and have discussed in the last few earnings calls.
Revenue in Europe and CIS was down 10% on a constant currency basis, while transactions were flat with a sequential improvement in key markets, including Spain, the United Kingdom and Germany. As we've discussed previously, the region has faced tough macro backdrop.
Revenue in the Middle East, Africa and South Asia grew 42% on constant currency revenue on transaction growth of 9% due to monetary policy change in Iraq previously discussed, which had a higher principal per transaction driving this revenue growth.
The Latin American and Caribbean region grew constant currency revenue 8% in the quarter on transaction growth of 9%. This solid performance in the quarter was led by Argentina, Ecuador and Venezuela.
And finally, revenue in APAC was down 7% on a constant currency basis with flat transactions.
Now moving to our other revenue, which consists primarily of retail bill payment in Argentina, in the United States and retail money order in the United States. Other represents 7% of the total company revenue and grew 22% year-over-year on a reported basis, benefiting from higher interest rates in our retail money order business as well as solid transaction growth in our bill payment business. As a reminder, Q3 was an easy comparison as we optimize our investment portfolio in the third quarter of last year.
Now turning to our cash flow and balance sheet. Year-to-date, we have generated $519 million of operating cash flow, which included a transition tax payment of $119 million paid during the second quarter. As a reminder, these tax payments continue to step up over the next 2 years and will end after 2025.
Capital expenditures were $27 million in the quarter and $117 million on a year-to-date basis. As mentioned previously, we expect lower agent signing bonuses going forward. But in the first quarter this year, we had a large signing bonus that was committed to prior to this change in strategy.
We continue to maintain a strong balance sheet with cash flow and cash flow equivalents of $1.1 billion and debt of $2.3 billion. Our leverage ratios were 2.2x and 1.1x on a gross and net basis, which we believe provides us great flexibility for potential M&A, while maintaining our investment grade credit rating. Year-to-date, we have returned $363 million to our shareholders. This includes $100 million of shares repurchased during the third quarter.
Now moving on to our outlook. Today, we improved our 2023 adjusted revenue and EPS outlook. As mentioned earlier, we expect volumes from Iraq to be significantly lower going forward, much closer to the 2022 levels. This is primarily due to a changing regulatory and policy environment in the country as regulators continue to address currency and sanction-related challenges in the banking system as well as other potential changes and our own internal policies or practices in that region.
Our outlook also assumes no material macroeconomic condition changes. We now expect adjusted revenue, excluding Argentinian inflation to be in the range of flat to positive 1%. And as a reminder, Argentinian inflation has benefited year-to-date results by 300 basis points. We continue to expect full year adjusted margin to be in the range of 19% and 21%. And lastly, adjusted EPS is now expected to be in the range of $1.68 to $1.75.
To wrap up, a year after unvailing our Evolve 2025 strategy, I'm pleased with the progress we've made so far. Our branded digital business has returned to positive revenue growth 1 quarter ahead of our expectations and our retail business has seen significant improvement in transaction trends relative to the last several years. We look forward to sharing an update over the next upcoming quarters as well as providing our 2024 outlook during the call in February.
Thank you for joining the call. Operator, we're ready to take questions.

Question and Answer Session

Operator

(Operator Instructions)
Our first question comes to us from Tien-Tsin Huang from JPMorgan.

Tien-Tsin Huang

Really encouraging results. I thought Devin, maybe I had to ask with success here in both the retail stabilization and the digital branded growth coming at a quarter early. Does it change your thinking on investment timing or the intensity that you maybe attack both of those between retail and digital. And just curious if your strategy has changed at all.

Devin B. McGranahan

Tien-Tsin, great to have you on the call. Thank you for the positive comments. We have benefited over the course of, call it, the last 7 months from the increased and unexpected growth in Iraq. So we have had the opportunity to invest in our program. And that is, as you can see, driving the results. It is that relationship between being able to invest in our program and drive our results that we're going to continue through next year in terms of getting us to that sustainable positive revenue growth that is the bedrock of our Evolve 2025 strategy. So I'd expect us to continue to use a very balanced and return-oriented view on investing with the goal of driving to positive revenue growth.

Tien-Tsin Huang

Understood. Understood. So just maybe for Matt, thinking about the fourth quarter here in the implications, any changes? I know it's excluding Argentina, it sounds like no real impact from Iraq. Any other considerations? It sounds like you're still calling for macro stability. I don't know if there's anything we should assume with Israel or anything -- any other call out?

Matthew Cagwin

Thanks for the question. The conflicts going on in Israel is not overly material to our business. So you should not think about that as having a major impact on our financial results. Beyond that, in Q4, we are balancing our overall financial results and the upside we've gotten throughout the year from Iraq and making additional investments in our Evolve strategy, things along the lines of technology investments, point-of-sale solutions. Devin talked about the One App solution, our ecosystem. We're also looking to accelerate and do some additional testing on the marketing side. So all that fits into the guidance I gave a couple of minutes ago, but helps explain why the guidance is what it is.

Devin B. McGranahan

Tien-Tsin, I'll just add because it's obviously been discussed a lot, and it was in the prepared comments. We've been pleasantly surprised by the resiliency of our customer base pretty much across the globe. We've seen stability across all regions in our PPT. And as you can tell from the results, we see strong growing quarter-over-quarter improvements in our transaction trends. I think our customers are largely and most susceptible to employment levels. And so as employment levels, particularly for the lower paid employees have continued strong in most regions of the world that's creating the stability that might lack in other payment-oriented businesses.

Tien-Tsin Huang

Yes. No, great that the employment there is quite strong. So showing through the results.

Operator

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

Jason Alan Kupferberg

So just on the raise in the revenue growth guidance -- the adjusted revenue growth guidance, I guess we went up by 0.5 point at the midpoint here. Is that purely just because of the Iraq tailwinds lasting longer than expected or anything else we should be noting there?

Matthew Cagwin

Yes, Jason, this is Matt. The way we think about our results is Iraq has obviously provided an uplift in revenue throughout the year. We flagged that impact. That has also given us a lot more flexibility in what Devin talked about earlier about our retail go-to-market strategy. We feel like we're largely on track for -- at the midpoint of our original guidance when you net all those decision points moving elements, if not (inaudible).

Jason Alan Kupferberg

Okay. Okay. That's helpful. And then just as a follow-up, if I'm thinking about both the adjusted branded digital revenue growth, the acceleration there as well as the retail transaction growth improving. Just on both those fronts, what are you expecting in Q4? Should we see some further improvement relative to Q3 in terms of the year-over-year growth? And then just any comments on rough trajectory as we head into '24 because obviously, you've got both those going in the right direction now.

Devin B. McGranahan

And so I think there's a couple of things to think about there, Jason, remember, and you have to take into account the way we launched the digital -- the new digital go-to-market as we started with a few corridors in North America in the August, September time frame, we expanded that to 50 corridors, which we then gained confidence and towards the back end of 2022, we began expanding into European markets like the U.K., Germany, France. We then continued that rollout over the course of the first 2 quarters, culminating with APAC and our big markets like Australia.
So the revenue growth as we begin to work through the lapping of each incremental won't necessarily be linear. And in some cases, it will be a little bit of lumpiness depending on the size of the market in which we launched the program and where it will be. I think over time, you should look towards what we're trying to get to, which is sustainable, double-digit transaction and revenue growth, but the path between here and there is not likely to be linear.
The work that we began in retail at the beginning of this year is really now starting to take hold on a transaction basis. But as you can see, we're not going to get the same double-digit transaction growth rates that we've gotten in digital in retail. We'll be much happier with low single-digit transaction growth rates. So it just takes longer than to narrow that gap between transactions and revenues when transactions are only growing low single digits. Hopefully, that helps.

Operator

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

William Alfred Nance

I guess I just wanted to ask a question on the moving pieces in the guidance as well, kind of piggyback on some of the prior questions. I mean if I put together a handful of the comments, I mean, expense performance this quarter are materially better than expected. I've seen a lot of upside from sort of external factors like Iraq over the course of the year. The -- you guys came in a little bit ahead of your objectives in the digital business.
And I think the comment was made that the ability to kind of save is outpacing the ability to spend. And so I guess all of those comments seem very constructive, and yet it does seem like the guidance for the fourth quarter is a little bit below where Street was expecting and there wasn't as much maybe a flow-through of the outperformance this quarter. So just is that FX? Is that the incremental expenses? Maybe just a little color on why we're not seeing some of that strength come through in the numbers? And just any color you provide on the fourth quarter.

Matthew Cagwin

Will, thanks for the question. FX, not a material impact to us. We do think it will be a drag based on today's rates of about $0.01, but not a major driver for us. Really, what you're probably doing the calculus on is we're looking to make some incremental investments. I'm hopeful Devin -- I'm the saver and Devin is a spender, and he's promised me that he'll catch up and the investments in our Evolve strategy, both on the point-of-sale solution, the One app solution, they talk about in the ecosystem. We're doing additional marketing, things of that nature. So a little bit similar to last year as we work our way throughout the year. We started saving well in advance of the actual spend.

Devin B. McGranahan

Will, I think it also goes to a general philosophy that we've been working towards, where we have a tendency to want to start the year relatively conservative, make sure that we're going to be able to deliver on our commitments as we get towards the back half of the year and have confidence in the macro and in the performance of the business continue to make the investments in our strategy. And so again, you saw that last year, you're seeing some of that this year.

Operator

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

Andrew Garth Schmidt

I want to dig in on the digital side for a second. Maybe you can talk about what you're seeing in just new user acquisition trends? And then I think that's a gross new user number you usually call out. Maybe you could just talk about whether the user base is growing on a net basis? And if not, what's the right expectation around that.

Devin B. McGranahan

Thanks for the question. A couple of things to unpack there. As you know, when we launched our strategy back in August, September, our goal was to drive double-digit new customer growth, which would then drive double-digit transaction growth eventually bringing us back to double-digit revenue growth. Since we've launched that, we have continued to see double-digit new customer growth in cross-border, and we continue to have that drive our sustained transaction growth. I was quite pleased in the quarter as we've begun to really lap the most important market, which is North America, you've seen that transaction growth and customer growth continue in the double digits.
Our ongoing program, which is to continue to drive that through improved marketing, through improved effectiveness is sustainable and ongoing. So we expect and continue to see users growing, new customers growing, transactions growing, and that's what's powering our revenue.

Operator

Our next question comes to us from Tim Chiodo from UBS.

I want to go to (inaudible) that was made during the prepared remarks, it was a standout around the North America retail business with the -- I believe it was revenue up 3% and the transaction is positive for the first time in a big number, which was 6 years. So I was hoping you could do a little bit of a broader kind of refresh us on the North American retail market in terms of the number of agents and how that might compare to 2, 3 years ago, the mix of exclusive versus not, how that might compare to a few years ago. Any other key broader stats about that North American retail business, which just had its best quarter in 6 years.

Devin B. McGranahan

Yes, it's a great question. Thank you. The interesting thing is the nature of the, what I'll call, the structural elements is largely consistent with what it's been in past years in terms of the number of agents, the number of locations the mix of those locations between our independent brands, Vigo and OV as well as our more exclusive brand, Western Union. Very little of that has changed, if any, or at all. The underlying driver of the productivity really has been around our go-to-market, improving our agent experiences, winning a bigger share within those non-exclusive agents and making our exclusive agents more productive.
Investing in the right retail marketing messages to bring customers back into Western Union locations where in the past, they might have left. The last is we're getting very tactical at a corridor level in terms of improving the product experiences. So doing things like home delivery in the Dominican Republic, making sure that we have the right payout partners in the right exchange rates to Mexico. So the tactical execution of aligning the product and service delivery in a geography with an agent or a corridor is what really has been driving that performance.

I appreciate that context. The minor follow-up. I apologize if this was captured earlier and I missed it, but the overall total company revenue growth of flat to up 1%, which was ex-Argentina, did you mention what the aggregate kind of across the first 3 quarters impact from Iraq was? In other words, what would that 0-1, 0 to 1 be if it didn't have that benefit from Iraq in the first 3 quarters of the year?

Matthew Cagwin

We didn't give that number, but we have given each quarter the impact by quarter for the impact in revenue. But what I did say to a question a few minutes ago, is we've used the upside that we've gotten from Iraq is the opportunity to go and accelerate our go-to-market strategy in retail. So the way we've been looking at it is what is Iraq, net of retail investments on the pricing side as well as we've done that much stuff that Devin has talked about with accelerating the point-of-sale solutions, whether it be Remember Me, Quick Resend Refund and so forth. That number is largely on track for the midpoint of our range we gave out at Investor Day, which was down 2% to 4%. So I view that as somewhere circuit around net 3% down.

Operator

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

Ramsey Clark El-Assal

I wanted to ask about Iraq as well. Is the contribution from Iraq? Has it flowed in through mostly to retail locations? Or is it also benefiting digital revenues? I'm just trying to get a better idea about how it's benefited those 2 sides of your business?

Matthew Cagwin

Yes, it's 100% retail.

Ramsey Clark El-Assal

100% retail. Okay. That's what I thought. And then Devin, I had a question for you about -- you announced some kind of key new executive hires this quarter. Can you give us an update on the organization sort of evolution of the team? Do you have what you need at this point? Are there still gaps you're looking to fill? How is that all evolving?

Devin B. McGranahan

Thanks for the question. The -- as I indicated in my prepared remarks, I'm actually quite pleased with how the team has come together. And now with Rodrigo taking the helm in North America, and Ben taking our Chief Technology Officer role, I have filled out the entire executive suite. So this would be the first time in my 18-plus months where we have what I would consider a complete and full executive suite.
As you know, it's a great mix of people who have been in the business like Giovanni, who's running Europe and Africa and JC, who's running the Middle East and APAC. And Rodrigo now in North America with new folks like Karen, who I announced last time as our new Chief People Officer; and Ben this time, as our new Chief Technology Officer. So I feel quite good about the team. It's coming together really well. And I would now say we have a full team in the field.

Operator

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

Bryan Connell Keane

My question is for Matt, just a clarification. If I do the math, the implied revenue growth in the fourth quarter, at least on the high end, it's something like a negative 5% growth, is that right? Because I guess I would have thought the number would be a little bit better given the turn in digital and the positive trajectory you've seen in the retail business, but there's a lot of moving parts. So maybe you could just help us through it.

Matthew Cagwin

Yes, Bryan, there are a lot of moving parts between Q3 and Q4, Q3 has been -- had a benefit of the portfolio rebalance and I talked about in my prepared remarks that helped us by about 100 basis points in the quarter that will not repeat itself next quarter. So the comps get harder for our other category in Q4 relative to Q3 and earlier part of the year. We've also highlighted earlier in the year that we had the 2 lost agents. We start to lapse the first of those 2, but the other one, the impact will become more severe in Q4.
And then as well as the new go-to-market strategy for retail will have a little bit of pricing pressure in Q4 that will continue in is the -- what Devin talked about a minute ago, transactions and revenue starting to converge over time, that will take longer for retail, and that's having an impact. So by us accelerating that strategy, it has made a little more pressure on Q4.

Bryan Connell Keane

Got it. And then I guess my other question is, strategically, Devin, you've had success with the digital program. Have you thought about leveraging pricing more in digital, do you even grow transactions faster or maybe even more aggressive in retail to get the transaction growth going more positive?

Devin B. McGranahan

It's a great question. And as we stated when we were on the stage a year ago, we were going to execute this transformation while maintaining our commitment to our shareholders, supporting our dividend and maintaining our industry-leading 19% to 21% operating margin.
So we are working within the balance of that, and I'm quite pleased with our ability to invest in any given period with the results that we're being able to deliver now, what you're seeing both in transactions and revenue. So it's that equation that we balance every day, every week, every month, every quarter, and we'll continue balancing it going forward.

Operator

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

James Eugene Faucette

I'm wondering in terms of your planning assumptions would be headed to 2024, a couple of things that obviously employment has been quite strong in most regions of the world, as you highlighted. Are you feeling like it's appropriate to build in any conservatism into your planning for next year right now and -- or should we expect that for the time being, at least, it makes sense to better streamline and assume stability on a go-forward basis. And I'm asking the question because I want to follow up with a question around how you're thinking about investment and expansion of the projects that are underway.

Matthew Cagwin

James, as we've thought about 2024 will come out in February and give more precise guidance. But sitting here today, we feel pretty strong about our customer base. They've been resilient, as Devin's talked about. Most important factor really is unemployment rates. There's also important about migration patterns, which we're watching, which have been very strong for us as well. So we feel good about where we are, but things can change every day, and we monitor on a daily basis.

Devin B. McGranahan

And I think Matt's comments on the second part, where we monitor both employment levels, but also migration and after COVID induced a relatively low level of cross-border migration. Since 2021, we've seen that rebounding. And we see it whether it's in markets that have historically been more closed like Japan, 2 places in Europe, like Italy and Spain, where you see, again, inbound migration driving the lower end of the employment spectrum as economic opportunities continue for our customers. So we remain with the viewpoint that stability, at least as far as we can see into the future is the right planning assumption.

James Eugene Faucette

Yes, that makes a lot of sense. And then to follow up, Matt, you mentioned that you and Devin, kind of balance each other out as you're making the new investment decisions. How are you thinking about -- what makes sense and what kind of hurdle rates or other metrics you can share about how you think about pushing through potential upside to incremental investments versus, a, maybe it's better if we kind of push it to the bottom line or at least be a little more patient even when we're seeing that. Just trying to get a sense of your current thought processes around investment opportunities.

Matthew Cagwin

Yes. So it's unfortunately not a simple answer because we are always monitoring and balancing our public commitments we've made, which is the point Devin think a few moments ago. But in periods like we are right now going into Q4, we're focused on maintaining our LTV to CAC and driving marketing spend where it's very -- going to provide a really good return. As we've talked about on the call today, we've brought down our CAC by about 20%. So we feel really good about the progress we've made there and feel good about spending some more money in that space and driving customer acquisition for going into 2024.
On the technology side, we're always balancing the low double-digit return on investment. It's hard to measure some of these things and you're driving agent experience or customer experience when it's one little output, but we're talking to our customers, understand what's important, talking to our agents and driving technology improvements that can make their lives and experience with us better.

Devin B. McGranahan

And while I'm the idea guy and Matt's the money guy, there is a pretty strong and robust process within the company as evidenced by the fact that we've managed the investment envelope within our public commitments in our 19% to 21% operating. So given there are more opportunities and ideas, running around this place, given the strength of our footprint, our brand, what we view as the market opportunity. Those that get funded are the ones that have the ability to rise to the top of that heap on a revenue and return commitment projection. So there is internal competition given the constraints we're living in that I've highlighted that we aren't about to relax for making sure the things that we are funding are -- have the highest potential, both for future revenue and return.

Operator

Our final question comes to us from Cris Kennedy from William Blair.

Cristopher David Kennedy

Great. I just wanted to follow up on retail retention rate for your retail customers. I think you said it was flat with 2022 levels. I think your goal was like 200 basis points of improvement per year. Can you just talk about the road map to that 200 basis point improvement goal?

Devin B. McGranahan

Thanks for the question. As I indicated, we are seeing a tale of 2 worlds, 3 of our 5 major regions are seeing improvements in retail retention and 2 of our major regions are headed in the wrong direction. Now some of that's an impact as Matt has talked about the loss of a couple of large important agents and then some macro factors in the other region. The things that we're working on and we'll continue to work on our improved transactional experiences for returning customers in both our retail and our digital environment.
We will be launching a new loyalty program, hopefully in the first quarter of 2024 which we also think will help. The last thing that we've done is to improve our ongoing communications and marketing efforts to customers on an ongoing basis and monitoring traditional transaction patterns which we call the heartbeat. And when someone falls off of their traditional transaction pattern, reaching out to them with either a marketing message or an offer to bring them back.
So we are working hard to drive retention across the entire franchise, obviously, with a particular focus on retail, given our goal of achieving stability. As you can see in the performance of North America, when we are able to get improvements in retention that significantly helps drive the overall transaction. And as we highlighted, North America retail is now performing at a level that we would be happy with on an ongoing basis.

Matthew Cagwin

Cris, the only thing I'd add to Devin's point, is the metrics we gave at our Investor Day a year ago, those were all target aspirations over the 3-year horizon. It was not meant to be viewed as a commitment going into 2023 or 2024. We wanted to have a true north to galvanize our employees as well as our shareholders know we're trying to target. The first one we got to was the double-digit new customers in digital. We had talked about in our Investor Day, most of the other ones were a little harder and took effort to get there. So we're still working hard as Devin just talk about it to get them.

Operator

Thank you for joining the Western Union Third Quarter 2023 Results Conference Call. We hope you have a great day.