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The Western Union Company (WU -0.38%)
Q4 2018 Earnings Conference Call
Feb. 07, 2019, 4:30 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
See all our earnings call transcripts.
Prepared Remarks:
Operator
Good afternoon and welcome to the Western Union Fourth Quarter 2018 Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference over to Mike Salop, Senior Vice President of Investor Relations. Please go ahead, sir.
Mike Salop -- Senior Vice President of Investor Relations
Thank you, Laura. On today's call we will discuss the Company's 2018 fourth quarter results and the 2019 financial outlook, and then we'll 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.
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 2017 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 reconcile those items to the most comparable GAAP measures on our website, westernunion.com, under the Investor Relations section. All statements made by Western Union officers on this call are the property of the Western Union Company and subject to copyright protection. Other than the replay noted in our press release, Western Union has not authorized and disclaims responsibility for any recording, replay or distribution of any transcription of this call. I would now like to turn the call over to Hikmet Ersek.
Hikmet Ersek -- President, Chief Executive Officer & Director
Thank you, Mike, and good afternoon, everyone. Overall, our business continues to produce stable results as our customers remained resilient despite slowing global economic growth in parts of the world. This will remain strong with westernunion.com transaction accelerating to 25% growth in the quarter, which translated into 22% constant currency revenue increase.
In addition to ongoing strength in our U.S. outbound digital business, we are also making great progress in increasing westernunion.com penetration and growth in key European markets, including France, the UK and Germany. For our entire money transfer business revenues increased 1% in constant currency. Transactions however increased 4% in the fourth quarter and cross-border principal volume grew 8% in constant currency terms. So underlined metrics are summed (ph).
Business Solutions showed improvement, with revenue's increase in 5% constant currency, led by strong growth in Europe. We again delivered good performance in the payments area of B2B, including the education vertical. This quarter, however, we also had good growth in foreign exchange services aided by customer hedging related to increased foreign exchange volatility. The bill payments businesses positive mix results with Argentina results in U.S. dollar terms, continuing to be heavily impacted by negative currency translation.
From a profit perspective, margins were solid at 19.2% for the quarter and 20.1% for the year as effective cost management and our WU Way lean programs contributed to stability. Operating cash flow for the U.S. came in as projected, as we generated over $800 million and we returned over $740 million to shareholders in 2018 through dividends and share repurchases.
We are also very pleased to announce today a 5% increase in our quarterly dividend, raising it to $0.20 per share or $0.80 on an annualized basis. As we begin 2019, we remain focused on driving digital expansion and growth, offering our cross-border platform to new payment areas and generating additional operating efficiencies.
We made good progress on this initiative in 2018. I mentioned the strong results we experienced with westernunion.com which exceeded $0.5 billion in revenue last year. Our digital expansion efforts to drive future growth also continued to ramp up as we launched approximately 20 new westernunion.com or mobile app markets over the last year, particularly in Asia, Latin America and the Middle East. Consumer can now access our online or mobile services to initiate transactions in more than 60 countries plus many territories and our digital penetration covers markets that represents approximately 75% of global remittance market principal. We believe this will give us additional future revenue growth opportunities for our digital business.
In addition, we embedded digital money transfer services, into more third party platforms such as Safaricom in Kenya, and added large principal transfer products for our westernunion.com services in the UK.
We also continue to expand our bank account payout services, as you now have the capabilities to send to nearly 100 countries, and territories reaching billions of accounts and we are seeing strong growth in account payout transactions. The combination of our extensive retail footprint, and our growing digital presence and account payout network creates a very strong proposition for consumers, providing them the ability to send and receive in whichever method and currency they prefer around the world.
Looking at our progress, with new cross-border payment opportunities. In October, we announced our collaboration with Amazon, in which we utilize our global platform to process international e-commerce payments. Under this agreement, Amazon customers in various markets will have a new way to pay in person, at our retail agent locations. Over the last few months, we have launched pilots for this service in 10 markets, mainly in Asia and South America. Coverage in this market is now being increased and we are working with Amazon on the expansion roadmap for additional countries in the future.
Turning to our operational efficiency accomplishments, the WU Way continue to help us run the Company better. We implemented more than 40 lean deployments last year, trained more than 6,000 employees on lean processes, and achieved approximately $70 million in run rate savings from WU Way driven efficiency programs. These savings help fund investment in growth initiative technology and core proficiency such as GDPR.
In 2019, we will continue to push forward these strategies. On a macro level, there is uncertainty on economic growth in many parts of the world, as well as foreign exchange headwind and geopolitical concerns. But, we expect stable financial performance in 2019.
Our business is very diverse with 20,000 corridors and no one -- no -- one country outside the U.S. represent more than 7% of our revenues. Historically, our customers have been resilient. Even in challenging economic times, our transaction and principal trends were how to exit -- exiting 2018 and we expect that to continue. We believe the pricing environment will remain stable and do not expect major pricing changes in 2019.
Overall, our 2019 outlook calls for (ph) low-single digit constant currency revenue growth, and operating margin of approximately 20%, and continuing strong cash flow generation and return of funds to shareholders. But we'll give you more information on the 2019 outlook in a few minutes.
And right now, I would like to turn the call over to him to provide more details on the fourth quarter results.
Raj Agrawal -- Executive Vice President, Chief Financial Officer
Thank you, Hikmet. As I review 2018 financial results, I will focus primarily on the fourth quarter. The similar information for the full year can be found in our press release and the attached financial schedules.
Fourth quarter revenues of $1.4 billion, declined 3% or increased 2% on a constant currency basis, compared to the prior year period. Currency translation, net of the impact from hedges, reduced fourth quarter revenues by approximately $69 million compared to the prior year, primarily due to continued declines in the Argentine peso.
The decline in the peso negatively impacted total revenue by 4 percentage points, while the effects of inflation on our Argentina businesses is estimated to have positively impacted both reported and constant currency revenue by approximately 2 percentage points. And the Consumer-to-Consumer segment, which represented 80% of Company revenues in the quarter, revenue declined 1% or increased 1% constant currency, while transactions grew 4%.
Total C2C cross-border principal increased 5% or 8% on a constant currency basis, while principal per transaction was flat or increased 3% constant currency. The spread between C2C transaction and revenue growth in the quarter was 5% with a negative 2% impact from currency. Mix had a negative impact of approximately 2 percentage points in the quarter, while pricing had a negative impact of 1% compared to the prior year period.
The 1% pricing impact, primarily reflects actions taken in the Middle East earlier in the year. Excluding the Middle East, the net pricing change for the rest of the world was positive, both for the quarter and the full year.
Turning to the regional results. North America revenue was flat on both a reported and constant currency basis, while transactions grew 2%. The U.S. to Mexico corridor delivered strong revenue growth in the quarter, but this was offset by continued declines in the U.S. domestic money transfer business. In the Europe and CIS region, revenue increased 1%, or 2% on a constant currency basis, led by France and Spain while transactions in the region increased 8%.
Revenue in the Middle East, Africa, and South Asia region declined 7% on a reported basis or 6% constant currency, while transaction growth improved to 3%, as the previously avoided (ph) price reductions are delivering good results and driving volume.
Latin America and Caribbean region continue to deliver strong consequently revenue growth driven by Argentina, Ecuador, Peru, and Brazil. Revenue in the region was flat in the quarter or increased 16% constant currency, while transactions grew 11%. In the APAC region, revenue declined 9% or 8% constant currency, and transactions were down 4%; with Australia, China, and New Zealand, contributing to the decline.
Westernunion.com continue to deliver strong growth, as revenue grew 21% or 22% constant currency on transaction growth of 25%. Westernunion.com represented 12% of total C2C revenue in the quarter and for the full year. Business Solutions revenues increased 3% or 5% on a constant currency basis, and represented 7% of Company revenues in the quarter.
Other revenues, which consist primarily of our bill payments businesses, decreased 11% in the quarter or increased 10% on a constant currency basis, and represented 13% of total Company revenues. Pago Facil walk in business in Argentina, continued to grow transactions and local currency revenue aided by inflation. But, declined in U.S. dollar terms, while our Speedpay U.S. electronic bill payments revenue also declined in the quarter. The depreciation of the Argentine peso negatively impacted other reported revenue by 21 percentage points in the quarter, while Argentina inflation is estimated to have positively impacted other reported and constant currency revenues by approximately 11 percentage points.
Turning to the margins and profitability, our consolidated GAAP results reflect some significant special items, primarily in the prior year. So, I am providing the adjusted metric comparisons to better reflect the fundamentals of the business. The adjusted metrics in the current quarter exclude the impact of tax expense related to changes for the accounting of the U.S. Tax Act. I refer you to our press release tables for a detailed listing of the adjustment item amounts for the prior year quarter and full year.
The consolidated operating margin in the fourth quarter was 19.3%, up from 18% in the prior year on an adjusted basis. The adjusted operating margin expansion was driven by lower bad debt, marketing, and incentive compensation expenses, which were partially offset by higher, other corporate expenses and technology spending. Foreign exchange hedges provided a benefit of $4 million in the current quarter compared to a negative impact of $7 million in the prior year period. We achieved approximately $10 million of incremental savings from WU Way initiatives in the fourth quarter, which gave us approximately $45 million of incremental savings for the full year. On an absolute basis, we achieved approximately $70 million of savings from WU Way for the year.
EBITDA margin was 24.2% in the quarter, which compared to 22.5% in the prior year period, on an adjusted basis. The GAAP effective tax rate was 9.8% in the fourth quarter. On an adjusted basis, the tax rate was 6.3% compared to 14.3%, in the prior year period. The decrease in the adjusted tax rate was primarily due to discrete items in the current year period. As we previously stated, certain of the impacts related to the Tax Act enacted in December of 2017, we provisionally estimated and additional effects we recorded during each quarter in 2018.
In the fourth quarter, changes in our estimates related to the Tax Act resulted in an $8 million tax expense. The accounting for the Tax Act was completed during the fourth quarter. So, there will not be any additional adjustments going forward. Adjusted earnings per share in the quarter was $0.49, which compared to $0.41 in the prior year period. The increase in adjusted earnings per share was primarily due to the increased operating profit margin, a lower effective tax rate and fewer shares outstanding, partially offset by lower reported revenues.
The C2C margin was 23.3%, which compared to 21.5% in the prior year period. The margin increase was driven by lower bad debt, marketing and incentive compensation expenses, which were partially offset by higher technology spending. Business solutions operating margin was 5.4% in the quarter compared to negative 3.2% in the prior year period. The increase in operating margin was primarily due to high technology and other operating expenses in the fourth quarter of last year. Business Solutions EBITDA margin was 16.2%, which compared to 8.1% in the prior year period. Operating margin for the businesses included in other was 1.8% in the quarter which compared to 7.9% in the prior year period. The year-over-year margin decline was primarily due to lower revenue and higher corporate expenses as certain corporate expenses including spending for M&A and other strategic action -- activities are recorded within other.
Turning to our cash flow and balance sheet. Cash flow from operating activities was $821 million for the full year, which includes the negative impact of approximately $200 million related to payments from special items. Capital expenditures in the quarter were approximately $91 million, at the end of the quarter, we had cash of $973 million and debt of $3.4 billion. We returned $133 million to shareholders in the quarter, including $84 million in dividends and $49 million of share repurchases, which represented approximately 3 million shares. The outstanding share count at quarter end was 441 million shares and we had $544 million remaining under our share repurchase authorization, which expires in December of this year.
Turning to our outlook. We expect stable financial performance in 2019 despite a slowing global economic environment. Similar to 2018, we expect a low single digit constant currency revenue increase, excluding any benefit related to Argentina inflation. Due to the strength of the dollar against the Argentine peso and major European currencies, we expect reported revenue growth to be in a range of a low single digit decrease to a low single digit increase.
Operating profit margin is expected to be approximately 20%, as we continue to focus on cost efficiencies and lean management implementations to offset investments and some negative impact from foreign exchange. We expect an effective tax rate of approximately 17% to 18% in 2019, including negative incremental impact from the U.S. Tax Act BEAT provision. We have identified and are in the process of implementing structural actions to mitigate the adverse impact of BEAT for the future.
The 2019 rate outlook includes partial benefits from our mitigation efforts as they rolled out during the year. We currently expect the effective tax rate in 2020 to be lower in the mid-teens level, reflecting the full effect of mitigation. Due to the increase in tax rate this year, our 2019 outlook anticipates full year earnings per share to be in a range of $1.83 to $1.95, while cash flow from operating activities is expected to be approximately $1 billion.
As we have mentioned previously, we are currently considering various strategic alternatives for certain of our business units, but do not have anything to announce at this time, and there is no assurance any transaction will occur. If we were to complete a divestiture during the year, our outlook would need to be adjusted to reflect the related revenues and profits that would be removed as well as the impact of any use of proceeds.
So, to summarize, we delivered our full year adjusted financial outlook in 2018 and made good progress on key strategic initiatives. We continue to generate solid cash flow and return significant capital to shareholders through dividends and repurchases. In 2019, we expect stable business, solid margins and continued strong allocation to shareholders.
Operator, we're now ready to take questions.
Questions and Answers:
Operator
We will now begin the question-and-answer session. (Operator Instructions) And our first question will come from Tien-Tsin Huang of JPMorgan.
Tien-Tsin Huang -- JPMorgan -- Analyst
Hi, good afternoon. Thanks for all the details. So just on -- I'll start on the dot-com business, you mentioned acceleration, you mentioned new countries. I'm curious if you have an outlook for 2019 and what is it driven by, is it again more country expansion or are you just getting more penetration within your existing countries? Thanks.
Hikmet Ersek -- President, Chief Executive Officer & Director
Hi, Tien-tsin, good afternoon. I think both, we will continue to do that because our U.S. outcome digital business is very strong, and these are done by our (inaudible) existing customers, but these are -- been here for a longer time. And as you know, we are also in the European Union countries longer time with out westernunion.com transaction. So that's going to continue. But we are also very excited finding new customer segments in our new countries. And once you launch a country, it takes the time with the marketing activities and European (ph) customers, but the growth rates are very promising, UK (ph) in Q4 also with a 25% transaction growth, which is also very encouraging and we are just starting in Middle East and Asia with our expansion. I think, that's really encouraging numbers. So that gives us additional channels and still these customers are new to us, additional customers doesn't cannibalize our existing business.
Tien-Tsin Huang -- JPMorgan -- Analyst
Okay. And just my follow up quickly, just I wanted to ask on WU Way, I heard the $70 million in savings, but how -- where are you now in terms of potentially seeing better revenue production from WU Way? Where the investments going? Maybe just a quick update there?
Hikmet Ersek -- President, Chief Executive Officer & Director
Yes, I think we are still very excited about the WU Way initiatives. I think there's still room from efficiency side, also from growth opportunities, how we implement that. Our focus is definitely on digital growth and we do -- when we launch in a new country, we do launch it with WU Way initiatives. The Amazon pay -- for our platform to Amazon, the collaboration with Amazon was done all by a WU Way, and that has been launched in 10 countries now, and we are just starting to promote that in the 10 countries. And there -- from the efficiency side, I still believe there is some room and we gave our guidance about 20% margin for 2019, and while we do this efficiency program, we do invest also on the growth that will going to continue to happen and we are -- WU Way is definitely the way we operate.
Raj Agrawal -- Executive Vice President, Chief Financial Officer
And Tien-Tsin, on the $70 million, that is our full run rate. We don't plan to call out any further savings there. But we will keep driving for a lean and operating efficiencies and keep reinvesting in the business.
Tien-Tsin Huang -- JPMorgan -- Analyst
Understood. Thank you, guys.
Hikmet Ersek -- President, Chief Executive Officer & Director
Thank you.
Operator
The next question will come from Bryan Keane of Deutsche Bank.
Bryan Keane -- Deutsche Bank -- Analyst
Yes, hi, guys. Thanks for taking my questions. Wanted to ask about the regions. In the North America region, I see transactions accelerated in the quarter at least year-over-year from 1% to 2%, but constant currency revenues went down a couple points and then EU and CIS, similar, transactions remain the same at about 8%, but the constant currency revenues dropped a couple of points. Just curious what's causing that, and is that the mix that you called out there?
Raj Agrawal -- Executive Vice President, Chief Financial Officer
Yes, Brian. Hi, this is Raj. In North America, what you're seeing on the revenue side is, is it grow over from higher foreign exchange spreads we had in the previous year fourth quarter and some of those spreads were reversed during the course of the year, but transaction growth as you mentioned, continued to accelerate. So that's good.
Our U.S. outbound business actually did quite well. We had 7% transaction growth there, which has been accelerating during the course of the year, but some of the pricing and mix impacts had the impact that you're referring to. And then in Europe and CIS, the dot-com business overall grew very well during the course of last year and in the fourth quarter, and also our DMT business in France, so those had some mix impacts. The slowdown in the fourth quarter is again related to higher FX spreads that we had earlier in the year in those markets that we reversed that part of those. So transaction trends have been quite healthy and just some of the mix in pricing impacts are having the revenue impact that you're seeing there.
Bryan Keane -- Deutsche Bank -- Analyst
Okay, got it. And then Hikmet, just thinking about the new opportunities you're talking about for cross border. Is there a way to quantify that in terms of a revenue opportunity those could produce?
Hikmet Ersek -- President, Chief Executive Officer & Director
We don't give that revenue guidance there. But I believe there is a new opportunity -- additional customers like we did with westernunion.com. These customers like the offering our platforms to third-party like Safaricom or Amazon Pay, are really new customers that we didn't offer that and that's the only way they can do transactions because if you are in Brazil, a local currency owner, is it in the form card or it is cash, you can't do international transactions because you can't use your credit card -- international credit card. There's no international credit card, but the people want to buy online, want to buy global, and pay local and that's really our platform, which we developed over years enabled that, technology wise, compliance wise and settlement wise do that. So, we are very excited about that and Amazon is definitely a partner, but there are other also opportunities to expand our platform to new our payments capabilities, paying in local, buying global, it's definitely something, we are excited about.
Bryan Keane -- Deutsche Bank -- Analyst
Okay, great. Thanks for the color, guys.
Hikmet Ersek -- President, Chief Executive Officer & Director
Thank you.
Raj Agrawal -- Executive Vice President, Chief Financial Officer
Thank you.
Operator
And the next question comes from Darrin Peller of Wolfe Research.
Darrin Peller -- Wolfe Research -- Analyst
Hey, guys. Thank you. Just when you go into the mix impact. Hey, on the C2C segment that drove the two points of difference between transaction growth and revenue growth. And I think you mentioned one point pricing. Can you just explain a little more around the mix. You're talking about and then when we think of '19 outlook, just if that's going to persist, that kind of a mix impact is going to persist?
Raj Agrawal -- Executive Vice President, Chief Financial Officer
Yeah, hi, Darrin. The mix is something that we don't really try to forecast. It's difficult to forecast. It really is related to where the growth is coming from, it's mostly geographic mix around the world. So what it means optionally is that we're getting faster growth and lower revenue per transaction corridors, and that's what you're seeing coming through.
It varies a little bit, this time, it was minus 2 and that has to do with product mix, but mostly it's a geographic mix issue that's showing up there. So it's not something that we try to forecast overall, but our revenue outlook envisions whatever might happen there.
Darrin Peller -- Wolfe Research -- Analyst
Okay. I guess just a higher level question then. I mean, we're seeing very strong growth of the dot-com business continue and to your point, accelerate. And I guess it just feels like at some point there should be an inflection, where it's big enough to more than offset some of the headwinds that you've seen, whether it's on mix or its pricing and potentially something that starts to align more with the volume growth on cross-border or even the transaction growth on cross-border you're seeing, which is higher than revenue. When did -- can you give us a little idea as to when you think that could really start to show and materialize, so that the digital side is big enough for you, but it offsets other areas?
Raj Agrawal -- Executive Vice President, Chief Financial Officer
Well, digital or WU.com business is, it's obviously much larger than it was a few years ago, was over $500 million last year, but it's still only 12% of consumer revenues. So it's going to -- I don't know when that inflection point is. Clearly digital, we still see very strong growth opportunities. Retail, we think will be a flattish type grower, maybe well single digit, but we have had negative growth in some of our other areas, which is really what's dragging us down, WU is accelerated which is good. But our bill payments businesses were negative, particularly Speedpay and so we need to get better overall performance there. If we could get to mid-single-digit type of growth and that gives us good flexibility and what we can do overall. So, not just digital, digital certainly has to be there, but other components of our business also have to perform a little bit better than they have been.
Darrin Peller -- Wolfe Research -- Analyst
Right, so is there anything, just I'll leave it there. Is there anything more you think that's possible to do from a restructuring standpoint beyond those potentially the B2B business, we've talked about, maybe it's the -- sort of domestic money transfer. Anything else that can be done around restructuring that could help the overall growth profile in more near term manner? Thanks again, guys.
Hikmet Ersek -- President, Chief Executive Officer & Director
Yeah, I think, yes, I mean we're are looking constantly about to structural opportunities, growth areas and on the efficiency margin part. Obviously, in the retail money transfer business, as Raj discussed earlier, I think it's going to -- we have a good market there and it's going to be flattish. But the growth will come from digital environment. Then the totally the 12% of our revenue, it's the largest by far in the digital money transfer environment and so the countries we rolled out, they will come also adding additional customers. So, I think if you really keep the customers on the retail side and add customers from the digital side, our C2C business is quite solid and will drive the growth.
I think we have to really look at our payments, part payments business and on the payments part, the volatility last three months helped us in the B2B business, but -- that student pays the payments business C2B business going very well and we are building on that. We have to seek some the B and C and the domestic business and Speedpay domestic business has been a challenge, right and that has an overall impact to our Company's performance and the domestic business has been something we are focused not to turn around.
Darrin Peller -- Wolfe Research -- Analyst
Okay. alright guys, thank you.
Hikmet Ersek -- President, Chief Executive Officer & Director
Thanks.
Raj Agrawal -- Executive Vice President, Chief Financial Officer
Thanks Darrin.
Operator
And the next question comes from James Schneider of Goldman Sachs.
James Schneider -- Goldman Sachs -- Analyst
Good afternoon and thanks for taking my question. The Latin American region is one that continues to put up very good revenue growth for you. I think you talked about the U.S. outbound, Mexico in particular, can you maybe kind of I'll call out; A, any other countries or geographies that really contributed to that, what initiatives you have going into other countries? And then B, to what extent that was helped by the addition of WU.com in those quarters?
Raj Agrawal -- Executive Vice President, Chief Financial Officer
Hey, Jim, this is Raj. The Latin America revenue growth is really the outbound growth from Latin America. If that's what you're referring to, now is driven that we mentioned by Argentina, Ecuador through results. So, we've had a quite healthy growth in some of those other markets. Even though Argentina was impacted on a reported basis by the currency devaluation there, other markets have been doing quite well in that region.
So the conditions are quite good. We -- it's a relatively small piece of our overall revenues, like ours 9% of total C2C revenues. So, we've seen continued good performance there at least on a constant currency basis. And in terms of dot-com, it's certainly a focus that we have in terms of expanding dot-com presence in Latin America. So that's really what we're focused on.
Hikmet Ersek -- President, Chief Executive Officer & Director
Yeah, I think Jim, generally C2C business has been stable especially the cross-border cities. The business is stable. Latin America, as Raj said, it is a smaller part of our business, but we had also strong growth in despite -- besides U.S. outbound also in Europe, UK, Germany and France have been going very well.
But we also see now good transaction growth in the Middle East. As you recall, Jim, last year we implemented some promotions there. Now they are showing good returns. I think that's also a good sign and shows how stable our businesses is, so digital growth is definitely driving the top line, but there are also very stable number in the retail money transfer business.
James Schneider -- Goldman Sachs -- Analyst
That's helpful, thanks. And then maybe as a follow-up, some of your payments, peers have kind of noted a notable slowdown in cross-border travel and I understand most of your trends are driven by migration though which are longer term things. Are you seeing anything in the business as you start Q1 that gives you a little bit of pause in terms of a potential macro slowdown and to what extent is that baked into your guidance?
Hikmet Ersek -- President, Chief Executive Officer & Director
Macro environment is definitely challenging, but as you look at our business, we are in 200 countries, we have 20,000 corridors. So, we clearly are a portfolio, particularly a play in our case, right. So, we do actually don't see big changes on economical environment in the retail money transfer business. On the online -- on our dot-com business even strong growth, continue to happen the strong growth and Q4 exit was very good. Especially as I mentioned earlier in transaction and in principal amount, the Brazilian, constant currency principal was about 8% growth in Q4 and so, I think the environment is stable. However, there is some concerns -- global concerns on the economical environment.
James Schneider -- Goldman Sachs -- Analyst
Thank you.
Operator
Next we have a question from James Faucette of Morgan Stanley.
James Faucette -- Morgan Stanley -- Analyst
Thank you very much, (inaudible) WU.com and as you are expanding into markets and corridors, what are you having to do from a pricing perspective to encourage and attract volumes and how should we think about the pricing opportunities that over time? That's my first question.
Raj Agrawal -- Executive Vice President, Chief Financial Officer
Hi, Jim, this is Raj Agrawal. When we expand into new markets, we really look at -- the digital business has been new incremental revenues to us. So we go into any new market making sure that we price competitively with whatever else might be available in terms of similar service. Now, we have a very unique service offering because the majority of our revenues payout -- from payout at retail location, even though they may be digitally initiated. So we do try to price competitively and it doesn't really carry the legacy of the retail business. So, it's new incremental business to us. We price it very competitively, we try to get the business and it's really about marketing and acquiring new customers more than anything else, in terms of -- it's not really driven by the pricing, we're going to make that a competitive offering and then we just need to tell consumers about the offering.
James Faucette -- Morgan Stanley -- Analyst
Got it. And then -- 2019 outlook, you guided to roughly 20% margins, 2018 carrying different parts of the year, you're a bit above this funnel, so can you talk through what would be the puts and takes that would allow you maybe to put back above 20% sequentially in 2019?
Raj Agrawal -- Executive Vice President, Chief Financial Officer
Yeah, I mean, we comfortable with our 20% margins, it could be a little bit above, little bit below, it just depends on how things play out. If you look at the pieces, we are investing in the growth opportunities like digital, like the relationship we have with Amazon. We're also investing back in regulatory items like privacy in other areas and then when we are in a low growth environment like we are, and we have negative FX impact, it's more challenging to get leverage on our cost structure. So, we do need to get better revenue growth overall to be able to drive better margins, which is our objective, but for this year, we're comfortable with the 20% level.
James Faucette -- Morgan Stanley -- Analyst
Thank you very much.
Raj Agrawal -- Executive Vice President, Chief Financial Officer
Sure.
Operator
The next question comes from Jason Kupferberg of Bank of America, Merrill Lynch.
Jason Kupferberg -- Bank of America Merrill Lynch -- Analyst
Hey, thanks, good afternoon guys. Just wanted to start on C2C, I know the constant currency revenue growth there. I think, came in at 1%, a little bit below recent trend and the comp, is kind of tough in Q1. And so, I just wanted to get a sense of how we should think about the near-term trajectory on C2C in constant currency terms?
Raj Agrawal -- Executive Vice President, Chief Financial Officer
Yeah, again, we don't give outlook on a specific business unit, Jason, but we -- if you just think about the pieces retail business is likely to be a flattish type grower and digital, we continue to see good growth opportunities there and it's going to become a bigger and bigger piece. So, I think the consumer business overall will be solid and stable.
Jason Kupferberg -- Bank of America Merrill Lynch -- Analyst
Okay.
Raj Agrawal -- Executive Vice President, Chief Financial Officer
And WU Way is about getting good growth in the other areas that the consumer business should be relatively stable. The underlying transaction terms have been good, so we've had some variation due to pricing and mix factors last year in the fourth quarter, but overall the underlying metrics have been solid.
Jason Kupferberg -- Bank of America Merrill Lynch -- Analyst
And then just in terms of sensitivity in 2019 guidance. I mean, if we just think about some of the macro uncertainties out there. Hypothetically, if there was to be, let's say, a hard Brexit is that -- would that be a material issue for Western Union as there been any risk adjustment in the 2019 forecast for that scenario? I mean, it just seems like it's a decent size remittance market overall. So, wanted to get your perspective.
Raj Agrawal -- Executive Vice President, Chief Financial Officer
Yeah. From an operational standpoint, we are very well positioned. We're ready to operate under a number of different scenarios and you can't predict exactly what the outcome will be. Economically, I don't know exactly what to expect, but I would say overall, for Europe, we've assumed a slightly softer environment, but from an operational standpoint, we're ready to go, regardless of what scenario plays out. That's right.
Hikmet Ersek -- President, Chief Executive Officer & Director
Yeah, again, we believe that we are prepared. We've been working on that, I think operational and customer-wise, we don't see any issues here and just from the risk side, I mean, as I mentioned earlier, none of our countries are bigger than 7% of our revenue, outside the U.S. So, we are operating in 20,000 corridors and I believe that we are very well positioned, despite the economical challenges globally. We are well positioned to respond and we believe that we are going to have a stable 2019.
Jason Kupferberg -- Bank of America Merrill Lynch -- Analyst
Okay, thank you for the thoughts.
Raj Agrawal -- Executive Vice President, Chief Financial Officer
Thank you.
Operator
The next question comes from Ashwin Shirvaikar of Citi.
Ashwin Shirvaikar -- Citi -- Analyst
Hey, guys. I guess my question is on operating margin, Raj you mentioned, lower bad debt, is this some action you've taken, maybe big data analytics type of stuff. What's needing to this, can you comment?
Raj Agrawal -- Executive Vice President, Chief Financial Officer
No. I would say, Ashwin, that that's really a one-off item we have that special items I'd say that helped us on the bad debt side, but overall from a bad debt standpoint, we do a pretty good job of managing. Some of it is certainly using data analytics. But generally, we managed the risk in our business quite well and most of our business is on a good funds model. So, there's not really too much that we have to deal with there. So, I think we are in a good shape. The bad debt was primarily high bad debt expense in the prior year quarter. So the comparisons were just favorable.
Ashwin Shirvaikar -- Citi -- Analyst
Got it, got it. And then the other question with regards to the cross-border principal growth. I was just kind of wanted to delve a little bit deeper into that. What's driving that, is it sustainable, is it specific geos, channels, is it any -- is it reflective of any immigration related concerns people send back money to their home countries, anything detail on that?
Hikmet Ersek -- President, Chief Executive Officer & Director
I think from general overall business, we had a good -- U.S. to Mexico business is doing well. I would say that our principal amount, the Middle East turning around, as I mentioned earlier, the transactions growth has been good. So, it impacts the principal amount also and European business has been stable also. As you know, we have some issues in the U.S. domestic money transfer business, but that's not the cross-border principal and generally the cross-border principal has been in a good environment, and the market growth has been healthy. I think the people are using cross-border transfer and thank god, they are using Western Union and going to continue to use Western Union.
Ashwin Shirvaikar -- Citi -- Analyst
Sounds like Geo mix then. Thanks.
Operator
And our next question is from Jennifer Dugan of SunTrust.
Jennifer Dugan -- SunTrust Robinson Humphrey -- Analyst
Hi, I'm on for Andrew Jeffrey. Looking at the B2B and other revenue growth, both appear very healthy, but the margins in both were a bit weaker. Can you just go into some of the dynamics there?
Raj Agrawal -- Executive Vice President, Chief Financial Officer
Yeah, the -- in the B2B business, you're looking at the third quarter comparison and margins, third quarter to fourth quarter.
Jennifer Dugan -- SunTrust Robinson Humphrey -- Analyst
Yeah.
Raj Agrawal -- Executive Vice President, Chief Financial Officer
Yes. In the B2B business, we just benefited in the third quarter from timing of expenses. So that was, really distributed timing, I would say. The overall margin for the full year were around 6% for the B2B business or EBITDA margin close to 17%, which is more representative of the overall margins there. And then in the other revenues or other area of our business, we did have lower overall revenues in that business, but we also had other corporate expenses, because certain corporate expenses that are for strategy, M&A costs fall into the other part of our business. We just -- that's where we record them. So that impacted the margins as well.
Jennifer Dugan -- SunTrust Robinson Humphrey -- Analyst
Okay, great. And then, one other thing I want to talk a little bit more. I know you've mentioned some of the tech investments around digital and some of these opportunities with Amazon, in addition to some of the regulatory expenses. But looking more at the tech investments, what is the timeline for some of these investments -- timeline to getting them done and then the return timeline?
Raj Agrawal -- Executive Vice President, Chief Financial Officer
Well, the digital investments will be ongoing. Our strategy there is really to drive growth and expansion all over the world. So, we're going to -- it's a continual effort to improve the features and functionality in our platforms. We're launching new sites all the time. And so that investment will continue for the digital expansion. We're also leveraging our platform for new opportunities, like the Amazon relationship. So, there is some spending that goes with that. So, we continue to invest in the technology area and that's really the drive long-term growth and expansion. And so, that's really our strategy.
Hikmet Ersek -- President, Chief Executive Officer & Director
I think on -- Sorry -- I think from also, if you are already in a country like U.S. or Europe, with the digital, which we invested already. It's really winning new customer, expanding in the marketing wise, really making promotions on the digital, and if you launch new country, there were -- we do investments and as Raj mentioned earlier, we want to be in 200 countries like we are in our retail money transfer business, we want to be also with our digital business in 200 countries. And we are expanding that. That's one of our biggest competitive advantages. Connecting 200 countries with 200 countries and using our payout network in retails with 50,000 locations, but also billions of accounts. We can drop money really momentarily, very fast in accounts directly in more than 100 countries. So that investment is going and you could see in the numbers. The growth numbers are coming from digital investments.
Jennifer Dugan -- SunTrust Robinson Humphrey -- Analyst
Okay, great. Thank you.
Hikmet Ersek -- President, Chief Executive Officer & Director
Thank you.
Raj Agrawal -- Executive Vice President, Chief Financial Officer
Sure.
Operator
The next question comes from Ramsey El-Assal of Barclays.
Ben Budesheim -- Barclays -- Analyst
Hi, everybody. This Ben Budesheim (ph) on for Ramsey. I just had a question on the U.S. outbound, you've mentioned that has grown quite nicely and accelerated over the course of the year. And I guess, I'm just wondering what's going right, is it more digital revenues kind of taking more -- becoming bigger piece of the whole or taking share or can you kind of parse that out a little bit for us?
Raj Agrawal -- Executive Vice President, Chief Financial Officer
Yeah, it's a number of things that are going well there, there is some pricing and mix impact that's impacting the revenues overall, but the transaction growth has been accelerating dot-com, U.S. outbound and our digital business has been going very strong and U.S. to Mexico was also very strong and that was being offset by some other things, but those two areas have been very strong. In our price positioning for U.S. outbound is very competitive to other offerings. And so I would say, it's a combination of those two things. A cross-border wise, U.S. outbound to other countries has been doing quite well for us and there is some impacts on revenues from mix in pricing, but otherwise it's -- the transaction terms and principle terms have been healthy.
Ben Budesheim -- Barclays -- Analyst
Okay, great. And then just on the tax rate, you had mentioned that you expected become down a little bit in 2020. Can you give us any sense of like the timing over the course of 2019? Will there be some -- like a step down quarter-by-quarter? Or it will be a little more unpredictable? Any color you can give there would be great.
Raj Agrawal -- Executive Vice President, Chief Financial Officer
Yeah, we are very pleased with the solution that we're putting in place for the BEAT issue that came about as part of U.S. tax reform, that was really causing unwarranted double or triple taxation on a portion of our U.S. outbound business. So, we are implementing a solution -- it's going to be implemented during the course of this year. I don't have a quarterly tax rate to give you, but certainly it's going to be implemented during the course of this year and next year we see our tax rate falling back down to the mid-teens level. For really the foreseeable future, given the current tax environment there we're in. So, we are very pleased with that outcome.
Ben Budesheim -- Barclays -- Analyst
Thank you.
Raj Agrawal -- Executive Vice President, Chief Financial Officer
Sure.
Operator
And the next question comes from Vasundhara Goel of KBW.
Vasundhara Govil -- KBW -- Analyst
Hi, thanks for taking my question. I guess my first question was on the free cash flow guidance, I guess you guys are guiding to slightly better free cash flow even though revenue that are expected to be flattish and margin stable. So what's driving that better conversion?
Raj Agrawal -- Executive Vice President, Chief Financial Officer
Well, in our -- operating cash flow is for about $1 billion in 2019 and last year in 2018, we had $200 million of special-type items that we paid for and that's why the operating cash flow last year was just over $800 million. So, that's the primary difference, overall in the operating cash flow.
Vasundhara Govil -- KBW -- Analyst
Got it. And then in terms of the EPS outlook, what are you guys including in terms of contribution from share buybacks and more broadly, could you talk a little bit about your appetite for M&A and how it fits into your capital allocation priorities? Are you looking at deals actively? And if so, what type of targets are -- would you be interested in?
Raj Agrawal -- Executive Vice President, Chief Financial Officer
Yeah, we don't give a specific amounts for share buyback or the impact EPS, but if you look at last few years, we've been buying between $400 million and $500 million of stock each year. We, basically been returning 100% of our free cash flow back to shareholders through both buybacks and dividends. And -- so, I expect that we're going to be active again in 2019.
And then in terms of M&A strategy, we're always looking for the right kind of acquisition that fits within our cross-border payment strategy. We would love to do the right kind of digital type of acquisition, but it has to be at the right price and it has to really whatever we do has to advance the ball for us. We have a great platform, we have great capabilities. So whatever we do, has to really give us some additional capabilities that fit strategically within our strategy.
Vasundhara Govil -- KBW -- Analyst
Thank you very much.
Raj Agrawal -- Executive Vice President, Chief Financial Officer
Sure.
Operator
Next we have a question from Tim Willi of Wells Fargo.
Timothy W. Willi -- Wells Fargo -- Analyst
Hi, thanks and good afternoon. A couple of questions on digital and then one on Amazon. But in terms of thinking about digital and the impact around the margin discussion. If I do the math correctly. Right now, it appears that the digital channels is effectively driving all of the revenue growth in C2C, would that be correct. If I just think about its contribution and its revenue growth rate to digital sort of, this all growing channel for C2C, while sort of the traditional business, you can sort of call it flattish or slightly down, is that correct first of all?
Raj Agrawal -- Executive Vice President, Chief Financial Officer
Yeah. Digital is going to be the key growth driver..
Timothy W. Willi -- Wells Fargo -- Analyst
Okay.
Raj Agrawal -- Executive Vice President, Chief Financial Officer
Always for us, so we use that in the market long-term.
Timothy W. Willi -- Wells Fargo -- Analyst
Okay. So if we think about like at 12%. I know that there is always lots of moving pieces around margins and scale and investing and expanding that franchise, but is there a way to think it like just conceptually that by the time digital is at 20% or 25% of revenue for that C2C. Is that a way to think about the inflection point about letting the scale and the growths of digital and that what should be inherently pretty attractive margin start to show through? I know you've always said it's profitable, it's just not at the same sort of level, so rest of the business, but I think you've always sort of said at some point it should be a higher margin business. Just any updates on that thought process over the next several years?
Raj Agrawal -- Executive Vice President, Chief Financial Officer
Yeah, I mean, Tim, it's a great question. We are in heavy investment mode in that business. If you separate the marketing and technology, which is a much heavier concentration than the rest of our business. We are spending in marketing technology for the long-term growth of this business and so today the margins are lower than the rest of the Company and that continues to be the goal until we get broad expansion all around the world with digital, but when you look at the contribution margin on a percentage basis, and I think we've mentioned this before. The incremental margins are actually similar in both the retail and the digital business. And it depends on how much money you're sending in the quarter that's involved. But the profitability of a transaction in, from a percentage basis, is actually quite similar to our retail business.
So it can be a very profitable business, we could drive the profitability up overnight if you wanted to, but that's not really the strategy we have, it really continues to grow our business to 200 countries and territories. And then at some point, it will be a better contributor to our overall profitability and especially if we have more account channels, account to account capabilities that we're building there that will also help the overall margin profile.
Timothy W. Willi -- Wells Fargo -- Analyst
Yeah, make sense. I fully understand it, just sort of curious if there's a way we could sort of think about a mile of marker there. Okay. It's a $1 billion of revenue we should really start thinking about digital having a positive upward impact on margins, but I can understand there's a lot of, to go on between point A to point B when you get there.
My follow-up was just on Amazon. I think over the years, again you guys have struck partnerships and trying to leverage this vast network and your brand and your competencies around cross-border and risk management, some weighs mixed results, some have announced that I don't think necessarily, there's been a ton of those, follow through. I guess we point to you over the years, but obviously Amazon to Amazon, so I guess I'm just sort of curious, when you think about this partnership relative to other agreements that have been struck over to many years, how you feel or how this evolution may be different and this potentially could be something where, hey, this actually has really worked and had an impact. It really leverage the brand and the network of Western Union better than other times?
Hikmet Ersek -- President, Chief Executive Officer & Director
Yeah, I think, we are very excited about this opportunity, with bigger, with largest global online marketplace. Right. I mean, and I think Amazon wants to get to new customer segments and really offer their product to the new customer segments and they have the product and using our platform. Our platform is unique, we invested over years and we are very proud of our platform, not many companies have licenses to operate in 200 countries and we do have it, not many companies can settle in 137 currencies, acting 137 currency we have it and that technology, that regulatory environment, puts us in a unique position to offer our platform to Amazon.
Now it's a new product, as you know, it's nobody did that earlier, we are the first doing this in partnership with them, we are testing it. It's very promising. It's a $600 billion market for online shopping, and I think that's millions of customers don't have an access on that and we hope that our platform will help Amazon to offer their products to new customer segment.
Timothy W. Willi -- Wells Fargo -- Analyst
Great, thanks very much for the time.
Hikmet Ersek -- President, Chief Executive Officer & Director
Thank you.
Raj Agrawal -- Executive Vice President, Chief Financial Officer
Thanks, Tim. Okay, Laura, I will take the final question.
Operator
Okay. The final question will come from Bob Napoli of William Blair.
Bob Napoli -- William Blair -- Analyst
Thank you. I appreciate it. First question just on the domestic money transfer business, and I know that's been a challenge, how big is that business now and how much is it declining? And do you expect that to continue to decline over the next few years?
Hikmet Ersek -- President, Chief Executive Officer & Director
Yeah, I think as you, Bob, hello, how are you Bob. As you know, that's quite challenging business because as a domestic money transfer business, there is some pricing pressure. And -- but there are some loyal customers still using that because they want immediate cash at our Western Union locations payout and these customers are loyal and staying, it is about 8% of our C2C business and it's a declining business and -- but there are some loyal customers who use that, sending money online for instance paying immediately in cash. It's quite attractive for many customers.
Raj Agrawal -- Executive Vice President, Chief Financial Officer
Yeah, Bob. We don't disclose the growth rates on that, but it was about 9% of C2C revenues in 2017. So, it's down from 9% to 8%.
Bob Napoli -- William Blair -- Analyst
Okay, thank you. That's helpful. Then Western Union is invested in the education vertical. I think in payments and you talked about payments Hikmet being the healthy business for you. Can you give an update on the education vertical and what the opportunities are in that business? And I think there are some good competitors out there as well.
Hikmet Ersek -- President, Chief Executive Officer & Director
Yeah. There are some competitors up there, definitely. But it's a great business for us, we acquired globally universities and universities are attracting more and more foreign students. For instance, if I should -- was going to that in Spain for instance there about 200,000 Chinese students studying in Spain, alone that number puts things in perspective. There are millions of millions of students going abroad and studying and they want to pay their tuition, local currency and study abroad in their universities and we enable that.
Now we are in few countries with our student pay, we met mostly and unless Asian (ph) countries, but also we are expanding our university acquisition constantly to offer the product to the new segments. I'm particularly excited about the future of the Western Union, once we build this C2B abilities, we could do that also besides universities also to other verticals. I think that gives us a unique position to do the cross-border payments for many needs of many customers because we can handle 137 currencies.
Bob Napoli -- William Blair -- Analyst
Can you give us any feel for the size and growth rate of that business?
Hikmet Ersek -- President, Chief Executive Officer & Director
We don't particularly break that business. But the main growth on the B2B, this quarter, we had a good also trading business, but main growth of the B2B comes from the payments part of the business and it's something that very good.
Raj Agrawal -- Executive Vice President, Chief Financial Officer
Yeah. Just within B2B about half of the business comes from what we can refer to it payments and half of it comes from the basic APEC services. Education vertical is one of the businesses within payments, but we don't disclose specific size.
Bob Napoli -- William Blair -- Analyst
Great, thank you. Appreciate it.
Raj Agrawal -- Executive Vice President, Chief Financial Officer
Thanks.
Hikmet Ersek -- President, Chief Executive Officer & Director
Thanks Bob.
Mike Salop -- Senior Vice President of Investor Relations
Thanks everyone for joining us today, and wish you a good day.
Operator
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Duration: 73 minutes
Call participants:
Mike Salop -- Senior Vice President of Investor Relations
Hikmet Ersek -- President, Chief Executive Officer & Director
Raj Agrawal -- Executive Vice President, Chief Financial Officer
Tien-Tsin Huang -- JPMorgan -- Analyst
Bryan Keane -- Deutsche Bank -- Analyst
Darrin Peller -- Wolfe Research -- Analyst
James Schneider -- Goldman Sachs -- Analyst
James Faucette -- Morgan Stanley -- Analyst
Jason Kupferberg -- Bank of America Merrill Lynch -- Analyst
Ashwin Shirvaikar -- Citi -- Analyst
Jennifer Dugan -- SunTrust Robinson Humphrey -- Analyst
Ben Budesheim -- Barclays -- Analyst
Vasundhara Govil -- KBW -- Analyst
Timothy W. Willi -- Wells Fargo -- Analyst
Bob Napoli -- William Blair -- Analyst
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