Q3 2024 The Western Union Co Earnings Call
Call, we will discuss the company's third quarter 2024 results and then we will take your questions.
The slides that accompany this call and webcast can be found at Western Union Dot com under the Investor Relations tab.
Will remain available after the call additional operational statistics have been provided in supplemental tables with our press release.
Speaker Change: Joining me on the call today is our CEO, Devin Mcgranahan, and our CFO, Matt Keigwin today's call is being recorded in our comments include forward looking statements.
Speaker Change: Please refer to the cautionary language in the earnings release and in Western Union's filings with the Securities and Exchange Commission, including the 2023 Form 10-K for additional information concerning factors that could cause actual results to differ materially from forward looking statements.
During the call we will discuss some items that do not conform to generally accepted accounting principles.
Speaker Change: <unk> reconciled those items to the most comparable GAAP measures in our earnings release attached to a form 8-K as well as on our website Western Union Dot com under the Investor Relations section.
Speaker Change: I will now turn the call over to our Chief Executive Officer, Devin Mcgranahan.
Good afternoon, and welcome to Western Union's third quarter 2020 for financials.
Speaker Change: Prince.
Speaker Change: Okay.
Speaker Change: Okay, I'm, becoming market leader in providing accessible financial services.
Speaker Change: To the aspiring populations in the world.
Speaker Change: We are a purpose driven organization.
Speaker Change: With over 100 million customers.
Speaker Change: Who depend on us every day.
Speaker Change: To safely.
Speaker Change: Kelly and rapidly deliver on our promise.
Speaker Change: And their money the loved ones all across the world.
Speaker Change: Over the past two years, our team has been hard work executing our evolve 2025 strategy, which will improve our value proposition expand our product offering and most importantly ensure high quality execution and everything we do.
Speaker Change: I greatly appreciate the very hard work of all of our team members and thank our customers for trusting us with their hard earned money.
Speaker Change: Today, we reported another quarter of improving adjusted revenue growth as we continue to implement our evolve 2025 strategy focused on returning western union to a profitable and sustainable revenue growth trajectory.
Speaker Change: Over the last two years, we have been driving meaningful improvements and this quarter's results continued to demonstrate that our efforts are indeed working.
Consumer money transfer transactions grew 4% in the quarter, excluding Iraq, a continuation of the mid single digit trends. We have now seen for the last five quarters, which highlights the durability of the improvements we have made and positions the business well as we head into 2020.
Five despite emerging softness in the Americas, which we will comment on later.
Speaker Change: The business continued to improve on an adjusted revenue growth rate basis, with adjusted revenue up 1% in the quarter excluding Iraq.
Speaker Change: Our branded digital business continued to accelerate with transaction growth of 15% a continuing improvement from the second quarter in.
Speaker Change: In addition, our branded digital revenue growth improved 200 basis points compared to the prior quarter and at 9% growth is now approaching our double digit growth aspirations.
Speaker Change: And lastly, consumer services had another strong quarter with 15% adjusted revenue growth driven by an expansion in our FX business as well as our media network business.
Speaker Change: These results give us confidence that we are well on our way to returning the core business to sustainable profitable revenue growth as we continue to report solid transaction trends and improving revenue growth rates.
Speaker Change: For the third quarter, our revenue reached $1 billion and $40 million, excluding Iraq. Our adjusted revenue growth was positive 1% the second consecutive quarter of positive revenue growth.
Speaker Change: Adjusted earnings per share came in strong at 46 cents or.
Speaker Change: Or up <unk> relative to this quarter, a year ago, which benefited meaningfully from higher revenues and operating profits from Iraq, which were not repeated in the current quarter.
Speaker Change: Matt will discuss our financial results in more detail and provide an update on our 2024 outlook later in this call.
Speaker Change: Now switching briefly to the macro the third quarter saw some challenges in our Latin America region for the first time in my tenure.
Speaker Change: As a reminder, we define our regions, including Latin America from a send perspective. So these are transactions initiated in Latin America, and usually paid out in either the U S or in other Latin American countries.
Speaker Change: And the last several months there have been a number of political events that have disrupted the typical migration flows in the region with recent elections in Panama, The Dominican Republic, Venezuela and Mexico.
Speaker Change: In some instances residents may have delayed their migration to vote or state to see the outcome of an election in their home country.
Speaker Change: And in other instances newly elected officials have attempted to stem migration for example in Panama, the new President as attempted to close the migration route from Colombia into Panama drew the Darien gap significantly reducing the number of migrants entering Panama.
Speaker Change: Sure.
We believe these macro events have created a short term impact on our Latin American business, which is roughly 10% of consumer money transfer revenue.
However, as you can see from our broader results, we benefit from our globally diversified business and the portfolio effect it affords us.
Speaker Change: While Latin America slowed in the quarter regions like Europe, the middle East ex Iraq, and APAC, which together account for 50% of CMT revenue all improved.
With revenue growth rates in all three regions, improving by 500 to 1000 basis points relative to the second quarter.
Speaker Change: Operating in 200 countries and territories means there are frequently both positives and negatives within our portfolio. We believe the benefit of being a truly global at scale player will enable us to manage these kinds of disruptions better than many of our smaller competitors.
Speaker Change: Now shifting to our digital business as we discussed at our 2022 Investor day, returning our digital business to double digit revenue growth is a key priority for our organization and is essential to driving top line revenue growth for the overall company.
Speaker Change: Over the past year, we have been focused on improving the onboarding experience driving marketing effectiveness, improving our market value proposition.
Speaker Change: And our overall user experience.
Speaker Change: We have also been rolling out our new digital experience, which is now in over a dozen countries around the world.
Speaker Change: I'm happy to report that these efforts are translating into more customers more transactions and now more revenue.
Speaker Change: This quarter, we reported the highest transaction growth rate since the second quarter of 2021.
Speaker Change: Include solid growth in North America, and meaningful acceleration in transaction growth rates.
Across Europe, the middle East and APAC.
Speaker Change: Now onto retail over.
Speaker Change: Over the last year, we introduced several point of sale improvements, including remember me quake, Reese and one step refund to improve costs and one step refund to improve customer and agent experiences.
Speaker Change: We continue to seek improvements in speed reliability agent support and customer experience.
Speaker Change: I am pleased to announce we have now begun rolling out the next installment on our point of sale system improvement journey.
Speaker Change: We have learned with our last round of improvements that the key to a more rapid deployment is to reduce the dependency on local agent hardware variations.
Speaker Change: As such this new iteration of our point of sale system has taken a lot of the processes, which were historically Ron on agent hardware and move them into the cloud. This enables us to significantly accelerate both rollouts and core processing times.
Speaker Change: In the third quarter of this year on this new platform, we completed a speed test in Spain, and we were able to complete a recent transaction in just over one minute, which is a dramatic improvement from where we were just a year ago.
Speaker Change: We have started to commercialize the rollout of this new platform in the third quarter of this year and now already have nearly 12000 agents in the U S. Working on it we plan to continue to rollout to additional markets in the coming weeks and our goal is to reach 25000 agent locations by the end of the year. This.
Speaker Change: Would be a meaningful step function improvement over the pace of our first few waves of retail point of sale product Rollouts.
Speaker Change: In addition to these platform improvements we've continued rolling out debit acceptance across select agents in markets in Europe.
Speaker Change: We began the rollout in mid 2023 and are pleased with the progress we are making when we look at agent level data across the region. Those agents, where debit has been enabled are performing meaningfully better than our cash only agents debit enabled agents are seeing transaction growth rates hundreds of base.
Speaker Change: This points faster and in some cases multiples higher than our cash only agents in the same countries.
Speaker Change: Retail card funded transactions is part of the market that we have historically under indexed due to lack of our product offering, but we now have a competitive product and have begun to gain market share in this important category.
Speaker Change: Even with the significant growth over the last year debit funded transactions still account for less than 10% of the total transactions and we believe we have a meaningful runway to continue to expand that over the coming years.
Speaker Change: In addition to our ongoing rollout in Europe. We have also just launched an expanded debit card acceptance program in the United States in the third quarter of this year as well while this launch was only in select Vigo locations. Our expectation is to grow this segment meaningfully in the coming years and to build on this.
Speaker Change: Success, we are now seeing in Europe.
Speaker Change: As an example, our focus on driving retail execution can be seen in the performance of our own store network in Singapore.
Speaker Change: Five years ago, the business with shrinking, 5% and accelerating lower in subsequent years prior to the launch of our controlled distribution strategy.
Speaker Change: Through September of this year, the business has grown 12% with contribution margins improving one hundreds of basis points over the last few years.
Speaker Change: Additionally, I am pleased to report that our premier location in Singapore in the Lucky Plaza exceeded 10000 transactions in September making it one of the busiest company owned stores in our network.
Speaker Change: This example highlights the commitment and dedication of our team to improve performance, but also the strength of our brand when we deliver a market leading value proposition with high execution quality.
Speaker Change: Finally, I would like to spend a minute discussing our consumer services segment. We have made it a goal to grow this segment of our business double digits annually I am pleased to report we generated 15% adjusted revenue growth in the third quarter and acceleration of the growth rate.
Speaker Change: In the previous quarter.
Speaker Change: We continue to see solid growth in our retail money order business, where we have recently implemented in store cash refunds for the first time and we believe we have one of the most consumer friendly products in the marketplace.
Speaker Change: In addition to <unk>, we continue to see benefit from the products and services, we have launched or meaningfully expanded over the last 18 months. The two biggest contributors to growth in the quarter, where our forex business in Europe, which benefited from a robust travel season, and our media network business in the United States.
Speaker Change: Before I turn the call over to Matt I would like to make a few comments on some opportunities I see to continue to expand our evolve 2025 strategy.
Speaker Change: In recent weeks, we have signed two M&A transactions, both of which remain subject to regulatory approval and other customary closing conditions. While these transactions are small in terms of capital commitments. We believe they are meaningful and accelerating our mission to become the world's leader.
And providing accessible financial solutions to the aspiring populations of the world.
Speaker Change: First we signed an agreement to acquire the Singaporean digital wallet business dash from the sing Tel group. This.
Speaker Change: This acquisition is expected to bring us hundreds of thousands of incremental active customer millions of dollars of deposits and enable us to expand into additional products and services our customers in that market desire.
Speaker Change: Over the last year, we have looked at numerous digital solutions across the world and believe this one fits our strategy ex leading exceedingly well.
Speaker Change: Dash is a truly omnichannel solution for delivering cross border remittances.
Speaker Change: The core of their offer is a robust cash and network with access to several hundred retail locations that are used to fund a digital wallet and to send cross border remittances.
Speaker Change: They also enable a debit card within the digital wallet, which allows their cash centric customers easier access to spending at the retail point of sale.
Speaker Change: We believe there is substantial opportunity to combine this offer with our existing business in Singapore, taking advantage of our excellent owned location network previously discussed.
Speaker Change: We look forward to the opportunity to welcome the dash team to Western Union and are excited about the opportunities ahead in Singapore.
Speaker Change: And more generally across the APAC region.
Speaker Change: In addition, we signed an agreement to acquire a recently launched digital wallet in Mexico, while their existing business is fairly nascent we look forward to the opportunity to leverage their platform and assets in combination with western union's capabilities to create an account based relationship.
Speaker Change: With our customers and one of the most important remittance markets in the World. We believe this acquisition will help us accelerate our ecosystem strategy in Latin America and build on the momentum we are now seeing in Argentina, where we have.
Speaker Change: On boarded 200000 customers to our own digital wallet and are happy to report that in the month of September 6% of all inbound remittances into Argentina landed in our own wallet.
Speaker Change: Given the regulatory review and product development timelines associated with this acquisition it will likely be a year or more before we have a western union branded wallet live in Mexico.
Speaker Change: That said I'm excited about the prospect of a two sided digital payment network spanning one of the largest corridors in the world.
Speaker Change: Looking ahead, we remain optimistic about our market position. The progress we are making to deliver on our strategic initiatives. We are pleased with the performance of our business today, driven by improving transaction trends across both our digital and retail businesses and the top line revenue.
Speaker Change: <unk> growth that we are now beginning to see as a result.
Speaker Change: I remain confident that we are tracking well to achieve our evolve to 125 goals and are setting the company up well for a more prosperous future.
Speaker Change: You for joining the call today I will now turn the call over to Matt to discuss our financial results in more detail.
Matt Keigwin: Thank you Devin and good afternoon, everyone.
Matt Keigwin: The results we delivered this quarter demonstrate the continued progress of our evolve 2025 strategy to return Western Union to a market competitive position.
Matt Keigwin: In the third quarter GAAP revenue was $1 billion $40 million.
Matt Keigwin: On an adjusted basis revenue grew 1%, excluding Iraq and represents the second consecutive quarter of positive revenue growth.
Matt Keigwin: This growth was led by the acceleration of the branded digital business.
Matt Keigwin: And growth in consumer services.
Additionally, Iraq came in at the lower end of our $10 million to $30 million per quarter range that we had previously communicated.
Matt Keigwin: We're pleased with the directory of our business and are ahead of where we thought we'd be at this point when we first launched the evolve 2025 strategy two years ago.
Matt Keigwin: Which included our aspiration to reach flat to positive 2% revenue growth in 2025.
Our adjusted operating margins were 19, 1% compared to 19, 6% last year with the decrease primarily related to elevated Iraq revenue last year and strategic investments in our consumer services business related to new and expanded products in the current year.
Matt Keigwin: Year to date, the adjusted operating margin was 19, 2%.
Matt Keigwin: Adjusted EPS was <unk> 46 <unk>.
Matt Keigwin: <unk> <unk> 43 last year start with Jason benefiting from higher adjusted revenue, excluding Iraq, lower share count and lower adjusted effective tax rate, partially offset by lower contributions from Iraq in the current period.
Matt Keigwin: The adjusted effective tax rate in the quarter was eight 4% compared to 16, 6% last year.
Matt Keigwin: The lower tax rate was primarily driven by the discrete tax benefits.
Matt Keigwin: And we now expect the full year adjusted effective tax rate to be in the low teens range.
Matt Keigwin: We were also pleased to share that we've entered into a settlement with the IRS. This quarter resolving one of two open disputes related to our 2017 and 2018 tax returns.
Matt Keigwin: This settlement resulted in a $140 million U S. GAAP non cash tax benefit and a cash payment of $90 million of which $70 million was already paid earlier this year.
Matt Keigwin: And the remainder will be paid in the second quarter of 2025.
Matt Keigwin: The noncash benefit was excluded from our adjusted EPS.
Matt Keigwin: Since the final open dispute relates to an income taxes that we've already paid any resolution in our favor would provide us a benefit to our operating cash flow and net income.
Matt Keigwin: Now turning to our consumer money transfer or CMT business.
Matt Keigwin: CMT transactions grew 4%, excluding Iraq led by the strength of our branded digital business as well as our digital white label business.
Matt Keigwin: CMT adjusted revenue was down 8%, which included an 8% headwind from lower Iraq revenue.
Matt Keigwin: Our spreads improved 200 basis points sequentially as we substantially grew grew over our price changes implemented in the prior year.
Matt Keigwin: Regionally, both Europe and APAC achieve positive quarterly adjusted revenue growth for the first time since 2021.
Matt Keigwin: Our branded digital business grew adjusted revenue 9%.
And transactions grew 15% this marks the sixth consecutive quarter of double digit transaction growth and was achieved against a tougher comparison last year.
Matt Keigwin: While the spreads remained flat sequentially, both adjusted revenue and.
Matt Keigwin: And transaction growth improved 200 basis points each.
Matt Keigwin: This sequential improvement in branded digital transactions was driven by 400 to 200 basis point improvement in Europe, Musa and APAC as well as continued.
Matt Keigwin: Solid transaction performance in North America.
Matt Keigwin: Our payout to account transactions grew 36% in the quarter.
We are pleased with the progress, we're making as we approach double digit revenue growth aspirations, which gives us confidence going into 2025.
Matt Keigwin: Australia continued to be a strong continued strong branded digital performance, reaching 25% revenue growth in the third quarter. As a reminder, Australia is one of the initial countries. We deployed on our new digital solution in late 2022.
Matt Keigwin: This improvement underscores the success that we believe is possible and we have the right product.
Matt Keigwin: The right value proposition and the right marketing message.
Matt Keigwin: Now turning to our retail business.
Matt Keigwin: In the third quarter, Europe achieved 5% transaction growth in retail a 200 basis points sequential improvement.
This success was supported by our controlled distribution strategy, which includes 301 and concept stores as well as continued technological enhancements and the regions like debit card enablement and adding in optimizing account to wallet payout capabilities.
Matt Keigwin: We are encouraged by the results and we intend to anticipate this continued strength going into the fourth quarter as we anniversary the transition of a key retail agent from counter services to kiosk only model.
Matt Keigwin: Now moving to the Americas as Devin discussed earlier lack encountered some challenges some challenges due to the geopolitical volatility including impacts in intra lack of migration, while North America retail slowed this quarter largely driven by sends to lacquer.
Primarily U S to Mexico quarters.
Matt Keigwin: The progress we're seeing in Europe reinforced our belief that we can stabilize.
Matt Keigwin: Or grow our retail business with the right network, the right technology and the right operations.
Matt Keigwin: Now transitioning to our consumer services segment, which accounts for 10% of total quarterly revenue.
Matt Keigwin: Adjusted revenue was up 15% benefiting from the expansion of our retail foreign exchange business, our new media network business as well as continued growth in our retail money order.
Matt Keigwin: We are on track to achieve our double digit adjusted revenue growth this year with 13% growth year to date.
Matt Keigwin: Looking ahead, we anticipate sustained double digit adjusted revenue growth driven by both new and expanded products.
Matt Keigwin: In the third quarter consumer services operating margins was 9% driven by strategic and product investments.
Matt Keigwin: As we scale. These products, we anticipate that margins will improve and will be at or above our total company average.
Matt Keigwin: Now switching to cost management, we continue to make strides on our five year $150 million expense redeployment program.
Matt Keigwin: No.
Speaker Change: Sure Doug.
Deployed.
Speaker Change: And as our cost base.
Speaker Change: Year to date, we have $16. This adds to the $50 million, we freed up in 2023.
Speaker Change: I continue to be confident that we have further opportunity to leverage our scale.
Speaker Change: Drive continued efficiencies and we expect to complete our five year commitment.
Two years early and 225.
Speaker Change: Now turning to our cash flow and balance sheet.
Speaker Change: Year to date, we have generated $272 million.
Speaker Change: Operating cash flows.
Speaker Change: Which negatively impacted by higher income taxes, including the $160 million and $70 million related to a settlement I discussed earlier.
Speaker Change: As we make our we will make our final deferred tax payment of $220 million.
Speaker Change: In the second quarter 2025, which covers both the final payment on the tax Act and the final payment under IRS settlement.
Year to date capital expenditures were approximately $92 million or roughly.
Speaker Change: <unk>, 3% of total revenue.
Speaker Change: We remain committed to strategically investing in key areas.
Speaker Change: And aligning agent compensation with performance.
Speaker Change: I am pleased to report year to date, we have returned $460 million to our stockholders with $239 million pay dividends and $177 million and share repurchases.
Speaker Change: We also continue to maintain a strong balance sheet with cash and cash equivalents of over $1 billion and debt of $2 6 billion.
Speaker Change: Our leverage ratio has remained strong and we're at two seven times and one six times on a gross and net basis, which we believe provides us ample flexibility for capital return or potential M&A, while maintaining our investment grade credit rating.
Speaker Change: Now moving onto our outlook today based on our performance in the third quarter and our confidence in the quarter ahead, we reaffirm our 2024 adjusted outlook.
Speaker Change: This outlook assumes no material changes to macroeconomic conditions.
Speaker Change: As a reminder, we expect adjusted revenue to be in the range of $4 billion $150 million to $4.225 billion.
Speaker Change: Adjusted EPS is expected in the range of $1 70 to $1 80.
Speaker Change: To conclude we are pleased with our results.
Our progress to date, along with these results give us confidence that we can deliver our evolve 2025 strategy and outlook. Thank you for joining the call operator, we're now ready to take questions.
Speaker Change: We will pause momentarily to compile the Q&A roster as a reminder, each person is allowed one question with one follow up question.
Speaker Change: All participants will be in listen only mode.
Speaker Change: Okay.
Speaker Change: Our first question comes to Us from Jason Kupferberg from Bank of America America. Please ask your question.
Jason Kupferberg: Thank you guys. So I just wanted to start on Latam I know you mentioned the election outcomes there being a headwind does your guidance for Q4 I assume that the headwind is going to persist and I guess into even early 'twenty five for that matter and just how are you guys thinking about potential implications of the U S election for the core Biz.
Obviously, all the focus on immigration.
Speaker Change: Hey, Thank you very much for the question, we feel really good about the results, we just talked about a minute ago.
Speaker Change:
Speaker Change: The impact we're seeing in Latin America is still very fluid right now, but we feel good with the guidance that I just shared a few seconds ago and also look forward to updating everybody in February on on 2025, but Devin can you give a little bit on the north American elections.
Speaker Change: Hey, Jason are paying obviously, a lot of attention to the U S political environment, given what we've seen transpire in South and Latin America.
Speaker Change: Obviously different candidates have different perspectives on immigration, we continue to believe though and it's especially true in the U S. In the near to intermediate term the election results won't have a dramatic effect on our business. The majority of our clients are already here in the U S.
Speaker Change: They are gainfully employed productive and sending money home, we don't expect that to change with the election over time, a significant reduction of the inward migration would obviously impact our business, but that's something that we haven't seen in either parties.
Speaker Change: Platforms over the last several years.
Speaker Change: Okay, and then just as a follow up just the spread between branded digital transactions and revenue growth I know I know it was steady at 600 bps.
Speaker Change: But what was it.
Speaker Change: Okay.
Speaker Change: What's driven that incremental widening where do you think it's going in the near term and a longer term target of.
Speaker Change: 200 to 300 bps and may be just a part of that if you can comment on.
Speaker Change: And environment more generally.
Speaker Change: Hey, Jason I'll start and then Devin let on.
Speaker Change: I've also been pretty consistent throughout the year that I was hoping for the spread as they why because we see an acceleration.
Speaker Change: On our results with revenue and transactions accelerated by a couple hundred basis points.
Speaker Change: You also heard during my prepared remarks that I highlighted that we've seen.
Speaker Change: Our payout to account grow by mid 30% range. This has now been several years, we've had in the 2030% growth in the payout to account. These typically come at a lower revenue per transaction, but are much stickier customers and also gives us a much more confidence that we can continue to grow our digital business.
Speaker Change: Because we've seen our digital business go from.
Payout to account about 10% five years ago to now it's in the around a third so it gives us a lot more confidence there.
Speaker Change: And we continue to target zone in the long term the two to 300 basis points for the company as we have described as Matt has talked about we're happy to keep it.
Speaker Change: Wide ish as we continue to accelerate both revenue and transactions. We will keep you posted as this develops but right now we anticipate maintaining that long term outlook, but we will continue if we have the opportunity to accelerate take advantage of that opportunity.
Speaker Change: Great color. Thank you.
Speaker Change: Our next question comes to Us from Tien Tsin Huang from Jpmorgan.
Speaker Change: Please ask your question.
Speaker Change: Yes.
Speaker Change: Thank you good results here and it's crazy that we're a year away from 2025.
Speaker Change: We set those targets for evolve I'm, just curious with all this with a momentum in both.
Speaker Change: Okay.
Speaker Change: It does not.
Okay.
Speaker Change: Okay.
Speaker Change: Latam, but.
Speaker Change: Sure.
Speaker Change: <unk>.
Speaker Change: 25%, what would you say Devin.
Speaker Change: A little better than you thought maybe you want to double down in.
And where are there some other opportunities to perhaps so that's harder or do a little bit more or.
Speaker Change: Or pivot another quick follow up to that.
Speaker Change: Thanks, Tien Tsin, we've said for probably the last couple of quarters.
Speaker Change: We feel like we're six months or so ahead of the original plan. We laid out in October of 2002, which to your point is hard to believe was two years ago out of water under the bridge in those years, but.
Speaker Change: But it's working out pretty well and the underlying health metrics that we talked about from the beginning.
Speaker Change: Wire a new customers.
Speaker Change: And transactions from those customers and then ultimately revenue from the transactions as we close the gap on some of the pricing investments, we had to make to become market competitive that's coming together quite nicely.
Speaker Change: And what many people were concerned about was the durability of the actions that we took to initially accelerate the business now five quarters into mid single digit in six quarters with double digit digital transaction growth I think we're getting increased confidence that what we've done is actually durable and sustainable.
Speaker Change: And positions us very well for 2025 to your question, we have seen better momentum in the retail business, particularly outside the United States than was in our original plan and the acceleration of consumer services is also helping I would like to continue to see digital accelerated as it did in this quarter.
Speaker Change: And we obviously will continue working on the retail business in North America. Both of those remain further opportunities as we lay out what happens beyond 2025.
Speaker Change: Gotcha, so thinking about beyond 2005.
Speaker Change: Or should we expect that Youll give another.
Mid term outlook, starting with 25 is the new base.
Speaker Change: I'm curious do you have longer term targets I know.
Jason Kupferberg: Matt you mentioned.
Jason Kupferberg: You expect consumer services margins to be at or above.
Jason Kupferberg: <unk>, which is great, but do you have any sort of other updates with respect to some of the consumer services and some of the newer initiatives that you have set in place. Thank you that's all I have.
Speaker Change: Tien Tsin, we are hard at work for guidance for 25, which will be in line with our expectations.
Speaker Change: <unk> that we've set with the midterm guidance.
Speaker Change: But we are working and we look forward to bringing our investors.
Speaker Change: And this group together sometime in the second half of next year to lay out what happens beyond 2025, as you know a lot of what we've been doing for the last two years has been in foundation building has been reestablishing our market competitiveness, it's been investing in our technology, putting our core trans.
Speaker Change: Action platforms in the cloud rebuilding our point of sale and our digital experiences and most importantly, as you heard about today investing in the next generation of products and services either organically and now in some cases inorganically that is coming together nicely in terms of a end to end ecosystem.
As a multi product offering and as a two sided payment ecosystem wrapped.
Speaker Change: Wrapped around it. So we are very excited about where we are in the progress we've made and look forward to getting together with everyone. In the second half of next year on the outlook beyond 'twenty five.
Speaker Change: Our next question comes to Us from Darrin Peller from Wolfe Research. Please ask your question.
Thanks, guys I was going to ask how I'm going to start off with the acquisition strategy.
Speaker Change: Good to see these deals being done.
Darrin Peller: And I guess I'd be curious to hear your updated thoughts on M&A now it's been a little while since we've really seen M&A, our western Union and so we're going down this path around these wallets and Singapore and Mexico.
Speaker Change: Kevin maybe give us a sense of what your vision is on those maybe more even more on top of that.
Speaker Change: To come over the next couple of years and what that could mean for the business over time.
Speaker Change: Darrin. Thanks for the question we have spent a lot of the two years since our Investor day really working on building our operating model our management team and frankly trying to build credibility in the core of our business, which I think after five quarters of mid single digit transaction growth.
Speaker Change: We're hopefully establishing.
Speaker Change: Matt and I come from a place as you well know where it was built up with a couple of hundred acquisitions over time and in the world of payments and in the World of digital financial services. There are many opportunities to accelerate our strategy with thoughtful and prudent deployment of capital that will etc.
Beyond the pace that we can simply do organically in both cases, we get access to licenses, we get access to technology and access to local talent with subject matter expertise in those markets. We're trying to do it in a manner, that's consistent with our strengths and capabilities and so I laid out earlier in my prepared comments.
Speaker Change: Progress that we've made in Singapore with our own store network, which was an acquisition. The company did a long time ago, the master agent and it frankly been languishing before we launched our controlled distribution strategy. As you saw we took that from a shrinking business for over multiple years to now growing revenue and transaction.
Speaker Change: Double digits, that's a great foundation to put this digital wallet ecosystem that we've purchased from sing Tel into and so we're building on a foundation of strength that we feel good about we're obviously looking at other opportunities around the world and where those two things come together, we have built a foundation of strength confidence in our local management team.
Speaker Change: And we can accelerate the and vision of building our global digital financial ecosystem, we take those opportunities Matt can talk about how we think about it but that from a strategy standpoint is what we're trying to do.
Speaker Change: There, Jeremy just building a little bit on with Devon. So.
Speaker Change: These two are proof points of probably half what we've looked at in the last couple of years has been.
Speaker Change:
Speaker Change: The multitude of wise and the other ones that makes sense, but use Devon has talked about Singapore spot on we've got a great network, there and tie the retail the digital escalator, which we've been talking about since our Investor day two years ago.
Speaker Change: We continue to expand that so youre going to see hopefully over the next couple of quarters.
Speaker Change: The market looks right in the right acquisition come available things that fall both into core being in the consumer services space, but like these two acquisitions will come with some CMT benefits as well.
Speaker Change: Great.
Speaker Change: The other thing I would add Darrin is we also remain exceptionally disciplined in Matt make sure that the.
Speaker Change: Return equation to the investors is not just we're advancing our strategy, but always compared to our alternatives or returning that capital to the investors. So it is strategically motivated and finished.
Speaker Change: Okay.
Speaker Change: Alright.
Okay.
Speaker Change: Or.
Speaker Change: After some time.
Speaker Change: The quick follow just data conviction around retail stability I mean, obviously some progress you've shown examples in select markets.
Maybe just remind us the building blocks of how you're improving that to stable.
Speaker Change: And your conviction that continued while at the same time, maintaining this mid teens or better dental transaction growth rate.
Speaker Change: So there's three elements and we've talked about these.
Over the course of the last couple of years that we're really focused on right and they both on the digital and the retail side really was about returning the company market competitiveness and we're now seeing those investments paying off in many markets around the world.
Speaker Change: Is that again, which I talked a little bit here, which is about improving our operational excellence to support of our agent network and the customer experience at the point of sale. While these things can be somewhat boring and transactional being able to have a high quality experience each and every time a customer walks into a western union.
Speaker Change: It is exceptionally important and frankly something that we had probably wandered away from the third which is growing our controlled distribution, which is western union branded exclusive independent agents and owned stores allows us to then have high volume locations like the one <unk>.
Speaker Change: It's about in the Lucky Plaza, where we really get the benefit of the fixed cost the high volume and revenue and a great customer experience. So deploying out three part strategy around the world.
Speaker Change: Where we are executing it well, it's actually getting us not just a flat.
Speaker Change: Matt highlighted in Europe, which is one of the most competitive.
Speaker Change: And mature retail markets in the World. We're now mid single digit transaction growth. So we believe that it's possible and more and more places around the world and we are growing confidence if not.
Speaker Change: Werent already confident and our aspirations to achieve.
Speaker Change: A stable retail business and thus the foundation from which to build everything else.
Speaker Change: Got it.
Speaker Change: Thanks, guys.
Speaker Change: Our next question comes to Us from Andrew Schmidt from Citi. Please ask your question.
Hey, Kevin Hey, Matt Thanks for taking my questions. This evening.
Andrew Schmidt: I wanted to drill down on the comments in North America, specifically the U S to Mexico.
Speaker Change: Just unpack the performance there.
Maybe across macro versus migration versus competitive positioning what's.
Speaker Change: What's going on there and then also just the persistence of the trends you are seeing thanks, a lot guys.
Hey, Andrew Hey, Thanks for joining the call today.
Speaker Change: So we've seen a bit of a slowdown over the last six weeks or so.
Speaker Change: U S to Latin America, with the heaviest concentration being in Mexico. The tie in is very similar we're seeing with intra lock on its own.
Speaker Change: It feels much more macro in nature.
Speaker Change: But we're still evaluating and working with our partners. We've met with a couple of our large partners in Mexico that are seeing a similar result for other other competitors in the market space.
I just came back from.
Speaker Change: I did a little bit of a trip two weeks ago to Mexico, Panama, Peru to get a sense on the ground I am pleased that we have lots of customers in our retail locations were still onboarding new customers in our digital apps.
The palatable dislocation of what has happened and frankly, the slowdown in the migration from important corridors.
Speaker Change: Like in Colombia to Chile, Chile back to Colombia.
From Venezuela into Colombia, and then into Panama and Mexico.
Speaker Change: The continued unrest that we have in Haiti. These things are impacting the migratory patterns and our business in locker.
Speaker Change: Especially dependent on them. So it is one of the regions, where we have the highest one time customers and it's one of the regions, where we will see the same customer sometimes in three or four countries as they make a migratory journey, either north or south in search of economic opportunity so with that slowdown in the migration.
Speaker Change: Patterns, we're seeing a slowdown in the transaction growth rates that we've enjoyed for the last couple of years.
Speaker Change: Got it thank you, David and Matt for that color.
Speaker Change: Maybe another on the competitive environment, obviously, a large competitor had a well known outage in the quarter.
Okay.
Speaker Change: <unk> at least one large agent seems to have shifted.
Speaker Change: Their strategy as well as a result, but have you seen any benefit from that in.
Speaker Change: In the quarter or is there any tail to that I'm, just curious to get your perspective, just the competitive environment as it relates to kind of the larger mto's. Thanks, a lot. Thank you so our well wishes go out to.
Speaker Change: Our competitor at Moneygram and to their customers.
Speaker Change: There are bad people and bad actors in the world.
Speaker Change: Now for the Grace of God, We all worked exceptionally hard to protect against an unfortunate they had that situation.
Speaker Change: It was a week and it's a global market.
Speaker Change: We obviously saw some upticks in places, where we're side by side with them like in the UK, but theyre actually very few places anymore, where its exclusively a moneygram and western Union World and that's a world that may be existed 15, or 20 years ago, but it is a lot more competitive now.
Speaker Change: We're obviously keeping close tabs on the market and we saw a few upticks in places like U S to Jamaica, Australia to the Pacific Islands, but.
Speaker Change: It certainly doesn't change the fundamentals of our business and just reminds us that we need to be vigilant every day and continue to focus on driving high quality execution and security and safety for our customers.
Speaker Change: Makes sense. Thank you Devin.
Speaker Change: Our next question comes to Us from Ken Switalski from Autonomous Please ask your question.
Ken Switalski: Hey, good afternoon, everyone. Thanks for thanks for taking the question maybe just a follow up to Dan's question on the retail business I wanted to ask about physical retail ex Iraq just to make sure we're thinking about the math correctly.
Speaker Change: We estimated that Cisco retail revenue ex Iraq was down about 4% year over year on an FX neutral basis, so similar to last quarter.
Speaker Change: With transactions down, 2% I think FX.
Speaker Change: Neutral rent per transaction also down 2%.
Speaker Change: So I just wanted to run the math by your mature we're thinking about it correctly and then I know theres a lot of moving pieces.
Speaker Change: The lapping of an agent loss lapping promotional pricing theres, a better pricing environment more broadly. So I guess, how are you thinking about those three.
Speaker Change: Components of that physical retail business over the coming quarters. Thank you.
And thanks for joining the call and I continue to be impressed by your model.
Speaker Change: Actually have all the data and somehow you get a few pieces and are able to get every one of the numbers exactly right. Each time. So yes, you are spot on.
Speaker Change: Okay, Alright, that's great there and then I guess in terms of that trend in that.
Should we expect transactions to accelerate in the <unk>.
Speaker Change: The spread to get better in that business.
Speaker Change: We do expect to get a little bit better in Q4, as we lap the.
Speaker Change: European agent that went from being four to only being kiosk. So we do expect modest improvement as time passes and we think the initiatives Devin and I, both talked about round debit and speeding.
Speaker Change: Speeding up our point of sale solution will improve over time.
Speaker Change: Just for my follow up just the consumer services business, we really nice growth in that business can you give us a sense for where you are investing in that segment and then I think you said you expect margins to get back to the overall company average.
Speaker Change: Maybe just a sense for the timing around that is that sort of next year 2026 or are we looking out beyond that thank you.
Speaker Change: Yes, Thanks, Ken.
Speaker Change: As you know, there's three big buckets of businesses in there there is what I will consider to be our transactional payment products, which includes our bill pay business, our prepaid business, our retail money order business, we've been investing in product innovations and new products. So we expect that part of the business to continue to add.
Speaker Change: <unk>.
Speaker Change: The second part of the business is our non U S. Bill pay assets, which includes our large business in Argentina, Pago fulfill and as you know that business.
Speaker Change: Is the effect of what's going on in Argentina.
Speaker Change: Long term, which will be quite good if they tame inflation and people get to a more stable economy than has been the case, but in the short term is feeling pressure from the economic pressures that people feel from a decelerating inflationary environment in that country. The third is really some of our newer businesses and that's our <unk>.
Speaker Change: Digital wallets, that's our media network. These are the things that we think have long tails to them, but today are fairly nascent and we continue to invest in those both in the product and in the delivery for future returns.
Speaker Change: And cannot I'll just build on devins point on your question on the margins and the timing of that these things have rollout phases, where we're making investments over time. So our goal is any product. We invest in is going to have a at or better operating income margin than our company average. So that's our strategy. When we go into one there is build cost upfront.
Speaker Change: Once that have a hit that will hit you for a couple of quarters, while you're building. It then you have a rollout for marketing and then you have a rollout to other country impact so.
Speaker Change: How fast it gets there we've been very conscious of it either as a scale and each one will scale at a different pace over the coming quarters and year or.
Speaker Change: For years.
Speaker Change: The question.
Speaker Change: Yes.
Speaker Change: Our next question comes to Us from Rufus Hone from BMO. Please ask your question.
Rufus Hone: Hey, guys. Good afternoon, thanks very much.
Rufus Hone: Want to ask you about the digital business side I'd love to hear your thoughts around industry competition in pricing there obviously seeing some good momentum in your digital business.
Rufus Hone: Do you see this as an opportunity for you to put some incremental pressure on smaller competitors in digital and maybe dial up your marketing spend.
Rufus Hone: We began this program.
Two years ago, we were heavily focused on transforming the business into being a business focused on LTV to CAC historically, the business had looked more at transactional economics.
Rufus Hone: And in period marketing investments as expenses versus kind of lifetime economic value of acquired customers and the future value creation of the acquisition of those customers. We've built that model and are executing it pretty well around the world and when we see opportunities from either an expanded LTV either due to.
Rufus Hone: Retention or due to the quality of the customer in terms of the principal or sense, we invest behind that and when we don't we pull back and so maintaining the discipline around that CAC to LTV model whenever we see an opportunity we take advantage of it and have driven the business and you can see in this quarter, which has been true for the last couple of.
Rufus Hone: Quarters, we continue to invest behind the customer that's payout to account and creating the value proposition that makes sense to acquire and retain those customers we.
Rufus Hone: We had talked about in our previous call and we continue to see it in a higher interest rate environment smaller less well capitalized players whether they be digital or retail are having a harder time, and therefore, creating market opportunities for us and to a certain extent also creating stability in the market.
Rufus Hone: <unk>.
Rufus Hone: Competitors, who might have been behaving irrationally due to funding that has been more expensive now than it was before is creating a rationality amongst the market participants that is conducive to players like us who operate at scale and with discipline, Matt I don't know if you want to add anything to that.
Matt Keigwin: No its bottom.
Speaker Change: Our next question comes to Us from Tim Chiodo from UBS. Please ask your question.
Tim Chiodo: Great. Thank you you touched on this a little bit in the size off on the prepared remarks, but the.
Tim Chiodo: Debit card acceptance and the plans to roll that out further if you could just talk a little bit about one maybe would have been in any of the limiting factor for that being a broader availability in the past and what it takes to roll that out in the future and then also the margin profile of those transactions clearly there is an additional acceptance cost associated with that and if there is any makeup on the gross.
Tim Chiodo: Take rate to kind of make things neutral from a gross profit perspective.
Tim Chiodo: Ill.
Speaker Change: Tim I'll take the first part of that and I'll, let Matt talk to you about the unit economics.
Historically, we had a perspective that our retail business was largely cash in and cash out.
Speaker Change: As part of our reinvention of retail we believe that there is a value proposition of in person service and the value proposition. Sometimes also includes cultural and language familiarity as well as in person service as the World has evolved many of our customers actually have bank accounts.
Speaker Change: And they have the ability to pay at the retail point of sale with a card based product sometimes even in some countries. We're now expanding to bank based products or bank account funded transactions at the retail point of sale.
Speaker Change: We believe that helps make the retail experience more contemporary and more modern it also turns out those customers have higher principal per transaction as you can imagine they're not walking around with wads of cash and in some cases are heavier trans actors than the all cash customers.
Speaker Change: So we see and Matt can talk about the benefit of that sometimes even offsetting the cost of acceptance.
Speaker Change: Historically, we didn't have merchant acquiring relationships in many of these markets and we didn't have a point of sale system in our settlement system that was equipped with dealing with card funded transactions versus cash. So we had to invest in our infrastructure and we had to build the ability to do merchant acquiring and have local merchant acquiring relationship.
Speaker Change: <unk> chips and be able to install merchant point of sale devices at our agent locations connected to our point of sale to ensure high quality fund movement in settlement operations. We did that first in Europe and now we're rolling it out to the U S and we're seeing positive results.
Speaker Change: Tim just to build on devins point around the unit economics.
Speaker Change: Okay.
On the <unk>.
Speaker Change: Okay.
Okay.
Speaker Change: And as I'm sure you know the cost of interchanges meaningfully lessening in our European markets, we did that on purpose.
Speaker Change: Wanted to test it and get the insight to what the uplift Devin just talked about with a higher principal per transaction or two.
Speaker Change: Due to transaction levels and you can see in the results today, we talked about with the.
Speaker Change: <unk>, our retail business, we wanted to have some insights where the cost of this test was a little bit lower.
Speaker Change: And that market, we do pay a fair bit of money for armored car pickup other catalog.
Speaker Change: In Europe, we're actually seeing our cost come down.
Speaker Change: It's still early days, but the optimism and hope we got from our European business as it should be accretive and at this point, we've not had any differentiation in our pricing, but we're monitoring it and we're looking at what kind of uplift we get in the U S on principal per transaction as well as transactions per location and we'll make those calls as time passes.
Speaker Change: The other thing Tim, particularly in some European markets and certainly in the U S.
Speaker Change: Many of our competitors in the independent channel, where we sit side by side with other mto's have offered debit acceptance.
Speaker Change: So customers coming in with a debit card and not cash were automatically directed away from our <unk> band.
Speaker Change: Alright.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: <unk>, who could fulfill that need so we are hoping that our market share gains for debt preferred customers and multi brand independent locations, where we have historically been at a product disadvantage.
Speaker Change: Our next question comes to Us from Ramsey El <unk> from Barclays. Please ask your question.
Speaker Change: Hi, Thanks for taking my questions. This evening.
Speaker Change: Could you give us a little color on your expectations for Iraq in Q4.
Speaker Change: Where do you expect the contribution to land in that sort of $10 million to $30 million range and also the impossible question of where do you see do you see revenue trends kind of stabilizing in that market or should we continue to expect some volatility going forward.
Hey, Ramsey niceness to catch up with you.
Speaker Change: It's great we thought we might get through an earnings call for the first time in five quarters without a question on Iraq.
Speaker Change: Watch matches lots Tibet.
Speaker Change: Thank you for making me at the pay them a nice follow on.
Speaker Change: So we essentially gave the range of $10 million to $30 million because it was volatile Q2 was at the upper end of that range Q3 was at the lower end of that range.
Speaker Change: Uncertain. It's one of the reasons, where you may have noticed that we didn't really narrow our public guidance from earlier in the year because it can be a moving target if I were to answer the crystal ball today I think we're at the lower end of the range on Iraq, and we feel very good about our public guidance.
Speaker Change: Could things change over the next 65 days and have it go to the upper end.
Speaker Change: With Iraq.
Speaker Change: Unfortunately, the answer to that one is the same as its been for four or five quarters.
But right now we're trending closer to the lower end.
Speaker Change: Fair enough.
Speaker Change: Another question on on Slide 10 in the own stores and our performance in Singapore.
Speaker Change: It seems like whenever you bring out the store strategy. It always feels kind of like a homerun. It seems like it really is a beneficial impact on that part of your business. What are the gating factors to rolling that strategy out sort of much more broadly.
Speaker Change: Or is that the longer term road map.
Speaker Change: So what I will tell you is the recipe for success is.
Speaker Change: Is discipline discipline and discipline.
Speaker Change: Every owned store comes with fixed operating expenses.
That include lease expenses and employees as well as the normal.
Speaker Change: Tower light water sort of stuff. So you have to both be selective in the locations in which you put them to ensure you can generate enough revenue to cover the fixed expenses and then execution critical mass in any market to be able to manage the hiring and staffing across a network of stores because it's too expensive.
Speaker Change: Have to do it one off so you really have to go into it with a network mindset to get critical mass and then you have to be quite disciplined and the locations that you choose in order to get the return we are modeling on the many years that the company had in Argentina, and Brazil, We've expanded the network in Peru.
Speaker Change: Through and Panama and now in Mexico, we've been building out in certain countries in Europe, where we see the conditions to be ripe for that including Spain, Italy, Switzerland, and some parts of the Netherlands as you see what we've done in Asia, we're looking to expand that further to a couple of more countries.
Speaker Change: Outside of Singapore, but it is a measured process that can come one market in one country at a time.
Speaker Change: With extreme discipline, we think long term, it's really important to the strategy and we will provide a foundation that makes the retail business viable and is an important component in our retail to digital escalator, but it is something that's going to require patients to build out.
Speaker Change: Hey, Ramsey the only add to what <unk> said is as you know we have.
Approximately 400000 active agent locations, we never anticipate this to be a very large percentage, but to devins point, we've had two or three.
The world.
Speaker Change: And putting.
Speaker Change: Putting our board.
Speaker Change: We did two years ago and challenge the team to get too much better margins, they've been able to increase it meaningfully over the last couple of years, they've been working tenaciously or here in the U S where we only have a handful were now trying to expand up another handful is theyre working it and making sure. They have the right approach. So it will always be a small number but it is an area of whats important to actually control the distribution.
Thanks for the question.
Speaker Change: Super helpful. Thank you.
Speaker Change: Our final question will come to us from Bryan Keane from Deutsche Bank. Please ask your question.
Bryan Keane: Hey, guys how are you doing.
Bryan Keane: I just wanted to ask Matt about the adjusted operating margins I know it came in and coming in at 19, 2% year to date and you get the range out there, which is pretty wide, 19% to 21. So just curious why not narrow the range or is there any reason why you would come in towards the mid to high end of the range.
Thanks.
Speaker Change: So Brian is higher it's probably unlikely to be at the upper and the range. We've not changed that range. Since we started out our main focus is to deliver our revenue and EPS and continue to grow stably over time, we've just not really adjusted it has been 200 basis point wise than we started.
Speaker Change: Got it okay.
Speaker Change: Thanks, guys.
There are no additional questions at this time.
Speaker Change: Thank you for joining today's Western Union third quarter earnings results Conference call. We hope you have a great day.
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