The Western Union Company Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Evolve 2025 Strategy: Focused on becoming customer-centric, market competitive in key corridors, enhancing execution rigor, and delivering great omnichannel experiences while maintaining above-industry average margins and investment-grade credit rating.
• Macro Environment Impact: Americas, particularly the US, affected by immigration enforcement leading to reduced transactional activity, with shocks seen in short-term trend lines. Worked closely with government and community groups to ensure access to financial services.
• Remittance Tax: 1% remittance tax to take effect 2026, with limited exposure via digital business; working on infrastructure to collect tax, seeing digital transformation as an opportunity to grow digital and wallet businesses in the US.
• Stablecoins: Actively revising position, exploring treasury operations for faster settlement, leveraging payments network as on/off-ramp to connect fiat and crypto worlds, and exploring buy-sell-hold capabilities for customers.
• AI Integration: Used in customer service (lowered handle times by over 50%), tech (partnership with HCL for Gen AI platform), and treasury (pilot AI models for pre-funding optimization) to improve efficiency and reduce costs.

Segment Performance

• Consumer Money Transfer (CMT): Transactions declined 3% year-over-year (2% excluding Iraq impact), with cross-border principal growth in mid-single digits on a constant currency ex Iraq basis. PPT increased by over 5% in Q2 vs prior year on a constant currency basis. Branded digital business saw adjusted revenue grow 6% and transactions rise 9% for the seventh consecutive quarter of mid-single digit or better revenue growth.
• Retail Business: North America retail business faced weakness due to immigration policies, with Vigo business growth slowing from double digits to negative. European retail business performed well, with mid-single digit transaction and revenue growth, including 15+% revenue growth in Spain and the UK.
• Consumer Services: Adjusted revenue grew 40% in the quarter, driven by the acquisition of Eurochange and expanding Travel Money business. Travel Money is expected to have another strong quarter in Q3 due to the Eurochange acquisition and summer travel season.

Guidance

• Adjusted revenue expected in the range of $4.035 billion to $4.135 billion.
• Operating margins projected to be in the range of 19% to 21%.
• Adjusted EPS expected to be in the range of $1.65 to $1.75.

Risks

• Immigration Enforcement: Short-term headwinds in US outbound corridors due to increased immigration enforcement activity causing reduced transactional activity and shifts to informal channels.
• Remittance Tax: Impact on cash-based remittances, though digital transformation seen as an opportunity to mitigate exposure.
• Regulatory Challenges: Uncertainties around stablecoin regulation and correspondent banking systems, though exploring stablecoins as a potential efficiency and growth driver.

Question and Answer

• Q: Eurochange acquisition contribution? A: Matt Cagwin stated Eurochange contributed ~2% to revenue in Q2, with a full-year comp of 1%, going very well, and the team adding thought leadership to the Travel Money business.
• Q: Immigration impact on North America mix shift? A: Devin McGranahan replied there was no material shift from retail to digital, with a slowdown in US to Mexico in both retail and digital channels.
• Q: Stablecoin demand? A: Devin McGranahan mentioned reach outs from platform/infrastructure providers and B2B solutions for core business as areas of demand.
• Q: Remittance tax implementation? A: Devin McGranahan noted WUPOS 2.1 will enable easy collection of the 1% tax, with low infrastructure costs, and seeing debit usage increase as an incentive.
• Q: Europe success templatizing? A: Devin McGranahan said the current head of European business is touring the US to implement the European model, focusing on go-to-market and operating model synergies.