The Western Union Company (the “Company”) (NYSE: WU) today reported second quarter 2023 results.
The Company’s second-quarter revenue of $1.17 billion grew 3% on a reported basis, or 9% on a constant currency basis excluding the contribution from Business Solutions, compared to the prior year period. Argentinian inflation benefited revenue by approximately three percentage points. A revenue increase in Iraq was partially offset by investments in the Company’s ‘Evolve 2025’ strategy.
“Our progress continued into the second quarter, with strong results that exceeded our expectations,” said Devin McGranahan, President and Chief Executive Officer of Western Union. “Growth in our C2C transactions was the highest since 2021, primarily driven by our branded digital go-to-market program. We also experienced an increase in revenue from Iraq arising from prior changes in Iraqi monetary policies.”
McGranahan added, “These results reflect the advancement of our ‘Evolve 2025’ strategy and demonstrate continued momentum building across channels and geographies.”
GAAP EPS in the second quarter was $0.47 compared to $0.50 in the prior year period. The year-over-year decrease was due to lower operating profit, including costs related to the Company’s operating expense redeployment program in the current period. Adjusted EPS in the second quarter was $0.51 and flat compared to the prior year period, with the current year period benefiting from a lower share count and a lower adjusted effective tax rate, partially offset by lower pre-tax profit.
Q2 Business Results
- C2C revenues grew 4% on a reported basis, or 5% constant currency, while transactions increased 4% compared to the prior year period. Regionally, revenue growth was driven by MEASA, due to Iraq, LACA, and sequential improvements in Europe & CIS, North America, and APAC.
- Branded digital revenue declined 2% on a reported and constant currency basis, and represented 21% and 28% of total C2C revenues and transactions, respectively. Transactions accelerated and grew 12% in the quarter driven by the Company’s updated go-to-market strategy.
- On July 1, 2023, the Company completed the third and final closing of its Business Solutions business, which included the European Union operations. The gain associated with the final closing, continues to be subject to regulatory capital adjustments. All cash consideration was received at the first closing.
Q2 Financial Results
- GAAP operating margin in the quarter was 20.7%, compared to 23.2% in the prior year period. The adjusted operating margin was 21.8% compared to 23.3% in the prior year period. The decrease in the adjusted operating margin was primarily due to currency impacts, higher incentive compensation, higher variable costs, and investments related to the Company’s ‘Evolve 2025’ strategy, partially offset by lower marketing spend and net savings related to the Company’s operating expense redeployment program.
- The GAAP effective tax rate in the quarter was 18.6%, compared to 17.9% in the prior year period. The adjusted effective tax rate was 16.0% in the quarter, compared to 16.9% in the prior year period.
- Year-to-date, cash flow from operating activities was $264 million, including a $119 million transition tax payment in the second quarter related to the 2017 U.S. Tax Cuts and Jobs Act. The Company returned $88 million to shareholders in the second quarter through dividends.
2023 Outlook
Today, the Company raised its 2023 full-year revenue and EPS outlook due primarily to business performance in Iraq. The outlook assumes no material changes in macroeconomic conditions, including changes in foreign currencies or Argentinian inflation.
The 2023 outlook is as follows:
Revised 2023 Outlook | Previous 2023 Outlook | |||
GAAP | Adjusted | GAAP | Adjusted | |
Revenue1 | (5%) to (3%) | (1%) to 1% | (9%) to (7%) | (4%) to (2%) |
Operating Margin | 18% to 20% | 19% to 21% | 18% to 20% | 19% to 21% |
EPS | $1.63 to $1.73 | $1.65 to $1.75 | $1.53 to $1.63 | $1.55 to $1.65 |
1 Adjusted revenue excludes currency impact, Argentinian Inflation, and Business Solutions | ||||
The Company has been in regular discussions with policymakers in both the U.S. and Iraq about the elevated remittance volumes flowing through its network in Iraq during the second quarter. Due to recent U.S. government actions, including those announced on July 19, 2023, impacting fourteen Iraqi banks, some of whom were the Company’s agents, the ongoing and future application of the Company’s own compliance and risk controls, and future regulatory and policy changes, the Company expects these volumes to be significantly lower going forward. As a result, the Company has not included any of the elevated remittance volume from Iraq in its outlook after July.
Non-GAAP Measures
Western Union presents a number of non-GAAP financial measures because management believes that these metrics provide meaningful supplemental information in addition to the GAAP metrics and provide comparability and consistency to prior periods. Constant currency results assume foreign revenues are translated from foreign currencies to the U.S. dollar, net of the effect of foreign currency hedges, at rates consistent with those in the prior year.
Reconciliations of non-GAAP to comparable GAAP measures are available in the accompanying schedules and in the “Investor Relations” section of the Company’s website at https://ir.westernunion.com.
GAAP figures reflect an expected partial year of Business Solutions ownership, including contractual payments to the buyers, representing profits between the first and third closings. Adjusted constant currency revenue growth metrics exclude contributions from Business Solutions. Adjusted operating profit metrics exclude the following items, as applicable: contributions from Business Solutions, operating expense redeployment program costs, acquisition and separation costs, and Russia and Belarus exit costs. Adjusted effective tax rate and adjusted earnings per share metrics exclude the following items and the related taxes, as applicable: Business Solutions gain, operating expense redeployment program costs, acquisition and separation costs, Russia and Belarus exit costs, and the reversal of significant uncertain tax positions.
Additional Statistics
Additional key statistics for the quarter and historical trends can be found in the supplemental tables included with this press release. All amounts included in the supplemental tables to this press release are rounded to the nearest tenth of a million, except as otherwise noted. As a result, the percentage changes and margins disclosed herein may not recalculate precisely using the rounded amounts provided.
Environmental, Social, and Governance (ESG)
Western Union is committed to making a positive impact. For more details on how Western Union is addressing some of the most pressing issues facing society, our shared environment, and our Company, please view our latest ESG report: https://corporate.westernunion.com/esg.
Investor and Analyst Conference Call and Presentation
The Company will host a conference call and webcast at 4:30 p.m. ET today.
The webcast and presentation will be available at https://ir.westernunion.com. Registration for the event is required, so please register at least fifteen minutes prior to the scheduled start time. A webcast replay will be available shortly after the event.
To listen to the conference call via telephone in the U.S., dial +1 (719) 359-4580 fifteen minutes prior to the start of the call, followed by the meeting ID, which is 910 5837 9984 and the passcode, which is 534903. To listen to the conference call via telephone outside the U.S., dial the country number from the international directory, followed by the meeting ID, which is 910 5837 9984 and the passcode, which is 534903.
Safe Harbor Compliance Statement for Forward-Looking Statements
This press release contains certain statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance and involve certain risks, uncertainties, and assumptions that are difficult to predict. Actual outcomes and results may differ materially from those expressed in, or implied by, our forward-looking statements. Words such as "expects," "intends," "targets," "anticipates," "believes," "estimates," "guides," "provides guidance," "provides outlook," "projects," "designed to," and other similar expressions or future or conditional verbs such as "may," "will," "should," "would," "could," and “might” are intended to identify such forward-looking statements. Readers of this press release of The Western Union Company (the “Company,” “Western Union,” “we,” “our,” or “us”) should not rely solely on the forward-looking statements and should consider all uncertainties and risks discussed in the Risk Factors section and throughout the Annual Report on Form 10-K for the year ended December 31, 2022. The statements are only as of the date they are made, and the Company undertakes no obligation to update any forward-looking statement.
Possible events or factors that could cause results or performance to differ materially from those expressed in our forward-looking statements include the following: (i) events related to our business and industry, such as: changes in general economic conditions and economic conditions in the regions and industries in which we operate, including global economic downturns and trade disruptions, or significantly slower growth or declines in the money transfer, payment service, and other markets in which we operate, including downturns or declines related to interruptions in migration patterns or other events, such as public health emergencies, epidemics, or pandemics, such as COVID-19, civil unrest, war, terrorism, natural disasters, or non-performance by our banks, lenders, insurers, or other financial services providers; failure to compete effectively in the money transfer and payment service industry, including among other things, with respect to price or customer experience, with global and niche or corridor money transfer providers, banks and other money transfer and payment service providers, including digital, mobile and internet-based services, card associations, and card-based payment providers, and with digital currencies and related exchanges and protocols, and other innovations in technology and business models; geopolitical tensions, political conditions and related actions, including trade restrictions and government sanctions, which may adversely affect our business and economic conditions as a whole, including interruptions of United States or other government relations with countries in which we have or are implementing significant business relationships with agents, clients, or other partners; deterioration in customer confidence in our business, or in money transfer and payment service providers generally; failure to maintain our agent network and business relationships under terms consistent with or more advantageous to us than those currently in place; our ability to adopt new technology and develop and gain market acceptance of new and enhanced services in response to changing industry and consumer needs or trends; mergers, acquisitions, and the integration of acquired businesses and technologies into our Company, divestitures, and the failure to realize anticipated financial benefits from these transactions, and events requiring us to write down our goodwill; decisions to change our business mix; changes in, and failure to manage effectively, exposure to foreign exchange rates, including the impact of the regulation of foreign exchange spreads on money transfers and payment transactions; changes in tax laws, or their interpretation, any subsequent regulation, and unfavorable resolution of tax contingencies; any material breach of security, including cybersecurity, or safeguards of or interruptions in any of our systems or those of our vendors or other third parties; cessation of or defects in various services provided to us by third-party vendors; our ability to realize the anticipated benefits from restructuring-related initiatives, which may include decisions to downsize or to transition operating activities from one location to another, and to minimize any disruptions in our workforce that may result from those initiatives; our ability to attract and retain qualified key employees and to manage our workforce successfully; failure to manage credit and fraud risks presented by our agents, clients, and consumers; adverse rating actions by credit rating agencies; our ability to protect our trademarks, patents, copyrights, and other intellectual property rights, and to defend ourselves against potential intellectual property infringement claims; material changes in the market value or liquidity of securities that we hold; restrictions imposed by our debt obligations; (ii) events related to our regulatory and litigation environment, such as: liabilities or loss of business resulting from a failure by us, our agents, or their subagents to comply with laws and regulations and regulatory or judicial interpretations thereof, including laws and regulations designed to protect consumers, or detect and prevent money laundering, terrorist financing, fraud, and other illicit activity; increased costs or loss of business due to regulatory initiatives and changes in laws, regulations and industry practices and standards, including changes in interpretations, in the United States and abroad, affecting us, our agents or their subagents, or the banks with which we or our agents maintain bank accounts needed to provide our services, including related to anti-money laundering regulations, anti-fraud measures, our licensing arrangements, customer due diligence, agent and subagent due diligence, registration and monitoring requirements, consumer protection requirements, remittances, immigration, and sustainability reporting including climate-related reporting; liabilities, increased costs or loss of business and unanticipated developments resulting from governmental investigations and consent agreements with or enforcement actions by regulators; liabilities resulting from litigation, including class-action lawsuits and similar matters, and regulatory enforcement actions, including costs, expenses, settlements, and judgments; failure to comply with regulations and evolving industry standards regarding consumer privacy, data use, the transfer of personal data between jurisdictions, and information security, including with respect to the General Data Protection Regulation in the European Union and the California Consumer Privacy Act; failure to comply with the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as regulations issued pursuant to it and the actions of the Consumer Financial Protection Bureau and similar legislation and regulations enacted by other governmental authorities in the United States and abroad related to consumer protection and derivative transactions; effects of unclaimed property laws or their interpretation or the enforcement thereof; failure to maintain sufficient amounts or types of regulatory capital or other restrictions on the use of our working capital to meet the changing requirements of our regulators worldwide; changes in accounting standards, rules and interpretations, or industry standards affecting our business; and (iii) other events, such as catastrophic events and management’s ability to identify and manage these and other risks.
About Western Union
The Western Union Company (NYSE: WU) is committed to helping people around the world who aspire to build financial futures for themselves, their loved ones and their communities. Our leading cross-border, cross-currency money movement, payments and digital financial services empower consumers, businesses, financial institutions and governments—across more than 200 countries and territories and nearly 130 currencies—to connect with billions of bank accounts, millions of digital wallets and cards, and a global footprint of hundreds of thousands of retail locations. Our goal is to offer accessible financial services that help people and communities prosper. For more information, visit www.westernunion.com.
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Notes* | 2Q22 | 3Q22 | 4Q22 | FY2022 | 1Q23 | 2Q23 | YTD 2Q23 | |||||||||
| Consolidated Metrics | ||||||||||||||||
| Revenues (GAAP) - YoY % change | (12)% | (15)% | (15)% | (12)% | (10)% | 3% | (4)% | |||||||||
| Adjusted revenues (non-GAAP) - YoY % change | (a) | (4)% | (6)% | (6)% | (4)% | (1)% | 9% | 4% | ||||||||
| Operating margin (GAAP) | 23.2% | 21.3% | 13.9% | 19.8% | 19.7% | 20.7% | 20.3% | |||||||||
| Adjusted operating margin (non-GAAP) | (b) | 23.3% | 20.6% | 15.8% | 20.4% | 20.5% | 21.8% | 21.2% | ||||||||
| Adjusted EBITDA margin (non-GAAP) | (b) | 27.5% | 24.9% | 20.2% | 24.7% | 25.1% | 25.7% | 25.4% | ||||||||
| Consumer-to-Consumer (C2C) Segment Metrics | ||||||||||||||||
| Revenues (GAAP) - YoY % change | (9)% | (11)% | (11)% | (9)% | (6)% | 4% | (1)% | |||||||||
| Adjusted revenues (non-GAAP) - YoY % change | (f) | (6)% | (8)% | (9)% | (6)% | (5)% | 5% | 0% | ||||||||
| Transactions (in millions) | 68.2 | 66.9 | 69.3 | 274.1 | 65.3 | 70.6 | 135.9 | |||||||||
| Transactions - YoY % change | (13)% | (12)% | (12)% | (10)% | (6)% | 4% | (1)% | |||||||||
| Cross-border principal, as reported - YoY % change | (12)% | (13)% | (12)% | (10)% | (3)% | 17% | 7% | |||||||||
| Cross-border principal (constant currency) - YoY % change | (g) | (9)% | (9)% | (9)% | (7)% | (1)% | 18% | 8% | ||||||||
| Operating margin | 22.0% | 19.7% | 14.1% | 19.2% | 18.9% | 21.5% | 20.3% | |||||||||
| Branded Digital revenues (GAAP) - YoY % change | (gg) | (1)% | (8)% | (8)% | (3)% | (7)% | (2)% | (5)% | ||||||||
| Branded Digital foreign currency translation impact | (i) | 2% | 3% | 2% | 2% | 1% | 0% | 1% | ||||||||
| Adjusted Branded Digital revenues (non-GAAP) - YoY % change | (gg) | 1% | (5)% | (6)% | (1)% | (6)% | (2)% | (4)% | ||||||||
| Branded Digital transactions - YoY % change | (gg) | (3)% | (1)% | 2% | 0% | 7% | 12% | 9% | ||||||||
| C2C Segment Regional Metrics - YoY % change | ||||||||||||||||
| NA region revenues (GAAP) | (aa), (bb) | (2)% | (5)% | (7)% | (4)% | (8)% | (8)% | (8)% | ||||||||
| NA region foreign currency translation impact | (i) | 0% | 0% | 0% | 0% | 0% | 1% | 0% | ||||||||
| Adjusted NA region revenues (non-GAAP) | (aa), (bb) | (2)% | (5)% | (7)% | (4)% | (8)% | (7)% | (8)% | ||||||||
| NA region transactions | (aa), (bb) | (6)% | (5)% | (2)% | (5)% | 1% | 4% | 3% | ||||||||
