$WU Western Union Q3 2024 Earnings Conference Call

Good afternoon and welcome to Western Union's third quarter 2024 financial results conference call. We continue to focus on becoming the market leader in accessible financial services for the aspiring populations of the world. We reported another quarter of improving adjusted revenue growth, with adjusted revenue up 1% excluding Iraq, the second consecutive quarter of positive growth. Consumer money transfer transactions grew 4% excluding Iraq, continuing mid-single-digit trends. Branded digital transactions grew 15% and revenue grew 9%, approaching double-digit growth. Consumer services grew 15% driven by FX and media network. Revenue reached $1.04 billion. Adjusted EPS was $0.46. Latin America saw short-term headwinds from elections affecting migration, but regions like Europe, Middle East, and APAC improved significantly. We are rolling out a new point-of-sale system, now with 12,000 agents in the US, targeting 25,000 by year-end. Debit acceptance in Europe is driving strong growth. We signed two M&A deals: acquiring Dash in Singapore and a digital wallet in Mexico. I remain confident in our evolved 2025 strategy. I will now turn the call over to Matt.

Hey Jason, we're paying a lot of attention to the US political environment, given what we've seen in Latin America. Different candidates have different perspectives on immigration, but we believe in the near to intermediate term, the election results won't have a dramatic effect on our business. Majority of our clients are already here, gainfully employed, sending money home. Over time, a significant reduction in inward migration would impact us, but we haven't seen that in either party's platforms over the last several years.

You know, we've said for probably the last couple of quarters that we feel like we're six months or so ahead of the original plan that we laid out in October of '22, which to your point is hard to believe was two years ago. A lot of water under the bridge in those two years, but it's working out pretty well. The underlying health metrics that we talked about from the beginning—acquiring new customers, driving 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. 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 and 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 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 accelerate as it did in this quarter, 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.

Yep. We are hard at work on guidance for '25, which will be in line with our expectations that we've set with the midterm guidance. But we are working, and we look forward to bringing our investors in 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 foundation building. It's been reestablishing our market competitiveness, investing in our technology, putting our core transaction 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 an end-to-end ecosystem that's a multi-product offering and has a two-sided payment ecosystem wrapped around it. So we are very excited about where we are and the progress we've made, and look forward to getting together with everyone in the second half of next year on the outlook beyond '25.

Darren, thanks for the question. You know, 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 we're hopefully establishing. Matt and I come from a place, as you well know, where it was built up with a couple hundred acquisitions over time. In the world of payments and digital financial services, there are many opportunities to accelerate our strategy with thoughtful and prudent deployments of capital that will accelerate beyond the pace that we can simply do organically. In both cases, we get access to licenses, technology, and 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. I laid out earlier in my prepared comments the progress that we've made in Singapore with our own store network, which was an acquisition the company did a long time ago of a master agent and had 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 in transaction double digits. That's a great foundation to put this digital wallet ecosystem that we've purchased from Singtel into. 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've built a foundation of strength, confidence in a local management team, and we can accelerate the end 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.

That's great to hear. The other thing I would add, Darren, is we also remain exceptionally disciplined, and Matt makes sure that the return equation to the investors is not just that we're advancing a strategy, but always compared to our alternatives of returning that capital to the investor. So it is strategically motivated and financially disciplined.

Yep. 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. They both on the digital and the retail side really was about returning the company to market competitiveness, and we're now seeing those investments paying off in many markets around the world. The second, which I talked a little bit about, is improving our operational excellence, the 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 agent 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 own stores—allows us to then have high-volume locations like the one I talked about in Lucky Plaza, where we really get the benefit of the fixed cost, the high volume and revenue, and a great customer experience. So deploying our three-part strategy around the world, where we are executing it well, it's actually getting us not just flat, as Matt highlighted in Europe, which is one of the most competitive and mature retail markets in the world—we now have mid-single-digit transaction growth. So we believe that's possible in more and more places around the world, and we are growing confidence, if not already confident, in our aspirations to achieve a stable retail business and thus the foundation from which to build everything else.

Hey Andrew, thanks for joining the call today. Yeah, so we've seen a bit of a slowdown over the last six weeks or so for US to Latin America, with the heaviest concentration being in Mexico. The tie ends very similar to what we're seeing with Inaca on its own. It feels much more macro in nature, but we're still evaluating it, working with our partners. We've met with a couple of our large partners in Mexico that are seeing a similar result for other competitors in the market space. I just came back from a trip two weeks ago to Mexico, Panama, and Peru to get a sense on the ground. I'm pleased that we have lots of customers in our retail locations, we're still onboarding new customers in our digital apps, but the palpable dislocation of what has happened and frankly the slowdown in the migration from important corridors like Colombia to Chile, or Chile back to Colombia, from Venezuela into Colombia and then into Panama and Mexico, the continued unrest that we have in Haiti—these things are impacting the migratory patterns, and our business in LatAm is 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'll 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 patterns, we're seeing a slowdown in the transaction growth rates that we've enjoyed for the last couple of years.

Yeah, thank you. So our well-wishes go out to our competitor at MoneyGram and to their customers. There are bad people and bad actors in the world that, for the grace of God, we all work exceptionally hard to protect against, and it's unfortunate they had that situation. It was a week, and it's a global market. We obviously saw some upticks in places where we're side by side with them, like in the UK, but there are actually very few places anymore where it's exclusively a MoneyGram and Western Union world. I mean, that's a world that maybe existed 15 or 20 years ago, but it's a lot more competitive now. We're obviously keeping close tabs on the market, and we saw a few upticks in places like US to Jamaica or Australia to the Pacific Islands, but 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.

Hey Ken, thanks for joining the call. I continue to be impressed by your model. I 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.

Yeah, thanks Ken. As you know, there's three big buckets of businesses in there. There's 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 accelerate. The second part of the business is our non-US bill pay assets, which includes our large business in Argentina, Pago Facil. As you know, that business is affected by what's going on in Argentina. Long term, it 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, it 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 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 the delivery for future returns.

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, 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. When we see opportunities from either an expanded LTV due to 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. So maintaining the discipline around that CAC-LTV model, whenever we see an opportunity, we take advantage of it and have driven the business. You can see in this quarter, which has been true for the last couple of quarters, we continue to invest behind the customer that pays out to account and creating the value proposition that makes sense to acquire and retain those customers. We had talked about it in a previous call, and we continued to see it in a high 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 environment. 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 additive to players like us who operate at scale and with discipline. Matt, I don't know if you want to add anything to that.

I'll take the first part of that, and I'll let Matt talk to you about the economics. Historically, we had a perspective that our retail business was largely cash in and cash out. As part of our reinvention of retail, we believe that there is a value proposition of in-person service, and that 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 and 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. We believe that helps make the retail experience more contemporary, 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 transactors than the all-cash customers. So we see, and Matt can talk about it, the benefit of sometimes even offsetting the cost of acceptance. Historically, we didn't have merchant acquiring relationships in many of these markets, and we didn't have a point of sale system and a 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 relationships 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 and settlement operations. We did that first in Europe, and now we're rolling it out to the US, and we're seeing positive results.

The other thing, Tim, particularly in some European markets and certainly in the US, many of our competitors in the independent channel where we sit side by side with other MTOs have offered debit acceptance. So customers coming in with a debit card and not cash were automatically directed away from our Vigo brand or Western Union independent locations to one of the competitors who could fulfill that need. So we are hoping there are market share gains for debit-preferring customers in multi-brand independent locations where we have historically been at a product disadvantage.

So what I will tell you is the recipe for success is discipline, discipline, and discipline. Every owned store comes with fixed operating expenses that include lease expenses and employees, as well as the normal power, 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 enough 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 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 in 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 and Panama and now in Mexico. We've been building out in certain countries in Europe where we see the conditions to be right 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 more countries outside of Singapore. But it is a measured process that can come one market, one country at a time with extreme discipline. We think long term it's really important to the strategy, and it will provide a foundation that makes the retail business viable and an important component in our retail-to-digital escalator, but it is something that's going to require patience to build out.