Good day, and welcome to the Western Union Second Quarter 2023 Results Conference Call. Please note, this event is being recorded. I would now like to turn the conference over to Tom Hadley, Head of Investor Relations. Tom, please go ahead.

Thank you. On today's call, we will discuss the company's second quarter 2023 results, and then we will take your questions. The slides that accompany this call and webcast can be found at westernunion.com under the Investor Relations tab and will remain available after the call. Additional operational statistics have been provided in supplemental tables with our press release. Joining me on the call today is our CEO, Devin McGranahan and our CFO, Matt Cagwin. Today's call is being recorded, and our comments include forward-looking statements. Please refer to the cautionary language in the earnings release and in Western Union's filings with the Securities and Exchange Commission including the 2022 Form 10-K for additional information concerning factors that could cause actual results to differ materially from the forward-looking statements. During the call, we will discuss some items that do not conform to generally accepted accounting principles. We have reconciled those items to the most comparable GAAP measures in our earnings release attached to our Form 8-K as well as on our website, westernunion.com, under the Investor Relations section. I will now turn the call over to our Chief Executive Officer, Devin McGranahan.

Good afternoon, and welcome to Western Union's Second Quarter 2023 Financial Results Conference Call. We are pleased with the results we reported today and the progress we are making against our Evolve 2025 strategy. The work we have been doing to deliver sustainable, positive revenue growth is beginning to take effect. In the quarter, we continued to drive improvements in the underlying trajectory of our business with positive transaction trends across both our branded digital and our retail businesses. Recall, two key pillars of our Evolve 2025 strategy include stabilizing our retail business and returning our digital business to low double-digit growth rates. The second quarter was continued evidence we are making good progress on both objectives. The second quarter was the first time in eight quarters that we have achieved positive transaction growth across the company with total C2C transactions excluding Iraq, growing 2% year-over-year. This is a significant improvement from the double-digit negative transaction trends we saw for most of 2022. I will provide more details on some of the initiatives we are working on. But first, let me provide a quick summary of our financial results. Our total revenue in the quarter reached $1.17 billion reflecting a 9% increase on a constant currency basis when excluding the contribution from Business Solutions compared to the same period last year. This growth was driven by several factors including improving fundamentals in our core business, the increase in revenue from Iraq and the benefit of Argentinian inflation. Adjusted earnings per share came in strong in the quarter at $0.51. Matt will further discuss our financial results in more detail and provide an update on our enhanced 2023 financial outlook. Shifting to the macro. Last month, the World Bank came out with its semi-annual migration and development brief, which is calling for low single-digit remittance principal growth in both 2023 and 2024. The World Bank noted headwinds to faster growth in remittance volumes, including a slowing global economy, persistent high inflation, increased interest rates and Russia's invasion of Ukraine. These are all macro themes that we have spoken about in recent quarters and factors we are paying close attention to. Nevertheless, we continue to see resilience in our own customer base. With the average PPT, excluding the higher PPT from Iraq, remaining relatively flat year-over-year. We also continue to believe that there are significant opportunities within our own business that will allow us to execute our strategy successfully even in the face of a potentially slowing remittance market. One of those important opportunities is the acceleration of our branded digital business which has been a key focus and the primary driver of the transaction improvements we have seen in recent quarters. This business has continued to show momentum in the quarter with 12% growth in transactions globally, which is a significant acceleration of the transaction growth trend we reported in the first quarter of 2023, which was up 7%. Constant currency branded digital revenue also improved this quarter sequentially to minus 2% with transactions up 12%, which reflects improvement in the underlying health of the business compared to the second quarter of last year, where transactions were down 3% and revenue was up 1%. As I have stated, we started out by focusing on growing our customer base, again, which in turn would lead to growth in transactions. And finally, growth in revenue would follow. I am pleased that we are on track and maybe even slightly ahead of the trajectory we laid out at our Investor Day last fall. These improvements in our branded digital business are attributable to the successful execution of our updated go-to-market strategy, which is driving meaningfully more customers to our digital properties. In the quarter, we saw global new customer acquisition up 20%, which underscores the effectiveness of our marketing and customer acquisition strategies as well as the improvements made to our customer onboarding, funnel conversion and overall customer experience. A central element of our updated go-to-market strategy is the constant focus on ongoing improvements in funnel optimization. In the second quarter, we simplified our historical registration process by limiting the number of fields required to register and by moving our value proposition front and center to help drive customer conversion. As a result, we have improved our web registration conversion rates by almost 500 basis points in our U.S. outbound business relative to the first quarter of 2023. In addition to improving our registration conversion rates, we've also seen dramatic improvement in our first transaction approval rates. In the second quarter, our first transaction approval rates in our U.S. outbound business increased roughly 600 basis points year-over-year driven by several improvements we have made to our decisioning models. For our new omnichannel customers, we now use a customer's previous retail transaction history in our digital approval process, which predictably significantly enhances decision outcomes. As previously discussed, our updated go-to-market strategy is focused on optimizing LTV to CAC by leveraging data-driven insights to improve audience targeting and funnel conversion, we continue to see a sustained improvement in our branded digital customer acquisition costs, which has strengthened our belief that the changes we are making are indeed durable. Moving now to our retail business, which is powered by our extensive agent network of over 400,000 active locations, providing accessible financial services to those customers who prefer in-person transactions. As we have discussed and expected, given the scale and dispersion of our retail business, performance improvements will take more time. Our retail business saw positive transaction trends in the quarter with a 120 basis point improvement in the growth rate relative to the first quarter excluding Iraq, Russia and Belarus. Performance year-to-date supports our belief that the retail transaction trends can continue to improve over time, which is needed to stabilize our retail business as laid out in our Evolve 2025 strategy last fall. Nowhere has this evolution been truer than in Africa. In the quarter, we saw a 6% revenue growth in our retail business in Africa. The management team that we have there is top-notch, and has been laser-focused on driving improved retail performance across the region. More broadly, in Europe, we continue to make progress on our controlled distribution strategy where we have now launched over 70 new concept stores since last year. During the second quarter, we also opened two exclusive Western Union branded corporate-owned stores in Belgium. This type of distribution allows us to control the customer experience, increase the number of products and services we offer, promote the retail to digital escalator and allows us to have deeper engagement with our customers. Our focus with the Evolve 2025 in retail has been to significantly improve our customer and agent experiences, including faster transactions, better end-to-end customer and agent experiences and higher quality agent support. As an example, I want to give you just a quick update on the recent function that we discussed on the last call. The use of Quick Resend where repeat transactions can be executed in a fraction of the time that was historically required continues to increase across our U.S. agent base and has grown by over 10 times from March of this year. In June, over 30% of all transactions completed at our Vigo brand were done using this quick send functionality – Quick Resend functionality. These types of process improvements may sound small in isolation, but we believe they can add up and become meaningful. A better customer and agent experience can ultimately improve retention and drive growth in the near term, but they are also driving efficiency throughout our organization. For example, roughly 15% to 20% of all calls to our call centers were associated with a refund request. As a result, we launched a process called One Step Refund which created a self-service tool for our agents to process refunds in one step and avoid the need to engage our support staff. During the month of June, we saw a 20% reduction in refund support calls. In more recent weeks, the percentage of refunds processed by our agents without call center support surpassed 50% of all refunds processed globally, up meaningfully from the mid-teens range that we were at early last year before we scaled this One Step Refund process. The One Step Refund process was designed primarily to improve agent and customer satisfaction. However, by simplifying the refund process, we now have fewer calls coming into our call center and thus can reduce run rate costs while focusing our customer service representatives on resolving more complex issues with better, more personalized support. Last year, on the first quarter earnings call, I talked about the process improvement opportunities I saw that could enable us to invest for growth while maintaining our strong margins. While transaction volumes have been increasing in recent months, monthly call center volume has decreased to the lowest level in at least eight years. Agent support calls have also dropped and collectively, we have seen a 30% decrease in total call volume, driving our contact rate down by over 20% year-over-year. I look forward to sharing more on this topic with you in coming quarters. We continue the build-out of our broader ecosystem strategy and are pleased to announce the launch of our new prepaid debit card in North America. Just this month, we completed the first commercial transaction on our prepaid card and have begun a friends and family rollout in the U.S. This card will provide customers with a convenient and secure payment solution, allowing them to manage their finances with greater flexibility. By reintroducing a prepaid card solution we aim to expand our product offerings and provide additional value to our customers. We are also now in the final phase of our friends and family testing in Brazil, and we expect our new digital wallet to go live in the third quarter. Brazil is one of the few markets where our digital business is larger than our retail business on a transaction basis. As such, we are excited to be able to expand our digital offering in this important market. Last month, I had the opportunity to visit Europe and review the progress we are making with our digital wallet there. We've continued to focus on the four markets we have launched so far and have made improvements to the onboarding processes and to the customer migration experiences. As noted on the last call, current and former, digital and retail Western Union customers continue to be our most valuable wallet customers. Improving the omnichannel experience will be important to further expand with these segments. Finally, shifting to some new additions to our executive team and partnerships. First, I would like to announce the addition of Sam Jawad to our management team as the new Head of ecosystem. Sam joins us from ACI, where he served as the Executive Vice President and Global Head of Banking. Sam brings nearly 20 years of experience in digital banking and payments and has a strong track record of business building. I would also like to announce the addition of Karen Whalen as our new Chief People Officer. Karen joins us from West Corporation, where she was the CHRO. Karen brings nearly 20 years of experience in human resources and is a high-impact leader that will play an important role in supporting us with our ongoing Evolve 2025 transformation. Lastly, we have partnered with UNICEF to provide our quick cash services. This partnership links closely with our purpose, which aims to help people prosper. We are also publishing our annual ESG report in the coming weeks, which will highlight our ongoing progress with key ESG focus areas, including furthering economic prosperity in promoting the integrity of the global money movement system. Looking ahead, we remain optimistic about our strategic direction and the positive progress we are making. The global payments landscape continues to evolve rapidly, driven by increasing digitization, changing customer preferences and our customers' aspirations for more. Western Union is well positioned to capitalize on these trends. Our digital services, combined with our extensive retail network, position us as a trusted provider of flexible and reliable financial solutions to the aspiring populations of the world. In conclusion, we are pleased with the improved trajectory of our business, driven by improving transaction trends across both our digital and retail businesses, our investments in digital acceleration and customer-centric initiatives are driving the company forward. We are excited about the launch of our new prepaid card solution in North America and the opportunities it presents as part of our ecosystem offering. We remain committed to delivering value for our customers, our shareholders and other stakeholders while adapting to the rapidly evolving market dynamics. Thank you for joining the call today. I would now like to turn the call over to Matt to discuss our financial results in more detail.

Thank you, Devin, and good afternoon, everyone. I'm delighted to be here today to discuss our financial performance over the past quarter and highlight some of our key achievements. I will also outline our outlook for the remainder of the year. Let's start by discussing our financial results. In the second quarter, Western Union delivered adjusted revenue of $1.17 billion representing a 9% increase year-over-year, which exceeded our internal expectations due to the revenue increase from Iraq as well as a 3% benefit from Argentinian inflation. As you may recall, we shared last quarter that a monetary policy change in Iraq drove a 2% benefit to adjusted revenue as we were able to quickly adapt to serve our customers. That benefit continued in Q2, providing a 10% benefit to adjusted revenue. While this meaningful benefit in the quarter, we expect Iraq volumes to be significantly lower going forward. I will discuss our forward-looking assumptions when we get to the financial outlook in a few moments. We also continue to make progress with our Evolve 2025 strategy, growing C2C transactions for the first time since 2021, led by the continued momentum of our branded digital business, which grew 12% in the quarter. As Devin highlighted earlier, we are optimizing our branded digital go-to-market strategy and saw sequential improvement in overall funnel conversion during the quarter. Our retail business also saw improving transaction trends even excluding Iraq. Adjusted operating margin was 21.8%, compared to 23.3% last year. Nearly half the decrease was driven by currency impacts, including those related to our hedging program. The remainder of the decrease was due to higher variable costs in investments related to our Evolve 2025 strategy, partially offset by lower marketing spend and net savings related to our expense redeployment program. As you may remember, last October, we launched a 5-year $150 million expense redeployment program. I'm excited about our progress. Since launching, we have taken action that will allow us to free up more than $45 million in 2023 with over $30 million of total savings recognized year-to-date. This has positively impacted our adjusted operating margins as our ability to save continues to outpace our ability to invest. Adjusted EPS was $0.51 and was flat year-over-year with the current period benefiting from lower share count, lower adjusted tax rate, partially offset by lower profit. Now turning to the C2C segment. Revenue grew 5% on a constant currency basis led by Iraq with transaction growth of 4%. All regions, except for LACA drove sequential transaction improvements and LACA's historically strong growth stayed flat quarter-over-quarter. For our branded digital business, Revenue was down 2% on a constant currency basis on transaction growth of 12% and had new customer growth of 20%, driven by our updated go-to-market strategy launched last August. We expect to see positive global revenue growth in the fourth quarter of this year. Now moving to the regional results. In the second quarter, North American adjusted revenue decreased 7%, while transactions accelerated and grew 4%, led by our branded digital business, which had 15% growth in the quarter. Transaction trends also improved 100 basis points sequentially in our retail business. In North America, we continue to expect revenue growth in our North America branded digital business in the third quarter. Revenue in Europe and CIS was down 10% on a constant currency basis, while transactions declined just 1%. As we've discussed previously, the region has faced a tough macro backdrop, along with continued competitive pressures, driven by the Russian invasion of Ukraine, stubbornly high inflation and the loss of a significant agent in Q4 of last year. During the quarter, we began to pilot a new go-to-market strategy which is a combination of leveraging our controlled distribution through owned and concept stores, as Devin discussed earlier, new agent onboarding and enhancing our value proposition in the marketplace. We're very encouraged by our early results of this program, which led to a 300 basis point sequential improvement in retail transactions, excluding Russia and Belarus. Revenue in the Middle East, Africa and South Asia region accelerated meaningfully, growing 67% on a constant currency basis on transaction growth of 8%. Iraq led the region with higher principal per transaction driving the revenue growth. As Devin mentioned, we are also seeing solid improvement in our African retail business, with revenue up 6% on 500 basis points of sequential improvement in transactions. This is driven by enhanced on-the-ground execution and marketing, several new wallet partnerships, and good adoption of some of our new retail enhancements such as One Step Refund. Constant currency revenue and transactions in Latin America and the Caribbean were up 8%. This solid performance in the quarter was led by strength in Argentina, Ecuador and Venezuela. The sequential revenue growth was down due to mix, including yield impacts from higher exchange rates which have put pressure on higher ticket transactions in certain countries. And finally, revenue in APAC was down 4% on a constant currency basis with transactions up 1% led by our branded digital business. APAC has driven a significant improvement in its transaction trends versus the double-digit declines that we experienced last year. Now moving to our other segment, which primarily consists of retail bill payment in Argentina and the United States, and retail money order in the U.S. Other represents 7% of total company revenue and grew 10% year-over-year on a reported basis, benefiting from higher interest rates in our retail money order business as well as solid transaction growth. We are also excited to announce the completion of the final phase of Business Solutions disposition, which occurred on July 1. Now turning to our cash flow and balance sheet. Year-to-date, we have generated $264 million of operating cash flow, which includes a transition tax payment of $119 million in the second quarter. As a reminder, these tax payments will continue to step up over the next 2 years and will end in 2025. Capital expenditures were $33 million in the quarter and $90 million year-to-date. As mentioned last quarter, we expect lower agent signing bonuses in the first quarter include a large payment that was committed to during the second half of 2021. We continue to maintain a strong balance sheet with cash and cash equivalents of $1.6 billion and debt of $2.8 billion. Our leverage ratios were at 2.7x and 1.2x on a gross and net basis, which is up given the timing of payments around the Eid holiday. These leverage ratios continue to provide us with flexibility for potential M&A while maintaining an investment-grade credit rating. Now moving to our outlook. Today, we raised our 2023 adjusted revenue and EPS outlook due to higher revenues in Iraq. As mentioned earlier, we expect these volumes from Iraq to be significantly lower going forward. This is due to recent U.S. government actions, which shut down a number of our agents in Iraq, potential regulatory changes in Iraq or the U.S. and/or policy changes made by ourselves in the region. As a result, due to the high degree of uncertainty, we have only included the elevated remittance volume from Iraq in our outlook through the end of July. Our outlook also assumes no material changes in macroeconomic conditions. We now expect adjusted revenue to be in the range of down 1% to up 1%. This is an improvement from our previous range by 300 basis points. We continue to expect adjusted operating margins to be in the range of 19% to 21%. And lastly, adjusted EPS is now expected to be in the range of $1.65 to $1.75, which is a $0.10 increase from our previous range. Looking ahead, we remain optimistic about our prospects for the remainder of the year. We will continue to invest in key growth areas related to our Evolve 2025 strategy, including prioritizing customer and agent satisfaction.

Our first question comes from Will Nance from Goldman Sachs.

You mentioned you think you might be trending ahead of your own expectations of the Evolve 2025 strategy. Obviously, great job in highlighting a lot of it aside that strategy. You mentioned a few things that you're doing to improve authorization rates, customer acquisition, digital transaction growth, anywhere in particular within those initiatives where you would point that kind of drove back? And then I guess, secondarily, you kind of had this sort of one-off with Iraq. You mentioned accelerating some investments in the quarter, at least that being an offset in the quarter on the Evolve 2025 strategy. So if we put it all together, you're ahead of plan and you've got more investment resources, where do you think is the best place to incrementally accelerate that strategy?

Well, thanks for joining the call. We are excited about the progress that we're making with Evolve 2025, and I think as demonstrated today in the sequential improvement, in transaction trends, in both digital and retail, we're at or slightly better than what we expected, as we had talked about first growing customers, then growing transactions, which will then turn into revenue. Our ongoing investments fall into two or three categories. One is around continuing to update our product experience and our customer service and agent experience. And you heard today some of the places where we've been investing in our platform and our products and our ability to deliver those seamlessly to our customers and through our agents. As we find opportunities and have the capacity we will continue to accelerate in those kinds of investments that can indeed improve either our onboarding experiences, our funnel output or our agent support experiences. Many times, that requires investing in technology. As we talked about in Evolve 2025 driving both our customers and our agents towards better self-service and more automated experiences not only reduces operating costs, but it improves our ability to serve and grow those customer bases. The second place where we really look is to our go-to-market. And you heard on the call today, both continuing to invest in our audience targeting and our marketing as well as in our retail footprint and our go-to-market strategy. So again, as we have capacity and ability, we'll continue to make investments in those. The third place is in our human resources and on our team and our talent. You heard about two additions today to our senior team that is trickling through our entire organization as we bring new capabilities and new team members on board to help drive the strategy. I'll turn it over to Matt for the second part of your question.

Will, just to your second part, also, as you think about this, the vast majority of the uplift we got from Iraq, we have flowed through our revised guidance. We've only taken a modest amount into our investments, Devin just walked through.

Got it. Appreciate that. And then maybe just a clarification on the Iraq moving pieces. I mean you mentioned in the press release having discussions with policymakers, obviously, sanctions. I guess on the other side of this event, like do you expect the Iraq revenues to be like the same? Or is it going to be at a lower level post the sanction event? And then on the expense side, are there any expense complicated investments that will result from the subsidy?

Yes. Well, thanks for the question. So since the new guidance coming out from the U.S. Fed, which was put out about a week ago, we've seen a decline in our run rate from the first part of July by about a 70% reduction, that turned off a number of our agents in that marketplace. To your question about investments for compliance and other things, as you know, we've got a very robust compliance program, it's one of the reasons why we were able to take the ability to service these clients when the opportunity came arise. But we have also put a little bit more money into that market, some of where the incremental revenue and profits we got from Iraq is going back into the compliance space over the last few months.

Our next question comes to us from David Togut from Evercore.

Just to clarify, how much of the $0.10 increase in the EPS guidance range for this year comes from Iraq?

David, this is Matt. Virtually all of it. To be honest, it is all of it. Our core business is functioning as we anticipated. As we discussed in our guidance last year, we provided a range, and we are making solid progress towards that, with Iraq contributing to the uplift.

And then maybe just staying on this point, how much of the change in Iraq do you think is structural where there could actually be some benefit to Western Union beyond 2023?

It's too early to know, David. That's one of the reasons why we put it out there, is it being uncertain. It's been a very evolving situation. We have regular calls with the regulators in both markets. We're trying to help them understand what's going on. They're trying to balance overall macros around the world. So it's uncertain what they're going to do.

The only thing I would add, David, is evidenced by the last, call it, four or five months, we are well positioned in the market relative to other alternatives. As Matt highlighted, we have very strong risk and compliance. And so as the situation evolves, I know that we are at the ready and prepared to evolve with it and take advantage of anything that might be advantageous for Western Union and our customers in Iraq.

Our next question comes to us from Darrin Peller from Wolfe Research.

I want to quickly follow up on Iraq with a more fundamental question. The contribution from Iraq is around $10 billion, which is a bit surprising since you typically don't see more than a few percent concentration in a given market. So how is that significant to you, considering what you're describing as a 10-point lift to revenue growth? Can you help us understand the dynamics? Some of that may be sustainable, but some seems quite high. On a more constructive note, the acceleration of digital transactions leading to overall revenue growth is definitely what we were hoping to see. Devin, could you revisit the timeline for transaction acceleration in the U.S., possibly Europe next, and how that correlates to a reacceleration of revenue growth in the digital sector? Lastly, I'd like to mention retail, which appears to have improved based on the comparison of digital growth and total transaction growth, along with what's happening in the retail space.

Thank you for joining the call, Darrin. Regarding Iraq, back in February and early March, the Central Bank changed its policy nationwide. Western Union was in a unique position due to our strong relationships with local banks in Iraq, allowing us to benefit from this policy shift and facilitate significant remittance outflows. Essentially, the banking system in Iraq faced a shutdown in its ability to process outbound remittances. We do not expect this high level of activity to persist, as both Iraqi and U.S. regulators, along with the central banks, are working on new policies for regulated banks to resume remittance exports. That said, we are well positioned and have noticed a growing adoption of digital services. Our strong partnerships with digital players and wallets in Iraq may encourage consumers to remain within these digital experiences instead of reverting to traditional banking methods. It's a rapidly changing landscape. We maintain a strong presence in Iraq, collaborating with regulators and central banks, and we will keep you updated on developments. Outside of Iraq, we are pleased with our progress in both digital and retail sectors. For digital, we aim for positive revenue growth in the U.S. by the third quarter, following our program launch in August 2022 and initial ramp-up in September. As we mentioned during our Investor Day, we anticipated a 12- to 18-month period to see returns on our investments for customer acquisition, and I believe we will achieve this within 12 months, slightly ahead of our original timeline. We expect our business to continue expanding. After experiencing success in North America, we began introducing our approach to key countries in Europe and, in the first quarter, expanded further into regions like Australia. Our results show growing transaction trends not only in North America but also as we roll out our program globally. As noted by Matt, we anticipate reaching global positive revenue growth by the fourth quarter of this year, in line with our plan from the Investor Day. We expect customers will drive transactions, which will lead to revenue growth that normalizes as we continue to build on our investments from the past year. On the retail side, we are excited about the progress we are making in enhancing our agent experience, boosting agent productivity, and better serving our retail customers. This is now reflecting positively in our quarter-over-quarter results, even in challenging markets like Europe where we've faced difficulties with our agent network and macroeconomic challenges. We are nearing flat transaction growth period-over-period.

Our next question comes to us from Bryan Keane from Deutsche Bank.

Devin, I want to follow up on that on Europe and CIS that improvement that's it's been significantly negative growth rates, double-digit growth rates for several quarters. Just to understand the turn there, it's almost flat now. And what's the outlook going forward? Can that go positive going forward in Europe and CIS region?

We have been focusing our efforts in Europe, especially on the retail side, addressing various factors affecting the region, both macroeconomic conditions and our historical performance. We have identified areas of growth where we have made investments and where our relationships with agents and customers are stronger. These areas include Spain, the U.K., and Italy. In larger markets like France and Germany, we started from a weaker position, resulting in mid- to high single-digit declines in transaction growth. However, we believe that by expanding our presence in these larger countries, adding more agents, and improving distribution, we can align these markets with others where we are seeing positive transaction growth. Our goal, as stated in our strategy last fall, is to achieve low single-digit transaction growth across the region.

Got it. And I don't know, Matt, if you guys gave this number, but in the Middle East and Africa, that region that saw a significant increase in revenue growth, primarily due to Iraq, what would the normalized transaction growth rate be, excluding Iraq in that region?

We did not provide that number, but it would have still shown a sequential improvement like many of the regions around the world that are approaching zero.

Our next question comes to us from Tien-Tsin Huang from JPMorgan.

Just on the acceleration to the 12% growth, that's nice to see for the digital branded piece, does that change your thinking on broadening your promotions in geo expansion. I'm curious on that. And is it related to some of the comments you made on improved transaction approval rates and things like that? I wasn't sure if those things were tied, and I guess, you don't mind if I just add my follow-up to that, is with the improved approval rates. Any changes in the fraud activity or surprises there?

Thanks, Tien-Tsin. Great to have you on the call. Our ongoing investments, and you can see it in the numbers. We've talked a lot about being very disciplined with our LTV to CAC. And so one of the things we've been working hard with this program is to improve the efficacy of those marketing dollars and to convert more people from our top of funnel to bottom of funnel, which is what I was talking about in terms of our conversion rates, both on registration, on first-time risk acceptance and we're working, Tien-Tsin, more broadly across the funnel in every case to ensure that the changes we're making are sustainable and durable over time. And so as you know, we've talked a lot on the call about ensuring that our promotional pricing activities, in fact, turn into customers and those customers turn into transactions, right? And so I think we have growing confidence that the overall program, aside from the promotional pricing is, in fact, driving real benefits and real outcomes which is now you're seeing in the 12% transaction growth globally and the 15% in North America. So to answer your question, I don't anticipate a lot more rolling out of any promotional pricing activities. There are a few places in the world we might explore. But in most of the big important places, we are well on our way and we are requiring or needing any more promotional pricing.

Got it. And then just on the fraud piece, I know that in the past, we've always asked about that as you open up the funnel. Does it bring in more fraud? Any interesting observations there?

Yes, thank you for the question. Early observations indicate that since we've opened it up, we haven't seen any significant change in our fraud losses. We are monitoring this closely and will make adjustments as needed. Our main focus, as we've discussed with the team managing this, is to prioritize profitable transactions over merely increasing transaction volume and revenue. We will continue to monitor the situation and adjust as we identify the ideal balance.

And Tien-Tsin, Matt would have the specifics. But one of the things as we, again, are working on funnel optimization. We actually saw our fraud results improve significantly, which then gave us the ability to say how could we use that capability to grow our customers? So year-over-year, period-over-period, our fraud results have improved, not worsened.

Our next question comes to us from Rayna Kumar from UBS.

Just wondering on the second quarter operating margin, that was expected to be below the full year outlook. I think it was your initial guide, but it ended up being near the high end of the range. So just curious what came in better than expected there?

Rayna, this is Matt. The principal driver of that is Iraq, having the extra revenue there that was not anticipated when we put out our guidance that represent a large portion of the over delivery. The other part that's driving it is the fact that we are still outrunning our ability to invest with our cost savings program.

Understood. And then as a follow-up, I know last year, you guided to mid-single-digit EPS growth beyond 2023. So is it a safe assumption to say that you're still on track for that mid-single-digit growth in 2024, excluding that $0.10 benefit from Iraq?

I am looking forward to discussing 2024 in February, but you probably have some good assumptions directionally.

Our next question comes to us from Tim Chiodo from Credit Suisse. Our next question comes to us from Ken Suchoski from Autonomous.

I like the chart on Slide 8 of the slide deck that shows the transaction growth and the constant FX revenue growth for the branded digital business. And it looks like the gap between those two lines has widened a bit in Q2 versus Q1. I'm just curious how you expect that spread to trend over the next few quarters?

Ken, as we discussed in the previous quarter, we anticipated that this quarter would represent the peak of that expansion. We mentioned this in our Q1 call and expect it to narrow for the rest of the year. As Devin mentioned a moment ago, we've been talking about our new customer growth, and we anticipate that all three metrics will align in the upcoming quarters.

And Ken, the gap is probably a little bit wider than we anticipated, and that's driven by success on ongoing customer transaction trends that are slightly better than we anticipated as well. And so what you're seeing is slightly better retention of the new customer base is transacting slightly higher than we expected, which is causing the transaction trends to outpace a little bit of what we thought.

Okay. Great. And then maybe just as my follow-up, I wanted to ask about the composition of the digital business because obviously, this is a business that's accelerating. It looks like North America growth is strong. What's the geographic composition of that business? And maybe you could provide some detail on the growth rates across those regions. I'm just curious if you're seeing an improvement in Europe and other parts of the world?

Ken, we have not typically shared that information, but we usually tell everyone that you can examine the mix of our overall C2C by region, which will give you an idea of the global dispersion. This closely aligns with the size of each region around the world. As Devin mentioned, we launched in North America first, followed by Europe, which are our two largest markets and account for the majority of our business. Therefore, you can conclude that they also represent the majority of our branded digital business.

Our next question comes to us from Jason Kupferberg from Bank of America.

I have a question just related to the outlook for the balance of the year. I'm just looking at adjusted revenue growth through the first half of the year. I think that's up 4%, the midpoint of the full year guide is 0. So I guess we're looking at negative 4% in the second half. I know that Iraq helped you by 10 points in the second quarter. So you would have been minus 1% instead of plus 9%. So I guess I'm just looking at that kind of minus 1% Iraq adjusted number in Q2 and trying to see what the pieces are between the minus 1% in Q2 and then what looks like kind of minus 4% in the second half? And I just want to make sure we have all those piece parts in the model.

Jason, I'm not sure I completely follow but I'll try to play it back. And if I get it wrong, we can take it off-line with Tom and team. But what we have done this quarter is we've taken up our guide based on the revenue expectation from Iraq for the 3-month period of April through July and flowed that through, and the outlook for the back half of the year is largely similar to what we had originally when we gave our guide. I don't know if that answered your question, but we can take it offline and go a little deeper if you want.

Okay. We'll do that. I guess my follow-up just on the C2C transaction growth, if we exclude Iraq and Russia, Belarus, obviously, the plus 2% in the quarter. What are you assuming for that metric in the second half? And then if you would deconstruct it into digital versus retail as well?

Yes, we're not really providing that level of outlook. There's a lot of moving parts in our business, and we're flexing it from quarter to quarter making decisions that may move around.

Our next question comes to us from Andrew Schmidt from Citi.

Devin, I appreciate all the commentary here. On the digital business, I'm wondering now that we're further along in the new strategy, are there any comments in terms of what you're seeing in terms of CAC or payback period levels? And then correspondingly, as you do get more comfortable with the unit economics of the digital business post the new promotional strategy, if there's an opportunity to get more aggressive with marketing budgets and customer acquisition cost. Any help there would be helpful.

Andrew, thank you. As you can see in the results, we are, in fact, being disciplined on LTV to CAC, which is one of the reasons marketing spend is down period-over-period. One of the important parts of our program, and that is part of why I was talking about those conversion rates and those acceptance rates is to be able to scale marketing investment profitably in order to continue the growth trajectory that we aspire to. And so we would and will as we can deploy more marketing dollars to drive more growth but we are going to ensure that we are doing so at a responsible level.

Andrew, just a reminder, you've probably heard this last quarter, but our CAC came down last quarter about 20%. We didn't update that this call here, but we're continuing as Devin just talked about, to be very mindful where we spend it and making sure we have that right conversion ratio.

Well, we've been driving 20% new customer growth, right? A good thing.

Understood. Very clear. And then just a quick follow-up. Great to hear about the sequential improvement in the retail business. I know we get a lot of questions about that. Maybe in North America, if you could talk about just independent channel versus big box? I know, Devin, you talked about a lot of improvements you're making, and those are good to hear. But curious if there's any just qualitative commentary on the performance across those two channels?

We believe, Andrew, that our branded distribution, both big box and independent is a strategic advantage for us. That's true in North America, but it's also, as we've talked about, true in Europe where we're expanding what we call concept stores or branded exclusive distribution. So we've been actually putting a lot of emphasis on how do we grow that? How do we create great experiences for those agents and how do we serve customers to those channels? As you know, the independent agent channel, the customers exist and the agents basically compete on the basis of price and agent commissions. And so over time, that's just a less attractive channel in which to drive growth. We will compete in it, and I think we're doing well as evidenced by Europe, which is predominantly independent agent channel at this point. But over time, we will be emphasizing our branded exclusive both strategic, which is what you call big box and independent, which is our smaller mom and pops.

Our next question comes to us from Tim Chiodo from Credit Suisse.

Great. Sorry about that earlier. The Slide 9 seems to be one of the core slides in terms of the core underlying trend for retail. It excludes some of the year-over-year impacts and the Iraq impact, then it shows improving trend there. I know Jason took a stab at that in terms of seeing where that could exit the year, but it does seem to be working its way back towards positive. Maybe you could just put a little bit more regional color on maybe some of the areas of strength in terms of the core retail business that is driving that line upward. And then as a brief follow-up, this was kind of referenced earlier, but topic comes up from time to time, rather than looking at it on a percentage of retail locations, but maybe you could just give a brief update on in terms of percentage of transactions, how many of those are coming from more exclusive retail partners versus not?

Tim, thanks for joining. On your question about where is it coming from? We're actually seeing strength in really all of our regions. The only place that's really been flat quarter-over-quarter that up on the prepared remarks is LACA, but they've obviously been the high watermark now for a number of quarters in a row. Whereas other regions are starting to make improvement. I also highlighted in my remarks about APAC, they have seen a really strong improvement in retail as well as our digital business. Devin highlighted, and I added to it on Africa, seeing a 500 basis point sequential improvement largely at the retail market. So you can really see this in a lot of places around the world. It's not one place. It's a lot of the things that we're building on our platform around customer service and on our POS solutions is benefiting most of the regions, if not all.

And the other thing I would add to that, Tim, right, and it was in the prepared remarks, getting Europe to now what is near flat, negative 1% transaction growth, given the sheer scale of the European retail business and our global retail business is a big driver of the change from negative 6% to negative 2%, just from a math basis.

Our final question comes to us from Vasu Govil from KBW.

I guess two quick ones. One on just the margin guide. I know the margin guide is unchanged but we're tracking ahead on a year-to-date basis. So should we expect to be at the higher end of the range? Or is there any color that you can offer on the cadence of margin expectation from here?

We're not going to guide one way or the other in the range. We intentionally left it wide because we want to have flexibility, but we are committed to the EPS range we provided. So you can model a couple of different sensitivities there and think about where it may go within the range based on what happens in non-op and taxes. But our focus is to maintain some flexibility if the right opportunities for investments happen and then make sure we deliver the commitments we've made to you all and our shareholders.

I have a question for Devin about a specific bank initiative. I understand that you have launched it in a few regions in Europe, as well as in Brazil and the U.S. The main goal was to enhance engagement and retention, even if it didn’t generate new revenues. It’s still early, but what observations have you made regarding that? Have you come across any metrics that indicate an increase in engagement?

Vasu, thanks for asking. I think the comments that we had on the second or the first quarter call now into the second quarter call remain consistent, right? We're live in four countries. We're anticipating going live here in Brazil shortly, and we're looking forward to a launch in the U.S., at least in friends and family before the end of the year. Our experience has been pretty much validating, which says current and existing, retail and digital customers as well as surprisingly lapsed retail and digital customers using the digital wallet product end up being more valuable customers to us in the digital wallet product, both from an engagement standpoint, i.e., the number of transactions per month is up significantly as well as on an economic value in terms of the value of revenue generated per customer on a monthly basis. So we've been working hard on improving the experience in the onboarding for those existing and former customers in terms of being able to grow that population of the customer base in the wallet versus what we call new to franchise or customers who are not traditional remittance customers, those look a lot more like other people's digital banking customers which are less economically attractive than our customers using our digital wallet product and services.

Thank you for joining the Western Union Second Quarter 2023 Results Conference Call. We hope you have a great day.