Western Union CO Q2 FY2025 Earnings Call

Good day and welcome to the Western Union Second Quarter 2025 Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the call over to Tom Hadley, Vice President of Investor Relations. Tom, please go ahead.

Thank you. On today's call, we will discuss the company's second quarter 2025 results, our 2025 outlook, and then we will take your questions. The slide 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 Kegwin. 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 2024 form 10k 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 gap measures in our earnings release attached to our Form 8K, 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 2025 financial results conference Today, we reported a reasonable quarter against a difficult macro backdrop as we continue to implement our evolved 2025 strategy which is focused on returning western union to sustainable profitable revenue growth our strategy is to become a truly customer-centric company by being market competitive in the most important corridors increasing our executional rigor and being the market leader for great omnichannel customer experiences while we were while we are investing in this evolution, we continue to deliver above average, above industry average margins, return capital to shareholders, and maintain our investment grade credit rating. We remain optimistic about the long-term outlook as our investment in becoming market competitive over the past two years has provided a foundation for what we believe will be future share gains propelling revenue growth in both our retail and digital businesses. We are also continuing to build up our consumer service business, which contributed significantly in the quarter. Our travel money business will be approaching $100 million in revenue this year from nearly nothing a few years ago. For the second quarter, we reported revenue of $1,026,000,000, On an adjusted basis, and excluding the impacts from IRAQ, this was a decline of 1% year-over-year. Overall, consumer money transfer transaction growth was down 3% in the quarter, and cross-border principal growth was up mid-single digits on a constant currency ex-IRAQ basis, speaking to the resilience of our customer base and their perseverance in the current macro backdrop. While our retail business in the Americas continues to face headwinds associated with the current geopolitical environment, our retail business in Europe performed well with mid-single-digit transaction and revenue growth. Our branded digital business increased transactions by 9% and adjusted revenue by 6% in the quarter. Consumer Services adjusted revenue growth was up 40% in the quarter, driven by our acquisition of EuroChange and strong European travel, which is the driver of our expanding travel money business. We expect our travel money business to have another strong quarter in Q3 as we continue to benefit from EuroChange acquisition and the summer travel season. Our adjusted earnings per share came in at $0.42 compared to $0.44 this quarter a year ago, a decent result as Q2 2024 benefited meaningfully from higher revenues and operating profits from Iraq, which were not repeated in the current quarter. Our discipline in managing costs is coming through. Matt will discuss our second quarter financial results in 2025 Outlook in more detail later in the call. Now switching to the macro environment. As you know, our core business is fundamentally linked to human mobility. When people move, whether for education, employment, or family, they rely on Western Union to send money across borders. Because of this, immigration practices and policies around the globe play a critical role in our business with both short-term and long-term implications. We firmly believe that in the long-term, the global mobility of people from lower productivity countries to higher productivity countries is essential if the more developed economies of the world wish to maintain their economic growth given declining birth rates and lower labor force participation rates. In the short term, such as this quarter, we can see shocks in the long-term trend lines driven by changes in policies. While our global business has continued to show resilience and growth, the Americas, and particularly now the United States, have become more challenging in recent months. We have observed an increase in immigration enforcement activity, including workplace inspections and high-profile raids in sectors such as agriculture, construction, and food processing. While these actions are limited in scope, the ripple effect would appear to be having an impact on our business. They can create hesitation within immigrant communities, leading to reduced transactional activity, changes in SEND behavior, and or shifts towards less visible and or informal remittance channels. These developments are creating short-term headwinds, especially in markets where recent enforcement efforts have been concentrated. While we remain confident in the long-term resilience of these customer segments, we are seeing market-level softness in some U.S. outbound corridors. In response, we are doubling down on our commitments to customer experience, trust, and compliance. We continue to work closely with the government as well as community organizations and advocacy groups to ensure that our customers continue to have access to high-quality financial services. Earlier this month, legislation was passed in the United States that included a 1% tax on remittances. This legislation will go into effect at the beginning of 2026. Generally excluded from this legislation are any remittances funded through non-cash means, which excludes virtually all of our digital business in card-based retail, or roughly 50 percent of our U.S. CMT business today. We expect that this would limit our exposure to less than 20 percent of our total company revenues that are tied to U.S. retail cash-based transactions. Looking at some of our largest retail partners in the U.S., we see debit card funding rates at 30 percent or even better, which causes us to believe that as debit adoption increases across our retail footprint in the U.S., our true exposure could be 15 percent or less of our global business. Given this, we believe a 1 percent remittance tax on cash-based remittances is not likely to have a meaningful impact on our business going forward. That said, we are rapidly building the required infrastructure to accurately collect and remit the tax when applicable. Our customers will have multiple options for non-cash remittance transactions, including card-based or bank-linked transactions at most retail locations in the U.S. and on our digital platforms. This will include card acceptance at Western Union and Vigo-branded locations, as well as through all Western Union digital offerings. U.S. customers can now also enroll in our VigoMoney digital wallet, which offers a number of benefits, including being available as a tax-free digital funding source for remittance transactions. In addition to helping our customers use the bank products that they already have, we are accelerating our efforts to enroll our customers, who currently do not have these types of accounts, into our digital wallet. We see this as a potential accelerant to our efforts to roll out our digital wallet in the U.S. as our agents will now have a shared incentive to help enroll customers. The move to card-funded transactions at retail could also generate cost efficiencies over time by replacing our cash handling costs with relatively lower debit fees while also reducing the high cost of cash handling that our agents bear themselves. Looking ahead, despite the near-term headwinds in the Americas, the broader trends remain clear. Global migration is not slowing. It is evolving. Whether driven by labor demand or political instability, people will continue to move. And we will continue to support them with solutions that are safe, fast, and trusted. Now, I would like to shift gears to another recent hot topic. Stablecoins. Historically, we have taken a conservative view towards cryptocurrency as a legitimate alternative to more traditional cross-border money movement, given its historic volatility and lack of a clear regulatory framework. This position has served us well and prevented many low ROI investment that others have made. However, with the passage of the Genius Act, we are actively revising our position. With a clear regulatory framework and guaranteed redemption value, we believe there are several opportunities worth exploring and investing in. We particularly like opportunities we see in Treasury operations with increased settlement speed and potentially lowered required partner funding requirements. Stablecoin-enabled solutions have the potential to reduce friction and float, enabling faster, more efficient movement of value between our global network and local payout partners. We are actively testing programs that leverage on-chain settlement rails for back-end treasury applications. The goal is to reduce dependency on legacy correspondent banking systems, shorten settlement windows, and improve capital efficiency, all without compromising compliance, transparency, or customer experience. These innovations align closely with our broader strategy to modernize the movement of money, and we believe they could ultimately improve our ability to manage our global liquidity. In addition to treasury operations, we continue to explore opportunities to leverage Western Union's technology and capabilities to, first, make our payments network available as an on-ramp and off-ramp to connect the fiat world with the digital crypto world. Two, leverage stable coins to enable global payments across digital channels. and, three, provide buy-sell-hold capabilities to our customers to access cryptocurrencies in our digital wallets. We see that there are many near-term opportunities and have been pleasantly surprised at the high level of interest in using our payments network for on-and-off ramps in various parts of the world. We look forward to sharing more about our plans in this exciting area at our Investor Day on November 6th. Another place where we are starting to see exciting progress is in the integration of AI capabilities into our core business processes. We see artificial intelligence as becoming a foundational enabler of the next chapter of our transformational journey. Over the past couple of quarters, we've accelerated the adoption of AI across our core operations and are now beginning to see tangible results. A couple of great examples include using AI-powered customer service representative assistants to summarize transaction experiences, indicating to the CSR where specific points of issue are and helping them identify and solve our customers' problems without lengthy explanation. This has allowed us to lower handle times by over 50% where these CSR assistants are active, dramatically improving our customer experience. Also in customer service, we've integrated AI into our customer service QA function, and this technology has enabled us to go from sub-1% sampling to over 90% call sampling in the most recent period. real-time case-based feedback drives CSR learning and improvement at a much faster rate in our tech department we recently announced a partnership with HCL that gives us access to their gen AI gen AI platform AI force which will improve workflow efficiencies across both the engineering and application maintenance activities. We now have several hundred engineers participating with code completion co-pilots, driving productivity and quality improvements in our software development processes. In our treasury and liquidity management operations, we're piloting AI models to better anticipate pre-funding needs and optimize capital deployment across corridors. This program will drive lower pre-funding requirements and allow us to bring back more cash to our corporate treasury for strategic M&A and or return to our shareholders. With these experiences, we believe AI will enable us to continue to optimize our cost base for years to come, improving outcomes and reducing operating costs simultaneously. In conclusion, despite the current market outlook on our company, We are optimistic about the potential of our business and the platform it provides for a growing and profitable future. Our very resilient business model, with its strong cash-generating characteristics, is the foundation from which we continue to improve and build upon. I look forward to coming back in the fall and sharing with you our plans for this platform and our positive outlook on the future. I will now turn the call over to our CFO, Matt Cagwin, to discuss our financial results in more detail.

Thank you, Devin, and good afternoon, everyone. I'm going to walk everybody through our 2025 second quarter results and our revised 2025 financial outlook. In the second quarter, GAAP revenue was $1 billion. Excluding Iraq, our adjusted revenue was down 1% on a year-over-year basis. The decline was led by slowing in our retail business, largely driven by North America, while our branded digital and consumer service businesses continued to grow. Adjusted operating margin was 19% in both the second quarter of this year and the same period last year. Our operating margins were negatively impacted by lower contributions from Iraq in the current period and higher consumer fraud losses, which were offset by savings from our cost redeployment program and favorable foreign currency. Adjusted EPS was $0.42 in the current period compared to $0.44 in the previous year. In addition to the items impacting adjusted operating margins, adjusted EPS was affected by higher interest expense, partially offset by fewer shares outstanding in the quarter. The adjusted effective tax rate was 16% in the quarter and in the prior year period. The adjusted effect tax rate was higher than our full year outlook due to discrete tax items in the current period. Now turning to consumer money transfer or CMT. Transactions declined 3% in the quarter or 2% excluding Iraq as uncertain immigration policies continue to disrupt the industry, and we are seeing shifts in our customer behavior from fewer transactions but higher average principal per transaction. Our PPT increased by over 5% in the second quarter compared to the prior year on a constant currency basis. Our branded digital business grew adjusted revenue by 6% and transactions by 9%. This marks the seventh straight quarter of solid revenue growth of mid-single-digit or better. We continue to see progress in our branded digital business, with strong transactions growing in the Middle East and APAC. However, we saw transactions slow from the United States to Latin America, led by U.S. to Mexico. Like the previous quarter, our branded digital revenue growth was muted by loyalty accruals and we expect this headwind to subside in the back half this year we continue to see strong growth in our payout to account business in the quarter we grew nearly 30% and now account payouts account for almost 40 percent of transactions sent from our branded digital business we continue to evaluate and expand our payout capabilities around the world as we serve the unique needs of our customer segment. The growth of our account-directed payments highlights the demand for flexible, fast remittance options and comes with higher margins and a much stickier customer relationship. We also have negotiated lower account payout rates this quarter, which help achieve stable profit margins despite the tough macro environment and lower revenue. We believe we have much more runway to go on reducing our account payout fees. Additionally, as Devin talked about, we see the new remittance taxes as an opportunity to accelerate our digital transformation and grow both the digital and wallet businesses in the United States. This reflects benefits to our customers and also gives us an opportunity to deepen our relationship with them. Now turning to our retail business. In the quarter, we continue to see weakness in North America, driven by immigration policy, which led to a slowdown in an independent channel. Growth rates in our VEGO business slowed from growing double digits last year to negative in the current quarter. We believe as we fully implement our evolved strategy here in North America, we will begin to see the results similar to those that we're experiencing in Europe. We continue to see strength in our retail business in Europe, driven by 15-plus percent revenue growth in both Spain and the United Kingdom. In the UK, we have expanded our relationship with the UK Post, moving from a non-exclusive relationship to an exclusive one. In Spain, we're doing many of the right things in relation to our Evolve 2025 strategy. First, we're benefiting from the controlled distribution network with over 60 owned and concept stores in the market. Second, a strong focus on payout to account is driving close to 80% growth in the payout to account year over year. And lastly, Spain was the initial market for our dynamic pricing model, which benefits as we leverage our scale and flexible model to capture market share. We also continue to believe there are numerous compelling opportunities for our retail business to recapture market share, and we look forward to sharing more about those opportunities at our upcoming Investor Day. We will continue to work on executing against these opportunities as we continue to grow our retail business. Now transitioning to consumer service segment, which now accounts for 14% of total quarterly revenue. During the second quarter, adjusted revenue was up 41%, driven by our travel money business. Consumer services accelerated since the first quarter due to the acquisition of EuroChange, which accounted for more than half our growth. Our bill pay business, which had stronger revenue growth in the quarter, as well as our media network business, which also accelerated based on the deferred contract I talked about in the first quarter, which came through during the second quarter. Now switching briefly to our operational efficiency program. Year-to-date, we were able to save $40 million, dollars which brings our cumulative savings to more than 150 million dollars completing our program we announced at our 2022 investor day two years ahead of our schedule as devon mentioned earlier the recent adoption of ai is beginning to result in cost efficiencies and we are confident that artificial intelligence will enable us to continue to optimize our cost base going forward Now turning to our cash flow and balance sheet. We generated $148 million in cash flow from operations year to date, compared to $60 million in the prior year period. Both years included over $200 million in cash taxes related to our transition tax. I'm excited to announce that we made our final payment last quarter related to the transition tax, and as we go forward, we will no longer have this burden. year to date capital expenditures were 54 million dollars or 15 percent lower than prior year we can we remain committed to strategically investing in key areas of our business while also aligning agent compensation to our performance now moving on to our balance sheet we continue to maintain a strong balance sheet with cash and cash equivalents of one billion dollars and debt of 2.7 billion dollars. Our leverage ratios were 2.8 times and 1.8 times on a gross and net basis which we believe provides us with ample flexibility to return capital or potential M&A while maintaining our investment grade credit rating. In the second quarter we returned over 150 million dollars to our shareholders via dividends and share repurchases and over $300 million during the first six months of the year. This represents a cash return to our shareholders of over 10% versus our current market cap in the first half of this year. It implies a 20% cash-on-cash return if we were to annualize the first half payments at our current stock price. Now moving on to our 2025 outlook, which assumes no material changes in macroeconomic conditions. based on the tough macros and performance year to date we are updating our 2025 guidance today which includes adjusted revenue to be in the range of 4 billion 35 million dollars to 4 billion 135 million dollars this range reflects continued growth in our branded digital business double digit growth in consumer services as well as improvements in our retail business we expect operating margins to be in the range of 19 to 21 percent, and lastly, we expect adjusted EPS to be in the range of $1.65 to $1.75. Thank you for joining the call today, and Operator, we're ready

to take questions. We will pause momentarily to compile the Q&A roster. As a reminder, each person is allowed one question with one follow-up question. All participants will be in listen-only mode. Our first question comes to us from Vasu Gouville from KBW. Please ask your question.

Hi, thanks for taking my question. Matt, maybe first one for you on just the EuroChange acquisition. I think based on what you said, I'm calculating roughly two points of contribution to revenue growth in the quarter. Is that correct? And is that trending better than I think you had anticipated roughly one point of contribution for the year? So is it trending better than what you guys had originally thought?

Hey, Vasu. Thanks for the question. Thanks for joining the call today. We are super excited about the acquisition. We got them at the very beginning of this quarter. To your question, yes, it's about 2% of revenue in the quarter. As you work your way through the year, typically the strongest quarter of the year is Q3, followed by Q2, with the lighter ones being Q1 and Q4. So our 1% comment was a full-year comment last quarter, and it is going very well. We're super excited to have the team on board. They've come in, added a whole bunch of additional thought leadership around the travel money business, have given us a whole lot more optimism and confidence in the acquisition we made, and super excited we were able to get a strong asset for a purchase price net of cash for about $30 million. So super excited about having it. Thanks for the question.

Thank you very much. And just if I couldn't ask a quick follow up on just the, you know, the immigration crackdown and the impact that's having on North America. Are you seeing any mixed shift to the digital channel away from retail as a result of what's happening? Or is that not really something you're seeing in the numbers?

We are not, as evidenced by the commentary, I assume we saw a slowdown from U.S. to Mexico in both the retail business and the digital business. As you know, the U.S.-Mexico corridor is the largest corridor out of the United States by a factor of almost three. And so that is a powerful driver. We did not see a material shift from retail to digital. We saw aggregate volume demands in both channels go down.

Our next question comes to us from Will Nance from Goldman Sachs. Please ask your question.

Hey, guys. Thanks for taking the question. Just wanted to follow up on that last point on the deceleration in digital transactions this quarter. Frankly, if I'm wrong on this, I thought the definition for digital is digital on either side of the transaction. So I was just wondering if you could talk about whether the slowdown that you're seeing on the digital side is for retail-originated transactions and just maybe quantify what the exposure there is, if I'm correct on that.

Hey, Will, this is Matt. We actually have a different definition than some of our competitors in the marketplace. We have historically used retail as anything that originates in a retail location, and then digital as anything that originates in the digital side, whether it's paid out in cash or paid out to account. So there is a little bit of a definitional thing there. As Devin just talked about in the last question, we are seeing a slowdown in the digital U.S. outbound into Latin America, primarily into Mexico. So that's something we're seeing in the central banks reporting, that there's a slowdown of inbound transactions across the board. We did not experience this last quarter, but we're starting to see a little bit of a headwind on that. Okay, got it. No, I apologize. I guess I had that wrong.

The other thing, Will, right, to the question you asked, right, and if you put the commentary together in payout to account, whether it was digitally originated or retail originated we also saw a slight slowing historically whether retail originated or digital originated payout to account was running mid 30s sometimes high 30s in many corridors now it's running mid 20s to low 30s and so even in the most digital which is digitally originated digital payout to account, we saw a slight slowdown, and we saw that slowdown in payout to account, both from retail originated and digital originated, almost entirely into the important lock of corridors, Mexico, Venezuela, Haiti, Guatemala, Dominican Republic, those are the places, Colombia, Ecuador, those are the places with the biggest slowdowns. Okay, all right,

that's great that's that's all great detail i appreciate that and then i maybe i wanted to maybe pivot to the stablecoin side a couple interesting tidbits you shared there i thought the one that stood out to me the most was on kind of the on-ramp on-ramp off-ramp solutions to kind of other third-party stablecoin solutions and i you know i remember the company used to offer some white label products uh in the past uh not so much these days but you know it seems like you're considering white labeling your on-ramp off-ramp to the to kind of people in the stable coin ecosystem can you talk about that opportunity and just spotlight like what are the types of corridors or the types of use cases where you know you guys could add the most value to people trying to operate you know stable coin payments cross-border thanks for taking the question

yeah certainly so will as you know the moving of stable coins from one digital wallet to another digital wallet is pretty straightforward the translation of that stable coin back into a local fiat currency that someone can use to buy groceries or pay a bill is much more difficult our infrastructure around the world has been enabling that basically from central bank digital currency to local fiat currency for a couple of decades now. So transitioning to be a provider of that kind of platform, and in many places in the world, that conversion is not the easiest thing in the world. So think in lots of places in Asia, Central America, South America, Africa, where we've got great capabilities and great platforms. So we've been pleasantly surprised at how much the phone has been ringing since Circle went public and lots of enthusiasm came into this space and are actively participating with a couple of parties now doing pilots both in South America and in Africa. So we'll come back to it, but we see it as a natural evolution for us given what our capabilities are around the world and the value we can provide as, you know, the payments world digitizes towards, you know, blockchain-based platforms.

Our next question comes to us from Ramsey L. Asal from Barclays. Please ask your question.

Hi, thanks so much for taking my question this evening. I wanted to ask about the visibility into some of the political headwinds that are impacting your LATAM and U.S. Mexico business. Has the headwind kind of stabilized at this point, or is it still kind of a moving target? And I I guess that's a cute way of asking, could the impact worsen in the quarters ahead, or are you sort of feeling like, okay, things kind of had a step function down, but now it's just a question of sort of anniversary-ing the step down?

It is a wonderful question that I wish I could tell you a great answer to. What I can tell you is the impact we see is somewhat volatile. So June was much better than April. April was much worse than February so was April the low point I don't know what I can tell you is increases in activity increases in visibility and increases in media attention all seem to have a negative correlated effect on our customers willingness to you know particularly walk into a retail location but as we said also to a certain extent in our digital channels as well and so we're keeping a very close eye on it we've got lots of folks on the ground in the communities providing safe secure compliant products and services for our customers but this is one that you know i think we're going to see how it goes okay one quick follow-up for me

on stable coins. I guess the question is, what are you seeing in the marketplace in terms of demand? I know there's a stable coin use case where folks in emerging markets with maybe shaky financial infrastructure use it as an inflation hedge or a way to buy U.S. dollars. Is there any organic demand you're seeing for stable coin utilization, or is this just more of kind of a top-down, we will build it in case they come type of an approach, basically?

I would aggregate conversations into two parts, and Matt can talk about the second part probably at greater length than I can. The two parts are one, the reach outs that we're getting from what I would call platform or infrastructure providers who are assembling ways in which people can therefore then, you know, issue a stable coin or use a stable coin based process through a series of platforms that kind of connect all this stuff. So that's in your category of build it and hope they come. And so we have lots of reach outs from people who would like the ability to do particularly off ramps, I guess maybe on ramps as well, but particularly off ramps in many of these countries around the world that either have currency controls or have difficulty with kind of, you know, local currency translation. The second, and this is where we're investing a lot of our time and energy, is people who are building, in essence, B2B solutions and platforms, allowing people like us to move money around the world in a much more efficient way than the correspondent banking system. And so the more productive conversations that are translating into economic value for us is how do we enable a stablecoin infrastructure for our core business, which is retail consumers either digitally or in the retail channel wanting to send money to family and friends. And then how do we make that seamless and real-time for the customer, regardless of the fact that we're using a stablecoin versus a traditional SWIFT banking infrastructure platform? That is probably progressing much faster, but I can let Matt talk about it.

I just echo what you just said there, Devin. And so we've got a couple different partners we're already working with carefully right now in Latin America in particular where currency controls and other challenges make it easier to use a stable coin or a cryptocurrency. Ultimately for us, as you get this real time around the world, it will allow us to reduce the amount of capital we have around the world to help do payouts. So we're super excited to find a way to make this work, have partners that are very interested in engaging with us, and see more of a pool today than just a conversation.

That's a great anecdote. Matt and I were chatting this morning. You know, over the weekend, one of our significant banking partners in India ran short of cash. We had some added volume that we didn't anticipate. And so we had some delayed payments over the weekend. because by the time we were able to move money to India to top up our partner there you know we weren't able to provide as timely a service for our customers in a stable coin world Matt could make that happen 24 by 7 as soon as we saw the ability for the partner to make outbound payments reduced by pre-funding levels he could just top up in real time with a stable coin very helpful

Our next question comes to us from Raina Kumar from Oppenheimer. Please ask your question. Raina, please ask your question.

Hi, sorry, I was on mute. Thanks for taking my question. Just given the tightening U.S. immigration policy, and we'll probably be in this environment for at least the next three and a half years, do you think you have to tweak your Evolve 2025 strategy at all?

You know, we are very committed to the strategy. we believe that our customers are resilient we believe that the vast majority of our customers are productive members of the societies in which they have chosen to join around the world including here in the United States recall that in order to send money home one needs to have money in the first place which means you likely have a job you have food on your table shelter over your head before you choose to send money home we are going to remain committed to that customer and as this policy and process evolves we believe that things will stabilize you know on any given day we're still sending you know nearly a hundred thousand transactions to mexico it's just not growing 10 12 15 percent like it has been the last couple of years so i think we will likely see less growth over the next couple of years with the current policies and approaches than maybe we have in the last couple of years, particularly here in the U.S., but we don't think it fundamentally changes the core intrinsics of the product we offer, the stability of the market, or the nature of the opportunity. As you know, we've evolved the strategy to also include consumer services, and so we will be placing a greater emphasis on driving non remittance based products and services and the prepared comments I talked about the rollout of our digital wallet which includes you know a debit product a bill payment product and the ability to do you know fee free p2p wallet to wallet within the United States so rolling out products and services like that more rapidly in the U.S. will obviously become a greater priority as we see the top-level line growth of the core remittance product slowly stabilize. Thanks for the insights there. And then just one follow-up

for me. Just on the comments you made on the 1% remittance tax, you make a case for increased debit usage. I'm just curious, for customers, you know, that have a debit card, wouldn't you anticipate them just using digital means to transfer money rather than using a debit card

right at the retail location? You know, interestingly, the retail value proposition is sometimes about cash, but most of the time it's not actually about cash. And as I said, some of our big national grocery store chains already have 30, 40 percent debit enablement. and so we recently did a customer survey with a group of u.s retail customers to try to get a better read on this and over two-thirds of them indicate that they will remain in the retail channel and use a debit card the convenience the familiarity the language the certainty in some cases the paper receipt that they have as evidence that they sent the money is valuable to them versus trying to enable a digital app or send money digitally.

Our next question comes to us from Tim Chioto from UBS. Please ask your question.

Great. Thank you for taking the question. Two brief ones, actually. One is during the prepared remarks, you made a couple comments around fraud losses in the quarter. I just wanted to see if you could bring that to life a little bit. What is the scenario in which that happens or happened? And then a general question around large partners with any contract renewals that might be coming up that we should be aware of, either exclusive deals that could be renegotiated, et cetera, if there's anything on the horizon that we should be thinking about. Thank you.

Awesome, Tim. Hey, thanks for joining the call today. I'll tackle the first one, and Dev will take the second one. But on the fraud loss side, we, during the quarter, early June, implemented a new real-time payment network. When that happened, we ended up having a duplicate payment challenge. We've been working to recover those funds. Not material, but we thought it was important enough to call out. As you can see, we were still able to maintain our 19% margins. So not a big deal, but an item that we're working our way through.

As you know, particularly in the U.S., though it's true all over the world, Western Union has historically enjoyed a preeminent position with the largest retailers and postal systems. In any given year, there's any series of renewals that come up. I think now we're through all of the ones for 2025. I'm pleased that we've renewed, I don't know, Matt, we probably renewed 12, 15, over a dozen of the large strategic partnerships in the U.S., including grocery store chains, major check cashers, other everyday financial service providers. As we noted in the prepared comments, we renewed with the UK Post taking that relationship exclusive, And we continue, you know, to look forward to renewals with postal systems in Spain, Australia, and other countries around the world. So I don't think there's anything unusual so far this year, and we'll continue to keep you posted.

Our next question comes to us from Nate Svensson from Deutsche Bank. Please ask your question.

Hi, guys. Thanks for the question. A couple earlier questions I wanted to follow up on. So first on Ramsey's question on visibility. I think if I heard right in the prepared remarks, you mentioned an improvement in retail being baked into the guide. So I won't ask the geopolitical part of the question again, but if I look at transaction growth across each of the regions and digital growth decelerated pretty much across the board other than APEC. So just wondering, given the volatile macro, what gives you the confidence or visibility into the improvements in retail? Could be comps, other initiatives, but would be great to hear more color and then maybe how much improvement in retail is actually baked in here.

Hey, Nate, this is Matt. There's not a massive amount of improvement, but there's not a deterioration further in the guide. We do have some glimmers of hope with certain partners we're working on right now that we think will give us a little bit of an uplift in the back part of the year, some expansion of non-exclusive to exclusive, some potential other partnerships. So it's a modest amount. So I don't think you should worry that if it stayed where it is today, we fall outside of our guide and have to take it down further. But to get to the upper end, we've got to get some improvement.

Got it. That's helpful. And then wanted to follow up on Raina's question on the remittance tax. So nice that it came in at 1%, maybe less draconian than earlier versions of the bill and the detail on less than 20% of overall company revs was helpful. I guess, could you walk through some of the mechanics of how you expect that to implement that across your business? You know, is there any way to size the increased costs with regards to infrastructure to getting that tax remitted or anything KYC or AML related that we should be considering? And then maybe to follow up on Raina's question specifically, like, what are you doing to try and incentivize the use of non-cash remittance methods at the point of sale to maybe get around that tax?

Yeah, so a couple of things. One, we spent a fair amount of time and energy influencing or trying to influence or hoping we could influence the nature and structure of the legislation that passed, a significant improvement from the original version that emerged from the House, both at 5%, but with all kinds of complicated requirements on residency status and things that would be quite difficult to administer with the rollout of our next generation point-of-sale platform wupause 2.1 we will be able to easily enable this as it is simply a one percent tax on cash and pre-paid card transactions so that will be quite easy to discern in the system we will collect the tax at the point of sale and remit to the government so the technology investments and requirements to implement it will be relatively low and will certainly be ready by the time the law is enacted to be able to execute that with high quality and precision. Fortunately for us the tax itself is an incentive so I don't know that we have to do anything other than help people avoid the tax and we should get uptake on the debit card and we're hoping enough to spur people to want to open Vigo Wallet accounts, which will help us build that product without having to spend an enormous amount on marketing.

Thanks, Stephen. Thanks, Matt.

Our next question comes to us from Zachary Gunn from FT Partners. Please ask your question.

Thanks for taking the question. I appreciate the macro challenges, and I just wanted to follow up on that. And so last quarter, there were some fence and orders against specific zip codes near the southwest border. This quarter, we saw additional fence-in orders against a couple of Mexican financial institutions. So is there any way to think about how much of the demand destruction in the corridors is from the regulatory side and from that supply side of potential partners that you're working with or actual consumer demand?

I think it's tough to disaggregate. What I can tell you is the partners that were cited publicly were very, very small for us. We did not have much volume, if any, going to those partners. Our partners in Mexico are the large financial institutions, Ban Copal and Electra and Ban Comer, who are the majority of our transaction volume, both payout to account and payout to cash. So, you know, obviously, any time there is regulatory action that is going to affect some volume and some perception of the market, my personal hypothesis is it's much more overall market demand and changing consumer patterns and behaviors while we get through this particular chapter in the evolution of the U.S.'s immigration policies.

Got it. Thank you. And just as a quick follow up with you, with the stock where it is, is there any thoughts in terms of capital allocation changing the buyback versus dividend strategy? Thanks.

There is not.

Our final question comes to us from Jamie Friedman from Susquehanna. Please ask your question.

Hi. Thank you for taking my question. So I wanted to ask one about this opportunity three in stablecoin, Devin. I thought this is potentially quite structurally important. And so where you're saying reduced reliance on the dependency of legacy banking systems, I was hoping you can elaborate on that. Do you see that more as a cost takeout opportunity or is that potentially revenue enhancing? And then my last one is you've been successful in Europe now for a while with the new strategy. I was wondering at what point you anticipate templatizing your successes there over here. Thank you.

Great questions. Initially, I think we believe the adoption of a more crypto-enabled money movement platform will create efficiency and effectiveness in our core offering. So it will increase speed, reduce friction, and as Matt says, hopefully enable us to better manage the liquidity that we have floating around the system every day. Ultimately, if the value proposition can improve, potentially you can draw market demand and you can increase the overall category and thus revenue. So we see it as an interesting way to evolve how money moves and a potential opportunity to increase the quantity of people who are interested in moving money and therefore grow the top line as well.

but I think that is to be seen. You had a second question. Yeah, I was just asking the ability to

transfer the successes you've had in Europe over here. Yes, so we are actively engaged in that project right now, so we've asked the current head of our European business to second himself here in the u.s he just came off of a six week around the u.s tour and has gone back to Spain for a couple weeks and then we'll be coming back here later in the summer so we are actively working to implement the European model and structure both from a go-to-market standpoint in terms of how we manage the Salesforce, how we manage the corridors and the tactical pricing, but also just in how do we think about the synergies that come then from operating both of our major regions kind of on the same operating model that allows us to get scale and to get better coordination, particularly in payout

markets. Thank you for joining today's second quarter 2025 earnings conference call. We hope you have a great day.