管理層發言
Good day, and welcome to the Western Union second quarter 26 Results Conference Call. All participants will be in a 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 conference 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 results and our 2026 full-year outlook. 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, Matthew 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 2025 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. Where possible, 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 26 financial results conference call. In the second quarter, we continued to face significant margin pressures due to the ongoing slowdown in the retail business in the Americas, higher agent commissions and the continued acceleration of our digital payout-to-account business. The quarter came in $0.06 better than Q1 having eliminated many of the one-time effects we saw in the first quarter. However, the accelerated shift from cash payout transactions with higher revenue per transaction (RPT) and higher contribution profit per transaction (CPPT) to pure digital transactions continues to weigh on profitability. On a more positive note, despite the strong macro headwinds, our strategy and our significant geographic diversification enabled us to report revenue of $1 billion. On an adjusted basis, this was a decline of only 1% year-over-year. Consumer money transfer transactions grew 3% in the quarter, which was a 300-basis-point improvement from Q1, a 600-basis-point improvement year-over-year and the highest transaction growth rate since the second quarter of 2024. We continue to see quarter-over-quarter improvements as we lap the worst of last year. For example, U.S. to Mexico declined a little over 3% on a transaction basis in the quarter, a nearly 1,000-basis-point improvement year-over-year. Yet overall U.S. retail continued to be mid-teens negative on a transaction basis in the second quarter, well below our expectations. While overall global transaction growth has improved significantly, it is important to note that it comes from lower contribution profit per transaction which is putting pressure on our margins. Adjusted earnings per share came in at $0.31 in the quarter, compared to $0.42 a year ago. This is below our expectations and is driven by lower profitability in our Americas retail business, and lower profitability in our Middle East business as volumes there continue to shift rapidly from our legacy partners in the region to newer digital-only partners at lower RPTs and profitability. Our branded digital business continued to perform well with transactions increasing by 25% this quarter and adjusted revenue by 6%. While transaction growth continues to accelerate, the revenue growth is being muted by strong growth in lower RPT corridors and a significant increase in digital payout-to-account which saw 55% growth in the quarter. As I mentioned in previous calls, our new customer acquisition economics remain challenged in the quarter, which impacted the overall revenue growth and profitability of our digital business. We continue to roll out our Beyond Digital platform, which I believe will enable better customer experience, improve our ability to market at a corridor level, and potentially reduce the magnitude of needed new offer incentives. In consumer services, adjusted revenue was up 12% in the quarter, driven by growth in our bill pay business as well as continued growth in travel money. Our financial results in this quarter came in below our expectations for the second quarter in a row. This is not acceptable. We are not satisfied with the current operating performance and will be implementing significant changes as a result. While the external macro factors over the past 12 months have undoubtedly accelerated the underlying trends in the business, we recognize that in the near term, these trends are not likely to continue at elevated levels. We have been navigating this mix shift away from payout to cash over the past several years as well as the move from retail to digital through cost savings initiatives and the reallocation of investments. The impact of ongoing changes in immigration in the Americas has accelerated those dynamics and we must now more aggressively change our cost base to reflect the reality of a future with continued pressure on CPPT. Over the past 12 months, we have seen the percentage of payout-to-account and payout-to-wallet transactions grow by 25%. This is an important trend that will likely continue to cause ongoing margin headwinds unless we vigilantly reduce our fixed cost base, lower our account payout costs and increase our ability to cost-effectively drive digital growth. We have spent much of the last eight weeks evaluating what is working across these three dimensions and what is not. That process has reinforced our belief that the long-term fundamentals of the business remain intact. Our brand, customer relationships, market position, scale and digital capabilities continue to provide a strong foundation upon which to build. However, a strong foundation alone is no longer enough. We must accelerate the transformation of our operating model to enable us to maintain our ability to invest in our next-generation digital initiatives while simultaneously significantly lowering our ongoing operating costs. The program we have launched is called Beyond Efficiency. It has five key program elements and we will be targeting a run-rate operating cost reduction of $50 million by the end of the year. The five key program pillars include: first pillar, accelerate the dual-track strategy by reducing redundancy and streamlining processes that do not align with the Beyond strategy. As a 175-year-old company, we have a lot in the garage. Organizations build up over time, and what were once new ideas or areas of investment are now ongoing operating costs with limited or no contribution to the Beyond strategy. For example, as we move to the Beyond digital framework, we have made the decision to close down our existing digital wallets in Europe, saving the company a run rate of $6 million to $8 million. We anticipate launching our Beyond Digital platform to replace those in Europe by the end of the year. The second pillar is to reduce discretionary operations and technology work by 20% that is not directly tied to growing digital. We are targeting a 20% reduction in discretionary operations and technology capacity by the end of the year, forcing a prioritization that will cause only the most impactful initiatives to get done. The third pillar is to rapidly adopt AI to drive automation and reduce manual work given our legacy system limitations. We have ramped up our adoption of AI and other automation platforms significantly over the past six months, and we see meaningful opportunity to eliminate manual work and reduce the friction that results from our large geographically dispersed and highly regulated business. The fourth pillar is to move to a more aligned operating model. As part of our Beyond Efficiency program, we are looking to align people and work closer to the region they support. This will require us to localize what today are distributed global functions. For example, we have been moving agent onboarding for the Asia Pacific region from Lithuania and Costa Rica to our operating center in Manila. This will improve time zone and geographical alignment and reduce unit labor costs. We anticipate this will improve on all three dimensions of cost, quality and speed. The fifth pillar is to reduce the operating costs of moving money. In a world that is rapidly going digital for payouts, we must reduce the cost of capital that we have floating around the system, lower payout costs, improve FX rate competitiveness and accelerate real-time settlement through our own digital currency USDPT. These initiatives are focused on creating a leaner organization while maintaining our ability to invest in the areas that matter most strategically. Importantly, this is not a short-term exercise designed solely to reduce near-term costs. Rather, it is a structural effort to improve how we operate and to position the company for stronger, more sustainable profitability in the years ahead. We understand that our investors expect tangible evidence that these actions are producing results. While meaningful transformation takes time, our view is that the combination of improving growth and enhanced cost discipline will strengthen margins, improve profitability, and increase returns over time. Our objective remains straightforward: generate consistent growth, improve operating profitability, strengthen free cash flow generation and create long-term shareholder value. I look forward to updating you on the progress of this program in the coming quarters. Now, switching briefly to the macro. As you know, remittances in the Americas have faced meaningful pressure that began in late 2024 driven by changes in immigration policy. While growth rates have improved meaningfully from the summer of 2025 lows, and continue to improve, with U.S. to Mexico, for example, revenue growth rates improving 500 basis points sequentially compared to the first quarter, retail continues to underperform relative to digital and that dynamic continues to weigh on the profitability of our Americas businesses. As we have discussed, the growth in retail business is almost always dependent on new migration. When immigrants come to a new country, most frequently they transact in retail out of necessity, given cultural and language issues, lack of access to digital funding and often heavy cash remuneration. When migration goes negative like we have seen in the U.S. and around parts of the Latin American region, it becomes difficult to replace customers that migrate to digital channels, find alternative options, or leave the country to return home. This does not mean the retail business cannot improve like we have seen over the last several quarters. It just means it will be difficult to get the business back to true growth without a meaningful change in immigration policy or much more aggressive gains in our market share. We do believe we can take market share and we should start to see the benefits as Canada Post and Deutsche Post ramp up, which will provide a tailwind starting in Q3 and continuing into 2027. We also recently launched an industry-first partnership with Total Wireless, a Verizon value brand that combines wireless connectivity and cross-border money movement. The partnership expands our reach into the telecom channel providing access to millions of subscribers through thousands of retail locations and extending our distribution footprint across both digital and retail channels. Recognizing that consumer behavior continues to evolve, digital engagement is becoming increasingly important across every aspect of the customer journey. We believe our digital-first strategy and our digital platforms represent the most attractive growth opportunities over the long term. Over the last couple of quarters, we have seen substantial gains in the Middle East, while our digital business in other parts of the world has plateaued. We spoke on the last couple of calls about needing to better manage promotional offers in places like the United States and Europe, and as such, we have begun to pull back. While the benefits of this more disciplined approach are not immediately obvious in this quarter's results, in the last few months, new customer growth rates have improved and have done so at higher RPTs, which should bode well for better revenue and profitability in future quarters. That said, pulling back on new customer incentives is just one element of our revised approach. Since our Investor Day, we have been executing our digital acceleration program along three axes: first is the restructuring of our digital go-to-market model and team. We have now completed the restructuring of our go-to-market team, moving digital team members into the regional operating units that they support. This now brings decision making and local market knowledge together in one team. We have also been adding new senior digital talent with sector expertise across the regions. In particular, I would like to welcome Shishir Singh who joined us last quarter as our new Chief Digital Officer leading the global digital product team and the North American go-to-market team. Shishir brings deep knowledge and experience to us and has already begun to make material impacts. Second, we are accelerating our Beyond Digital platform. Having now seen early returns we are accelerating the rollout across our major markets with planned launches in Australia, Europe and the U.S. before the end of this year. We are expecting the Beyond Digital platform to enable us to improve new customer onboarding success rates and thus improve the return on new customer acquisition in these important markets. We continue to target rolling out the Beyond Digital platform to all of our major markets by the end of 2027. Third, we are focusing on investments by corridor. Our analytics and insights have improved and we have begun to differentiate our level of new customer investment in both marketing and new customer incentives at the corridor level. This higher level of fidelity and targeting, we believe, will enable us to earn better returns on the same overall investment pool, even if it means slowing down in some larger corridors where competitive dynamics inhibit strong returns. Before I turn the call over to Matthew, I would like to discuss for a few minutes to provide an update on our digital asset strategy and the progress we are making. At the center of this strategy is USDPT, our U.S. dollar stablecoin. USDPT is designed to maintain a 1-to-1 value with the U.S. dollar and is backed by reserves, including cash and U.S. Treasury instruments. First, we successfully launched USDPT in May of this year, which established the foundation for a regulated digital dollar that can support payments, treasury operations and customer use cases across our global network. USDPT is now live and available through an expanding ecosystem of exchanges, financial institutions and partners, with the first four exchanges now live and actively trading USDPT. Second, we have introduced our treasury bridge solution which utilizes USDPT to support more efficient movement of liquidity and capital across our global network. This initiative has the potential to enhance funding flexibility, improve settlement speed and reduce reliance on the traditional correspondent banking infrastructure. We are testing with multiple counterparties to use USDPT as a form of settling our cross-border money transfer transactions. Third, we launched the digital asset network, or DAN, which extends Western Union's unique global distribution capabilities to the digital asset ecosystem. Through DAN, digital assets, exchanges and other partners can connect to Western Union's payout infrastructure enabling customers to convert digital assets into local currency and access funds throughout our global network. This creates a bridge between the rapidly growing digital asset economy and the real world economy that customers can use every day. We have successfully launched our first partner and we expect the launch of several more in the coming weeks with the goal of having tens of millions of consumer digital wallets connected to our digital asset network by the end of the year. And lastly, we continue to advance our consumer proposition with the development of our USDPT-powered wallet and card capabilities. Our vision is to provide customers with the ability to redirect remittances, hold USDPT digital dollars and spend them through a payment card seamlessly transitioning between digital assets and traditional financial services. We are launching the USDPT Stable Card today. We view digital assets as an opportunity to expand our TAM, and to free up capital. Our objective is not simply to participate in the digital asset system. Our objective is to leverage Western Union's trusted brand, regulatory expertise, global reach and distribution network to become a critical infrastructure provider within that ecosystem. What differentiates Western Union is that we are focused on real-world utility. We are not building speculative products. We are building solutions that address practical agent and customer needs: faster settlement, lower friction, improved accessibility and broader financial inclusion. While we remain in the early stages of this journey, we are encouraged by the momentum we are seeing. We have moved beyond strategy and are now into execution. 2026 will be a foundational year for our digital asset initiatives. We have successfully launched the core building blocks of this ecosystem and our focus now shifts towards execution, adoption and scaling. We remain confident that digital assets, stablecoins and blockchain-enabled payments can become meaningful contributors to Western Union's future growth and reinforce our mission of making financial services accessible to people everywhere. Before I conclude, I would like to give a quick update on Intermex. We remain actively engaged in discussions with regulators on the final approval. I remain optimistic that we will be able to obtain the outstanding approval needed. This would enable us to close the transaction upon receipt of this approval as well as satisfaction of other outstanding and customary closing conditions. In closing, while we are disappointed with our current results, we remain confident in our ability to improve performance and unlock the value that exists within this business. The path forward is clear. We are focused on driving growth through our digital initiatives, improving efficiency throughout the organization, allocating capital with discipline and executing against a well-defined strategic plan. We recognize that rebuilding momentum requires patience and execution. However, we believe the actions that we are taking today will position the company for a stronger future. We appreciate the continued support of our shareholders and the dedication of our employees who remain committed to serving our agents and customers every day. While there is significant work ahead, we are focused on delivering the results that our stakeholders expect and deserve. Thank you. And I now turn it over to Matthew to review our financial results in more detail.
Thank you, Devin. Good afternoon, everyone. Going to walk you through our 26 second quarter results in more detail and our 2026 financial outlook. In the second quarter, GAAP revenue was $1 billion which on an adjusted basis was down 1%, a meaningful improvement from down 5% last year. The decrease was driven by continued slowing of our Americas retail business while our consumer services and branded digital businesses grew 12% and 6%, respectively. Adjusted operating margin was 15% in the quarter, which was impacted by lower revenue from our retail business mix, higher agent signing bonuses and higher operating expenses. As Devin said, we are clearly not satisfied with our performance of our business this quarter. And we remain committed to driving higher operating profitability. We are in the process of accelerating our operational efficiency program, Beyond Efficiency, with the goal of taking out $50 million between now and the end of the year and $200 million of run rate by the end of 2027. The drivers of our Beyond Efficiency Program will be the five elements that Devin discussed earlier, which includes the additional scale we will get from our Intermex acquisition. Adjusted EPS was $0.31 in the current quarter. Adjusted EPS in the current period was driven by lower operating margin for the reasons I stated previously, offset by a lower tax rate in the quarter. Our adjusted effective tax rate in the quarter was 14%, compared to 16% in the prior year. The decrease in adjusted effective tax rate was primarily due to discrete expenses in the prior year period. Now turning to Consumer Services business contributed 15% of total revenue in the quarter compared to 6% in 2022. Second quarter adjusted revenue increased 12% driven by the growth of our consumer bill pay business, travel money business as well as the addition of check cashing. As a reminder, the current quarter marks the anniversary of our EuroChain acquisition, which was acquired on April 1st. The Consumer Services segment's profitability was lower in the quarter driven by lower operating profits in our Travel Money business, lower float income in our Retail Money Order business as well as the delayed reduction in overhead due to the acquisition we made of a check cashing partner that we had planned to integrate with Intermex. Now transitioning to our consumer money transfer or CMT business. CMT transactions grew 3% in the quarter, relative to a year ago. This was driven by continued strength of our branded digital business, which delivered 25% transaction growth in the current quarter. While retail trends in the Americas remained under pressure, the ongoing shift to digital continues to support the overall transaction growth and customer engagement. CMT adjusted revenue declined 3% year-over-year, reflecting the continued pressures in the Americas retail business driven by uncertainty in U.S. immigration policy. But this was a 300-basis-point improvement relative to the first quarter of this year. The CMT segment's profitability was lower in the quarter due to revenue mix, including declines in cash payout transactions, offset by lower profitability from digital payout transactions, which increased, higher commission costs associated with new partners and renewals and higher operating expenses. In the second quarter, our branded digital business grew adjusted revenue by 6% and transactions by 25%. This marks the eleventh straight quarter of solid revenue growth. Consistent with the recent trends, growth was increasingly driven by our Middle East partnerships. While these channels continue to expand our reach and support volume growth, their economics differ from those of our traditional license business resulting in a more pronounced gap between transactions and revenue. We continue to view this as a strategic trade-off that supports the long-term expansion of our digital platform. As a reminder, we began to ramp the Middle East partnerships in late Q3 of last year. So we expect transaction growth rates to moderate as we anniversary these partnerships. Account payout transactions also continued with strong momentum growing at 50% in the quarter, which is the strongest quarterly growth rate in several years. Turning to our retail business. Overall, the performance of our retail business was in line with previous quarters on a transaction basis, and a few hundred basis points better on a revenue basis. The business remains challenged in the Americas as U.S. immigration policy continues to weigh on our operating results. New migration is the lifeline of our retail business. With borders closed, it is difficult to offset natural attrition that comes from digital migration, industry competition and reverse migration as consumers return home to their native countries. Looking ahead, we remain focused on strengthening our retail franchise, with new agent relationships, a vastly improved platform, and a better consumer experience. Now turning to our cash flow and balance sheet. We generated $214 million of operating cash flow year-to-date, up 45% versus last year, driven by lower cash taxes. Year-to-date, capital expenditures were $88 million, or 65% higher than the prior year due to signing bonuses associated with recent agent wins and renewals. As discussed in February, we expect CapEx to be roughly $200 million this year due to new strategic partnerships as well as a higher renewal cycle. Moving to our balance sheet. At the end of the quarter, we had cash and cash equivalents of $920 million and $2.7 billion. Our leverage ratios were at 3x and 2x on a gross and net basis. As we announced a few weeks back, we extended our delayed draw bank facility until November. This preserves the financial flexibility while ensuring that we have the committed funds in place to support the Intermex transaction. As a result, post-closing, we expect our debt to EBITDA ratios to be elevated above historical levels. In the quarter, we returned over $80 million to our owners via dividends and stock repurchases. We have decided to pause our share buyback program in order to maintain our debt to EBITDA ratios of 2.5x to 3x. Now moving to our 2026 outlook, which assumes no major macroeconomic changes. Based on our performance year-to-date, and our view on the remainder of the year, we are updating our 2026 guidance. We now believe adjusted revenue will be in the range of 4% to 6% revenue growth inclusive of the Intermex acquisition. Our outlook assumes a September 1st close. From a modeling standpoint, we expect retail CMT to continue to improve throughout the back half of this year, digital CMT to be in a similar ballpark of recent quarters and consumer services to grow low single digits as we lap the EuroChain acquisition as well as the ramp of a large travel money partner as well as rightsizing our underperforming products Devin talked about earlier. For adjusted EPS for the full year, we believe it will be between $1.25 and $1.35. We expect the second half EPS to be better than the first, driven by new agent wins, back-half seasonality, better revenue mix and the accelerated pace of our Beyond Efficiency program. Thank you for joining the call today, and operator, we will take questions now.
分析師問答
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 a listen-only mode. Please use the raise hand option in Zoom, or press star 9 on your keypad. Our first question comes to us from Tien-Tsin Huang at JPMorgan. Please go ahead.
Thanks. I think I am on mute. Can you hear me?
Tien-Tsin?
Hey. Thanks. Always good to catch up with you. So, yeah, you went through a lot of detail here. Thinking about the revenue, which is much in line with us, but obviously, the topics would be very strong. I am just trying to price back here on the cost front. Is it really the pace and mix shift with the digital? There are a lot of factors. So I am just trying to summarize it a little bit easier. Can you give us a little bit more there?
Absolutely, Tien-Tsin. And you broke up a little bit there, but I believe your question was, can you give a little more on the cost side and what is going on there? Is that correct?
Yep. Happy to dig into that a little. Just a reminder, I know you know this, but our Q2 margins and adjusted EPS were 200 basis points and $0.06 better than Q1 but it is still a far cry from what we expected.
Also, as I am sure you know, last year we were able to reduce our cost of sales expenses by 3% and SG&A and D&A by 14%, which helped us fully offset the revenue decline last year and helped us grow operating income. As you dig into this, there are really two major drivers that stick out that we should talk about. One is the pace of our cost reduction. This has slowed from where we were last year. We were able to rightsize many different departments and exit some programs. In the first half of this year, that has gotten a little harder. We do have a very strong pipeline, as Devin outlined, the Beyond Efficiency Program, which gives us confidence that over the rest of this year and going into next year, we can exit with a run-rate savings of $50 million and $200 million. The other part of it is revenue mix. We have seen a shift to lower contribution profit per transaction. I'll give you a couple of examples. We are seeing the acceleration of our cash payout to digital in both the U.S. and the Middle East. Both are accelerating, and we see higher profit dollars per transaction from cash payout versus account payout. We are also seeing different results between corridors. As Devin talked about, we have seen quarter-over-quarter improvements for U.S. to Mexico. We have also seen improvements in U.S. to Canada. We have seen deterioration quarter-over-quarter in other corridors. There are a few spots where it is shining, but the yields vary between different corridors. The improvements we have seen in U.S. to Mexico come in corridors where there is lots of competition and the yields are much lower relative to the rest of the world, which is putting pressure on us. The other thing that has helped us grow and have some improvements in the U.S. is we have had some regional agent wins over the last couple of quarters that have ramped as the quarters have gone on. These have come at higher commissions per transaction to win them. They are still very profitable deals and things we are excited to have. We talked about one of them earlier in the year with Vallarta, which is principally focused on customers that are Latin America based with a very heavy concentration of Mexicans.
Okay. Thanks for going through that, Matthew. Maybe just as a quick follow-up, the cadence of the savings then—you said you are going to attack the cost structure here. How quickly would that be realized and how much do you need Intermex to close on time to fully capture it?
So it will ramp throughout the rest of the year. I will use the example Devin gave in his discussion earlier. We made the decision to turn off the European wallets because the more modern platform is better and will help us free up costs immediately. That benefit will start helping us in Q4. There is a migration time for the customers who are on the platform, turning off the tech costs and all that. So the actions we are taking will ramp as the year progresses, and that is why we try to get to a year exit rate of $50 million and then next year being $200 million. Our model assumes a September 1 close for Intermex, which helps with timing, but the actions are largely internal and will ramp through the back half of the year.
Our next question comes to us from Will Nance at Goldman Sachs. Please go ahead.
Question. I just wanted to maybe circle back to the mix shift in the transactions that you are seeing in the quarter. If I am hearing correctly, it sounds like the kind of improvement in some of the larger corridors have offset decelerations in some of the other corridors. And then when you look at the contribution margin per transaction, the accelerating corridors are just lower than the decelerating corridors. I guess I just want to make sure we understand that dynamic. But maybe more importantly, it seems rather sudden the acceleration in some of that mix shift that has happened. Can you point to anything specific that has driven that acceleration because it does seem to be happening at a really accelerated pace from your comments and from some of the numbers we are seeing in terms of gross margin this quarter?
Yes, Will. So it is really a combination of a couple of things. Pulling the thread on what you just asked for, the main drivers are the mix shift to lower-RPT digital growth in certain corridors and continued pressure in cash payout retail corridors, particularly in the U.S.
Retail is very profitable, particularly cash payout. We have now been going on six to eight quarters of pressure on that on the U.S. side. We have been having double-digit declines there for around six quarters. That compounding effect is having some pressure. On top of that, we have been able to make progress on it from a transaction revenue standpoint with some of the wins we have had. Those wins have been in the ballpark of our other strategic partners, but they are at the upper bounds of what we have for partners, so it is putting pressure on commission cost per transaction but still helping us to grow revenue and prop up profit. I'll give you another example which has even surprised us. Much of the world, principally of the corridor from the U.S. and Spain to Colombia, has shifted from what was traditionally a very significant payout-to-cash business for us to payout-to-account with Bancolombia and more importantly payout-to a wallet called Nequi. This shift to the use of their real-time payment system, Transfiya, has been amazing in how quickly it has happened. We were fortunate that we enabled into the Nequi wallet and then enabled Transfiya late last year or early this year, so we have been able to capture some of that, but the volume has been shifting and that shift has been significant economically because the economics of paying to a digital wallet over a real-time payment switch are far different than payout-to-cash economics in the same country and corridor.
Got it. That is helpful. I appreciate that. So maybe pulling on that last bit, is there any way to decompose the extent to which these payout-to-account transactions are less profitable than your retail business? How much of that do you attribute to structural differences in the transaction economics versus things under your control, like your ability to improve the margin structure and build scale in some of these digital payout channels? How much can you close that gap between your digital payout and your cash payout channels?
Hey, Will. Thank you for the question. As you know, yields and pricing vary massively corridor to corridor, so it's hard to give precise numbers other than generalities. The real pressure here is that a significant portion of our branded digital growth is coming from Middle Eastern partners, which come at very low RPTs and very low profit per transaction. That is causing part of the gap. As Devin talked about, we are working to grow higher-RPT digital and to lower digital payout costs. For example, in the Colombia case Devin mentioned, the team recently lowered the payout cost from over $2 to less than $0.50, which will dramatically improve contribution profit on those wallet transactions. We have two levers: grow higher-RPT transactions and lower payout costs through renegotiations, improved settlement, and our digital currency initiatives.
To add, Will, generally digital transactions as a percentage are roughly margin-similar to retail transactions, but the total contribution dollars differ. When you substitute retail transactions with digital payout transactions in corridors like Colombia, you see margin pressures. We have two levers: grow higher revenue and higher CPPT in our digital business and lower the digital payout costs through renegotiations and improved settlement. Some of our digital payout partners' agreements were negotiated years ago when they were part of our retail network and used as payment switches. We are actively renegotiating and optimizing. The Colombia example shows the kind of progress we can make.
Our next question comes to us from Rayna Kumar at Oppenheimer. Please go ahead.
Good evening. Thanks for taking my question. Given the current pressures and broader business headwinds, how are you thinking about the sustainability of the current dividend over the medium term?
I will start and then let Matthew follow up with the math. We believe, and the Board of Directors believes, that the dividend is a strong return to our shareholders and that we have sufficient financial capacity to continue and maintain that dividend. At the present moment, we believe the strategy of continuing to return capital to our shareholders via the dividend is appropriate.
To build on that a little for you, Rayna, we have over $900 million of cash on our books. We expect benefits from USDPT and the treasury bridge ramping, which should free up capital. We are working quickly with one of the largest markets and hope to have a large partner on board by the end of this year and then ramp over $1 billion of float in the first quarter next year. That will start to free up capital from both the correspondent banking process as well as what we prefunded to some partners around the world. So we feel like we have line of sight to improve cash flow, and our Board remains committed to the dividend.
Thank you. That is really helpful. As a follow-up, after one month into the third quarter, what are you seeing in terms of U.S. immigration policy effects? Have things gotten worse, the same, or are you starting to see any easing?
What I would call it is a continuation of the policies and the effects we have seen for a year. The effects have stabilized at a certain level, so we continue to see the negative effects but it is no longer worsening and in some places it is abating a bit. That is happening slower than we anticipated at the beginning of the year. The real impacts on policy started at the end of the first quarter of 2025, felt through the second quarter of 2025 and really peaked in the third quarter of 2025. We expected more improvement by now as we lap those effects, but the recovery has been slower than anticipated. Effects vary by corridor; some corridors like U.S. to Mexico are stabilizing while others are more severely affected depending on policy changes impacting specific nationalities.
Our next question is from Darrin Peller at Wolfe Research. Please ask your question.
Alright. Hey. Thanks, guys. You have obviously done well with growth in your branded digital users as many of your competitors have. But are customer acquisition costs for branded digital now higher to the degree that it is impacting incremental profitability? Beyond managing expenses, can we revisit the opportunities to expand ARPU? Where are you in Beyond Digital, and what do you expect to see in terms of revenue per user expansion over the coming year or two?
Let's tackle those in two parts. First, on customer acquisition: we started talking about this two to three quarters ago. As the retail business declined, competitive intensity in digital increased. That competitive intensity invaded new customer offers; there are offers in the market where customers can get multiple free transactions as a new customer. These offers have a significant negative effect on near-term revenue as you onboard those customers. We participated in some of that for a while and then began to back off because we did not see the longer-term returns given the impact on near-term revenue. Second, on ARPU and LTV: we are focused on CAC to LTV. LTV is driven by customer behaviors—longevity, transactions per customer, and principal per customer. We and others in the industry are very focused on finding the most valuable customers: higher senders and more frequent senders—so that acquisition dollars are spent where the lifecycle returns are the highest. Beyond Digital aims to improve onboarding success, improve retention and lift the returns on acquisition by corridor targeting and better product experience.
All right, Devin. Thanks. Quick follow-up on Intermex: I know it is delayed versus your prior expectation, but do you still expect the same financial synergy targets, possibly in a delayed time frame?
Darrin, yes. Ultimately, as we get close, we still expect to realize synergies and in fact we see higher synergy opportunity than originally anticipated. When we kicked this off a year ago, we anticipated $30 million in synergies. Last quarter we said we were seeing more opportunity and expect it to be up a little bit. That continues to be the case. It will ramp post-closing. Our model assumes a September 1 close, but the actual close timing is up to regulatory approval. There will be some synergies this year, and in the first full year we still expect at least the $0.10 benefit we discussed previously, plus some.
Our next question comes to us from Nate Svensson at Deutsche Bank. Please go ahead.
Hey. Thanks for the question. Another one on margin. I understand the points on OpEx and the mix shift in transactions, but other factors came up on the call I wanted to touch on. On the higher agent bonuses—you mentioned agents in Mexico—but is that same dynamic playing out in other regions? Is there any reason to think the cost you are paying agents is structurally higher now than historically? And second, you mentioned travel money operating profit being lower. What was driving that weakness in travel money profitability specifically?
I'll work my way backwards. On the travel money side, as we talked about last quarter, the first quarter of every year is weaker because of seasonality: fixed costs are higher than revenue in that period because travel is seasonal. Typically, profit comes in Q2 and Q3 and they are slightly positive in Q4. What we have seen this year is that travel is down in Europe in particular; if you look at Heathrow travel patterns, you are seeing it be negative for the first time since COVID. So we are seeing fewer consumers coming in, which has put pressure on that business's profitability. It still grew and contributed to our 12% growth rate this quarter, but it was lighter than expected. On signing bonuses and agent economics, it varies from partner to partner. We have a heavy agent renewal cycle and have won two new big partners plus a couple more moderate ones. We signed up Deutsche Post in Europe and Canada Post which will ramp later in Q3. Both come with upfront costs to ramp and are at the higher end of our typical strategic partners' cost range because they were competitive takeaways. We also had smaller wins like Vallarta that were also at the higher end. So while these are more expensive upfront, they are strategic and profitable over time.
To add, Matthew and I have discussed the renewal cycle. We went through an unusual number of renewals over the past 12 months with many of our strategic retail partners in the U.S.—Kroger, Walmart, Albertsons, Walgreens, Publix, HEB, Giant Eagle. We successfully renewed all of those contracts in a down market and in the face of increased competitive attempts to unseat us. The team did an excellent job of navigating those renewals and keeping the economics within a reasonable range. That has contributed to some of the higher upfront costs, but we're pleased to have secured those relationships.
Thanks. As a follow-up, on taxes more broadly—not the federal side, but local or state proposals—Tennessee comes to mind. Could you give your thoughts on that specific proposal and whether you think it gets implemented? Are there any other state or local taxes we should be tracking that could be on the horizon?
When the U.S. remittance tax passed, it pushed more customers to card acceptance. Card acceptance in our retail network in the U.S. is now over 20%, up from a few percentage points prior to the remittance tax, as consumers sought ways to avoid the tax as written. The legislation left the door open for states to pass state-specific taxes; several states, Tennessee being the most notable, have been aggressive. A couple of states have limited taxes to specific corridors or adversary countries. We track these developments closely. If I could predict the outcome, I'd probably have a different job; we don't think Tennessee will have a significant impact on our overall business because Tennessee is not as large a market for us as states like Florida, Texas, California or New York. In many cases, customers may choose to send across a border to avoid a state tax if the delta is meaningful.
Our next question is from Timothy Chiodo at UBS. Please ask your question.
Great. Thank you. I want to go back to the opening comment from the prepared remarks. Retail and digital—you were clear that the contribution profit per transaction is lower for digital and you said 'meaningfully so.' First, can you talk directionally about how much lower it is? Second, what are the items within the P&L of each we should be considering as levers? On the retail side I assume commissions; on the online side the big ones are marketing costs and payout costs. Can you dig into the real levers within the product-specific P&L?
I understand the desire for specificity and it would make life easier for everyone, but the reality is it varies significantly corridor by corridor. Part of the pressure is the growth in the Middle East partnerships because those partnerships are often partner-driven models with different economics than our licensed businesses. There is also a difference in the retail-to-payout-to-account economics, which is why reducing payout costs is so important. In the digital space, payment acceptance costs—how much we pay to accept funding—are significant. Shifting customers from card funding to bank funding and wallets can materially lower funding costs. Managing card fraud and payment fraud is another meaningful expense in the digital channel. Shifting funding methods and improving fraud management helps. We're also looking at SG&A efficiency and eliminating legacy platform costs. As I mentioned, shutting down the European wallets before the new platform is in place was not easy, but it saves run-rate costs of $6–8 million, which is material given the environment.
To add, when you think about cost of sales or cost of services, the biggest item is commissions—almost two-thirds of that bucket in many cases. Beyond commissions, there are fraud losses, payment fees, call center costs and platform costs. We have cut call volumes in half over the last few years which helped costs, but that plateaued a bit, and we are looking to AI and automation to drive further gains. On platform costs, we still operate multiple digital and settlement platforms today. Consolidating platforms and simplifying the settlement stack will reduce costs further. We eliminated three settlement platforms in the last 18 months and expect to eliminate more as we move to a single platform.
Our final question is from Vasundhara Govil at KBW. Please ask your question.
Hi. Thanks for squeezing me in. Is there a way to disaggregate how much of the change in the EPS guide is coming from each of the various factors you outlined? I know mix shift to digital payout seems to be the biggest one, but also weaker retail, travel money weakness, and any contribution assumed from Intermex. Can you help disaggregate that?
Vasu, as you have seen, our first half performance year-over-year: Q1 was down $0.15 and Q2 was down $0.11. Our guide for the full year is effectively $0.50 lower year-over-year. Q1 had pressure from FX loss, delayed money from a partner and some of the mix items we've discussed. The second quarter had similar drivers—mix shift to lower-RPT digital growth, retail weakness in the Americas, higher agent commissions and some incremental operating expenses. We modeled Intermex assuming a September 1 close, so there is some contribution included in the full-year outlook, but the primary drivers of the EPS change are the mix shift and the slower pace of cost reductions we discussed. That should give you a directional view of the contributors.
Thank you for joining the Western Union second quarter 2026 results conference call. We hope you have a great day.