The Western Union Company - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 revenue was $984 million (GAAP), down 6% YoY as reduced Iraq contribution weighed on results; adjusted revenue ex-Iraq was down 2% YoY, and management reaffirmed full‑year 2025 guidance (GAAP revenue $4.09–$4.19B; adjusted $4.115–$4.215B; GAAP EPS $1.54–$1.64; adjusted EPS $1.75–$1.85).
• EPS dynamics: GAAP diluted EPS was $0.36 and adjusted diluted EPS was $0.41. Versus Wall Street, Q1 EPS was roughly in line (consensus $0.407*) and revenue was a modest miss (consensus $991.0M*), reflecting Iraq normalization and Americas retail softness.
• Branded Digital remained a bright spot: revenue +7% YoY (+8% adjusted) with transactions +14% YoY; CMT transactions rose 3% as Europe delivered double‑digit retail transaction growth (+10%), offsetting North America weakness.
• Consumer Services revenue grew 27% YoY (GAAP), despite adjusted revenue down 3% YoY on Argentina bill pay softness and a delayed media contract; management expects sequential acceleration as FX/travel season strengthens and Eurochange integration contributes.
• Catalysts: guidance reaffirmation, operational efficiency savings ($30M in Q1; $140M to date, ahead of plan), accelerating payout‑to‑account growth (~35%), and the Eurochange FX acquisition in the UK (supporting Travel Money scale).

What Went Well and What Went Wrong

What Went Well

• Branded Digital momentum: “eighth consecutive quarter of double‑digit transaction growth,” with transactions +14% and adjusted revenue +8% YoY, underpinning digital mix and margin profile.
  Quote: “We are proud to have achieved our eighth consecutive quarter of double‑digit transaction growth for our Branded Digital business…” — CEO Devin McGranahan.
• Europe strength: retail transactions +10% in Q1; region revenue +5% with double‑digit transaction growth across EU & CIS; debit acceptance and controlled distribution drove share gains.
• Cost execution ahead of plan: $30M saved in Q1, $140M cumulative toward the $150M redeployment program (two years early), with more savings expected to fall to the bottom line in 2025.

What Went Wrong

• Iraq normalization a material headwind: revenue growth rate negatively impacted by ~6pp YoY; adjusted operating margin fell to 19% from 20% last year largely due to lower Iraq contribution.
• Americas pressure: North America transactions down ~1.5%, U.S.–Mexico corridor softness across retail and digital; LACA intra‑region volumes slowed amid changing migration patterns.
• Consumer Services adjusted revenue down 3% YoY on Argentina bill pay softness and delayed media contract; seasonal FX/travel effects diluted Q1 but expected to improve into Q2.

Transcript

Operator (participant)

Good day and welcome to the Western Union First Quarter 2025 Results 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 conference over to Tom Hadley, Vice President of Investor Relations. Tom, please go ahead.

Tom Hadley (VP of Investor Relations)

Thank you. On today's call, we will discuss the company's first quarter 2025 results, 2025 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, Matt Cagwin. Today's call is being recorded, and our comments include forward-looking statements. Please refer to the cautionary language in the earnings release and in Western Union's filings with the Securities and Exchange Commission, including the 2024 Form 10-K, for additional information concerning factors that could cause actual results to differ materially from the forward-looking statements. During the call, we will discuss some items that do not conform to generally accepted accounting principles.

We have reconciled those items to the most comparable GAAP measures in our earnings release attached to our Form 8-K, as well as on our website, westernunion.com, under the Investor Relations section. I will now turn the call over to our Chief Executive Officer, Devin McGranahan.

Devin McGranahan (CEO)

Good afternoon and welcome to Western Union's First Quarter 2025 Financial Results Conference Call. Today, we reported a reasonable quarter against a difficult macro backdrop as we continue to implement our Evolve 2025 strategy, which, as you recall, is focused on returning Western Union to sustainable, profitable revenue growth. Our strategy is to become a customer-centric company by reversing many years of uncompetitiveness due to overpricing, underinvestment, poor execution, and slow responsiveness to market trends. We've been implementing this strategy while also maintaining our above-average margins, our commitment to our dividend, and paying down our deferred tax obligations. This quarter marks the seventh consecutive quarter of above 3% transaction growth for the company when excluding Iraq, Russia, and Belarus. The company has not delivered this level of consistent transaction growth in over a decade.

As we continue to implement our strategy and we become more competitive, we see the potential for future share gains in many regions around the world. We have made significant progress on realigning our market position, improving our customer and agent experience, and building out our non-consumer money transfer businesses. Where we have gotten this right, like in Europe, we now see strong mid-single-digit revenue growth and double-digit transaction growth, a good result in a competitive market that would have been unimaginable three years ago. Broadly speaking, Q1 results show a continuation of the trends we saw in the fourth quarter and demonstrate the value of our globally diversified business. While the Americas continued to struggle with geopolitical headwinds, the rest of the world, which represents 50% of our money transfer revenues, continued to perform well with double-digit transaction growth in all three underlying regions.

We did see some deceleration in the Americas, with North America transaction growth about 100 basis points lower in Q1 than the previous quarter, and LACA about 200 basis points lower. The rate of change in the Americas slowed dramatically in Q1, with most of the slowdown happening in the third and fourth quarter of last year. This should set us up for easier comparisons as we get into the back half of the year. For the first quarter, our revenue came in at $984 million. Adjusted revenue, excluding Iraq, declined 2%, with 100 basis points drag from the difficult comparison against leap year last year. Overall transaction growth was 3%, and cross-border principal growth was 10% on a constant currency ex-Iraq basis, speaking to the resilience of our customer base around the world.

While our retail business in the Americas continued to face headwinds associated with the current geopolitical environment, our retail business in Europe is strong with transaction growth of 10%, which led to regional revenue growth of 5%. Our branded digital business also continues to perform well, with 14% transaction growth and 8% adjusted revenue growth in the quarter. Consumer services adjusted revenue was down slightly in the quarter, as our bill payment business in Latin America was off double digits, and the first quarter is a seasonably slow quarter for both our advertising business and for European travel, which is the driver of our expanding FX business. We expect both businesses to have meaningfully better results in the coming quarters. Adjusted earnings per share came in at $0.41, or down $0.04 relative to this quarter a year ago.

A decent result, as Q1 2024 benefited meaningfully from higher revenues and operating profits from Iraq, which were not repeated in the current quarter. Our discipline in managing capital and operating costs is starting to come through. Matt will discuss our first quarter financial results and 2025 outlook in more detail later in the call. Our vision is to be a globally diversified provider of everyday financial services to the aspiring populations of the world. We want to be the company that helps everyday people achieve their dreams through better financial products and services. It is one of the reasons that I'm excited about our recently announced acquisition of EuroChange. It gives us another building block at the top of our distribution strategy and in an important market like the United Kingdom to deliver high-quality products and services in an omnichannel manner.

Our European team is leading the way with implementation of our controlled distribution strategy, and EuroChange will help us accelerate that strategy in the United Kingdom. Now, switching to the Americas, as we discussed last year, migration patterns continue to change across this region, and we have felt the effects in our financial results. These changes began in the second half of last year and have continued throughout this quarter. Our North American business was consistent in the fourth quarter after considering the headwind from leap year, while our Latin American business has continued to slow. Migration across Latin America has been slowing for several quarters, and the first quarter was a continuation of those trends. Slower migration levels in the region have led to lower intra-LACA remittance volumes. Looking at Ecuador, for example, outbound remittances in the most recent central bank data were off 25% year over year.

We've also seen slowing in the outbound trends in central bank data across other important Latin American countries like Mexico, Colombia, and Bolivia. North America performed largely in line with our expectations in the quarter. Transactions were down about 1.5% in Q1, which was about 100 basis points slower than the fourth quarter. Principal per transaction in North America was up mid-single digits in the quarter as customers sent more money per transaction at less frequent intervals. As mentioned in the last quarter, most of the slowdown in North America is coming in our retail business and is centered on the U.S. to Mexico corridor. When we look at U.S. outbound to Latin America more broadly, across all channels and excluding Mexico, we see transactions are up 2% year over year, and revenue is flat in the quarter.

Both statistics show negative trends on the retail side, but solid growth in digital. Stepping out even further, looking at U.S. outbound to the rest of the world excluding Mexico, we see transaction growth of 2.5% with a similar breakdown across channels, softer in retail, supported by strong digital. We are not as far along in the transformation of our U.S. retail business as we are in Europe, and in a tough macro environment, it does show. Exiting Russia and losing two large agents accelerated our efforts throughout Europe in 2023 and 2024. From our learnings there, we know we need to more aggressively focus on driving North American agent productivity, implementing our tactical pricing strategy, and strengthening our distribution in both exclusive and non-exclusive channels. The North American team is hard at work to accelerate this playbook this year in the region.

If we step outside of the Americas, a brighter picture comes into focus. As we obviously have seen the benefit of a globally diversified business with the European, Middle East, and APAC regions, which account for 50% of CMT revenue, all performing reasonably well. Europe accelerated positively in the first quarter on both transactions and revenue, and all three regions reported double-digit transaction growth in the quarter when excluding Iraq from the Middle East results. Sticking with the Middle East for a moment, we have a lot of momentum in the region driven by our long-term partnership with STC, which recently launched as a licensed bank in Saudi Arabia. We also have multiple new partnerships in the region, including two additional partnerships in Saudi.

In addition to Saudi Arabia, we are spending a lot of time in the UAE, which is one of the top 10 remittance markets in the world. We are expanding our investments in our digital channel in the country and have begun to ramp our recently launched partnership with DuPay to provide cross-border remittance services. We believe the Middle East is a big opportunity for Western Union and will look forward to continuing to expand our presence in the region. Now shifting to Europe, after multiple years of negative trends in the region associated with the conflict in Ukraine and the loss of two large agents, our European business is delivering strong performance for the company.

The change in trajectory is being driven by the hyper-local nature of the retail business, which has shifted from a high reliance on large strategic accounts to a more diversified approach with our strategic agents at the base, supported by a very competitive and robust independent agent network, complemented by a small number of owned and agent-controlled concept stores in high-volume locations. Our owned and concept stores in Europe are now approaching 500 locations with the continued internal expansion, as well as the recently announced acquisition of EuroChange in the U.K. The EuroChange acquisition will bring in-house a long-standing partner and will allow us to expand our FX services with over 200 owned locations in the country and 100-plus partner locations throughout the United Kingdom. We are excited about the opportunity to expand our cross-border travel money business. Our core customers, by definition, are travelers.

They leave home and travel in search of economic opportunities, many times over great distances. When they return home, they almost always bring money back with them. In remittance parlance, this is often referred to as the informal market. It is for this reason that many of our agents around the world offer foreign exchange services alongside Western Union consumer money transfer. We believe we have a natural right to play in this market and that our brand is well positioned. However, and potentially more important, our core customers are not the only people who travel internationally. Adding foreign exchange services allows us to expand our customer base to a higher-income demographic with a product that our brand is already positioned to provide.

Finally, we believe the travel money segment will continue to grow as consumers prioritize travel and new experiences with their discretionary income, and we know that local currency in hand remains an important element for non-business consumer travel. This acquisition complements our strategy across continental Europe, with travel money services now in Spain and Italy, with Germany soon on the horizon. We also offer travel money services in Singapore and several countries in Latin America as we look to leverage our controlled distribution strategy by providing multiple financial products and services in each location. We believe that by the end of the year, our travel money segment could be the largest business inside our consumer services segment, surpassing our retail money order business and both our North American and Latin American bill pay businesses.

In conclusion, we remain pleased with the progress of our business against a tough macro backdrop in the Americas. From a regional perspective, while North America and Latin America are facing headwinds, Europe, the Middle East ex-Iraq, and APAC continue to perform well, which highlights the value of a globally diversified business and gives us optimism about what we can accomplish in the remainder of 2025 and beyond. I believe that we are tracking well to achieve our Evolve 2025 goals and are setting the company up for a more prosperous future. Thank you for joining the call today. I will now turn over to Matt to discuss our financial results in the quarter in more detail.

Matt Cagwin (CFO)

Thank you, Devin, and good afternoon, everyone. I'm pleased to be here today to walk you through our 2025 first quarter results, as well as our 2025 financial outlook.

In the first quarter, GAAP revenue was $984 million, and total company adjusted revenue, excluding Iraq, was down 2%. This decrease in growth was led by a sequential slowing of our retail and consumer services business and consistent branded digital growth of 8%. Our expectations were Q1 would be one of the lowest growth rates of the year due to leap year benefit in 2024, and we expect our results will gradually improve as we go throughout the year with some of the new agent wins, benefits from EuroChange acquisition, and acceleration in both our digital and consumer services businesses. Adjusted operating margin was 19% compared to 20% last year, with the decrease primarily due to elevated Iraq revenues last year, partially offset by lower operating costs in the current period. Adjusted EPS was $0.41 in the current quarter versus $0.45 last year.

The prior year benefited from a much higher Iraq contribution and was partially offset by lower operating costs, lower share count, and lower adjusted effective tax rate in the current period. The adjusted effective tax rate in the quarter was 10% compared to 16% the prior year. The change in our non-GAAP tax rate is largely due to discrete benefits received related to a resolution of a legacy dispute in the current period. Now turning to our Consumer Money Transfer or CMT business. CMT transactions grew 3% in the quarter, driven by robust Branded Digital Business that grew transactions 14%. CMT adjusted revenue was down 2%, driven by a difficult macro environment and tough comparison against last year due to leap year. Our Branded Digital Business grew adjusted revenue by 8% and transactions by 14%.

This marks the eighth consecutive quarter of double-digit transaction growth and the fifth straight quarter of high single-digit revenue growth, which was achieved against a tougher comparison with leap year in the previous year period. We have continued to grow our payout to account business with over 35% growth in the quarter. This channel puts pressure on our spread between revenue and transactions as account payout comes at a lower yield, but we're excited to be growing this business as it comes with higher margins and provides for much stickier customer relationships. This sequential improvement in branded digital transactions was driven by an increase in Europe, Middle East, and APAC. Branded digital revenue growth in the quarter was muted by the relaunch of our loyalty program in the United States, which provided a modest headwind to our revenue as we counter for accruals of future loyalty benefits.

We expect this headwind to continue into the second quarter. We are pleased with the progress we're making on the digital side of our business. Now turning to the retail business, in the quarter, we saw continued improvement in Europe, offset by weaker results in the Americas, which are underperforming primarily due to geopolitical issues as well as slowing migration trends that Devin discussed earlier. Europe's retail momentum resulted in 10% transaction growth in the quarter, the first time we saw double-digit transaction growth in the region for at least a decade, excluding one quarter in 2021 during the COVID period. We continue to believe there are numerous compelling opportunities for our retail business to recapture share, and we look forward to executing against those opportunities as we work to return our retail business to growth.

Now transitioning to our consumer services segment, which accounted for 11% of total quarterly revenue. First quarter adjusted revenue was down 3%, driven by a softness in our consumer bill pay business in Argentina and a delay in a media network contract. We expect growth to accelerate in the second quarter as we enter a seasonally stronger period for our FX business, which is largely driven by summer travel in Europe. In April, we completed an acquisition of a long-term partner in the United Kingdom, and we would like to welcome the EuroChange Group to the Western Union family. Using trailing 12-month revenue, the acquisition of this very well-regarded FX house is expected to add roughly one percentage point of growth to Western Union this year. We expect this acquisition to be accretive in 2025 and to help us accelerate our money transfer business.

Now switching briefly to the operational efficiency program. In the quarter, we were able to save $30 million, bringing our total savings to date to $140 million. This puts us on pace to exceed our $150 million target two full years ahead of schedule. In light of a more uncertain macro backdrop and lower revenue from Iraq, we anticipate a larger portion of our operational efficiencies will fall to the bottom line this year than they have in the recent past. Now turning to our cash flow and balance sheet, we generated $148 million in operating cash flow in the first quarter. This is up 50% year over year. In the first quarter, capital expenditures was $24 million, down 30% year over year, and we remain committed to strategically investing in key areas of our business while aligning our agent compensation to performance.

We also continue to maintain a strong balance sheet with cash and cash equivalents of $1.3 billion and debt of $2.8 billion. Our leverage ratios were at 2.8 times and 1.5 times on a gross and net basis, which we believe provides us ample flexibility for capital returns or potential M&A while maintaining our investment-grade credit rating. In the quarter, we returned over $150 million to our shareholders via both dividends and stock repurchases. Post-quarter end, we made our final $200 million tax payment to the IRS, which concluded our $800 million 2017 Tax Act Commitment. Going forward, we now have greater flexibility to use our free cash flow to drive shareholder value through further share count reduction or to invest in the business through inorganic growth opportunities. Now moving to our 2025 outlook, which assumes no material changes in the macroeconomic conditions.

However, due to increased uncertainty, it has become more difficult to forecast revenue, although we do see a path to achieving our 2025 guidance. As such, we are reaffirming our guidance today, which includes adjusted revenue to be in the range of $4 billion 115 million-$4 billion 215 million. This range reflects continued growth in our branded digital business, double-digit growth in consumer services, as well as continued stabilization of our retail business. We forecast adjusted operating margins to be in the range of 19%-21%. Lastly, we forecast adjusted EPS to be in the range of $1.75-$1.85. As a reminder, from a quarterly phasing perspective, Iraq contributed $34 million in the second quarter of 2024, which will create a headwind for the company from a revenue and EPS perspective in the second quarter of this year. Thank you for joining the call and operator.

Operator (participant)

We're now 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 Will Nance from Goldman Sachs. Please ask your question.

Will Nance (VP and Equity Research Analyst)

Yes, thanks for taking the question. I wanted to ask about some of the pressures you guys are seeing on the North American retail side. I'm curious if you guys can speak to any kind of channel remixing that may be happening under the surface from the retail channel to the digital channel. I guess, are you seeing behavioral changes, maybe people looking to leverage more digital channels in the current kind of political and immigration environment? Have you seen evidence of recapture of that volume, if so, on the digital side of the business?

Devin McGranahan (CEO)

Hey, Will, thanks for joining the call. We have seen a slowing across both digital and retail in North America. The slowing has been more significant, as evidenced by the financial performance in the Americas in the retail side than in the digital. The same trends that we highlighted in the prepared comments with the U.S. to Mexico corridor. In fact, the Bank to Mexico reported in the quarter that principal volume had declined for the first time in many quarters. Not a lot, but it stopped being positive, single, and sometimes even double digits to a slight negative. We have seen the volume to Mexico decline in both retail and digital. We have seen very little acceleration of what I would call channel migration. Our channel migration numbers are relatively consistent year over year in North America.

Will Nance (VP and Equity Research Analyst)

Got it. Appreciate you taking that question.

Just maybe one for Matt, just a clarification on the guide. I hear you on reiterating the guide. Does that guide include the acquisition in those numbers from here, the 1%? I think you said accretive in the first year, presumably on the bottom line. Does it include that impact? A follow-up would be, I think you're talking about it doesn't assume a material change in the immigration or the macro backdrop. I guess, to what extent is some of the weakness that you're seeing already reflective of that? Is there any way you could sort of quantify the deviation of the baseline, the deviation of the business performance today relative to the baseline that's kind of informing that guide if you are deviating from it so far? Thanks.

Matt Cagwin (CFO)

Yeah. Hey, Will, thanks for joining the call to answer the questions.

On the first part, is the EuroChange acquisition in our guide. The answer to the question is yes. We had been working on this acquisition for a while and knew it when we gave our guidance and something we were planning on doing. As far as the what are we seeing for macros and other immigration changes, as Devin highlighted in his prepared remarks, we have seen a leveling off. The major deterioration we saw had happened in the second half of last year, and it has really started to level off now over the last quarter. That is baked into our forecast right now at that levels. There have been some different rulings and guidance from the government around ID requirements. It is actually in about 30 counties in the southwest border. We have adopted those. We obviously cannot predict what happens from there.

It has not had a material impact yet to our business, but it's early days, so we're still monitoring that. It is a very dynamic market, which is why I made the comments I did around our outlook. We do feel good. We do see line of sight to how to get to our guide, but it's been a very unusual market over the last few months, as you know.

Devin McGranahan (CEO)

I think the other thing I would add, Will, and it came through in our, hopefully in our public comments, the benefit of diversification in our global footprint really came through again in this quarter.

As we look through the rest of the year, the strength that we see in the Middle East and obviously the overperformance that we're having in Europe assuages any concerns that we have about the situation continuing as it is here in the United States of America.

Will Nance (VP and Equity Research Analyst)

Got it. Thanks for that, Devin, and thanks both for taking the questions. Appreciate it.

Devin McGranahan (CEO)

Thanks, Will.

Operator (participant)

Our next question comes to us from Tien Tsin Huang from JP Morgan. Please ask your question.

Tien Tsin Huang (Analyst)

Hey, thanks. Good afternoon. Just to follow up on Will's question, I think you also mentioned that you do expect results to gradually improve consistent with last quarter. You mentioned EuroChange. I think you mentioned new agents and then acceleration in digital and consumer services. Can you elaborate on what you see there in terms of the contributions beyond the acquisition to drive the improvement?

Matt Cagwin (CFO)

Hey, Tien Tsin, thanks for joining the call today. There's a couple of things that we think can actually help improve us. Devin talked about two new, well, the partnership with STC talked about earlier, as well as our EuroChange partnership, as well as we've got a couple of new things in the Middle East we've signed recently. They just started ramping the latter part of March that we're very optimistic. Two of the four were competitive takeaways from one of our larger competitors that we see being very meaningful to us over time and should help us in the back half of the year. The EuroChange acquisition will obviously help us as we've started to integrate that here in the month of April, as well as we've seen strength across our travel money business, which we think will help our overall consumer services business.

I alluded to this in my prepared remarks, so hopefully it came through. When you think about consumer service as a whole, we're off a little bit of where we thought we'd be for Q1. We always anticipated being one of the lowest quarters of the year. If you talk about what was different than that, I highlighted the Argentina business has been much weaker than we anticipated. You've seen the inflation changing and the macroeconomic conditions in Argentina very different than it would have been six months ago. That has been a little bit of a negative surprise for us. We think that some other improvements we have will guarantee and help us get comfortable with our double-digit growth. The other one was the delay in our media network contract. We had anticipated having that benefit for half the quarter. Did not happen.

We've now executed on it, and that'll help us in Q2. Do not anticipate it having any meaningful impact on the full-year growth for our media network business. There are multiple things we think can help us, as well as acceleration in our branded digital and stabilization of retail. Do you have anything you'd add?

Tien Tsin Huang (Analyst)

Nope. Got it. That's clear. Thanks for going through that. Just my follow-up. I know you do not usually give month-to-month updates, but just anything to say around what you saw in April? We get the question around pull forward a lot. I know AmEx and others have gotten those questions too. I'm curious what you've seen and if there's any interesting observations from there. I heard, Devin, you mentioned the higher principal send relative to the transactions.

I'm just curious if those are some clues that maybe we should study beyond what you shared around the geopolitical stuff.

Devin McGranahan (CEO)

Yeah, great question, Tien Tsin. Matt and I are chuckling because he and I have been going back and forth for the last 10 days. As you know, and I'll come back to the principal thing in a second, but as you know, the remittance business is heavily, heavily aligned to the holidays. While we have a busy season at the end of the year, the true peak for our business is between Ramadan, Easter, and Mother's Day. Last year, we had kind of a double, almost triple witching hour where Ramadan and Easter stacked up in the first quarter, and then Mother's Day followed pretty quickly thereafter.

This year, Ramadan started much earlier in the quarter, so it petered out by the end of the quarter. Yet Easter was now here in April with Mother's Day still off in early May. We have actually seen calendar-wise slowdown in the early part of this quarter due to the timing of the holidays. I think we have convinced ourselves mostly that it is timing of the holidays and that the underlying trends, as we said in our public comments, have started to stabilize, particularly here in North America from the fourth quarter into the first quarter. We feel pretty good about that, but it does not show up yet in the April numbers because of the big holiday shift that we are experiencing this year. The PPT per transaction, though, is a more interesting dynamic.

In my almost three and a half years as the CEO, we spent a lot of time talking about the stability in the PPT and in the face of what was a pretty high inflationary environment 12 and 18 months ago, satisfaction that we were seeing PPTs remain roughly flat. This is the first time that we've seen material acceleration in principals per transaction driven a lot here in North America, but also in other parts of the world, as I talked about that 10% PPT growth ex-Iraq. That speaks to the resilience of the customer and potentially a slight change in consumer behavior, less frequent, particularly in the retail locations, less likely to want to be potentially out in public sending money home.

We are keeping a very close eye on this dynamic as we think it speaks to what is happening under the surface, particularly in our retail environment, particularly in North America.

Tien Tsin Huang (Analyst)

Thats, it's really interesting. No, thank you for sharing.

Operator (participant)

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

Darrin Peller (Managing Director and Senior Equity Research)

Guys, thanks. We are looking at the digital transaction growth. 14% was a bit better than even last quarter. I know there are some nuances in the market. Can you touch on the implications of the loyalty update you're providing and what that could be on the business, as well as actually just maybe a little bit more color on the banking payout or electronic payout and what that does for the business, maybe just more of an understanding of why that should help improve it further going from here.

I guess adding on to that, maybe just more directional guidance on the spread between the transaction growth and revenue growth rates from here.

Matt Cagwin (CFO)

Hey, Darrin, thanks for joining the call today. A couple of different questions, I'm going to unpack it for you. As far as your question about the 14% and how does loyalty fit into it, we've had a loyalty program for a while. Devin talked about it, I believe it was Q1 last year, might have been Q2, but blurs together. We launched it last year in France and Morocco. We've seen some pretty solid results that gave us some optimism, have now brought to the U.S. The goal of the program is to drive loyalty and retention in our customer base.

As we've talked about publicly before, our retail retention is in the mid to high 40s, and we've never given this number publicly, but our digital number is a little bit better than that. We believe that with some strong loyalty programs and creating a way of that connection, in addition to having more products, you can drive a longer customer relationship between the two sides. That is the goal of the program. We have relaunched it here in Q1 for our digital business in the U.S. It had a modest—I intentionally used the word modest on my script because it is in the 10-50 basis point range of an impact on the quarter. It is not massive on the revenue side, no impact on transactions. That will continue as it grows accrual into Q2.

Once it's been fully rolled out, you'll be starting to use points as you earn points, and it won't have any more impact on revenue. We're monitoring closely. It's still early days to see if we get the same benefit for retention that we anticipate, but we do believe it should provide us an uplift to our retention. To your question around APN and what does that mean for a holistic business, the APN business is a relationship where folks have actually connected their bank account to us or connected their outside payout to their receivers. Once that's all been set up, we have noticed the behavior that that is a much more sticky customer than the typical cash payout customer. It's been growing at a very fast clip.

I think we've been talking about this now probably for about eight to ten quarters where it's been growing 30% plus. It accelerated here in Q1 to mid-30%. That caused a widening because of the lower RPT associated with those customers. We're happy with that. That's going to provide us a longer relationship and a larger base, and that is the fastest growing part of the business. Anything you'd add, Devin?

Devin McGranahan (CEO)

Nope, I agree with all of that. We remain very indexed on that spread. As we've said publicly many times, our long-term goal is kind of three to four hundred basis points in digital relative to the mix happening both across corridors and across kind of retail payout versus account payout or APN. I'll come back to loyalty for a second.

I'm quite excited about what we're doing in loyalty as Matt highlighted. Our primary objective function with the loyalty program is increase retention, which is a powerful economic lever in our business. We launched in France. We also launched in Morocco. This loyalty program, unlike the past one, is actually two-sided. Both senders and receivers participate in the program. We've seen big engagement in the U.S. with our base of customers who participated in the last loyalty program actively participating in the new and redeeming our much easier to use and much more aligned incentive program to spur incremental transactions versus just drive rewards back for high-volume customers.

Darrin Peller (Managing Director and Senior Equity Research)

It looks like it's been showing on the transaction growth, so that's good to see. I guess just quick follow-up on the competitive dynamics.

When I think about the backdrop from a geopolitical standpoint, have you guys seen any changes in behavior from any competitors deciding to move, maneuver their position in the market based on anything going on from a political standpoint in any markets, frankly?

Devin McGranahan (CEO)

I'm reflecting on your question. As you know, we've talked about two trends that I think we continue to see. One is there is a consolidation happening both in retail and digital along the lines of the stronger, more well-capitalized players. This turns out to be a capital-intensive business. The cost of capital has gone up with interest rates around the world, and we continue to see the largest players consolidating and smaller players, particularly very small, marginal, niche geographic or segment-based players exiting.

We have not seen an overly aggressive response by the major competitors to any of the trends in North America that were different prior to the geopolitical changes that happened back last fall, starting with the elections in South America and working their way into North America. It has remained a relatively stable and consistent competitive environment from our viewpoint.

Darrin Peller (Managing Director and Senior Equity Research)

Okay. Very helpful, guys. Thank you.

Devin McGranahan (CEO)

Thanks, Darrin.

Operator (participant)

Our next question comes to us from Ramsey El Assal from Barclays. Please ask your question.

Ramsey El Assal (Managing Director)

Hi there. Thank you for taking my questions this evening. Devin, you mentioned applying your learnings from Europe into North America in terms of improving, I think you called out agent productivity, distribution, pricing. Can you give us a little more color on that process?

Sort of what inning are you in doing that, kind of applying the best practices into North America and what impact maybe could we expect there? Is there an opportunity to sort of outperform your forecast on the back of that, or is it something that's already sort of in process and baked into your numbers?

Devin McGranahan (CEO)

Great question. As you guys know, I didn't grow up in this business. When we launched the Evolve 2025 strategy, one of the pillars of that strategy was to return our retail business after many, many years of decline to stability.

I know there was some skepticism in some parts of the world as that is an objective, but we remain convinced that the power of our brand and the natural course of a consumer's migration journey, many, if not most of the time, our customer segment, when they land in a new country, begins their remittance experience in the retail channel due to how they are paid, the nature of their documentation, the nature of their language, and many times the familiarity of a person in helping with one of the most important financial transactions that they'll do that week, that month, or that quarter. We have invested heavily, as I've talked about on public calls, into our retail point of sale to make it easier for our agents to do our business.

As you guys know and have seen in the results, we worked hard to get back to market competitiveness in many of the markets around the world. We started to rebuild how we go to market. I think that's where your question is most focused. That how we go to market is actually three parts. One is getting the right distribution strategy aligned, which is this kind of idea of highly controlled or owned high-volume locations at the top of the pyramid, a base of very competitive from a market standpoint, from an experience standpoint, independent agents where we compete every day side by side with our competitors, and then a big, large base or grounding in our long-term strategic relationships with our post offices, with our grocery stores, with our check cashers around the world.

That pyramid combined with a much more aggressive management of the local market conditions. That is what we call either tactical pricing or kind of local market specialization, where on any given street corner, on any given day, we can be competitive and want to be competitive to drive profitable volume as a combination of agent incentives, pricing, and customer demand. The last part is obviously to shift, as we did, some marketing dollars back into the retail channel to revitalize the brand. I think we've rebranded, I don't know, Matt, 100,000 retail locations in the three years and then put the word back out on the street that Western Union's open for business, retail business, and that we welcome that with our partners and our customers.

That strategy is most advanced in Europe, where we had to struggle and quickly react to the loss of two large agents and exiting Russia with the war in the Ukraine. We, by luxury indent of the strength of our North American market and also by the strength of that big foundation base in North America, is much bigger, given our privileged relationships with people like Walmart and Kroger and Publix and Albertsons and Ahold Delhaize. We did not have to react as quickly. We are probably only in the third inning or fourth inning of the game in the U.S. and in Canada, where in Europe we are probably in the seventh or eighth inning. A long way to say there is opportunity and upside in North America by adopting what we now know is a model that works with our brand and our capabilities.

We know the retail business can, in fact, not only be stable, as Europe has demonstrated, it can be a reasonable mid to upper single-digit grower. We believe the same conditions that have existed now in the rest of the world can be replicated here in the U.S. by following that formula more aggressively than maybe we have over the last 18 or 24 months.

Ramsey El Assal (Managing Director)

Thanks for that. A quick follow-up from me on modeling the EuroChange transaction. I think the press release that I read indicated that it was an existing Western Union agent. Does that change the way we think about modeling the P&L impact? I know you mentioned 100 basis points of revenue growth. Maybe I'm overthinking this, but are there any idiosyncrasies to how we would model that deal given they were an existing agent?

Matt Cagwin (CFO)

What that's trying to say is if you are able to know what their revenue was, some of that revenue is already in ours and will go away because we already have it, and it will be a shift between their revenue base will decline, but the overall profit will not change, which is why we want to emphasize it's about 1% of our revenue. It will be an accretive acquisition for us in the year. I'd model it that way. The vast majority of the benefit helps us within the CS business.

Devin McGranahan (CEO)

Matt, you very much. I also commented on it and I'll reiterate it because I think it's an interesting point.

Due to our historic strategy, which I just talked about how we're changing, this particular partner had been in that base of exclusive strategic partner relationships, 200 locations, but over time, prices had gotten out of the market, and this had become a very low-volume part of our distribution channel, despite the fact that it was exclusive. Many of these locations are in great areas with good branding and really support our value proposition around safe, secure, easy in our retail environment.

By acquiring this, it gives us a chance to implement the new strategy, be much more aggressive in the marketing, be much more aggressive in how we go to market and the pricing that we take in those, and see this as a way of really bolstering our retail business in the U.K. by adopting the strategy with this partner, which has a pretty reasonable size base across the country.

Ramsey El Assal (Managing Director)

Thank you very much. Appreciate it. Thanks.

Operator (participant)

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

Tim Chiodo (Managing Director and Lead Equity Research Analyst)

Great. Thank you very much. Two quick ones. The first one on the payout to account business, so 35% growth.

I was hoping you could give an update on just what percentage of the business is that today, meaning in Q1 relative to, as a percentage of either transactions or revenue or volume or any metric that you're willing to share. 35% growing off of which base? The minor, minor follow-up, I'll just say it upfront, is on the tax rate. You mentioned for the quarter, of course, there were some discrete items. It's not about the 10% in Q1. When I look at the overall tax rate in sort of the mid-teens, could you just talk about some of the reasons for that, whether it's geographic mix or maybe other agreements that you have in place that help keep that tax rate low and how we should think about the sustainability and the durability of the kind of mid-teens tax rate? Thanks.

Matt Cagwin (CFO)

Hey, Tim. Thanks for the two questions. First one's probably more easy to answer. The second one, the second one's a longer answer. APAC, I think we've talked about this in past calls. On the retail side, it's somewhere in the very low double-digit range of our transactions. Revenue is not that different, a little bit lower. On the digital side of our business, it's somewhere in the high 30s. It has been growing at a very fast clip at 30% plus over the last, call it, eight, ten quarters, and it has taken itself from the 20s up into the mid to upper 30s on the branded digital side. On your second question around the tax side, we feel very good about the durability of it. You have seen our guide in the press release. We have got a little footnote at the bottom there.

It talks about our tax rate. There are two numbers on there. One is GAAP, one is non-GAAP. The reason why the non-GAAP is meaningfully lower than the GAAP side is we were basing the non-GAAP off of more of a cash tax type basis. We've got some structures that can provide us a very stable cash tax basis over time that we think will help provide benefits of keeping us in the mid-teens range for the medium term.

Tim Chiodo (Managing Director and Lead Equity Research Analyst)

Great. Thank you so much.

Operator (participant)

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

Jason Kupherberg (Senior Equity Research Analyst)

Thank you. I wanted to go a little deeper into Europe. I know that the trends there have been pretty positive, and I was curious which corridors you might call out as driving that strength.

As we look at the spread between transaction and revenue growth in the European region, I think it was a five-point spread this quarter. Do you envision that potentially narrowing a little bit as we move through the year? If so, what might drive that?

Devin McGranahan (CEO)

Thanks for the question. Two quick things. We have seen a lot of what's happening that's driving the European growth is Europe to South America, Europe to Africa, and Europe to the Middle East. Those three, and then again, it's France to Morocco, it's Spain to the Dominican Republic, it's the United Kingdom to Saudi Arabia. Those general geographic mixes are what we've seen where the overperformance is relative to our traditional business, which was more Western Europe to Eastern Europe or Europe to Asia, Europe to the U.S. types of corridors.

We still do fine in those, but the growth has come in those other three areas. The trend, Matt just talked about what the trend is with APN. In Europe, the mix of APN from our retail business is meaningfully higher than in other parts of the world, which is also what's contributing to the accelerated growth because retail to pay out to account is also growing everywhere around the world in the 30+% range. It is a higher portion of our retail business in Europe, which then causes that spread to be a little bit bigger. As Matt said, we're perfectly comfortable with that. It's a better customer. It even in retail has higher retention rates. We are going to continue to drive that 30+% every day if we can.

Jason Kupherberg (Senior Equity Research Analyst)

Great. Great. And just a numbers question.

Again, coming back to EuroChange, you said 1% additive to revenue this year. I'm going to call it $40 million, I guess kind of rounded. Are you guys saying that you had already assumed EuroChange when you gave the initial guide back in February? I'm just trying to get a sense if there's any nuanced change and kind of the organic outlook for the business for the year.

Matt Cagwin (CFO)

Tim or Jason, we did contemplate some tuck-in acquisitions this year. We had a couple in the works. This was one of the ones that was furthest along. The answer to the question is yes. And yet your 1%, you're estimating that correctly.

Operator (participant)

Our next question comes to us from Brian Keane from Deutsche Bank. Please ask your question.

Brian Keane (Managing Director and Senior Equity Analyst)

Hi guys.

I wanted to ask just about the political environment in particular, curious about tariffs, any direct or indirect impacts you guys think might happen to the business as a result of those.

Devin McGranahan (CEO)

Yeah. Brian, great question. Actually, we generally get more questions on the immigration issue than we do the tariff issue. It is nice to get a tariff question instead of an immigration question. We are like every other consumer business, except that I think we became confident about the resiliency of our customers. You remember there was a lot of concern when inflation rates went way up that consumer staples for our customer base would accelerate and we would see a drop in PPT as people got squeezed. We did not see that. We think the same thing is true here.

If in some period of time tariffs have an effect on raising consumer prices, which I won't profess whether they will or won't, but that is a theory of the case, we actually believe our customer will remain relatively resilient given the importance of sending money home. The fact that we've seen PPT accelerate, again, gives us confidence that even in the face of maybe logistics challenges or concerns about being out in public, people are still sending money home and they're increasing the amount of money they send home because the people on the other side of that transaction have a defined set of needs and they're dependent on a certain amount of money regardless of how often it's arriving. We don't think the impact will be significant on our business, on our consumer anytime in the relevant or near future.

Brian Keane (Managing Director and Senior Equity Analyst)

Got it. Got it.

Just as a follow-up, Matt, you talked about potentially dropping more of some of the operating expense savings to the bottom line, kind of different than prior practices, which typically you guys were reinvesting in growth or marketing and other programs. I just want to make sure I understand the finer point on what you were trying to make there. Is that a little bit of a change in philosophy going forward?

Matt Cagwin (CFO)

It's more of an acknowledgment that the revenue is a bit tougher this year with Iraq slowing down too. This past quarter was $7 million. We had last year $65 million in Q1, $35 million-ish in Q2, and then got down to the normal levels we're running at now, Q3 and Q4. We have a lot of levers in this business to meet our commitments. The cost containment redeployment program is one of them.

I want to make it clear that this year is one of those years where more of that's going to go to the bottom line to help fulfill our commitment to deliver $1.75-$1.85 than in the last couple of years we were planning for building out new products and a lot of that's already been invested in the business. We're starting to see some of the traction on that. I just wanted to make sure you guys knew that that was a little bit of a different angle.

Brian Keane (Managing Director and Senior Equity Analyst)

Thanks, guys.

Operator (participant)

Our next question comes to us from Andrew Schmidt from Citi. Please ask your question.

Andrew Schmidt (Director and Senior Equity Research Analyst)

Hey, Devin. Hey, Matt. Thanks for taking the questions this evening. I wanted to ask about FX volatility. Obviously, we've seen a pretty big spike in April.

In the past, there's been gains, losses, obviously hedging impacts, not to mention impacts on customer behavior. Maybe just walk us through kind of what you're seeing and things to consider when we see spikes like this. Thanks so much.

Matt Cagwin (CFO)

Hey, Andrew. It really depends on what the spikes are. I'll take a couple of steps back and remind everybody how FX affects our business. FX can have a couple of different impacts. One is we do hedge a large portion of the currency. We call it profit hedging, but it's really we're hedging the top line to help control the bottom line. We do this for all the major currencies around the world, whether that be the euro, the pound, the Canadian dollar, the Aussie dollar. It's really the largest eight currencies around the world. We do that. We do it over a two to three-year horizon.

It really helps us to manage EPS over time to make sure that you're not having any major movements one way or the other. That is one thing that currency does have an impact. The other item that currency can have an impact is let's use Mexico as an example. When you see a major movement in the peso, you can see our customers' behaviors deviate because they may want to send more or less money in a short window because of the currency impact. If it's favorable to them to be able to send more money to their family, they may pull forward money today and send it to their family because it's helpful, because it's a higher, more beneficial exchange rate versus other times. To us, over a couple of weeks and months, that typically takes care of itself and just moves between periods.

If it happens at the end of a period, that could cause a cutoff or a pull forward or push back implication. The last one you've heard us talk about publicly is we do also hold currencies, in particular the Mexican peso, where we hold a large amount for the settlement that's not happened. That can lead to a gain or loss in our P&L. It's more of an accounting loss or gain than it is economic. We're holding what we expect the settlement to be over the next couple of days.

Devin McGranahan (CEO)

Coming back to the consumer behavior part, a general-ish perspective, a weaker U.S. dollar is harder for the U.S. outbound market because dollars buy fewer pesos in other parts of the world, particularly in Latin America. Because the U.S.

That would normally then help an inbound country if the currency weakened because then people sending money into that country can send more. But the U.S. is not a particularly significant inbound market. The benefit of a weaker U.S. dollar on inbound is not nearly as much as the implication of it on the outbound. Part of what you see in the consumer behavior and part of what you see in the trends in the U.S. is, in fact, that weaker dollar is allowing our customers or preventing our customers from sending more home while the dollar is lower than it has been historically.

Operator (participant)

Our final question for today comes from Chris Kennedy from William Blair. Please ask your question. Good afternoon.

Chris Kennedy (Equity Research Analyst)

Thanks for taking the question. Can you talk a little bit about the competitive landscape within the travel money business?

Devin McGranahan (CEO)

There are two important segments to the travel money business. We have chosen to compete in what we believe is a part of the business that we're better positioned for. The two segments are what I'll call on airport, which is what most of us probably have experienced in any major airport around the world. In the U.K., that's in the Heathrow Airport. Then there's the local business, which is what caters to our customers, migrants who exchange local currency for home currency. Many times for travelers who, in the course of their vacation or trip, need to get foreign currency mid-trip or towards the end of a trip versus at an airport. The local market, which is what EuroChange competes in, also tends to have different pricing characteristics as those customers are less indexed on the trip and the travel and the airport.

As a result, it's also less likely you can have better locations than sharing all of your revenue with an airport. In net, the prices are better in the local market than generally they are in the airport market. Potentially the margins are higher because of the dynamics of the channel in which you are in. We like the business. We like the business in Europe. Importantly, we're continuing to look at expanding the business, particularly in Asia and South America, because many of our customers travel across those regions. I was recently in Malaysia, and you could just watch the business. We've opened our first own location in Malaysia with people working in Singapore, coming back to Malaysia, being in Malaysia, going back to Indonesia, back and forth between China and Malaysia.

All of those transactions with our customers generally require a currency exchange. That local market business is where we're focused. Our competitive set tends to be people who are our agents or our competitive agents. They are not your traditional money exchange players like Travelex or others.

Chris Kennedy (Equity Research Analyst)

Got it. Very helpful. Just squeeze one last one in here. I appreciate the comment on the digital retention. Can you provide any commentary, broad commentary on kind of how unit economics are trending in the digital business?

Matt Cagwin (CFO)

Our unit economics has been relatively consistent over time. We have talked about this publicly before. We have seen improvement. We have talked about probably two or three times over the last couple of years on we have been able to improve our CAC, LTV to CAC meaningfully by bringing down our CAC.

We have seen a lengthening of our retention or improvement in our retention. It makes our LTVs go up. When you think about a digital customer versus a retail customer, you're typically going to have a little bit lower RPT for a digital customer than a retail, but you're going to have a lower transaction cost associated with that. The offset is the LTV to CAC over time. Relatively comparable.

Devin McGranahan (CEO)

That is particularly true for a digital customer payout to account as we improve the economics in many cases on payout to account around the world relative to a payout to cash where we have a relatively significant cost in our agent base to do cash payouts.

I go back to what Matt said at the beginning, which was the shift that we did about two, two and a half years ago to really think about this business on a CAC to LTV basis, managing both the CAC, which has come down appreciably while we've been growing the business, and then focusing on the quality of those customers, the quality of those customer cohorts to drive LTV. When we went on this journey, there was some concern that the quality of the customer and therefore the LTV part of the CAC to LTV would suffer. We have seen the exact opposite, which since we launched Evolve 2025, we've seen increases in the quality of the customer, the retention of the customer, the transactions per customer. We have been very pleased with what we've been able to do with that CAC to LTV ratio.

Chris Kennedy (Equity Research Analyst)

Thanks for taking the questions.

Matt Cagwin (CFO)

Thanks, Chris.

Devin McGranahan (CEO)

Thanks, everybody.

Operator (participant)

Thank you for joining today's Western Union First Quarter 2025 Earnings Results Conference Call. We hope you have a great day.