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Text: com under the Investor Relations tab and will remain available after the call.
On our call today is our CEO, Hikmet Ersek; and our CFO, Raj Agrawal.
During the call, we will discuss some items that do not conform to generally accepted accounting principles.
We have reconciled those items in the most comparable GAAP measures on our website, westernunion.com, under the Investor Relations section.
We will also discuss certain adjusted metrics.
The expenses that have been excluded from adjusted metrics are specific to certain initiatives but may be similar to the types of expenses that the company has previously incurred and can reasonably expect to incur in the future.
Our second quarter performance was strong, and we are on track to achieve our adjusted 2021 financial outlook with revenue growth, reflecting sequential improvement in underlying trends and a favorable comparison to the prior year period, which was impacted by COVID-19 pandemic.
Profit trended as expected in the quarter as we continue to make strategic technology investments to strengthen our market-leading platform and digital capabilities.
Our business remained resilient despite global uncertainties related to ongoing COVID-19 resurgences from the delta variant and the potential risk this poses to economic recovery.
Our strategy to be a leader in cross-border, cross-border, cross-currency, money movement and payments, serving consumers, businesses and financial institutions remains unchanged.
We remain confident in our ability to exceed $1 billion of digital revenue in 2021, supported by continued strong growth in our wu.com business and our digital partnership business.
The expansion of our wu.com customer base position us well as we look to build a consumer ecosystem, deepening engagement with our customers and providing them access to a wider array of products and services.
We will discuss more on our consumer ecosystem strategy in just a moment.
But first, I'd like to highlight another important strategic development, which is the Business Solutions transaction we announced today.
Today, we separately announced that, we reached a definitive agreement to sell our Business Solutions business to Goldfinch Partners and the Baupost Group for $910 million.
Small- and medium-sized businesses and organizations around the world to rely on Western Union Business Solutions, as they are global payments, foreign exchange and hedging partner, and we believe that, Goldfinch Partners and The Baupost Group are well positioned to invest in the business to deliver good value and innovation to these clients.
With the planned sale of Western Union Business Solutions, which was approximately 7% of total company revenue during the last 12 months ended June 30th, 2021, now we will be fully focused on increasing our penetration of the global cross-border consumer payments market, expanding our digital partnership business and increasing our total addressable market, through our Western Union branded ecosystem strategy.
The company will benefit by having a single global payments platform capable of serving multiple use cases and customer segments, including Fintech companies like, Google Pay, telecom companies like, STC Pay and banks and other financial institutions like Spare.
This requires a modern, adaptable platform that provides a strong user experience for our customers, agents and partners.
And we are well on our way in this regard with significant recent progress in our cloud migration, pricing, automated marketing and customer support built, on the foundation of advanced machine learning and omnichannel engagement.
These developments enable us to be more efficient, but most importantly, improve the customer experience and identify incremental revenue opportunities.
Continuing technology investment and our unique global platform remains a key area of focus for us.
We also remain focused on enhancing our market-leading network by improving our coverage, cost and quality.
On a year-to-date basis, our new agent signings will expand our network by approximately 18,000 retail locations.
We have also renegotiated contracts with over 50 agents' year-to-date, reflecting our commitment to optimize commissions.
Finally, we continue to enhance our global account payout capabilities, which is now available in over 125 countries with real-time capabilities in approximately 100 countries.
Over 60% of our global account payout transaction volume was delivered real-time.
Turning back to our consumer ecosystem strategy, we are excited about our plan to pilot through our Western Union International Bank as WU-branded multicurrency bank account, debit card and integrated money transfer solution in a couple of European countries later this year.
Our initial focus will be testing and learning and then we will evaluate how we expand from there.
Longer term, we see significant opportunity for our consumer ecosystem strategy.
We are a trusted provider to a large, unique customer segment, the global migrant community, which has many needs beyond money transfer, such as insurance, lending and travel.
And it's often not well served in the market.
Western Union with its trusted brand, large and growing digital customer base, and global platform is well positioned to execute on this opportunity.
While we are fully focused on the implementation of our profitable growth strategy, we also remain committed to advance environmental, social and governance, or ESG, at Western Union.
I would encourage you to read our 2020 ESG report released in June to learn more about our 2020 impact and our ESG strategy and goals, which are closely aligned to our business, our values and our purpose.
Now turning back to second quarter results.
We see pricing stability in the market and varying levels of recovery from the effects of the ongoing pandemic, particularly outside the US, where economic activity and government policies are more mixed.
This was evident in my recent tours in Europe where agents, customers and business leaders confirmed that while local economies are reopening and travel was sections are being lifted, the pace of economic recovery is being impacted by labor shortages and the spike in cases from the delta variant.
Fortunately, for our customers around the globe, we offer remarkable choice with our omnichannel offering with a comprehensive set of funding and payout options, so they can transfer and receive money in a way that it's most convenient for them.
During the quarter, we saw continued strength in principal per transaction or PPT with growth over 11% and cross-border total principal growth of 29%, benefiting from continued demand for support in received markets and improving economic and employment trends in central regions like the U.S. and Western Europe.
Total company revenue grew 16% or 13% on a constant currency basis, with underlying trends aided by continued growth in our digital business and sequential improvement in the retail business.
C2C revenues and transactions, each grew 15% in the quarter with C2C revenue growing 12% on a constant currency basis.
Digital revenues were up from the first quarter and grew 22% year-over-year to over $265 million with quarterly highs for revenue, transactions and principal.
Digital comprised 36% of transactions and 24% of revenues for the C2C segment.
As expected, we are beginning to see digital growth ease after exceptionally strong performance during the height of the COVID-19 pandemic.
Wu.com results were healthy with transaction growth over 18%, driven by 14% growth in average monthly active users.
Wu.com continue to lead money transfer appears in mobile app downloads by a wide margin and grow principle over 30%.
Our customer engagement trends remained favorable year-over-year with positive trends in retention, transaction per customer and principal by customer.
We continue to expand in the new market launch in Chile and Peru in the second quarter and enhancing the customer experience with new futures and tools, including the rollout of additional electronic Know Your Customer options across European and transaction reminders.
Improving the customer experience not only supports the continued growth in westernunion.com, but also provides a growing customer base for the consumer ecosystem strategy that I mentioned earlier.
Retail revenue achieved strong year-over-year growth, cycling over the disruption from the pandemic in the prior year period and is growing sequentially.
We remain focused on ramping up our partnership with Walmart in the US.
Our domestic and international money transfers, bill payments and money order services are now available in nearly 4,700 Walmart stores across the US.
Trends in the Business Solutions segment continued to move in the right direction with strong improvement in the new business and stable trends in hedging and across most segment verticals.
While we have announced, a definitive agreement to divest Western Union Business Solutions, it will be business as usual until the transaction closes.
Now, overall, we are pleased with the announcement of the Western Union Business Solution today.
I'm excited for the Business Solutions management team to receive strong support from the new ownership.
Additionally, with our healthy second quarter results, we are confident in our ability to execute to include market conditions and our strategy, with our resilient retail channel, strong growth of our digital channel, building a WU branded ecosystem with additional products and serving multiple enterprises with our unique and agile cross-border platform positions the company well for long-term incremental growth opportunities.
I'll now pass it over to Raj, to review our financial results in more detail.
Let me first summarize second quarter performance.
And then, I will provide more color on the Business Solutions divestiture, the planned termination of our defined benefit plan, and finally, our 2021 full year outlook.
Moving to the second quarter results, revenue of $1.3 billion increased 16%, on a reported basis or 13% constant currency.
Currency translation, net of the impact from hedges benefited second quarter revenues by approximately $29 million compared to the prior year.
In the C2C segment, revenue increased 15%, on a reported basis or 12% constant currency, with transaction growth partially offset by mix.
B2C transactions grew 15% for the quarter led by 33% transaction growth in digital money transfer, and supported by growth in retail money transfer, which improved sequentially, particularly in North America and Europe and CIS.
In line with our expectations, spread between C2C transactions and revenue growth moderated this quarter and was flat on a reported basis or three percentage points constant currency, as we cycled through the mix impact from the high growth of digital partnership transactions, which represents a lower revenue per transaction category.
We expect the spread will remain fairly tight during the remainder of the year.
Globally, we continue to see pricing environment as stable.
Total C2C cross-border principal increased 29% on a reported basis or 25% constant currency driven by growth in retail and digital money transfer.
Total C2C Principal per Transaction or PPT was up 11% or 8% constant currency.
Both, retail and wu.com continued to experience higher average PPT, due to mix and changes in consumer behavior.
Digital money transfer revenues which include wu.com and digital partnerships increased 22% on a reported basis or 19% constant currency.
Wu.com revenue grew 18% or 15% constant currency on transaction growth of 18%.
Wu.com cross-border revenue was up 23% in the quarter.
Digital partnerships continued to show, strong growth across revenue, transactions and principal in the quarter.
Trends in our digital business moderated somewhat as expected, from the exceptional growth we experienced from the second quarter onwards last year, as demand for our digital services grew significantly, adding incremental revenue, profit and transactions to our business.
While we expect this moderating trend will continue the remainder of the year, we are now growing off a much larger base.
Moving to the regional results, North America revenue increased 4% on both a reported and constant currency basis, on transaction growth of 3%.
The increase in constant currency revenue and transaction growth was driven by US outbound, partially offset by current US regulations in Cuba that limit our ability to operate and declines in US domestic money transfer.
US domestic money transfer represented approximately 4% of total C2C revenue in the quarter.
Revenue in the Europe and CIS region increased 18% on a reported basis or 10% constant currency on transaction growth of 26%.
Constant currency revenue growth was led by the United Kingdom, France and Russia with the spread between transaction and constant currency revenue growth driven by the digital partnership business in Russia.
Revenue in the Middle East, Africa and South Asia region increased 19% on a reported basis or 18% constant currency, while transactions grew 22%.
The digital partnership business in Saudi Arabia led constant currency revenue growth in the quarter, followed by Kuwait and Qatar.
The impact of the digital partnership business on the spread between transaction and constant currency revenue growth diminished in the quarter but was still the primary contributor.
Revenue growth in the Latin America and Caribbean region was up 70% or 68% constant currency on transaction growth of 42%.
Constant currency revenue growth was broad-based across the region, led by Chile, Ecuador and Mexico.
Much higher average principal amount resulted in constant currency revenue growth greatly exceeding transaction growth in the quarter.
Revenue in the APAC region increased 20% on a reported basis or 13% constant currency led by the Philippines and Australia.
Transactions increased 3% with the Philippines driving the difference between constant currency revenue and transaction growth.
Business Solutions revenue increased 25% on a reported basis or 16% constant currency, benefiting from favorable comparisons to prior year.
Revenue trends remained on a positive course with the continuing recovery in cross-border trade.
The segment represented 8% of company revenues in the quarter.
Other revenues represented 5% of total company revenues and increased 8% in the quarter.
Other revenues primarily consist of retail bill payments in the US and Argentina and retail money orders.
Turning to margins and profitability.
The consolidated GAAP operating margin in the quarter was 19.8% compared to 19.
9% in the prior year period.
While the consolidated adjusted operating margin was 20.2% in the quarter compared to 20.4% in the prior year period.
Adjusted operating margin excludes M&A expenses in both the current and prior year periods and last year's restructuring expenses.
The decrease in consolidated operating margin continues to reflect how COVID-19 impacted the level and timing of certain expenses and investments as the company curtailed spending last year.
Compensation-related expenses and strategic investments in marketing and technology were the primary contributors to the slight margin decrease in the quarter.
Foreign exchange hedges had a negative impact of $2 million on operating profit in the current quarter and a benefit of $7 million in the prior year period.
Moving to segment margins.
Note that M&A expenses are included in other operating margins for both the current and prior year period, and segment margins exclude last year's restructuring charges.
B2C operating margin was 20.7% compared to 21.8% in the prior year period.
Given that our C2C segment comprises most of total company operating income, the decrease in operating margin was driven by the same factors that impacted total company margin.
Business Solutions operating margin was 10.9% in the quarter compared to 1.6% in the prior year period.
The increase in operating margin was largely due to increased revenue, partially offset by increased compensation-related expenses.
Other operating margin was 16.2%, compared to 21.9% in the prior year period, with the decrease driven by higher M&A expenses, related to the divestiture of Western Union Business Solutions announced today.
The GAAP effective tax rate in the quarter was 14.5%, compared to 16.2% in the prior year period, while the adjusted effective tax rate in the quarter was 14.2%, compared to 15.7% in the prior year period.
The decrease in the company's GAAP and adjusted effective tax rates was due to changes in pre-tax earnings, including differences in the composition between high tax and low tax jurisdictions.
GAAP Earnings per Share or earnings per share was $0.54 in the quarter compared to $0.39 and in the prior year period, while adjusted earnings per share was $0.48 in the quarter compared to $0.41 in the prior year period.
The increase in GAAP earnings per share reflects benefits of revenue growth, the gain on an investment sale and a lower effective tax rate, partially offset by debt retirement expenses, compensation-related expenses and strategic investments in marketing and technology.
Both the gain on an investment sale and the debt retirement expenses are excluded from adjusted EPS, in addition to the expenses we noted earlier during the operating margin discussion.
The net impact of these two items was a $0.07 benefit to GAAP earnings per share in the quarter.
Turning to our cash flow and balance sheet, year-to-date cash flow from operating activities was $349 million.
Capital expenditures in the quarter were approximately $48 million.
At the end of the quarter, we had cash of $1.1 billion and debt of $3 billion.
We returned $171 million to shareholders in the second quarter, consisting of $96 million in dividends and $75 million in share repurchases.
The outstanding share count at quarter end was 407 million shares.
And we had $633 million remaining under our share repurchase authorization, which expires in December of this year.
As Hikmet highlighted previously, today we announce the divestiture of Western Union Business Solutions.
The sales price of $910 million is expected to generate in excess of $800 million in proceeds, net of tax in 2022 and result in a gain on sale.
Our net proceeds estimate is based on current tax policy and is subject to certain regulatory and working capital adjustments.
The transaction is expected to close in two stages with the majority of the business and the entire proceeds, transferring in early 2022 and the European business transferring by late 2022.
Both closings are subject to requisite work council consultations, regulatory approvals and other customary closing conditions.
Following the transaction, we will evaluate options for the use of proceeds based on market conditions and opportunities and in accordance with our established capital allocation priorities, which include reinvestment in the business to drive organic growth, dividends, acquisitions, including technological capabilities that support our growth strategy and share repurchases.
As a reference point, during the last 12 months ended June 30th, 2021, the Business Solutions segment generated revenue, EBITDA and operating profit of $374 million, $64 million and $33 million, respectively.
Turning to our outlook for 2021, the outlook we provided today assumes moderate improvement in macroeconomic conditions as the quarters' progress in line with current prevailing macroeconomic forecast with no material changes related to the COVID-19 pandemic.
We reaffirmed our expectations for revenue growth, including our expectation that the digital business will achieve over $1 billion in revenue this year.
We also affirmed our remaining metrics on an adjusted basis while updating our full-year GAAP financial outlook for pension plan termination expenses and M&A costs related to the sale of the Business Solutions business.
The pension plan termination is expected to accelerate the recognition of approximately $110 million of non-cash expenses on a pre-tax basis, lowering GAAP earnings per share by approximately $0.22 in the fourth quarter and will be recorded to other expense in the P&L.
With our plan over funded by more than $35 million as of June 30, we believe it is a good time to transition the plan to an annuity provider.
We continue to expect full-year 2021 revenues will grow mid- to high single digits on a GAAP basis or mid-single digits on a constant currency basis, which also excludes the impact of Argentina inflation.
GAAP operating margin is expected to be approximately 21% and adjusted operating margin is expected to be approximately 21.5% with the difference attributable to M&A costs.
We anticipate our effective tax rate will be in the mid-teens range on a GAAP and adjusted basis.
GAAP earnings per share for the year is now expected to be in a range of $1.82 to $1.92, which now reflects the impact of pension plan termination expenses and M&A costs.
Adjusted earnings per share is still expected to be in the range of $2 to $2.10.
As we move into the second half of the year, let me provide some context for how we think the results may progress over the remaining quarters.
Starting with revenue, our underlying assumption for revenue progression includes moderate improvement in the global macroeconomic environment in line with the current prevailing economic forecast.
However, as Hikmet discussed earlier, global uncertainties remain, especially related to the emergence of the delta variant and the potential risks this poses to broader economic recovery.
As the quarters progress, we expect moderate improvement in our business similar to the current prevailing economic forecast, although overall company growth rates will be lower than we have seen in the second quarter due to the grow-over impacts from last year.
We continue to expect to generate over $1 billion in digital revenue this year, along with a relatively stable retail business.
Lastly, we expect that the Business Solutions and other segments will continue to rebound this year as global macroeconomic conditions improve.
With respect to margins, we expect the margin for the second half of the year will be above our full-year adjusted margin outlook of approximately 21.5%, primarily driven by expected higher revenue levels.
To wrap up, we delivered a solid second quarter performance and are on track to achieve our financial outlook for the year.
With the planned divestiture of the Business Solutions business, we are also sharpening our focus on the strategy that Hikmet laid out.
And operator, we are now ready to take questions.

user
q2 adjusted earnings per share $0.48.
q2 gaap earnings per share $0.54.
q2 revenue $1.3 billion versus refinitiv ibes estimate of $1.25 billion.
reaffirms 2021 adjusted financial outlook.
qtrly consumer-to-consumer transactions increased 15%, while revenues increased 15% on a reported basis, or 12% constant currency.
sees fy 2021 adjusted earnings per share in a range of $2.00 - $2.10 (no change from previous outlook).

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