Western Union Reports Second Quarter Results
ENGLEWOOD, Colo.--(BUSINESS WIRE)--Aug 2, 2018--The Western Union Company (NYSE: WU), a global leader in cross-border, cross-currency money movement, today reported second quarter financial results and an updated outlook for 2018.
In the second quarter, the Company generated revenue of $1.4 billion, which increased 2% compared to the prior year, or 3% on a constant currency basis. Growth was led by the consumer money transfer business, which increased 4%, or 3% constant currency, driven by strong performance from westernunion.com.
“We continue to execute our long-term strategy, focusing on expanding digital offerings, enhancing the customer experience, entering new cross-border opportunities, and creating operating efficiencies,” said president and CEO Hikmet Ersek.
Ersek added, “The second quarter again demonstrated the stability of our global consumer money transfer business and our progress in digital, as westernunion.com money transfer revenues increased 22%. We are also expanding our retail presence, adding large agents such as the Albertsons grocery chain to our network.”
GAAP earnings per share in the quarter was $0.47 compared to $0.35 in the prior year period. On an adjusted basis, earnings per share was $0.46 compared to $0.50 in the prior year period. The increase in GAAP earnings per share was primarily due to a NYDFS settlement accrual and WU Way related expenses incurred in the prior year period, while the decrease in adjusted earnings per share was primarily due to a lower adjusted operating profit margin and higher adjusted tax rate in the current year period.
Executive vice president and CFO Raj Agrawal stated, “We delivered solid 20% operating margins in the quarter and utilized our strong free cash flow to return significant funds to shareholders. We are continuing to drive financial performance while investing in our long-term strategic initiatives.”
Q2 Business Unit HighlightsConsumer-to-Consumer (C2C) revenues, which represented 80% of total Company revenue in the quarter, increased 4%, or 3% constant currency, while transactions grew 5%. Geographically, constant currency revenue growth was led by sends originated in Latin America, Europe, and North America, partially offset by declines in the Middle East and Africa. Westernunion.com C2C revenues increased 22%, or 21% constant currency, and transactions increased 26%. Westernunion.com is now in 45 countries and territories and represented 11% of total C2C revenue in the quarter. Western Union Business Solutions revenues declined 4%, or 6% on a constant currency basis. Business Solutions represented 7% of total Company revenues in the quarter. Other revenues, which primarily consist of bill payments businesses in the U.S. and Argentina, declined 2%, or increased 9% on a constant currency basis. Other revenues represented 13% of total Company revenues in the quarter.
Additional Q2 Financial HighlightsGAAP operating margin in the quarter was 20.1%, which compares to 15.6% in the prior year period, or 21.7% in the prior year on an adjusted basis. GAAP operating profit of $284 million compares to $215 million in the prior year, or $299 million in the prior year on an adjusted basis. The GAAP operating margin and operating profit increases were primarily due to NYDFS settlement and WU Way related expenses incurred in the prior year period, while the adjusted margin and profit decreases were primarily due to timing of marketing and compliance related spending. The effective tax rate in the quarter was 14.8% compared to 9.7% in the prior year period. On an adjusted basis, the tax rate was 17.3% compared to 11.2% in the prior year period. The increase in the tax rate was primarily due to nonrecurring benefits in the prior year and timing items in the current period. The Company returned $336 million to shareholders in the second quarter, consisting of $250 million in share repurchases and $86 million of dividends, and returned $423 million year-to-date. Year-to-date cash flow from operating activities was $299 million, including the impact of a $60 million first quarter payment for the previously announced NYDFS settlement and approximately $27 million of outflows for prior year WU Way expenses.
Adjusted metrics for the 2018 second quarter exclude the impact of a $6.2 million tax benefit related to changes in estimates for the provisional accounting for United States tax reform legislation enacted in December 2017 (the “Tax Act”).
Adjusted metrics for the 2017 second quarter exclude $35 million of WU Way related expenses and the associated tax benefits and a $49 million accrual related to the NYDFS settlement.
The Company affirmed its financial outlook for 2018, which was previously reported on May 1, with the following adjustments: the GAAP revenue outlook was adjusted to reflect changes in exchange rates and the GAAP earnings per share outlook was adjusted to reflect the second quarter benefit related to the 2017 Tax Act.
RevenueLow single-digit GAAP revenue increase (previously low to mid-single digit increase) and low to mid-single digit increase in constant currency revenue
Operating Profit MarginOperating margin of approximately 20%
Tax RateGAAP effective tax rate of approximately 13% to 14% (previously approximately 14%) and adjusted tax rate of approximately 14% to 15% (previously approximately 15%)
Earnings per ShareGAAP EPS in a range of $1.82 to $1.92 (previously $1.81 to $1.91) and adjusted EPS in a range of $1.80 to $1.90
Cash FlowCash flow from operating activities of approximately $800 million, which includes approximately $200 million of outflows for the combination of anticipated final tax payments related to the agreement with the U.S. Internal Revenue Service announced in 2011, the NYDFS settlement payment, and WU Way payments related to 2017 expenses
Additional key statistics for the quarter and historical trends can be found in the supplemental tables included with this press release.
Expenses related to the NYDFS settlement and the WU Way business transformation are not included in operating segment results, as they are excluded from the measurement of segment operating income provided to the chief operating decision maker for purposes of assessing segment performance and decision making with respect to resource allocation. Expenses associated with the WU Way business transformation initiative were effectively complete as of December 31, 2017.
All amounts included in the supplemental tables to this press release are rounded to the nearest tenth of a million, except as otherwise noted. As a result, the percentage changes and margins disclosed herein may not recalculate precisely using the rounded amounts provided.
Western Union presents a number of non-GAAP financial measures because management believes that these metrics provide meaningful supplemental information in addition to the GAAP metrics and provide comparability and consistency to prior periods. Constant currency results assume foreign revenues are translated from foreign currencies to the U.S. dollar, net of the effect of foreign currency hedges, at rates consistent with those in the prior year.
These non-GAAP financial measures include consolidated revenue change constant currency adjusted; Consumer-to-Consumer segment revenue change constant currency adjusted; Consumer-to-Consumer segment westernunion.com revenue change constant currency adjusted; Business Solutions segment revenue change constant currency adjusted; Other revenue change constant currency adjusted; consolidated operating income, excluding the impact from NYDFS Settlement, WU Way business transformation expenses; consolidated operating margin, excluding NYDFS Settlement and WU Way business transformation expenses; effective tax rate excluding NYDFS Settlement, WU Way business transformation expenses and Tax Act; earnings per share, excluding NYDFS Settlement, WU Way business transformation expenses and Tax Act; effective tax rate outlook, excluding Tax Act; earnings per share outlook, excluding Tax Act; and additional measures found in the supplemental tables included with this press release. Although the expenses related to the WU Way business transformation are specific to that initiative, the types of expenses related to the WU Way business transformation are similar to expenses that the Company has previously incurred and can reasonably be expected to incur in the future.
Reconciliations of non-GAAP to comparable GAAP measures are available in the accompanying schedules and in the “Investor Relations” section of the Company’s website at http://ir.westernunion.com.
Investor and Analyst Conference Call and Slide Presentation
The Company will host a conference call and webcast, including slides, at 4:30 p.m. Eastern Time today. To listen to the conference call via telephone, dial 1 (888) 317-6003 (U.S.) or +1 (412) 317-6061 (outside the U.S.) ten minutes prior to the start of the call. The pass code is 1459772.
The conference call and accompanying slides will be available via webcast at http://ir.westernunion.com. Registration for the event is required, so please register at least five minutes prior to the scheduled start time.
A webcast replay will be available at http://ir.westernunion.com.
Please note: All statements made by Western Union officers on this call are the property of Western Union and subject to copyright protection. Other than the replay, Western Union has not authorized, and disclaims responsibility for, any recording, replay or distribution of any transcription of this call.
Safe Harbor Compliance Statement for Forward-Looking Statements
This press release contains certain statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Actual outcomes and results may differ materially from those expressed in, or implied by, our forward-looking statements. Words such as “expects,” “intends,” “anticipates,” “believes,” “estimates,” “guides,” “provides guidance,” “provides outlook” and other similar expressions or future or conditional verbs such as “may,” “will,” “should,” “would,” “could,” and “might” are intended to identify such forward-looking statements. Readers of this press release of The Western Union Company (the “Company,” “Western Union,” “we,” “our” or “us”) should not rely solely on the forward-looking statements and should consider all uncertainties and risks discussed in the “Risk Factors” section and throughout the Annual Report on Form 10-K for the year ended December 31, 2017. The statements are only as of the date they are made, and the Company undertakes no obligation to update any forward-looking statement.
Possible events or factors that could cause results or performance to differ materially from those expressed in our forward-looking statements include the following: (i) events related to our business and industry, such as: changes in general economic conditions and economic conditions in the regions and industries in which we operate, including global economic and trade downturns, or significantly slower growth or declines in the money transfer, payment service, and other markets in which we operate, including downturns or declines related to interruptions in migration patterns, or non-performance by our banks, lenders, insurers, or other financial services providers; failure to compete effectively in the money transfer and payment service industry, including among other things, with respect to price, with global and niche or corridor money transfer providers, banks and other money transfer and payment service providers, including electronic, mobile and Internet-based services, card associations, and card-based payment providers, and with digital currencies and related protocols, and other innovations in technology and business models; political conditions and related actions in the United States and abroad which may adversely affect our business and economic conditions as a whole, including interruptions of United States or other government relations with countries in which we have or are implementing significant business relationships with agents or clients; deterioration in customer confidence in our business, or in money transfer and payment service providers generally; our ability to adopt new technology and develop and gain market acceptance of new and enhanced services in response to changing industry and consumer needs or trends; changes in, and failure to manage effectively, exposure to foreign exchange rates, including the impact of the regulation of foreign exchange spreads on money transfers and payment transactions; any material breach of security, including cybersecurity, or safeguards of or interruptions in any of our systems or those of our vendors or other third parties; cessation of or defects in various services provided to us by third-party vendors; mergers, acquisitions and integration of acquired businesses and technologies into our Company, and the failure to realize anticipated financial benefits from these acquisitions, and events requiring us to write down our goodwill; failure to manage credit and fraud risks presented by our agents, clients and consumers; failure to maintain our agent network and business relationships under terms consistent with or more advantageous to us than those currently in place, including due to increased costs or loss of business as a result of increased compliance requirements or difficulty for us, our agents or their subagents in establishing or maintaining relationships with banks needed to conduct our services; decisions to change our business mix; changes in tax laws, or their interpretation, including with respect to United States tax reform legislation enacted in December 2017 (the “Tax Act”) and potential related state income tax impacts, and unfavorable resolution of tax contingencies; adverse rating actions by credit rating agencies; our ability to realize the anticipated benefits from business transformation, productivity and cost-savings, and other related initiatives, which may include decisions to downsize or to transition operating activities from one location to another, and to minimize any disruptions in our workforce that may result from those initiatives; our ability to protect our brands and our other intellectual property rights and to defend ourselves against potential intellectual property infringement claims; our ability to attract and retain qualified key employees and to manage our workforce successfully; material changes in the market value or liquidity of securities that we hold; restrictions imposed by our debt obligations; (ii) events related to our regulatory and litigation environment, such as: liabilities or loss of business resulting from a failure by us, our agents or their subagents to comply with laws and regulations and regulatory or judicial interpretations thereof, including laws and regulations designed to protect consumers, or detect and prevent money laundering, terrorist financing, fraud and other illicit activity; increased costs or loss of business due to regulatory initiatives and changes in laws, regulations and industry practices and standards, including changes in interpretations in the United States, the European Union and globally, affecting us, our agents or their subagents, or the banks with which we or our agents maintain bank accounts needed to provide our services, including related to anti-money laundering regulations, anti-fraud measures, our licensing arrangements, customer due diligence, agent and subagent due diligence, registration and monitoring requirements, consumer protection requirements, remittances, and immigration; liabilities, increased costs or loss of business and unanticipated developments resulting from governmental investigations and consent agreements with or enforcement actions by regulators, including those associated with the settlement agreements with the United States Department of Justice, certain United States Attorney’s Offices, the United States Federal Trade Commission, the Financial Crimes Enforcement Network of the United States Department of Treasury, and various state attorneys general (the “Joint Settlement Agreements”), and those associated with the January 4, 2018 consent order which resolved a matter with the New York State Department of Financial Services (the “NYDFS Consent Order”); liabilities resulting from litigation, including class-action lawsuits and similar matters, and regulatory actions, including costs, expenses, settlements and judgments; failure to comply with regulations and evolving industry standards regarding consumer privacy and data use and security, including with respect to the General Data Protection Regulation (“GDPR”) approved by the European Union (“EU”); the ongoing impact on our business from the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), as well as regulations issued pursuant to it and the actions of the Consumer Financial Protection Bureau and similar legislation and regulations enacted by other governmental authorities in the United States and abroad related to consumer protection; effects of unclaimed property laws or their interpretation or the enforcement thereof; failure to maintain sufficient amounts or types of regulatory capital or other restrictions on the use of our working capital to meet the changing requirements of our regulators worldwide; changes in accounting standards, rules and interpretations or industry standards affecting our business; and (iii) other events, such as: adverse tax consequences from our spin-off from First Data Corporation; catastrophic events; and management’s ability to identify and manage these and other risks.
About Western Union
The Western Union Company (NYSE: WU) is a global leader in cross-border, cross-currency money movement. Our omnichannel platform connects the digital and physical worlds and makes it possible for consumers and businesses to send and receive money and make payments with speed, ease, and reliability. As of June 30, 2018, our network included over 550,000 retail agent locations offering Western Union, Vigo or Orlandi Valuta branded services in more than 200 countries and territories, with the capability to send money to billions of accounts. Additionally, westernunion.com, our fastest growing channel in 2017, is available in 45 countries and territories to move money around the world. In 2017, we moved over $300 billion in principal in nearly 130 currencies and processed 32 transactions every second across all our services. With our global reach, Western Union moves money for better, connecting family, friends and businesses to enable financial inclusion and support economic growth. For more information, visit www.westernunion.com.
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