Okay, welcome everyone. My name is Tim Chiodo. I'm the lead payments processors and fintech analyst here at UBS. We are glad to be joined on stage here with the CFO, Matt Cagwin, the CFO of Western Union. We're going to go through a list of questions here, and we're going to start off with some kind of quarter-to-date macro-type updates. Then we'll talk a little bit about Evolve 2025 and beyond. We'll get into the retail segment and the stabilization there and that important part of the business. We'll talk a little bit about branded digital, and then we'll get into some more financial-type topics to wrap up the discussion. So first, Matt, thank you for being here, and thank you for making the trip to Arizona.
Tim, thank you very much. Really appreciate it. You could not pick a more lovely place for this to be.
All right, well, we enjoy it. Well, thank you. We're glad to have you guys here. All right, so let's start off with some comments or some discussion around the Q4 quarter-to-date trends. So at the recent earnings, you reiterated the 2024 guidance pretty much across the board. Maybe you could give us an update on how things are shaping up here a little bit deeper into the quarter and as we exit the year into 2025. If you don't mind, just a brief kind of housekeeping item. You previously communicated that for Iraq that you might be sort of at the lower end of that $10-30 million range for Q4, and we just wanted to check in to see if that's kind of what you're thinking still, given that's quite a volatile number.
Awesome. Thanks for the question, Tim. Before I jump into the exact question, I would like to reiterate we actually raised guidance early this year, so we're on track. What we reiterated for our Q3 is that we're on track for the revised up guidance that we provided at the end of Q1. We still today sitting here two-thirds of the way through this quarter feel very comfortable with that. We feel very good about getting to the range of $1.70-$1.80 of EPS, and we feel very good about the revenue range that we provided out. The drivers that I know you have lots of questions about this later, so I won't steal the thunder, but we feel good about our European business continuing the path that it's been going on. We feel good with the progress in APAC and others.
But when you talk about the Middle East and what's going on in Iraq, it's been one of the biggest roller coasters I've had during my two and a half years here at Western Union. We are still on track for around the lower end of the range of our 10-30. You may be wondering why and may have wondered why we kept our range so wide coming out of Q3. We did that with the uncertainty there. Who knew what was going to happen at that point in time? But now, six weeks later, it's still been hovering around the lower end of the range.
Okay, thank you, Matt. We appreciate that update. All right, we're going to move on to some of the kind of around-the-world macro-type of updates. So we appreciate that Western Union has a well-diversified customer base and a geographically diversified business. You recently called out some softness in Latin America due to some of the political events and disruption. And then on the other side, you mentioned Europe, the Middle East, APAC were all kind of relatively strong. So maybe you could just touch on some of those regional trends and how things have been shaping up this year.
Yeah, so we've seen, as you just highlighted there, really good strength within our European business. We're coming off of several years of challenges. You probably remember about two years ago we talked about losing two of our large agents there. When you have a challenge, it gives you a chance to actually reinvent yourself and think about how do you want to go to market, what are the right things to do. It was a catalyst for us to do a number of test and learn things that have been very successful that we're now looking at putting elsewhere. Things like we've now launched dynamic pricing. This is where we've talked about two or three different calls throughout the year and last year, but where we update our FX rates multiple times a day relative to what our competitors are doing.
Anywhere from two to three times a day to make sure that we're being competitive. As someone is shopping the very FX-friendly or focused corridors, that we're not out of market and that people still want to use us for our brand and convenience and placement, but aren't losing it because you're off by 10-20 bips or something of that nature. That's worked out really well and that's largely rolled out through all of Europe. We launched about a year ago debit acceptance within many countries within Europe. We've seen there an uplift in our number of transactions and the size of principal, number of transactions for locations that have debit acceptance versus those that don't. We've seen hundreds of basis points improvement.
And then we've also seen benefits in our concept store where these are branded company stores, branded stores that are not company-owned, but they're exclusive to us. And we see strong penetration and benefit from those stores. We've taken those ideas and started to roll them out in other places, and we've seen some strength in Q3 and throughout most of the year within Africa. We've seen some strength in APAC, Middle East, ex-Iraq, which has again been the volatile part all year long. We're starting to see some momentum there. The real challenge, which I'll touch on for a few seconds here that we've seen coming out of Q3, was weakness in the Americas. And this is largely driven through intra-LACA, so people moving up through Central South America through Central America. We've seen come off of the highs we'd seen earlier in the year and last year.
Then the United States to Latin America, principally to Mexico, we've seen some softness. That's continued into this quarter. We've not seen any major movement. I'm sure you monitor it, or people monitor the Banco de México puts out the remittance information. They were down, inbound remittances were down mid-single digit in the month of September, so it correlates to what we were seeing and that continued to be negative going into October.
All right, Matt, thank you for that. We're going to move on to the next topic around Evolve 2025. So there were these four levers that the company had put out: so retention, omnichannel customers, new digital customers, and then ecosystem and kind of ecosystem benefits. We were hoping that you could walk through each of those and just talk a little bit about the targets, but more importantly, how you're tracking towards those.
Yep, absolutely. It's a great question. You probably remember in Q1 we clarified some of those metrics, so I'll talk a little bit of both. So we have now taken retention, taken it from being retail only to being global because we got into it. We realized that many of the things we're doing to drive retention improvements, whether that be reducing friction at the point of sale or digital, those might be a little specific, but the call center themselves, payout methods, pay-in methods, all those things are things that are really more universal to Western Union. So we've moved that metric being total retention for CMT. We've now made good progress on retention in 2022. We announced last year that we were in the high double digit to a little over 100, depending on whether you're talking about retail or digital, and retention improvements for last year.
We've not put a number out this year, but I can say that we are making progress. It's not to our 200% aspirational level that we had set out initially. When we put that out, we also had shared that we didn't need to hit that metric or any of the other metrics we're talking about to hit our public guidance for revenue and EPS, but we wanted to put something that we've built into our comp plans, built into our culture and fabric on how to run the company and improve things, and we felt like if you put a number out to improve 10 bips on retention, it's not really going to be galvanizing, but 200 basis points for an aspiration was. As you work your way through the other three, we have continued to maintain the need to grow new customers for branded digital double digit.
We've continued to grow that very strongly this year. You've seen our transactions last quarter at 15%. That's now six quarters of double digit, so we feel very good about that and the progress we've been making on monthly active users and new customer acquisitions for the first nine months of the year, and then the last new metric we had, and I'll touch on there too, that we've removed is we put out a metric of double digit Consumer Services revenue, which we're on track for this year. We've actually had year-to-date through the end of Q3 well above double digit. The things we removed, just a reminder, we took out the growth in our digital wallets. We wanted to make sure it was more of a revenue-driven metric rather than just being a target like that. That's why we went to CS.
And then the last one was Omni. What we noticed on the Omni one was that we thought when we launched our investor day that there might be a class of customers that wanted to be in the steady state forever. And as we worked on it, talked to customers and explored it further, it was generally a passing-through situation. Someone would go from retail to digital. So we still focus on having people be as seamless as possible, but growing it double-digit like we had originally set out wasn't going to actually drive financial benefit or be a steady state for people.
Okay, that's a great update. Thank you, Matt. I think we should move on to a topic that came up on the last earnings call and was quite topical, which was around debit acceptance. So helping in Europe, some of the stats you provided, you talked about hundreds of basis points of faster transaction growth for the locations that are using this capability. Could you talk a little bit about, one, that faster growth and how widespread this could become across the business? But then under that, talking about the varying unit economics both in Europe and then in the U.S., and clearly the differentiating factor being there, the debit interchange?
I think you actually answered the question, Tim, very well. You could step back and say, why are you talking about debits now? We actually had one of the meetings we had earlier today. Someone said, you've been talking about this for the last quarter or so, but I thought debit cards have been out for decades. It's been clearly a gap in our product suite. There is a cost to it, so you could maybe understand why we as a company didn't do it years ago, but many of our competitors have debit acceptance. What we've seen throughout Europe, which we've now had in the market for many quarters, is we've seen transaction increases for stores that have debit card acceptance to those that don't, improving by hundreds of basis points, as you just highlighted.
We've also seen an expansion in our PPT because it's easier for someone to send larger principal amounts when they're using a debit card than having to have cash in hand to be able to do that. So again, that's been there for a number of quarters. That's contributing to our improvement that you saw where we actually grew our retail business and our overall European business in Q3 and are super bullish about how Q4 is going to go for them. When you think about the U.S., they're more nascent. We started launching that right around the earnings call timeframe for a couple hundred locations here in the States. There is a difference in unit economics. In Europe, interchange is very low, so we can pretty much ignore the topic.
Here in the U.S., we're putting in a market looking to see if we get the same kind of uplift that we've seen in Europe. Are all locations logical places for debit cards in the U.S.? Do you only put it in the high locations where you get the expansion? Do you move them? We actually, the first place we ever put these were in Australia. We didn't talk about it because it's small, and what we noticed there was you got an uplift very comparable to Europe, but there was a small fraction where the agents never used it in Australia, so what we started doing is you track that and you move it.
If they're not going to do it or you charge them the cost of rental for the equipment, but you got to find some way to either benefit from it or don't let it sit there and consume capital dollars and not provide benefit to our organization and our shareholders. So excited about both helping us in the future.
A minor follow-up on that, but there are some costs associated with cash, right? Holding it, storing it.
There is cost.
Could you just talk a little bit about that? If there's a cost avoidance angle to kind of help offset some of the debit acceptance costs?
Yeah, so in Europe, it will fully offset itself. As low as interchange is, it fully offsets itself. In the U.S., it depends on what the uplift you get in transaction is in PPT, so principal per transaction, that you could get an offset for that. The way we've also built it is we've built into it, not active today, but we can do it later is we could add surcharging if we thought it made economic sense. So there's a lot of different ways we can make this make sense from a unit economic standpoint. You can put it only in the right locations with uplift. You can charge a surcharge. You can save on the cash handling. So again, we're bullish. We think it can help us expand and strengthen our business, but time will tell in the U.S..
Okay, excellent. All right, well, I'm glad we walked through that. Let's move on to Branded Digital. So Branded Digital transactions growth accelerated to about 15% from that kind of 12%-13% range over the past five quarters or so. Could you help us break down some of that acceleration and how much of that is driven by new customers versus other factors?
Yeah, so as you think about it, there's a couple different levers that can make your transactions accelerate. When you think about the 15% and you look at it, we've seen a steady progression of improvement in transactions per customer over the last couple of years as we've strengthened our, we reduced the friction, strengthened our relationship. We've got stronger re-engagement programs. That actually was up in the mid-single digit range this past quarter, which is driving part of the increase in transactions. You also can get it for increases in your active customers. We've continued to accelerate that as we've brought on new customers and retained customers longer. And that last element really is your retention rate, which we talked about earlier question that we've been continuing to make progress on retention. All three of those things have contributed to the 15%.
Excited that we've now had six quarters of double digit transactions within our digital business and we're now at 9% revenue growth. So we're starting to close the gap and approaching our 10% ambition we had at our investor day for branded digital for revenue.
Okay, thank you, Matt. One of the highlights was the payout to account transactions growth of kind of called mid-30s or so. Maybe you could just talk through that business. There's kind of two aspects there. An individual transaction might be sort of lower RPT, but also those customers tend to be stickier.
Correct. You're spot on both of those things. So the way we grew our business, because we were a legacy cash business, whether it be on the retail side or when we started launching digital eight to 10 years ago, cash payout was the largest part of our digital business. So you could fund it through account, you could fund it through debit card, credit card, prepaid card. And then ultimately, the vast majority of our customers were getting cash payout. We, over the last two years, because the market's been shifting more to account to account, we've been spending a lot more time on our marketing spend and attracting customers that are more account payout oriented.
You're right that the RPT and the yield in particular are lower for an account payout customer, but our costs are also lower if you get someone who's both funded by account and paid out account because you no longer have the commission expense you would have otherwise. You don't have the interchange and debit card fees or credit card fees. So it does lower it in profit. We're very excited about and happy about. And then the most important part is the longevity of those customers is much longer. Their retention and stickiness is meaningfully higher than a cash payout customer. So you're right on all elements. And we're going to continue to focus on that, and that is where the growth has been coming in the overall market.
All right, excellent. Well, let's stay with the branded digital business. Let's talk about some of the competition and some of your marketing spend. You talk about more of an LTV to CAC type of model in terms of your discipline around how you deploy marketing dollars, but maybe you could expand upon that and just note if there have been any changes in the competitive environment in terms of your advertising spend and the return that you see on that spend.
Yeah, so we've continued to see our CAC come down over the last year. That's been principally driven by, as you probably have heard from past meetings, we've overhauled our marketing department, brought in a new leader the week before I started. So it's been about two and a half years now, three years. And we didn't have, A, we were not an LTV to CAC shop. B, we didn't have strong sophistication and systems to be able to track where were the breakpoints in the funnel, where were the, which advertisements were driving more foot traffic and eyes than others, which ones would actually convert. We've gone live on that over the last couple of quarters, and we're seeing much better visibility in how to address our marketing spend, which allowed us to bring down our CAC.
As far as channels go and how we go and approach, we've done everything from quarter level marketing to European wide to certain demographics. So we're continuing to test and learn, now we have that capability to monitor it to make sure we put the money in the right place and drive incremental customers at the right price.
All right, excellent. Thank you, Matt. All right, I want to just pause and see if there's any questions from anyone in the audience. Now we'll just keep rolling, but we could circle back.
Yep, please.
No problem. Okay, let's go on to margins. So year-to-date operating margins, a little bit north of 19% and trending towards kind of the lower end of the 2024 guidance range. Maybe just give some thoughts around the margin trajectory exiting this year and then some of the moving pieces we should consider when modeling margins for 2025.
Yeah, so Tim, it kind of ties back into your first question. So we do continue to be committed to believing we can attain our range we gave out for both revenue and EPS at our last earnings call. You probably remember the last couple of years we've had a Q4 with a lower margin. I believe two years ago we were somewhere in the 15 range in Q4. We said on the last call we don't anticipate being that low in Q4 as we had been two years ago, and I believe last year was 16 or low 17s. But it will be on the lower side going into Q4, is a quarter where we have some investments we make, but not to that degree. But we do believe we'll continue to hit the EPS targets. So thank you.
All right, great. Well, kind of related to that, so just switching a little bit to cost management, you've been making continued progress towards the five-year expense redeployment program, the $150 million or so. Maybe you could just provide a recap on what you've said in terms of the progress there and some of the activity that's ongoing.
Yeah, just for anybody that might be new to the company and our story. When we had our investor day two years ago, we launched a $300 million or sorry, $150 million five-year cost redeployment program. We're now almost at the end of the second year of that. We've been able to redeploy over two-thirds or save and redeploy over two-thirds of our target. We announced on our last call that we have line of sight and believe that we can complete the program in 2025, so two years earlier than we had talked about our investor day. How we got there? It's simplifying your retail footprint. We've talked a minute ago about improving our CAC. We've been able to drive down our CAC by double digit over the last couple of years. We've streamlined our headcount, eliminated spans and layers. We've been able to renegotiate many vendor contracts.
We actually brought in a new CTO recently who's been working through, might be hard to believe, but we had dozens and dozens of vendors doing our builds and implementations, and he's been aggregating that, which gets you much better spend. So all that is things that have helped us get to the amount we've saved so far. But I actually believe that when we get to our investor day next fall, we'll be talking about another program because I still see much headway ahead of us, an opportunity ahead of us.
All right, we'll look forward to that. All right, thank you. Matt, I think with the time remaining, I want to hit some of the financial questions, but I also want to make sure we put some time related to the recent U.S. election. So at the time of the last earnings call, the election hadn't happened yet, so it was something that wasn't overly discussed. But now that we're past the election, could you maybe just talk about how you and the management team are thinking about potential implications now that we've got the result?
Yeah, I mean, so there's a whole lot of conjecture and hyperbole about mass deportations, put a wall around the border, kick everybody out. I can't tell you what's going to happen, but all I can do is look back in history, and you've seen the number of immigrants in the United States increasing in number, absolute numbers for years and decades. There are 50 million immigrants in the U.S. right now. You can go back and look at the four years of Trump and how many people were deported during his first presidency to the number of people that have been deported under Biden. If you annualize the number under Biden and get it to the end of his term, he kept the same pace as, I think it was April or July, I think an article I was reading earlier today.
You'll get to a very comparable number between two presidents that have very different rhetoric around this. So again, I can't tell you what's going to happen. What I am not losing sleep over is buses and trains showing up in New York City and every other major market and filling them up and shipping out 50 million people. Is there going to be some changes in approaches and how you do it? Absolutely. As you know from following us for many years, our customers aren't the ones that showed up today in the U.S. They've been built up over many years. So the only thing that could be a catastrophic impact to us is that mass deportation conversation, which I just can't see happening.
Excellent. Well, very topical with investors, so I appreciate your comments. I think we should wrap with some comments around capital allocation and some recent M&A. So first, your first main use of the free cash flow, of course, is the dividend.
Yep.
Right, but beyond that, there's buybacks, and then of course there are smaller acquisitions. You've talked on the last earnings call around Dash and then the more nascent acquisition that you made of a platform in Mexico. So maybe you could just talk a little bit about these two deals and then, or these two digital wallets and then also the overall capital allocation approach.
Yep, great, Tim, thank you. So as you said, we are committed to our dividend. As you also highlighted, our yield right now is between 8% and 9%. So not a lot of places you can go put money and get that kind of return. We've now been at that level of dividend payout per share for about four or five years now. So it's our number one commitment from a capital allocation standpoint. Our second one is we've been looking at acquisition opportunities for a number of years. Again, I've only got three years of history in the company, but we've looked at dozens and dozens of opportunities. We're only interested in doing something that we think can be beneficial to our shareholders and our customers over the long term and the short term.
So trying to find the right deal that can be creative shortly out of the gate or out of the gate has led us to not doing too many deals, but led to the two you highlighted a minute ago. You could say, why did you pick these two? Out of the dozens and dozens you looked at, why Dash, why Lana? Lana is the Mexican one. On the Dash side, it is an eight-to-ten-year-old customer account remittance business that was started by a telecom. They've got hundreds of thousands of customers that are currently active within their wallet solution, storing millions and millions of dollars of funds, not in the hundreds of millions, but millions of tens of millions.
They're doing a lot of the same stuff we are working towards within our ecosystem with the wallets we've launched within the four countries in Europe and the two in Latin America and then here in the U.S. We wanted something that had already gone through the journeys we're starting to go through because you can accelerate our learning, you can steal some of their technology, you can learn from their mistakes, you bring in some talent. It was a business that their owner was looking to get rid of at a reasonable price. We're super excited to work our way through the compliance process there and hope to close that here in the coming quarters. The one in Mexico is different as you highlighted. It's a little more nascent of a business. It's super hard to get a license in Mexico.
It takes many years to go apply for it. It does come with a business and other attributes that come with this product or this license, but for us, it allows us to accelerate us moving our ecosystem into Mexico, having control to be able to store funds and do other banking services you can't do without a license that is harder to get, so it helps us accelerate that process, and we think it's important where with an ecosystem wallet solution here in the U.S. and then Mexico being the largest corridor in the world, having that pair is an important one to make this overall solution work is why we did that acquisition. Neither of them, when you look at our cash flow statement in the coming quarters when they close, are super small. They're not going to move the needle.
You're not going to see massive tens of millions, hundreds of millions of dollars out the door. They're super small tuck-in acquisitions that will bring in these capabilities.
Excellent, Matt. Well, in closing, I wanted to turn it back to you to see if there were any closing comments that you'd like to make just on Western Union or the investment opportunity.
No, perfect, Tim, thank you. Super proud and happy to be at Western Union now. It's been two and a half years. I've seen the transformation that we've gone through as a company. We've made meaningful progress in the digital business we talked about today. We've now gone from when I got here and we had our investor day, it was shrinking, low single digit, and had been shrinking for a couple of quarters in a row to now we've been sustainably double digit transactions and high single digit revenue now for a couple of quarters in a row. Our retail business, we've gone from being down 6% to being closer to flattish over the last two, three years. We've seen meaningful progress throughout our European business. And then we've started to diversify our product suite through our consumer services business.
You've seen us actually grow Consumer Services now for three years in a row, double digit, which gives us confidence going into the future that we can do that. We've planted lots of different seeds, whether it be our prepaid business here in the U.S., whether it be our wallets in six, seven countries around the world, whether it be our new media network business, so we've got lots of seeds planted which we think can bloom, and then if you step back and say, why invest in Western Union? We're going to get an 8%-9% yield with the progress we're making at a P/E multiple that is lower than you've probably seen anywhere else.
Excellent, Matt. Well, again, I just want to thank you for making the trip out here to Arizona and for being a big part of our conference. So thank you for joining us.
Awesome. Thank you very much. Really appreciate it.