Full Transcript: Western Union Q2 2026 Earnings Call

Western Union (NYSE:WU) held its second-quarter earnings conference call on Thursday. Below is the complete transcript from the call.

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Access the full call at https://wu.zoom.us/j/97442339241?pwd=Vcs1Z3da5UmbTMEFEFXvb1JNU2yhZb.1#success

Summary

Western Union reported Q2 2026 adjusted revenue of $1 billion, a 1% decline year-over-year, with consumer money transfer transactions growing by 3%.

The company is facing margin pressures due to a shift from cash payouts to digital transactions, with adjusted EPS at $0.31, down from $0.42 last year.

Western Union launched the Beyond Efficiency program targeting $50 million in cost reductions by year-end, focusing on streamlining operations and adopting AI solutions.

The digital business saw 25% transaction growth, but revenue growth was muted by lower RPT corridors. Digital payout-to-account transactions grew 55%.

The company plans to roll out the Beyond Digital platform in major markets and leverage their USDPT stablecoin for improved settlement and liquidity.

Western Union's branded digital business continues to grow, but customer acquisition costs and lower profitability per transaction in certain regions are challenges.

The company expects 2026 adjusted revenue growth of 4% to 6% and full-year EPS between $1.25 and $1.35, driven by new partnerships and cost reduction initiatives.

Full Transcript

OPERATOR

Good day and welcome to the Western Union second quarter 2026 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, Vice President of Investor Relations

Thank you. On today's call we will discuss the company's second quarter results and our 2026 year outlook, and then we will take your questions. The slides that accompany this call and webcast can be found at westernunion.com under the Investor Relations tab and will remain available after the call. Additional operational statistics have been provided in supplemental tables with our press release. Joining me on the call today is our CEO, Devin McGranahan, and our CFO, 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 2025 Form 10-K, for additional information concerning factors that could cause actual results to differ materially from the forward-looking statements. During the call we will discuss some items that do not conform to generally accepted accounting principles.

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

Devin McGranahan, Chief Executive Officer

Good afternoon, and welcome to Western Union's second quarter 2026 financial results conference call. In the second quarter we continued to face significant margin pressures due to the ongoing slowdown in the retail business in the Americas, higher agent commissions, and the continued acceleration of our digital payout-to-account business. The quarter came in $0.06 better than Q1, having eliminated many of the one-time effects we saw in the first quarter.

However, the accelerated shift from cash payout transactions with higher revenue per transaction (RPT) and higher contribution profit per transaction (CPPT) to pure digital transactions continues to weigh on profitability. On a more positive note, despite the strong macro headwinds, our strategy and our significant geographic diversification enabled us to report revenue of $1 billion on an adjusted basis. This was a decline of only 1% year over year.

Consumer money transfer transactions grew 3% in the quarter, which was a 300 basis point improvement from Q1, a 600 basis point improvement year over year, and the highest transaction growth rate since the second quarter of 2024. We continue to see quarter-over-quarter improvements as we lap the worst of last year; for example, U.S. to Mexico declined a little over 3% on a transaction basis in the quarter, a nearly 1,000 point improvement year over year.

Yet overall U.S. Retail continued to be mid-teens negative on a transaction basis in the second quarter, well below our expectations. While overall global transaction growth has improved significantly, it is important to note that it comes from lower contribution profit per transaction, which is putting pressure on our margins. Adjusted earnings per share came in at $0.31 in the quarter compared to $0.42 in the quarter a year ago. This is below our expectations and is driven by lower profitability in our Americas retail business and lower profitability in our Middle East business as volumes there continue to shift rapidly from our legacy partners in the region to newer digital-only partners at lower RPTs and profitability. Our branded digital business continued to perform well, with transactions increasing by 25% this quarter and adjusted revenue by 6%. While transaction growth continues to accelerate, the revenue growth is being muted by strong growth in lower RPT corridors and a significant increase in digital payout to account, which saw 55% growth in the quarter. As I mentioned in previous calls, our new customer acquisition economics remain challenged in the quarter, which impacted the overall revenue growth and profitability of our digital business.

We continue to roll out our Beyond Digital platform, which I believe will enable better customer experience, improve our ability to market at a corridor level, and potentially reduce the magnitude of needed new-offer incentives. In Consumer Services, adjusted revenue was up 12% in the quarter, driven by growth in our bill pay business as well as continued growth in travel money. Our financial results in this quarter came in below our expectations for the second quarter in a row.

This is not acceptable, and we are not satisfied with the current operating performance and will be implementing significant changes as a result. While the external macro factors over the past 12 months have undoubtedly accelerated the underlying trends in the business, we recognize that in the near term these trends are likely to continue at elevated levels. We have been navigating this mix shift away from payout to cash over the past several years, as well as the move from retail to digital, through cost savings initiatives and the reallocation of investments.

The impact of ongoing changes in immigration in the Americas has accelerated those dynamics, and we must now more aggressively change our cost base to reflect the reality of a future with continued pressure on CPPT. Over the past 12 months we have seen the percentage of payout-to-account and payout-to-wallet transactions grow by 25%. This is an important trend that will likely continue to cause ongoing margin headwinds unless we vigilantly reduce our fixed cost base, lower our account payout costs, and increase our ability to cost-effectively drive digital growth.

We have spent much of the last eight weeks evaluating what is working across these three dimensions and what is not. That process has reinforced our belief that the long-term fundamentals of our business remain intact. Our brand, customer relationships, market position, scale, and digital capabilities continue to provide a strong foundation upon which to build. However, a strong foundation alone is no longer enough. We must accelerate the transformation of our operating model to enable us to maintain our ability to invest in our next-generation digital initiatives while simultaneously significantly lowering our ongoing operating costs.

The program we have launched is called Beyond Efficiency. It has five key program elements, and we will be targeting a run-rate operating cost reduction of $50 million by the end of the year. The five key program pillars include: The first pillar, accelerate the dual-track strategy by reducing redundancy and streamlining processes that do not align with the Beyond strategy. As a 175-year-old company, we have a lot in the garage. Organizations build up over time, and what were once new ideas or areas of investment are now ongoing operating costs with limited or no contribution to the Beyond strategy.

For example, as we move to the Beyond Digital framework, we have made the decision to close down our existing digital wallets in Europe, saving the company a run rate of $6 to $8 million. We anticipate launching our Beyond Digital platform to replace those in Europe by the end of the year. The second pillar is to reduce discretionary operations and technology work by 20% that is not directly tied to growing digital. We are targeting a 20% reduction in discretionary operations and technology capacity by the end of the year, forcing a prioritization that will cause only the most impactful initiatives to get work done.

The third pillar is to rapidly adopt AI to drive automation and reduce manual work. Given our legacy system limitations, we have ramped up our adoption of AI and other automation platforms significantly over the past six months, and we see meaningful opportunity to eliminate manual work and reduce the friction that results from our large, geographically dispersed, and highly regulated business. The fourth pillar is to move to a more aligned operating model.

As part of our Beyond Efficiency program, we are looking to align people and work closer to the region they support. This will require us to localize what today are distributed global functions. For example, we have been moving agent onboarding for the Asia Pacific region from Lithuania and Costa Rica to our operating center in Manila. This will improve time zone and geographical alignment and reduce unit labor costs. We anticipate this will improve on all three dimensions of cost, quality, and speed.

The fifth pillar is to reduce the operating costs of moving money in a world that is rapidly going to digital payouts. We must reduce the cost of capital that we have floating around the system, lower payout costs, improve FX rate competitiveness, and accelerate real-time settlement through our own digital currency, USDPT. These initiatives are focused on creating a leaner organization while maintaining our ability to invest in the areas that matter most strategically.

Importantly, this is not a short-term exercise designed solely to reduce near-term costs. Rather, it is a structural effort to improve how we operate and to position the company for stronger, more sustainable profitability in the years ahead. We understand that our investors expect tangible evidence that these actions are producing results. While meaningful transformation takes time, our expectation is that the combination of improving growth and enhanced cost discipline will strengthen margins, improve profitability and increase returns over time. Our objective remains straightforward: generate consistent growth, improve operating profitability, strengthen free cash flow generation and create long-term shareholder value.

I look forward to updating you on the progress of this program in the coming quarters. Now, switching briefly to the macro, as you know, remittances in the Americas have faced meaningful pressure that began in late 2024 driven by the changes in immigration policy. While growth rates have improved meaningfully from the summer of 2025 lows and continue to improve with U.S. to Mexico, for example, revenue growth rates improving 500 basis points sequentially compared to the first quarter.

Retail continues to underperform relative to digital, and that dynamic continues to weigh on the profitability of our Americas businesses. As we have discussed, the growth in retail business is almost always dependent on new migration. When immigrants come to a new country, most frequently they transact in retail out of necessity, given cultural and language issues, lack of access to digital funding and often heavy cash remuneration. When migration goes negative like we have seen in the U.S. and around parts of the Latin American region, it becomes difficult to replace customers that migrate to digital channels, find alternative options or leave the country to return home. This doesn't mean the retail business can't improve like we have seen over the last several quarters. It just means it will be difficult to get the business back to true growth without a meaningful change in immigration policy or much more aggressive gains in our market share.

We do believe we can take market share, and we should start to see the benefits as Canada Post and Deutsche Post ramp up, which will provide a tailwind starting in Q3 and continuing in 2027. We also recently launched an industry-first partnership with Total Wireless, a Verizon value brand that combines wireless connectivity and cross-border money movement. The partnership expands our reach into the telecom channel, providing access to millions of subscribers through thousands of retail locations and extending our distribution footprint across both digital and retail channels.

Recognizing that consumer behavior continues to evolve and digital engagement is becoming increasingly important across every aspect of the customer journey, we believe our digital-first strategy and our digital platforms represent the most attractive growth opportunities over the long term. Over the last couple of quarters we have seen substantial gains in the Middle East while our digital business in other parts of the world has plateaued. We spoke on the last couple of calls about needing to better manage promotional offers in places like the United States and Europe, and as such we have begun to pull back.

While the benefits of this more disciplined approach are not immediately obvious in this quarter's results, in the last few months new customer growth rates have improved and have done so at higher RPTs, which should bode well for better revenue and profitability in future quarters. That said, pulling back on new customer incentives is just one element of our revised approach. Since our investor day, we have been executing our digital acceleration program along three axes.

The first is the restructuring of our digital go-to-market model and team. We have now completed the restructuring of our go-to-market team, moving digital team members into the regional operating units that they support. This now brings decision-making and local market knowledge together in one team. We have also been adding new senior digital talent with sector expertise across the regions. In particular, I would like to welcome Shishir Singh, who joined us last quarter as our new Chief Digital Officer leading the Global Digital Product Team and the North American go-to-market team.

Shishir brings deep knowledge and experience to us and has already begun to make material impacts. Second, we are accelerating our Beyond Digital Platform. Having now seen early returns, we are accelerating the rollout across our major markets with planned launches in Australia, Europe and the U.S. before the end of this year. We are expecting the Beyond Digital Platform to enable us to improve new customer onboarding success rates and thus improve the return on new customer acquisition in these important markets.

We continue to target rolling out the Beyond Digital Platform to all of our major markets by the end of 2027. Third, we are focusing on investments by corridor. Our analytics and insights have improved and we've begun to differentiate our level of new customer investment in both marketing and new customer incentives at the corridor level. This higher level of fidelity and targeting, we believe, will enable us to earn better returns on the same overall investment pool even if it means slowing down in some larger corridors where competitive dynamics inhibit strong returns.

Before I turn the call over to Matt, I would like to discuss further a few minutes to provide an update on our digital asset strategy and the progress we are making. At the center of this strategy is USDPT, our U.S. dollar stablecoin. USDPT is designed to maintain a one-to-one value with the U.S. dollar and is backed by reserves including cash and U.S. Treasury instruments. First, we successfully launched USDPT in May of this year, which established the foundation for a regulated digital dollar that can support payments, treasury operations and customer use cases across our global network.

USDPT is now live and available through an expanding ecosystem of exchanges, financial institutions and partners, with the first four exchanges now live and actively trading USDPT. Second, we have introduced our Treasury Bridge solution, which utilizes USDP to support more efficient movement of liquidity and capital across our global network. This initiative has the potential to enhance funding flexibility, improve settlement speed and reduce reliance on the traditional correspondent banking infrastructure.

We are testing with multiple counterparties to use USDPT as a form of settling our cross-border money transfer transactions. Third, we launched the Digital Asset Network, or DAN, which extends Western Union's unique global distribution capabilities to the digital asset ecosystem. Through DAN, digital asset exchanges and other partners can connect to Western Union's payout infrastructure, enabling customers to convert digital assets into local currency and access funds throughout our global network.

This creates a bridge between the rapidly growing digital asset economy and the real-world economy that customers can use every day. We have successfully launched our first partner and we expect the launch of several more in the coming weeks with the goal of having tens of millions of consumer digital wallets connected to our Digital Asset Network by the end of the year. And lastly, we continue to advance our consumer proposition with the development of our USDPT-powered wallet and card capabilities.

Our vision is to provide customers with the ability to redirect remittances, hold the USDPT digital dollars and spend them through a payment card, seamlessly transitioning between digital assets and traditional financial services. We are launching the USDPT Stablecard today. We view the digital assets as an opportunity to expand our TAM and to free up capital. Our objective is not simply to participate in the digital asset system. Our objective is to leverage Western Union's trusted brand, regulatory expertise, global reach and distribution network to become a critical infrastructure provider within that ecosystem.

What differentiates Western Union is that we are focused on real-world utility. We are not building speculative products. We are building solutions that address practical agent and customer needs: faster settlement, lower friction, improved accessibility and broader financial inclusion. While we remain in the early stages of this journey, we are encouraged by the momentum we are seeing. We have moved beyond strategy and are now into execution. 2026 will be a foundational year for our digital asset initiatives.

We have successfully launched the core building blocks of this ecosystem and our focus now shifts towards execution, adoption and scaling. We remain confident that digital assets, stablecoins and blockchain-enabled payments can become meaningful contributors to Western Union's future growth and reinforce our mission of making financial services accessible to people everywhere. Before I conclude, I would like to give a quick update on Intermex. We remain actively engaged in discussions with regulators on the final approval.

I remain optimistic that we will be able to obtain the outstanding approval needed. This would enable us to close the transaction upon receipt of this approval, as well as satisfaction of other outstanding and customary closing conditions. In closing, while we are disappointed with our current results, we remain confident in our ability to improve performance and unlock the value that exists within this business. The path forward is clear. We are focused on driving growth through our digital initiatives, improving efficiency throughout the organization, allocating capital with discipline and executing against a well-defined strategic plan.

We recognize that rebuilding momentum requires patience and execution. However, we believe the actions that we are taking today will position the company for a stronger future. We appreciate the continued support of our shareholders and the dedication of our employees who remain committed to serving our agents and customers every day. While there is significant work ahead, we are focused on delivering the results that our stakeholders expect and deserve.

Thank you, and I now turn it over to Matt to review our financial results in more detail.

Matt Cagwin, Chief Financial Officer

Thank you, Devin, and good afternoon, everyone. I'm going to walk you through our 2026 second quarter results in more detail and our 2026 financial outlook. In the second quarter, GAAP revenue was $1 billion, which on an adjusted basis was down 1%, a meaningful improvement from down 5% last year. The decrease was driven by continued slowing of our Americas retail business, while our consumer services and branded digital businesses grew 12% and 6% respectively.

Adjusted operating margin was 15% in the quarter, which was impacted by lower revenue from our retail business mix, higher agent signing bonuses and higher operating expenses. As Devin said, we are clearly not satisfied with our performance of our business this quarter, and we remain committed to driving higher operating profitability. We are in the process of accelerating our operational efficiency program, Beyond Efficiency, with the goal of taking out $50 million between now and the end of the year and $200 million of run rate by the end of 2027.

The drivers of our Beyond Efficiency program will be the five elements that Devin discussed earlier, which includes the additional scale that we will get from our Intermex Acquisition-adjusted EPS was $0.31 in the current quarter. Adjusted EPS in the current period was driven by lower operating margin for the reasons I stated previously, offset by a lower tax rate in the quarter. Our adjusted effective tax rate in the quarter was 14% compared to 16% in the prior year. The decrease in adjusted effective tax rate was primarily due to discrete expenses in the prior-year period. Now turning to consumer services business, which contributed 15% of total revenue in the quarter compared to 6% in 2022.

Second quarter adjusted revenue increased 12% driven by the growth of our consumer bill pay business, travel money business, as well as the addition of check cashing. As a reminder, the current quarter marks the anniversary of our Eurochange acquisition, which was acquired on April 1st of last year. The consumer services segment's profitability was lower in the quarter, driven by lower operating profits in our travel money business, lower float income in our retail money order business, as well as the delayed reduction in overhead due to the acquisition we made of a check cashing partner that we had planned to integrate with Western Union.

Now transitioning to our consumer money transfer, or CMT, business. CMT transactions grew 3% in the quarter relative to a year ago. This was driven by continued strength of our branded digital business, which delivered 25% transaction growth in the current quarter. While retail trends in the Americas remained under pressure, the ongoing shift to digital continues to support overall transaction growth and customer engagement. CMT adjusted revenue declined 3% year over year, reflecting the continued pressures in the Americas retail business driven by uncertainty in the U.S. immigration policy, but this was a 300 basis point improvement relative to the first quarter of this year. The CMT segment's profitability was lower in the quarter due to revenue mix, including declines in cash payout transactions, offset by lower profitability from digital payout transactions, which increased, higher commission costs associated with new partners and renewals, and higher operating expenses. In the second quarter, our branded digital business grew adjusted revenue by 6% and transactions by 25%.

This marks the 11th straight quarter of solid revenue growth. Consistent with recent trends, growth was increasingly driven by Middle East partnerships. While these channels continue to expand our reach and support volume growth, their economics differ from those of our traditional licensed business, resulting in a more pronounced gap between transactions and revenue. We continue to view this as a strategic trade-off that supports the long-term expansion of our digital platform.

As a result, as a reminder, we began to ramp the Middle East partnerships in late Q3 of last year, so we expect transaction growth rates to moderate as we anniversary these partnerships. Account payout transactions also continued with strong momentum, growing 50% in the quarter, which is the strongest quarterly growth rate in several years. Turning to our retail business overall, the performance of our retail business was in line with previous quarters on a transaction basis and a few hundred basis points better on a revenue basis.

The business remains challenged in the Americas as U.S. immigration policy continues to weigh on our operating results. New migration is the lifeline of our retail business. With borders closed, it is difficult to offset natural attrition that comes from digital migration, industry competition, and reverse migration as consumers return home to their native countries. Looking ahead, we remain focused on strengthening our retail franchise with new agent relationships, a vastly improved platform, and better consumer experience.

Now turning to our cash flow and balance sheet. We generated $214 million in operating cash flow year to date, up 45% versus last year, driven by lower cash taxes year to date. Capital expenditures were $88 million, or 65% higher than the prior year, due to signing bonuses associated with recent agent wins and renewals. As discussed in February, we expect capex to be roughly $200 million this year due to new strategic partnerships as well as a higher renewal cycle.

Moving to our balance sheet, at the end of the quarter we had cash and cash equivalents of $920 million and debt of $2.7 billion. Our leverage ratios were at three times and two times on a gross and net basis. As we announced a few weeks back, we extended our delayed draw bank facility until November. This preserves financial flexibility while ensuring that we have the committed funds in place to support the Intermex transaction. As a result, post-closing we expect our debt-to-EBITDA ratios to be elevated above historical levels.

In the quarter, we returned over $80 million to our owners via dividends and stock repurchases. We have decided to pause our share buyback program in order to maintain our debt-to-EBIT ratios of 2.5 times to 3 times. Now moving to 2026 outlook, which assumes no major macroeconomic changes. Based on our performance year to date and our view on the remainder of the year, we are updating our 2026 guidance. We now believe adjusted revenue will be in the range of 4% to 6% revenue growth inclusive of the Intermex acquisition.

Our outlook assumes a September 1st close. From a modeling standpoint, we expect retail CMT to continue to improve throughout the back half of this year, digital CMT to be in a similar ballpark of recent quarters, and consumer services to grow low single digits as we lap the Eurochange acquisition as well as the ramp of a large travel money partner, as well as right-sizing our underperforming products that Devin talked about earlier. Our adjusted EPS for the full year, we believe, will be between $1.25 and $1.35.

We expect the second-half EPS to be better than the first, driven by new agent wins, back-half seasonality, better revenue mix, and the accelerated pace of our Beyond Efficiency program. Thank you for joining the call today, and the operator will take questions now.

OPERATOR

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 during today's Q&A session. Please use the Raise Hand option in Zoom or press Star-9 on your keypad. Our first question comes to us from Tin Chin Huang at J.P. Morgan. Please go ahead.

Tin-Chin Huang, Analyst at J.P. Morgan

Thanks. I think I'm unmuted. Can you hear me?

Matt Cagwin, Chief Financial Officer

Tin-Chin, hey, thanks.

Tin-Chin Huang, Analyst at J.P. Morgan

Always good to catch up with you. So yeah, you went through a lot of detail here thinking about the revenue, which is pretty much in line with us, but obviously the profits factor on the cost front. Is it really the tax from mix shift to digital? There's a lot of—I'm just trying to summarize it a little bit easier. Can you give us a little bit more there?

Matt Cagwin, Chief Financial Officer

Yeah, absolutely. Tin-Chin, you broke up a little bit there, but I believe your question was can you give a little more on the cost side and what's going on there? Is that correct? Perfect. Yep, happy to drain that a little more. Just a reminder—I know you know this—but our Q2 margins and adjusted EPS were 200 basis points and $0.06 better than Q1, but it's still a far cry from what we expected. Also, I'm sure as you know, last year we were able to reduce our cost of sales expenses by 3% and SG&A by 14, which helped us fully offset the revenue decline last year and helped us grow operating income. As you dig into this, there's really two major drivers that really stick out that we should talk about.

One is the pace of our cost reduction. This has slowed from— the reason why I want to give you context of last year—it slowed from where we were last year. We were able to right-size many different departments, exit some programs. The first half of the year, that's gotten a little harder. We do have a very good, strong pipeline, as Devin outlined, the Beyond Efficiency program, which gives us confidence that over the rest of this year and going into next year we can exit with a run-rate savings of $50 and $200 million.

The other part of it is revenue mix. We've seen a shifting to lower contribution profit per transaction. I've just given you a couple examples. We're seeing the acceleration of our cash payout to digital in both the U.S. and the Middle East, both accelerating. And we see higher profit dollars per transaction from cash payout versus account payout. We're also seeing different results between quarters. As you know, this business is made up of tens of thousands—or thousands—of corridors, and the economics vary massively from each one.

As you heard Devin talk about, we've seen quarter-over-quarter improvements for U.S. to Mexico, which has also been talked about by the Central Bank of Mexico. We've also seen improvements in U.S.—the U.S. and U.S. to Canada. But we've seen a deterioration quarter over quarter of U.S. really to the rest of the world. There's a few spots where it's shining, but as you know, the yields vary between the different corridors. The improvements we've seen in U.S.–Mexico come in a corridor where there's lots of competition.

The yields are much lower relative to the rest of the world. We have much higher yields, and that's putting pressure on us. The other thing that's helped us grow and have some improvements in U.S. and Mexico is we've had some regional agent wins over the last couple quarters that have ramped as the quarters have gone on. These have come at higher commissions per transaction to win them, but they are still very profitable deals and things we're excited to have.

We talked about one of them earlier in the year with Velarda, which is principally focused on customers that are Latin America-based with a very heavy concentration of Mexicans.

Tin-Chin Huang, Analyst at J.P. Morgan

Okay, okay, thanks for going through that, Matt. Maybe just—this is a quick follow-up—the cadence of the $50 million then. So you're going to attack the cost structure here. How quickly would that be realized and how much do you need this intermediate deal to close on time to fully capture?

Matt Cagwin, Chief Financial Officer

So it will ramp throughout the rest of the year. I'll use the example Devin gave in his discussion earlier. We made the decision to turn off the European wallets because the more modern platform is better and will help us free up costs immediately. That benefit will start helping us in Q4. There's a migration time for the customers, running the platform, turning off the tech costs and all that. So the actions we're taking will ramp as the year progresses, and that's why we try to get to a year-exit rate of $50 million, and then next year being the $200.

OPERATOR

Our next question comes to us from Will Nance at Goldman Sachs. Please go ahead.

Will Nance, Analyst at Goldman Sachs

Question. I just wanted to maybe circle back to the mix shift in the transactions that you're seeing in the quarter. I mean, if I'm hearing correctly, it sounds like from a revenue perspective the improvement in some of the larger corridors have offset decelerations in some of the other corridors. And then when you look at the contribution margin per transaction, the accelerating corridors are just lower than the decelerating corridors. So I guess I just want to make sure we understand that dynamic.

But maybe more importantly, it seems rather sudden, the acceleration in some of that mix shift that's happened. And so I'm just wondering if you can point to anything specific that's driven that acceleration, because it does seem to be happening at a really accelerated pace per your comments and, I guess, per some of the numbers that we're seeing in terms of like gross margin this quarter.

Matt Cagwin, Chief Financial Officer

Yeah, Will, so it's really a combination of a couple of things. Just pulling the thread on what you just asked for: Retail is very profitable, particularly cash payout. We've now been going on six, eight quarters of pressure on that in the U.S. side we've been having—

Devin McGranahan, Chief Executive Officer

Double-digit declines there for going on about six quarters. That compounding effect is having some pressure. On top of that, we have been able to make progress on it from a transaction revenue standpoint with some of the wins we've had. Those wins have been in the ballpark of our other strategic partners or the example I just gave to Tin-Chin on the regionals. But they're at the upper bounds of what we have for partners. So it's putting pressure on commission cost per transaction but still helping us to grow revenue and prop up the profit.

Well, I'll give you another example which, to your point, has even surprised us. So most of the world, principally from the U.S. and Spain, but most of the world to Colombia, the shift that has happened from what was traditionally a very significant payout-to-cash business for us to payout-to-account in Colombia, but more importantly, payout to a wallet there called the Nequi wallet and this shift to the use of their real-time payment system, Bray B, has truly been amazing at how quickly this has happened.

And so we were fortunate that we were enabled into the Nequi wallet and then we enabled Bray B—Matt will remember—probably in the fourth quarter of last year, first quarter of this year, so we've been able to capture some of that. But the shifting has—the volume has been shifting—and that shift has been significant economically because the economics of paying out to a digital wallet versus over a real-time payment switch is far different than the payout-to-cash economics in the same country, in the same corridor.

Matt Cagwin, Chief Financial Officer

Hey. Well, thank you for the question. As you know, the yields and the pricing, the profitability vary massively from quarter to quarter. So we can give some generalities, but the real pressure here is we're seeing the vast majority of our branded digital growth coming from our Middle Eastern partners, which come at very, very low revenue per transaction and thus very low profit. So that's causing part of this. As Devin talked about in the prepared remarks, we've strengthened the team through multiple elements of new people.

Some of the things they're putting in place in the go-to-market—they're taking from market to our customers. As those things take hold, which we're starting to see early glimmers of this with revamping our core branded digital customer growth, that will help us grow more profitable branded digital in lots of countries. So really it's being driven by the fact we have these Middle Eastern partners that are very low RPTs and profit per transaction. Beyond that you also have just the mix which varies because we have some corridors where digital payout might be a little higher. So it's hard to give anything other than just generalities. The key for us: we've got to get the overall growth humming and then see and drive improvements in the Americas from a retail standpoint.

Devin McGranahan, Chief Executive Officer

And so what I would add, Will, if you remember—and it's generally again, Matt's right, it's corridor to corridor—but in general as a percentage, digital transactions are roughly margin-wise similar to retail transactions, total dollars. And as I was talking about, contribution profit per transaction is reasonably different. And so when you start substituting the retail transactions for the digital payout transactions, like I was talking about in Colombia, that's where you start to see some of the margin pressures that we're seeing.

We do have two levers that we're working on. Matt highlighted one, which is growing higher revenue and higher contribution per transaction, particularly in our digital business. The second the team is working on quite aggressively is lowering digital payout costs. So many of our digital payout partners and networks were negotiated two, three, four, five years ago in some cases. Some were part of our retail network, and we used them as payment switches to reach other banks or other wallets.

And so we're on a pretty active campaign. And if you remember, we talked about at Investor Day our goal of lowering those payout costs. This has brought that more to the forefront, and we will share in upcoming calls the progress that we're making. You know, in that Colombia example, the team recently lowered the payout cost from over $2 to less than 50 cents. Right. And so the contribution per profit on those Nequi wallet is going to go up dramatically.

But previously we saw a lot of volume shift, and we were paying similar payout costs as we did to other options in Colombia, even though they had lower revenue per transaction because they were digital.

OPERATOR

Our next question comes to us from Reina Kumar at Oppenheimer. Please go ahead.

Reina Kumar, Analyst at Oppenheimer

Good evening. Thanks for taking my question. Just given the current profitability pressures and broader business headwinds, how are you thinking about the sustainability of the current dividend over the medium term?

Devin McGranahan, Chief Executive Officer

So I will start and then I will let Matt follow up with the math. You know, we believe, and the board of directors believe, that the dividend is a strong return to our shareholders and that we believe we have sufficient financial capacity to continue and maintain that dividend. So at the present moment, we believe the strategy of continuing to return capital to our shareholders via the dividend is a good strategy.

Matt Cagwin, Chief Financial Officer

And just to build on that a little more for you, Raina, as you know, we've got over $900 million of cash in our books. We talked earlier about the benefit we expect to be able to get out of us. DPT is we were able to go get the treasury bridge ramped up. We're working very fast on one of the largest three markets in the world, which we hope to have a large partner on board by the end of this year and then ramping up over a billion dollars of float in the first quarter next year.

So that will start to free up capital from both the correspondent banking process as well as what we pre-funded to some of our partners around the world. So we feel like we have line of sight to improve cash flow. And as Devin talked about, our board's committed to the dividend.

Reina Kumar, Analyst at Oppenheimer

Thank you, that's really helpful. And as a follow-up, we're one month into the third quarter. What do you see in terms of just U.S. immigration policy? Have things gotten worse? Are they the same? Are you starting to see anything ease? Thank you.

Devin McGranahan, Chief Executive Officer

So what I would call it is a continuation of the policies and the effects of the policies that we've seen for a year. But as we've seen both in our financial results and in certain places, the effects of that have stabilized at a certain level. And so we continue to see the negative effects of it, but it is no longer worsening. And in some cases, and in some places, it is abating a bit. That is happening, however, slower than we anticipated at the beginning of the year.

We believe that by the time we lapped the effects—as you know, the real impacts on the policy started at the end of the first quarter of 2025. We felt them ramp in 2Q25 and really peaked in 3Q25. We felt by this time of the year we would be seeing the effects of lapping those things in more stability than we have. As noted earlier on the call, we also see varying effects by corridors. And so, when you have a policy change with regard to Haitians or you have an event in Venezuela, those are important corridors for us that will be impacted while we're seeing more stability in corridors like U.S. to Mexico. And so again, this comes back to a corridor-by-corridor basis—what policies are affecting what groups and how does that impact our customers and the mix of our customers in those corridors. But the overall effect is improving from the lows of last year, but not improving as significantly as we might have anticipated.

OPERATOR

Our next question is from Darren Peller at Wolfe Research. Please ask your question.

Darren Peller, Analyst at Wolfe Research

All right. Hey, thanks, guys. Look, you've obviously done well with growth in your branded digital users, as have many of your competitors also. But are customer acquisition costs for branded digital now higher to the degree that it's impacting incremental profitability? I guess I'm just trying to figure out, also, beyond managing expenses, can we just revisit the opportunities to expand ARPU beyond just trying to create more customer growth itself beyond digital?

Where are you in that, and what do you expect to see in terms of revenue per user expansion over the coming years here?

Devin McGranahan, Chief Executive Officer

So let's tackle those in two parts. First, on the customer acquisition—you know, we started talking about this probably two, three quarters ago. As the retail business began to see significant declines, competitive intensity in the digital business increased. And the competitive intensity, which was historically driven more by marketing spend and by kind of brand recognition, also started to envelop new customer offers and, in some cases, relatively significant new customer offers.

You know, there are offers in the market where customers can get free transactions for a month, or they can get three, four, five free transactions as a new customer. These kinds of offers have a significant negative effect on near-term revenue as you onboard those customers. We participated in some of that for a while and then, as I noted in the public commentary, have begun to back off on some of that simply because we did not see the longer-term returns given the impact on near-term revenue that that has required in order to compete on that.

The second question in terms of ARPU—you know, we continue, and one of the things I talked about in the corridor, is focusing on basically our CAC to LTV, and in particular LTV is driven by customer behaviors in terms of longevity, transactions per customer, and principal per customer. And so, us and others in the industry are very focused on where are the most valuable customers—the higher senders, the more frequent senders—so that you can really optimize that revenue per transaction.

More importantly, you can optimize the LTV, also the revenue and profit over the life cycle of the customer, to focus those acquisition dollars in places where we are getting higher returns on a life cycle basis than on individual transaction economics that we might acquire on the first or second transaction.

Darren Peller, Analyst at Wolfe Research

All right, Devin, thank you. Quick follow-up just on Intermex. I know it's delayed, obviously, versus your prior expectation—sorry about that—but do you still expect the same financial synergy targets, just in a delayed timeframe, as you previously expected?

Matt Cagwin, Chief Financial Officer

Hey, Darren. Yeah. So ultimately, as we get close, we do expect to have actually higher synergy targets. As you probably remember from when we kicked this off a year ago, we had anticipated $30 million in synergies. We talked last quarter that we were seeing more opportunity and expected to be up a little bit. That continues to be the case. It will ramp post-closing. The year has gotten narrower. As I mentioned before, we've got in our model now the September 1st close.

I can't tell you we're going to close on September 1st—that's up to regulatory approval. Just wanted to make sure you all knew what day we modeled in our numbers. So there will be some synergies this year, but what we expected originally was 10 cents in the first full year—what we talked about in August of last year—we would still expect that, plus some.

OPERATOR

Our next question comes to us from Nate Svensson at Deutsche Bank. Please go ahead.

Nate Svensson, Analyst at Deutsche Bank

Hey, thanks for the question. Another one on margin. So understand the points on kind of OPEX and the mix shift in transactions, but a couple other factors that have come up on the call I wanted to touch on. So on the higher agent bonuses. I know you mentioned the agents in Mexico, but wondering if that same dynamic is playing out in any other regions. Is there any reason to think that the cost that you're having to pay out to these agents is structurally higher now than it has been historically?

And then the other thing that came up in the prepared remarks was travel money operating profit being lower. So I wanted to hear some color on what was driving profitability in travel money lower specifically.

Matt Cagwin, Chief Financial Officer

I'll work my way backwards. So on the travel money side, as we talked about last quarter, the first quarter every year they actually lose money because their fixed costs are higher than the revenue because it's a lower seasonal travel business. Typically all the profit comes in the second, third quarter. They're slightly positive in Q4. What we've seen this year is that travel is down, and Europe in particular. If you go look at Heathrow travel patterns, you're seeing it be negative for the first time since COVID.

So we're seeing fewer consumers coming in, which is putting some pressure on the profitability of that business. It still grew, as you can see. It was a contributor to our 12% growth rate this quarter, but it wasn't where we expected it to be. It was light a bit. On your first part of your question about what are we seeing for signing bonuses or overall agent economics. It varies from partner to partner. But as I mentioned a couple times now and we had talked about with the $200 million of CapEx this year, it's a heavy agent renewal cycle.

We've talked about winning two new big partners plus a couple more moderate ones. We've signed up the Deutsche Post in Europe, which is ramping right now. We've won—and it is a competitive takeaway—we've won the Canada Post, which will be ramping here in the latter part of Q3. Both of those have some upfront costs to ramp and help build them out, which are at the slightly higher end of our typical strategic partners. They're not above the range but they're the higher end because of competitive takeaways.

And then we have the more smaller ones like a Velarda and some of the other ones like that that were also competitive takeaways that are the higher end.

Devin McGranahan, Chief Executive Officer

I would add that, you know, Matt and I have talked about this, that, you know, we went through a renewal cycle, particularly here in North America with the majority of our strategic partners and one of the, you know, crown jewels of the Western Union franchise is the majority of major retailers. We are proud of these relationships, whether it be Kroger, Walmart, Albertsons, Walgreens, Publix, H‑E‑B, Giant Eagle. We have the majority of what we consider to be the strategic distribution in the US, as you can imagine.

And we faced an unusual number of renewals over the past 12 months that we successfully have gotten through and am pleased to have renewed all of those contracts. In the face of a down market and in the face of my commentary around one of the ways you deal with a down market is you work to steal share, we had some, you know, increased competition looking to unlodge us from some of those long‑term relationships. And so I think the team did an excellent job of navigating, getting the renewals, continuing to secure those relationships and doing it at economics that weren't too different from the ones that we had previously.

Nate Svensson, Analyst at Deutsche Bank

Thanks, that's super helpful. For a follow up, I did want to ask on remittance taxes more broadly, not on the federal side, but I know there are some other local or state proposals floating out there. I know Tennessee is one that comes to mind. So on Tennessee specifically, wondering if you give your thoughts on that specific proposal, whether you think it gets implemented. I know there are some challenges out there on that one specifically. And then any other state or local taxes that we should be tracking that could potentially be on the horizon?

Devin McGranahan, Chief Executive Officer

Yeah, as you know, when they passed the US remittance tax, which in our previous commentary we don't believe had a significant impact, it has driven up card acceptance. I'll make this up: we're now at 20‑plus percent card acceptance in the retail network in the US, up from, you know, a couple of percentage points before the remittance tax. So we've seen a lot of move to people using bank products to not pay the tax as was written into the legislation.

But they left open the door for states to, in effect, pass a state‑specific tax, of which several, Tennessee being probably the most notable and aggressive, have done so. There've been a couple of states that, you know, have limited those taxes to what they consider to be foreign adversaries or specific corridors that they saw, or countries they saw as, problematic. We track this stuff. If I could predict it, I probably wouldn't be in this job. We don't think that it will have significant impact. Tennessee is an important state, but as you can imagine, it's nothing like a Florida, Texas, California, New York in terms of the magnitude of the business that we have there. And in many cases, you know, customers will simply drive across the border and send money at a Western Union at a different state if the tax equation becomes significant between one state and another.

OPERATOR

Our next question is from Timothy Chiodo at UBS. Please ask your question.

Timothy Chiodo, Analyst at UBS

Great, thank you. I want to go back to really the opening comment from the prepared remarks. And we've hit this in a few different ways, but maybe we can try another way. So retail and digital, and you were very clear that the contribution dollars or the contribution profit per transaction is lower for digital, and you kind of mentioned meaningfully. So the first part is I was hoping that you could maybe just talk a little bit about that directionally in terms of how much meaningfully are we talking about in terms of how much lower it is?

And then from there some of the items within the P&L of each that we should be considering that might be levers. So on the retail side, obviously there's the commissions that we mentioned, and then on the online side, I believe the two big ones are the marketing costs and then of course the payout costs, and maybe just dig into basically the real levers within the kind of product‑specific P&L, if you will.

Devin McGranahan, Chief Executive Officer

Yes, I'll start and then I'll let Matt. You know, I think I understand the desire to have the specificity. That would certainly make life easier, and it would make my life easier as well. Matt highlighted particularly the growth in the nature of the business that we have in the Middle East, because the Middle East is a place where it's quite difficult to get licenses—which we are working on, by the way. You know, much of our business there is partner‑driven.

And in a partner‑driven model, the economics, because you've got to pay the partner, are just fundamentally different than the economics of our core business or our licensed businesses around the world. And so the shift in the growth of that particular business is a significantly different business than the more general shift from retail to payout to account. There is a difference in the retail to payout to account, and that was part of what I was talking about—needing to lower payout costs so that difference is less—and renegotiating some of those payout cost relationships.

There are a bunch of other levers, though, that are important. And so, you know, in the digital space, payment acceptance costs—so how much we pay to be able to do funds‑in—which is really a strategy of shifting our customers from funding with credit cards and debit cards to funding with bank accounts and digital wallets, can significantly lower one of our bigger expense items, which is funding costs. Managing card fraud and payment fraud is another significant expense for us again in the digital space.

One, shifting to bank funding helps that, but also managing those costs in a more aggressive way also helps it. We continue to look at other efficiency options, you know, particularly in that SG&A line which you saw, you know, go up in the quarter as we continue to invest. And so, as Matt highlighted, shutting down—and it was not an easy decision—to decide to shut down the European wallets before we had the next platform in place, but the opportunity to save run‑rate costs of, you know, six to eight million dollars, as Matt highlighted, given the situation that we're facing, we made that decision.

So for us, lowering some of those operating costs associated with some of our legacy platforms is an important lever as well.

Matt Cagwin, Chief Financial Officer

And I'm going to repeat a little bit, so I apologize. But just as you think about what's in cost of sales or cost of services, the biggest thing is commissions. Commissions represent almost two‑thirds of the balance in there. But beyond that, there are, as Devin has highlighted, there are fraud losses which we're working fast on and feverishly to get to leading loss rates and collection rates. There's payment fees, making sure that you have the best payment fees for your partners—we're actually running an RFP right now.

There's a call center cost within there which Devin's talked about now for the last three, four years of we've cut the call by more than half. That is actually slow. That's one of the reasons why is this migration from cash payout to digital over the last couple years has been happening—that we've been able to manage through that on the cost of sales lines. We've been saving on the call center side. That has plateaued a little bit, but we've got some, through AI, some things we're working on to improve that further.

And the last part in that bucket is big platform costs. So today we actually still operate three different digital platforms. We still have a handful of settlement platforms that we're working through, and as we go and move down to one platform—which, in the last year talking about settlement side, we were able to eliminate three in the last 18 months—as we are able to eliminate the last couple, that will allow us to continue to reduce the cost of sales side.

OPERATOR

Our final question is from Vasu Goyal at KBW. Please ask your question.

Vasu Goyal, Analyst at KBW

Hi, thanks for squeezing me in here. I guess just first question, I'm wondering if there's a way to drill down and disaggregate how much of the change in EPS guide is coming from each of the various factors you guys outlined. I know mix shift to digital payout seems to be the biggest one, but also weaker retail, I think travel money weakness. I don't know if there was some contribution assumed from Intermex for the year, so I don't know if you could help disaggregate that would be super helpful.

Matt Cagwin, Chief Financial Officer

So, Vasu, as you probably have seen, our first half of the year, year over year, Q1 was down $0.15. The second quarter was down $0.11. Our guide for the full year is effectively down $0.50. We've talked about the drivers of the first half and what drove those. Q1 had a fair bit of pressure from FX loss, delayed money from a partner, things of that nature as well as the mix items we've talked about here today. For both, Q1 was roughly 50–60% for the things we talked about today, and it's similar items for this quarter.

I think if you take that it'll give you a directional answer for that.

OPERATOR

Thank you for joining the Western Union second quarter 2026 results conference call. We hope you have a great day.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.