Western Union Reports First Quarter Results

Western Union Reports First Quarter Results

Revenues increase 7%, driven by consumer money transfer

Digital remains strong; westernunion.com money transfer revenues increase 23%

The Western Union Company (NYSE: WU), a leader in cross border, cross currency money movement, today reported first quarter financial results and an updated outlook for 2018.

In the first quarter, the Company generated revenue of $1.4 billion, which increased 7% compared to the prior year, or 5% on a constant currency basis. The revenue increase was driven by strong growth in the consumer money transfer business.

“We were able to sustain the growth momentum generated at the end of 2017,” said president and chief executive officer Hikmet Ersek. “Our digital money transfer business posted another impressive quarter, with westernunion.com delivering a 23% revenue increase.”

Ersek added, “The positive traction in our core business helps enable us to pursue new customer segments in cross-border money movement.”

GAAP earnings per share in the quarter was $0.46 compared to $0.33 in the prior year period. On an adjusted basis, earnings per share was $0.45 compared to $0.35 in the prior year period. The increase in earnings per share was primarily due to revenue growth, a lower effective tax rate and fewer shares outstanding compared to the first quarter of 2017.

Executive Vice President and Chief Financial Officer Raj Agrawal stated, “We delivered strong revenue growth, profitability, and cash flow in the first quarter and are solidly on track to meet our full year targets.”

Q1 Business Unit Highlights

• Consumer-to-Consumer (C2C) revenues, which represented 79% of total Company revenue in the quarter, increased 7%, or 5% constant currency, while transactions grew 4%. Geographically, revenue growth was led by sends originated in Latin America, North America, and Europe.
  
  Westernunion.com C2C revenues increased 23%, or 20% constant currency, on transaction growth of 24% and represented 11% of total C2C revenue in the quarter.
• Western Union Business Solutions revenues increased 3% or decreased 2% 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, increased 4%, or 10% on a constant currency basis. Growth in the quarter was driven by the Pago Facil Argentina walk-in and the Speedpay U.S. electronic bill payments businesses. Other revenues represented 14% of total Company revenues in the quarter.

Additional Q1 Financial Highlights

• GAAP operating margin in the quarter was 19.1%, which compares to 18.4% in the prior year period, or 19.5% in the prior year on an adjusted basis. The adjusted margin decrease was primarily due to higher marketing spending and the negative impact of foreign exchange, partially offset by operating leverage from revenue growth.
• The effective tax rate in the quarter was 8.9% compared to 24.1% in the prior year period. On an adjusted basis, the tax rate was 11.4% compared to 24.8% in the prior year period. The prior year tax rate reflected a negative impact from changes in the internal ownership structure of certain of the Company’s international subsidiaries, while the current year rate benefited from certain discrete items.
• Cash flow from operating activities for the quarter totaled $133 million, which included the impact of a $60 million payment for the previously announced NYDFS settlement and approximately $20 million of outflows for prior year WU Way expenses. The Company returned $88 million in dividends to shareholders in the first quarter.

Adjustment Items

Adjusted metrics for the 2018 first quarter exclude the impact of a $6 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 first quarter exclude $14 million of WU Way related expenses and the associated tax benefits.

2018 Outlook

The Company affirmed its revenue, operating margin, and cash flow outlooks for 2018, which were previously reported on February 13. The GAAP earnings per share outlook was increased to reflect a more favorable expected tax rate and the impact of the adjustment related to the 2017 Tax Act. An adjusted EPS outlook that excludes the Tax Act benefit has also now been provided.

Revenue

• Low to mid-single digit increase in GAAP and constant currency revenue

Operating Profit Margin

• Operating margin of approximately 20%

Tax Rate

• GAAP effective tax rate of approximately 14% and adjusted tax rate of approximately 15% (previously 15% to 16%)

Earnings per Share

• GAAP EPS in a range of $1.81 to $1.91 and adjusted EPS in a range of $1.80 to $1.90 (previously $1.78 to $1.90)

Cash Flow

• Cash 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 Statistics

Additional key statistics for the quarter and historical trends can be found in the supplemental tables included with this press release.

Beginning April 1, 2017, the Company implemented a new segment structure due to leadership and organizational structure changes. The new structure shifted all businesses previously in the historical Consumer-to-Business segment into Other.

Expenses related to 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.

Non-GAAP Measures

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 WU Way business transformation expenses; consolidated operating margin, excluding WU Way business transformation expenses; effective tax rate excluding WU Way business transformation expenses and Tax Act; earnings per share, excluding 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 4160099.

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 March 31, 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 more than 40 countries 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.

WU-G

THE WESTERN UNION COMPANY
NOTES TO KEY STATISTICS
(in millions, unless indicated otherwise)
(Unaudited)

Western Union’s management believes the non-GAAP financial measures presented provide meaningful supplemental information regarding our operating results to assist management, investors, analysts, and others in understanding our financial results and to better analyze trends in our underlying business, because they provide consistency and comparability to prior periods.

A non-GAAP financial measure should not be considered in isolation or as a substitute for the most comparable GAAP financial measure. A non-GAAP financial measure reflects an additional way of viewing aspects of our operations that, when viewed with our GAAP results and the reconciliation to the corresponding GAAP financial measure, provide a more complete understanding of our business. Users of the financial statements are encouraged to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures is included below. All adjusted year-over-year changes were calculated using prior year amounts, which have been adjusted for changes in our reporting segments, as described earlier. Although the expenses related to the WU Way are specific to that initiative, the types of expenses related to the WU Way initiative are similar to expenses that the Company has previously incurred and can reasonably be expected to incur in the future.