The Western Union Company (NYSE:WU) Q3 2024 Results Conference Call October 23, 2024 4:30 PM ET

Company Participants

Tom Hadley - Vice President of Investor Relations
Devin McGranahan - Chief Executive Officer
Matt Cagwin - Chief Financial Officer

Conference Call Participants

Jason Kupferberg - Bank of America
Tien-Tsin Huang - JPMorgan
Darrin Peller - Wolfe Research
Andrew Schmidt - Citi
Ken Suchoski - Autonomous
Rufus Hone - BMO
Tim Chiodo - UBS
Ramsey El-Assal - Barclays
Bryan Keane - Deutsche Bank

Operator

Good day, and welcome to the Western Union Third Quarter 2024 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 that 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

Thank you. On today's call, we will discuss the Company's third quarter 2024 results, 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 2023 Form 10-K for additional information concerning factors that could cause actual results to differ materially from forward-looking statements.

During the call, we will discuss some items that do not conform to generally accepted accounting principles. 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

Good afternoon, and welcome to Western Union's third quarter 2024 financial results conference call. We continue to focus every day on becoming the market leader in providing accessible financial services to the aspiring populations of the world. We are a purpose-driven organization with over 100 million customers who depend on us every day to safely, securely and rapidly deliver on our promise to send their money to loved ones all across the world.

Over the past two years, our team has been hard at work executing our Evolve 2025 strategy, which will improve our value proposition expand our product offering and most importantly, ensure high-quality execution in everything we do. I greatly appreciate the very hard work of all of our team members and thank our customers for trusting us with their hard-earned money.

Today, we reported another quarter of improving adjusted revenue growth as we continue to implement our Evolve 2025 strategy focused on returning Western Union to a profitable and sustainable revenue growth trajectory. Over the last two years, we've been driving meaningful improvements, and this quarter's results continue to demonstrate that our efforts are indeed working.

Consumer Money Transfer transactions grew 4% in the quarter, excluding Iraq, a continuation of the mid-single-digit trends we have now seen for the last five quarters. which highlights the durability of the improvements we have made and positions the business well as we head into 2025 despite emerging softness in the Americas, which we will comment on later.

The business continued to improve on an adjusted revenue growth rate basis, with adjusted revenue up 1% in the quarter, excluding Iraq. Our branded digital business continued to accelerate with transaction growth of 15%, a continuing improvement from the second quarter. In addition, our branded digital revenue growth improved 200 basis points compared to the prior quarter and at 9% growth is now approaching our double-digit growth aspirations.

And lastly, Consumer Services had another strong quarter with 15% adjusted revenue growth, driven by an expansion in our FX business as well as our Media Network business. These results give us confidence that we are well on our way to returning the core business to sustainable, profitable revenue growth as we continue to report solid transaction trends and improving revenue growth rates.

For the third quarter, our revenue reached $1.040 billion. Excluding Iraq, our adjusted revenue growth was positive 1%, the second consecutive quarter of positive revenue growth. Adjusted earnings per share came in strong at $0.46 or up $0.03 relative to this quarter a year ago, which benefited meaningfully from higher revenues and operating profits from Iraq, which were not repeated in the current quarter. Matt will discuss our financial results in more detail and provide an update on our 2024 outlook later in this call.

Now switching briefly to the macro. The third quarter saw some challenges in our Latin America region for the first time in my tenure. As a reminder, we define our regions, including Latin America from a send perspective. So, these are transactions initiated in Latin America and usually paid out in either the U.S. or in other Latin American countries. In the last several months, there have been a number of political events that have disrupted the typical migration flows in the region with recent elections in Panama, the Dominican Republic, Venezuela and Mexico.

In some instances, residents may have delayed their migration to vote or stayed to see the outcome of an election in their home country. And in other instances, newly elected officials have attempted to stem migration. For example, in Panama, the new President has attempted to close the migration route from Colombia into Panama through the Darien Gap significantly reducing the number of migrants entering Panama.

We believe these macro events have created a short-term impact on our Latin American business, which is roughly 10% of Consumer Money Transfer revenue. However, as you can see from our broader results, we benefit from our globally diversified business and the portfolio effect it affords us.

While Latin America slowed in the quarter, regions like Europe, the Middle East, ex-Iraq and APAC, which together account for 50% of CMT revenue all improved, with revenue growth rates in all three regions improving by 500 to 1,000 basis points relative to the second quarter. Operating in 200 countries and territories means there are frequently both positives and negatives within our portfolio. We believe the benefit of being a truly global at-scale player will enable us to manage these kinds of disruptions better than many of our smaller competitors.

Now shifting to our digital business. As we discussed at our 2022 Investor Day, returning our digital business to double-digit revenue growth is a key priority for our organization and is essential to driving top line revenue growth for the overall company.

Over the past year, we have been focused on improving the onboarding experience, driving marketing effectiveness, improving our market value proposition and our overall user experience. We have also been rolling out our new digital experience, which is now in over a dozen countries around the world. I'm happy to report that these efforts are translating into more customers, more transactions and now more revenue.

This quarter, we reported the highest transaction growth rate since the second quarter of 2021. This includes solid growth in North America and meaningful acceleration in transaction growth rates across Europe, the Middle East and APAC.

Now on to retail. Over the last year, we introduced several point-of-sale improvements, including remember me, Quick Resend, one step refund to improve -- and One Step Refund to improve customer and agent experiences. We continue to seek improvements in speed, reliability, agent support and customer experience. I am pleased to announce we have now begun rolling out the next installment on our point-of-sale system improvement journey.

We have learned with our last round of improvements that the key to a more rapid deployment is to reduce the dependency on local agent hardware variations. As such, this new iteration of our point-of-sale system has taken a lot of the processes, which were historically run-on agent hardware and move them into the cloud. This enables us to significantly accelerate both rollouts and core processing times.

In the third quarter of this year on this new platform, we completed a speed test in Spain and we were able to complete a recent transaction in just over one minute, which is a dramatic improvement from where we were just a year ago. We have started to commercialize the rollout of this new platform in the third quarter of this year and now already have nearly 12,000 agents in the U.S. working on it.

We plan to continue to roll out to additional markets in the coming weeks, and our goal is to reach 25,000 agent locations by the end of the year. This would be a meaningful step function improvement over the pace of our first few waves of retail point-of-sale product rollouts. In addition to these platform improvements, we have continued rolling out debit acceptance across select agents and markets in Europe.

We began the rollout in mid-2023 and are pleased with the progress we are making. When we look at agent level data across the region, those agents where debit has been enabled are performing meaningfully better than our cash-only agents. Debit enabled agents are seeing transaction growth rates hundreds of basis points faster and in some cases, multiples higher than our cash-only agents in the same countries.

Retail card-funded transactions is part of the market that we have historically under-indexed due to lack of a product offering. But we now have a competitive product and have begun to gain market share in this important category. Even with the significant growth over the last year, debit funded transactions still account for less than 10% of the total transactions, and we believe we have a meaningful runway to continue to expand that over the coming years.

In addition to our ongoing rollout in Europe, we have also just launched an expanded debit card acceptance program in the United States in the third quarter of this year as well. While this launch was only in select V-Go locations, our expectation is to grow this segment meaningfully in the coming years and to build on the success we are now seeing in Europe. As an example, our focus on driving retail execution can be seen in the performance of our own store network in Singapore. Five years ago, the business was shrinking 5% and accelerating lower in subsequent years prior to the launch of our controlled distribution strategy.

Through September of this year, the business has grown 12% with contribution margins improving hundreds of basis points over the last few years. Additionally, I am pleased to report that our premier location in Singapore in the Lucky Plaza exceeded 10,000 transactions in September, making it one of the busiest company-owned stores in our network. This example highlights the commitment and dedication of our team to improve performance, but also the strength of our brand when we deliver a market-leading value proposition with high execution quality.

Finally, I would like to spend a minute discussing our Consumer Services segment. We have made it a goal to grow this segment of our business double digits annually. I am pleased to report we generated 15% adjusted revenue growth in the third quarter and acceleration of the growth rate we saw in the previous quarter. We continue to see solid growth in our retail money order business where we have recently implemented in-store cash refunds for the first time. And we believe we have one of the most consumer-friendly products in the marketplace.

In addition to RMO, we continue to see benefit from the products and services we have launched or meaningfully expanded over the last 18 months. The two biggest contributors to growth in the quarter were our ForEx business in Europe, which benefited from a robust travel season and our media network business in the United States.

Before I turn the call over to Matt, I would like to make a few comments on some opportunities I see to continue to expand our Evolve 2025 strategy. In recent weeks, we have signed two M&A transactions both of which remain subject to regulatory approval and other customary closing conditions. While these transactions are small in terms of capital commitments, we believe they are meaningful in accelerating our mission to become the world's leader in providing accessible financial solutions to the aspiring population of the world.

First, we signed an agreement to acquire the Singaporean digital wallet business, Dash from the Singtel Group. This acquisition is expected to bring us hundreds of thousands of incremental active customer millions of dollars of deposits and enable us to expand into additional products and services our customers in that market desire. Over the last year, we have looked at numerous digital solutions across the world and believe this one fits our strategy exceedingly well.

Dash is a truly omnichannel solution for delivering cross-border remittances. The core of their offer is a robust cash in network with access to several hundred retail locations that are used to fund a digital wallet and to send cross-border remittances. They also enable a debit card within the digital wallet, which allows their cash-centric customers easier access to spending at the retail point of sale.

We believe there is substantial opportunity to combine this offer with our existing business in Singapore, taking advantage of our excellent owned location network previously discussed. We look forward to the opportunity to welcome the Dash team to Western Union and are excited about the opportunities ahead in Singapore and more generally across the APAC region.

In addition, we signed an agreement to acquire a recently launched digital wallet in Mexico, while their existing business is fairly nascent. We look forward to the opportunity to leverage their platform and assets in combination with Western Union's capabilities to create an account-based relationship with our customers in one of the most important remittance markets in the world.

We believe this acquisition will help us accelerate our ecosystem strategy in Latin America and build on the momentum we are now seeing in Argentina, where we have onboarded 200,000 customers to our own digital wallet and are happy to report that in the month of September, 6% of all inbound remittances into Argentina landed in our own wallet.

Given the regulatory review and product development time lines associated with this acquisition, it will likely be a year or more before we have a Western Union branded wallet live in Mexico. That said, I'm excited about the prospect of a two-sided digital payment network spanning one of the largest corridors in the world.

Looking ahead, we remain optimistic about our market position, the progress we are making to deliver on our strategic initiatives. We are pleased with the performance of our business today driven by improving transaction trends across both our digital and retail businesses and the top line revenue growth that we are now beginning to see as a result. I remain confident that we are tracking well to achieve our Evolve 2025 goals and are setting the Company up well for a more prosperous future.

Thank you for joining the call today. I will now turn the call over to Matt to discuss our financial results in more detail.

Matt Cagwin

Thank you, Devin, and good afternoon, everyone. The results we delivered this quarter demonstrate the continued progress of our Evolve 2025 strategy to return Western Union to a market competitive position.

In the third quarter, GAAP revenue was $1.040 billion. On an adjusted basis, revenue grew 1%, excluding Iraq and represents the second consecutive quarter of positive revenue growth. This growth was led by the acceleration of the branded digital business and growth in Consumer Services. Additionally, Iraq came in at the lower end of our $10 million to $30 million per quarter range that we had previously communicated.

We're pleased with the trajectory of our business and are ahead of where we thought we'd be at this point when we first launched the Evolve 2025 strategy two years ago, which included our aspiration to reach flat to positive 2% revenue growth in 2025. Our adjusted operating margins were 19.1% compared to 19.6% last year, with the decrease primarily related to elevated Iraq revenue last year and strategic investments in our Consumer Services business related to new and expanded products in the current year.

Year-to-date, the adjusted operating margin was 19.2%. Adjusted EPS was $0.46 versus $0.43 last year benefiting from higher adjusted revenue, excluding Iraq, lower share count and lower adjusted effective tax rate partially offset by lower contributions from Iraq in the current period. The adjusted effective tax rate in the quarter was 8.4% compared to 16.6% last year. The lower tax rate was primarily driven by the discrete tax benefits, and we now expect the full year adjusted effective tax rate to be in the low teens range.

We are also pleased to share that we've entered into a settlement with the IRS this quarter, resolving one of two open disputes related to our 2017 and 2018 tax returns. This settlement resulted in a $140 million U.S. GAAP noncash tax benefit and a cash payment of $90 million, of which $70 million was already paid earlier this year and the remainder will be paid in the second quarter of 2025.

The noncash benefit was excluded from our adjusted EPS. Since the final open dispute relates to an income tax that we've already paid, any resolution in our favor would provide us a benefit to our operating cash flow and net income.

Now turning to our Consumer Money Transfer or CMT business. CMT transactions grew 4%, excluding Iraq, led by the strength of our branded digital business as well as our digital white label business. CMT adjusted revenue was down 8%, which included an 8% headwind from lower Iraq revenue. Our spreads improved 200 basis points sequentially as we substantially grew over our price changes implemented in the prior year.

Regionally, both Europe and APAC achieved positive quarterly adjusted revenue growth for the first time since 2021. Our branded digital business grew adjusted revenue 9% and transactions grew 15%. This marks the sixth consecutive quarter of double-digit transaction growth and was to achieve against a tougher comparison last year.

While the spreads remain flat sequentially, both adjusted revenue and transaction growth improved 200 basis points each. This sequential improvement in branded digital transactions was driven by 400 to 1,200 basis point improvement in Europe, MEASA and APAC as well as continued solid transaction performance in North America.

Our payout to account transactions grew 36% in the quarter. We are pleased with the progress we're making as we approach double-digit revenue growth aspirations which gives us confidence going into 2025. Australia continued its strong branded digital performance, reaching 25% revenue growth in the third quarter. As a reminder, Australia was one of the initial countries we deployed on our new digital solution in late 2022. This improvement underscores the success that we believe is possible when we have the right product the right value proposition and the right marketing message.

Now turning to our retail business. In the third quarter, Europe achieved 5% transaction growth in retail, a 200 basis point sequential improvement. This success was supported by our controlled distribution strategy, which includes 300 owned and concept stores as well as continued technological enhancements in the regions like debit card enablement and adding and optimizing account to wallet payout capabilities. We're encouraged by the results, and we anticipate this continued strength going into the fourth quarter as we anniversary the transition of a key retail agent from counter services to kiosk-only model.

Now moving to the Americas. As Devin discussed earlier, LACA encountered some challenges due to the geopolitical volatility, including impacts in intra-LACA migration, while North America retail slowed this quarter, largely driven by since the LACA primarily U.S. to Mexico corridors. The progress we're seeing in Europe reinforce our belief that we can stabilize or grow our retail business with the right network, the right technology and the right operations.

Now transitioning to our Consumer Services segment, which accounts for 10% of total quarterly revenue. Adjusted revenue was up 15%, benefiting from the expansion of our retail foreign exchange business, our new media network business as well as continued growth in our retail money order. We are on track to achieve our double-digit adjusted revenue growth this year with 13% growth year-to-date.

Looking ahead, we anticipate sustained double-digit adjusted revenue growth driven by both new and expanded products. In the third quarter, Consumer Services operating margins was 9% and driven by strategic and product investments. As we scale these products, we anticipate that margins will improve and will be at or above our total company average.

Now switching to cost management. We continue to make strides on our five-year $150 million expense redeployment program. In the third quarter, we incurred $18 million in redeployment costs as we optimize our cost base. Year-to-date, we have freed up $60 million. This adds to the $50 million we've freed up in 2023. And I continue to be confident that we have further opportunity to leverage our scale, drive continued efficiencies, and we expect to complete our five-year commitment two years early in 2025.

Now turning to our cash flow and balance sheet. Year-to-date, we have generated $272 million of operating cash flows, which was negatively impacted by higher income taxes including the $160 million payment for the Tax Act and $70 million related to the IRS settlement I discussed earlier.

We will make our final deferred tax payment of $220 million in the second quarter of 2025, which covers both the final payment of the Tax Act and the final payment under IRS settlement. Year-to-date, capital expenditures were approximately $92 million or roughly 3% of total revenue. We remain committed to strategically investing in key areas and aligning agent compensation with performance.

I am pleased to report that year-to-date, we have returned $460 million to our stockholders with $239 million paid in dividends and $177 million in share repurchases. We also continue to maintain a strong balance sheet with cash and cash equivalents of over $1 billion and debt of $2.6 billion. Our leverage ratios remained strong and we're at 2.7x and 1.6x on a gross and net basis, which we believe provides us ample flexibility for capital turn or potential M&A while maintaining our investment-grade credit rating.

Now moving on to our outlook. Today, based on our performance in the third quarter and our confidence in the quarter ahead, we reaffirm our 2024 adjusted outlook. This outlook assumes no material changes to macroeconomic conditions. As a reminder, we expect adjusted revenue to be in the range of $4.15 billion to $4.225 billion, and adjusted EPS is expected to be in the range of $1.70 to $1.80. To conclude, we are pleased with our results. Our progress to date along with these results give us confidence that we can deliver our Evolve 2025 strategy and outlook.

Thank you for joining the call. Operator, we're now ready to take questions.

Question-and-Answer Session

Operator

[Operator Instructions]. Our first question comes to us from Jason Kupferberg from Bank of America. Please ask your question.

Jason Kupferberg

So, I just wanted to start on LatAm. I know you mentioned the election outcomes there being a headwind. Does your guidance for Q4 assume that the headwind is going to persist and I guess, into even early '25 for that matter? And just how are you guys thinking about potential implications of the U.S. election for the core business? Just obviously, all the focus on immigration.

Matt Cagwin

Thank you very much for the question. We feel really good about the results we just talked about a minute ago. The impact we're seeing in Latin America is still very fluid right now, but we feel good with the guidance that I just shared a few seconds ago. And I also look forward to updating everybody in February on 2025, but Devin can give a little bit on the North America elections.

Devin McGranahan

Jason, we're paying, obviously, a lot of attention to the U.S. political environment given what we've seen transpire in South and Latin America. Obviously, different candidates have different perspectives on immigration. We continue to believe, though, and it's especially true in the U.S. in the near to intermediate term, the election results won't have a dramatic effect on our business. The majority of our clients are already here in the U.S. They're gainfully employed productive and sending money home. We don't expect that to change with the election. Over time, a significant reduction of the inward migration would obviously impact our business, but that's something that we haven't seen in either parties platforms over the last several years.

Jason Kupferberg

Okay. And then just as a follow-up, just the spread between branded digital transactions and revenue growth. I know it was steady at 600 bps, but it's widened out a little bit from where it was earlier this year. So, I guess what's kind of driven that incremental widening? Where do you see it going in the near term? I know you've got the longer-term target of 200 to 300 bps. And maybe just as part of that, if you can comment on the digital pricing environment more generally.

Matt Cagwin

Jason, I'll start with this and then Devin let on. I've also been pretty consistent throughout the year that I was hoping for the spread to stay wide because we'd see an acceleration. As you saw in our results this quarter, both revenue and transactions accelerated by a couple of hundred basis points. You also heard during my prepared remarks that I highlighted that we've seen our payout to account grow by mid-30% range.

This has now been several years we've had in the 20% to 30% growth in the payoff to account. These typically come at a lower revenue per transaction, but are much stickier customers and also gives us much more confidence that we can actually continue to grow our digital business because we've seen our digital business go from payout to account about 10% five years ago to now it's around 1/3. So, it gives us a lot more confidence there.

Devin McGranahan

And we continue to target, Jason, in the long term the 200 to 300 basis points for the Company as we have described. As Matt has talked about, we're happy to keep it wide-ish as we continue to accelerate both revenue and transactions. We'll keep you posted as this develops. But right now, we anticipate maintaining that long-term outlook, but we will continue if we have the opportunity to accelerate take advantage of that opportunity.

Operator

Our next question comes to us from Tien-Tsin Huang from JPMorgan. Please ask your question.

Tien-Tsin Huang

Good results here. And it's crazy that we are a year away from 2025 and when you set those targets for Evolve. I'm just curious with all this -- with the momentum in branded digital, Consumer Services not growing mid-double digit, you caused some challenges in LatAm. But what -- as we're a year away from this -- from 2025, what would you say, Devin, is trending a little better than you thought? Maybe you want to double down and where are there some other opportunities to perhaps invest harder or do a little bit more or pivot? And then a quick follow-up to that.

Devin McGranahan

Thanks, Tien-Tsin. We've said for probably the last couple of quarters that we feel like we're six months or so ahead of the original plan that we laid out in October of '22, which, to your point, is hard to believe was two years ago, a lot of water under the bridge in those two years. But it's working out pretty well in the underlying health metrics that we talked about from the beginning, acquiring new customers, driving transactions from those customers and then ultimately, revenue from the transactions as we close the gap on some of the pricing investments, we had to make to become market competitive. That's coming together quite nicely.

And what many people were concerned about was the durability of the actions that we took to initially accelerate the business. Now five quarters into mid-single digit in six quarters with double-digit digital transaction growth, I think we're getting increased confidence that what we've done is actually durable and sustainable and positions us very well for 2025.

To your question, we have seen better momentum in the retail business, particularly outside the United States than was in our original plan and the acceleration of Consumer Services is also helping. I would like to continue to see digital accelerate as it did in this quarter, and we obviously will continue working on the retail business in North America. Both of those remain further opportunities as we lay out what happens beyond 2025.

Tien-Tsin Huang

Got you. So, thinking about beyond '25, Devin, could we -- or should we expect that you'll give another midterm outlook starting with 25 as the new base. And I'm curious, do you have longer-term targets? I know Matt, you mentioned you expect Consumer Services margins to be at or above corporate averages, which is great. But do you have any sort of other updates with respect to some of the Consumer Services and some of the newer initiatives that you have set in place? That's all I have.

Devin McGranahan

Tien-Tsin, we are hard at work for guidance for '25, which will be in line with our expectations that we've set with the midterm guidance. But we are working, and we look forward to bringing our investors in this group together sometime in the second half of next year to lay out what happens beyond 2025. As you know, a lot of what we've been doing for the last two years has been in foundation building, has been reestablishing our market competitiveness. It's been investing in our technology putting our core transaction platforms in the cloud, rebuilding our point of sale and our digital experiences.

And most importantly, as you heard about today, investing in the next generation of products and services, either organically and now in some cases, inorganically. That is coming together nicely in terms of an end-to-end ecosystem. It's a multiproduct offering and as a two-sided payment ecosystem wrapped around it. So, we are very excited about where we are and the progress we've made and look forward to getting together with everyone in the second half of next year on the outlook beyond '25.

Operator

Our next question comes to us from Darrin Peller from Wolfe Research. Please ask your question.

Darrin Peller

I was going to ask -- I'm going to start off with the acquisition strategy. It's good to see these deals being done. And I guess I'd be curious to hear your updated thoughts on M&A now. It's been a little while since we've really seen M&A at Western Union. So going down this path around these wallets in Singapore and Mexico, Devin, maybe give us a sense of what your vision is on those and maybe even more on top of that to come over the next couple of years and what that could mean for the business over time?

Devin McGranahan

Darrin, thanks for the question. We have spent a lot of the two years since our Investor Day, really working on building our operating model, our management team and frankly, trying to build credibility in the core of our business, which I think after five quarters of mid-single-digit transaction growth, we're hopefully establishing. Matt and I come from a place as you well know, where it was built up with a couple of hundred acquisitions over time. And in the world of payments and in the world of digital financial services, there are many opportunities to accelerate our strategy with thoughtful and prudent deployments of capital that will accelerate beyond the pace that we can simply do organically.

In both cases, we get access to licenses, we get access to technology and access to local talent with subject matter expertise in those markets. We're trying to do it in a manner that's consistent with our strengths and capabilities. And so, I laid out earlier in my prepared comments, the progress that we've made in Singapore with our own store network, which was an acquisition the Company did a long time ago of a master agent had frankly been languishing before we launched our controlled distribution strategy.

As you saw, we took that from a shrinking business for over multiple years to now growing revenue in transaction double digits. That's a great foundation to put this digital wallet ecosystem that we've purchased from Singtel into. And so, we're building on a foundation of strength that we feel good about. We're obviously looking at other opportunities around the world. And where those two things come together, we've built a foundation of strength, confidence in the local management team, and we can accelerate the end vision of building our global digital financial ecosystem, we take those opportunities. Matt can talk about how we think about it, but that's from a strategy standpoint is what we're trying to do.

Matt Cagwin

Darrin, just building a little bit on what Devin has said. So, these two are proof points of probably half of what we've looked in the last couple of years. It has been a multitude of why some of the other ones didn't make sense. But as Devin just talked about Singapore spot on. We've got a great network there, entirely retail to digital escalator, which we've been talking about since our Investor Day two years ago. and continue to expand that. So, you're going to see, hopefully, over the next couple of quarters if the market looks right and the right acquisitions come available, things that fall both into core being in the Consumer Services space, but like these two acquisitions will come with some CMT benefits as well.

Devin McGranahan

The other thing I would add, Darren, is we also remain exceptionally disciplined and Matt make sure that the return equation to the investors is not just we're advancing our strategy, but always compared to our alternatives of returning that capital to the investors. So, it is strategically motivated and financially disciplined.

Darrin Peller

I think so in the best and this is something investors are going to welcome for Western Union after some time. I guess the quick follow-up would just be this conviction around retail stability. I mean you've obviously shown progress and you've shown examples of select markets. Maybe just remind us the building blocks of how you're improving that to stable and your conviction that continues, while at the same time, maintaining this mid-teens or better digital transaction growth rate?

Devin McGranahan

Yes. So, there's three elements, and we've talked about these over the course of the last couple of years that we're really focused on, right? And they -- both on the digital and the retail side, really was about returning the Company to market competitiveness. And we're now seeing those investments paying off in many markets around the world.

Second, which I talked a little bit here, which is about improving our operational excellence the support of our agent network and the customer experience at the point of sale. While these things can be somewhat boring and transactional, being able to have a high-quality experience each and every time a customer walks into a Western Union agent is exceptionally important and frankly, something that we have probably wandered away from.

The third, which is growing our controlled distribution, which is Western Union branded exclusive independent agents and own stores allows us to then have high-volume locations like the one I talked about in the Lucky Plaza where we really get the benefit of the fixed cost the high volume in revenue and a great customer experience.

So, deploying that three-part strategy around the world, where we are executing it well, it's actually getting us not just a flat, as Matt highlighted in Europe, which is one of the most competitive in mature retail markets in the world, we're now mid-single-digit transaction growth.

So, we believe that it's possible in more and more places around the world, and we our growing confidence, if not, weren't already confident in our aspirations to achieve a stable retail business and thus, the foundation from which to build everything else.

Operator

Our next question comes to us from Andrew Schmidt from Citi. Please ask your question.

Andrew Schmidt

I wanted to drill down on the comments in North America, specifically U.S. to Mexico. Can you just unpack the performance there, maybe across macro versus migration versus competitive positioning? What's going on there? And then also just the persistence of the trends you're seeing.

Matt Cagwin

Andrew, thanks for joining the call today. So, we've seen a bit of a slowdown over the last six weeks or so for U.S. to Latin America with the heaviest concentration being in Mexico. The tie-in is very similar to what we're seeing with intra-LACA on its own. It feels much more macro in nature, but we're still evaluating and working with our partners. We've met with a couple of our large partners in Mexico that are seeing a similar result for other competitors in the market space.

Devin McGranahan

I just came back from -- I did a little bit of a trip two weeks ago to Mexico, Panama and Peru to get a sense on the ground. I'm pleased that we have lots of customers in our retail locations. We're still onboarding new customers in our digital apps. But the palatable dislocation of what has happened and frankly, the slowdown in the migration from important corridors like in Colombia to Chile or Chile back to Colombia, from Venezuela into Colombia and then into Panama and Mexico, the continued unrest that we have in Haiti.

These things are impacting the migratory patterns and our business in LACA especially dependent on them. So, it is one of the regions where we have the highest onetime customers, and it's one of the regions where we'll see the same customer, sometimes in three or four countries as they make a migratory journey, either north or south in search of economic opportunity. So, with that slowdown in the migration patterns, we're seeing a slowdown in the transaction growth rates that we've enjoyed for the last couple of years.

Andrew Schmidt

Got it. Maybe another on the competitive environment. Obviously, a large competitor had a well-known outage in the quarter, in particular, at least one large agent seems to have shifted their strategy as well as a result. But have you seen any benefit from that in the quarter? Or is there any tail to that? I'm just curious to get your perspective of the competitive environment as it relates to kind of the larger MTOs.

Devin McGranahan

Yes. Thank you. So, our well wishes go out to our competitor at MoneyGram and to their customers there are bad people and bad actors in the world that for the grace of God, we all work exceptionally hard to protect against, and it's unfortunate to have that situation. It was a week and it's a global market.

We obviously saw some upticks in places where we're side-by-side with them like in the U.K. But there are actually very few places anymore where it's exclusively a MoneyGram and Western Union world. I mean that's a world that maybe existed 15 or 20 years ago, but it's a lot more competitive now.

We're obviously keeping close tabs on the market, and we saw a few upticks in places like U.S. to Jamaica, Australia to the Pacific Islands, but it certainly doesn't change the fundamentals of our business. and just reminds us that we need to be vigilant every day and continue to focus on driving high-quality exclusive and security and safety for our customers.

Operator

Our next question comes to us from Ken Suchoski from Autonomous. Please ask your question.

Ken Suchoski

Maybe just a follow-up to Darren's question on the retail business. I wanted to ask about fiscal retail ex-Iraq just to make sure we're thinking about the math correctly. We estimated that fiscal retail revenue ex-Iraq was down about 4% year-over-year on an FX-neutral basis. So similar to last quarter, with transactions down 2%, I think FX neutral rev per transaction also down 2%. So, I just wanted to run that math by you, to make sure we're thinking about it correctly.

And then I know there's a lot of moving pieces with the lapping of an agent loss, lapping promotional pricing, there's a better pricing environment more broadly. So, I guess how are you thinking about those three components of that physical retail business over the coming quarters?

Matt Cagwin

Ken, thanks for joining the call, and I continue to be impressed by your model. I actually have all the data and somehow you get a few pieces and are able to get every one of the numbers exactly right each time. So yes, you're spot on.

Ken Suchoski

Okay. All right. That's great. And then I guess, in terms of that trend being that should we expect transactions to accelerate and the spread to get better in that business now?

Matt Cagwin

We do expect to get a little bit better in Q4 as we lap the European agent that went from being full to only being kiosk. So, we do expect modest improvement as time passes. And we think the initiatives Devin and I both talked about around debit and speeding up our point-of-sale solution will improve over time.

Ken Suchoski

Okay, great. And just for my follow-up, just the Consumer Services business and really nice growth in that business. Can you give us a sense for where you're investing in that segment? And then, I think you said you expect margins to get back to the overall company average. Maybe just a sense for the timing around that. Is that sort of next year 2026? Or are we looking out beyond that?

Devin McGranahan

Thanks, Ken. As you know, there's three big buckets of businesses in there. There's what I will consider to be our transactional payment products, which includes our bill pay business, our prepaid business, our retail money order business. We've been investing in product innovations and new products. So, we expect that part of the business to continue to accelerate.

The second part of the business is our non-U.S. bill pay assets, which includes our large business in Argentina, Pago Facil. And as you know, that business is the effect of what's going on in Argentina, long term, which will be quite good if they tame inflation and people get to a more stable economy than has been the case. But in the short term, is feeling pressure from the economic pressures that people feel from a decelerating inflationary environment in that country.

The third is really some of our newer businesses, and that's our digital wallets, that's our media network. These are the things that we think have long tails to them, but today are fairly nascent, and we continue to invest in those, both in the product and in the delivery for future returns.

Matt Cagwin

And Ken, let me just build on Devin's point on your question about the margins and the timing of that. These things have rollout phases where we're making investments over time. So, our goal is any product we invest in is going to have an at or better operating income margin than our company average. So that's our strategy when we go into one.

There's build costs upfront that have a hit that will hit you for a couple of quarters while you're building it, then you have a rollout for marketing, and then you have a rollout to other country impact. So how fast it gets here. We've been very conscious of using the word as a scale, and each one will scale at a different pace over the coming quarters and year or years. Thanks for the question.

Operator

Our next question comes to us from Rufus Hone from BMO. Please ask your question.

Rufus Hone

I wanted to ask you about the digital business. I'd love to hear your thoughts around industry competition and pricing. You're obviously seeing some good momentum in your digital business. But do you see this as an opportunity for you to put some incremental pressure on smaller competitors in digital and maybe dial up your marketing spend?

Devin McGranahan

Rufus, we began this program two years ago, we were heavily focused on transforming the business into being a business focused on LTV to CAC. Historically, the business had looked more at transactional economics and in-period marketing investments as expenses versus kind of lifetime economic value of acquired customers and the future value creation of the acquisition of those customers.

We've built that model and are executing it pretty well around the world. And when we see opportunities from either an expanded LTV, either due to retention or due to the quality of the customer in terms of the principal or sense we invest behind that. And when we don't, we pull back. And so, maintaining the discipline around that CAC to LTV model, whenever we see an opportunity, we take advantage of it and have driven the business.

And you can see in this quarter, which has been true for the last couple of quarters. We continue to invest behind the customer that's payout to account and creating the value proposition that makes sense to acquire and retain those customers. We had talked about it in the previous call, and we continue to see it in a higher interest rate environment, smaller, less well-capitalized players, whether it be digital or retail, are having a harder time and therefore, creating market opportunities for us and to a certain extent, also creating stability in the market environment.

Competitors who might have been behaving irrationally due to funding that has been more expensive now than it was before, is creating a rationality amongst the market participants that is conducive to players like us who operate at scale and with discipline. Matt, I don't know if you want to add anything to that.

Matt Cagwin

No, spot on.

Operator

Our next question comes to us from Tim Chiodo from UBS. Please ask your question.

Tim Chiodo

You touched on us a little bit in the slides and also in the prepared remarks, but the debit card acceptance and the plans to roll that out further. If you could just talk a little bit about, one, maybe what would have been any of the limiting factor for that being broader availability in the past and what it takes to roll that out in the future? And then also the margin profile of those transactions, clearly, there's an additional acceptance cost associated with that. And if there's any makeup on the gross take rate to kind of make things neutral from a gross profit perspective?

Devin McGranahan

Tim, I'll take the first part of that, and I'll let Matt talk to you about the unit economics. Historically, we had a perspective that our retail business was largely cash in and cash out. as part of our reinvention of retail, we believe that there is a value proposition of in-person service and that the value proposition sometimes also includes cultural and language familiarity as well as in-person service.

As the world has evolved, many of our customers actually have bank accounts, and they have the ability to pay at the retail point of sale with a card-based product, sometimes even in some countries, we're now expanding to bank-based products or bank account-funded transactions at the retail point of sale.

We believe that helps make the retail experience more contemporary, more modern. It also turns out those customers have higher principal per transaction. As you can imagine, they're not walking around with wads of cash. and, in some cases, are heavier transactors than the all-cash customers. So we see, and Matt can talk about it, the benefit of sometimes even offsetting the cost of acceptance.

Historically, we didn't have merchant acquiring relationships in many of these markets. And we didn't have a point-of-sale system and a settlement system that was equipped with dealing with card-funded transactions versus cash.

So, we had to invest in our infrastructure, and we had to build the ability to do merchant acquiring and have local merchant acquiring relationships and be able to install merchant point-of-sale devices at our agent locations connected to our point of sale to ensure high-quality fund movement and settlement operations. We did that first in Europe and now we're rolling it out to the U.S., and we're seeing positive results.

Matt Cagwin

Tim, just to build on Devin's point around the unit economics. You probably picked up on the opening prepared remarks that we started this in Europe. And as I'm sure, you know, the cost of interchange is meaningfully less in our European markets. We did that on purpose. We wanted to test it and get the insights of what the uplift Devin just talked about with the higher principal per transaction, what it do to transaction levels, and you can see it in the results today, we talked about with the acceleration in our retail business, we wanted to get some insights where the cost of this test was a little bit lower.

In that market, we do pay a fair bit of money for Armor car pickup and other cash lodgement. So, in Europe, we're actually seeing our costs come down. U.S., it's still early days, but the optimism I hope we got from our European business is it should be accretive. And at this point, we've not had any differentiation in our pricing but we're monitoring it and we're looking at what kind of uplift we get in the U.S. on principal per transaction as well as transactions per location and we'll make those calls as time passes.

Devin McGranahan

The other thing, Tim, particularly in some European markets and certainly in the U.S., many of our competitors in the independent channel where we sit side by side with other MTOs have offered debit acceptance. And so, customers coming in with a debit card and not cash, we're automatically directed away from our V-Go brand or a Western Union independent, locations to one of the competitors who could fulfill that need. So, we are hoping there are market share gains for debit preferring customers and multi-brand independent locations where we've historically been at a product disadvantage.

Operator

Our next question comes to us from Ramsey El-Assal from Barclays. Please ask your question.

Ramsey El-Assal

Could you give us a little color on your expectations for Iraq in Q4? Where do you expect the contribution to land in that sort of $10 million to $30 million range? And also, the impossible question of what do you see? Do you see revenue trends kind of stabilizing in that market? Or should we continue to expect some volatility going forward?

Matt Cagwin

Ramsey, nice to catch up with you.

Devin McGranahan

Ramsey, it's great. We thought we might get through an earnings call for the first time in five quarters without a question on Iraq. Matt has lost a bet.

Matt Cagwin

Thank you for making me to pay him a nice bottle of wine. So, we intentionally gave the range of $10 million to $30 million because it was volatile. Q2 was at the upper end of that range. Q3 was at the lower end of that range, uncertain. It's one of the reasons why you may have noticed that we didn't really narrow our public guidance from earlier in the year because this can be a moving target.

If I were to answer the crystal ball today, I think we're at the lower end of the range on Iraq, and we feel very good about our public guidance. Could things change over the next 65 days and have it go to the upper end with Iraq. I mean unfortunately, my answer to that one is the same has been for four, five quarters. But right now, we're trending closer to the lower end.

Ramsey El-Assal

Got it. Fair enough. Another question on Slide 10 in the owned stores and our performance in Singapore, it seems like whenever you bring up the owned store strategy, always feels kind of like a home run. It seems like it really has a beneficial impact on that part of your business. What are the gating factors to rolling that strategy out sort of much more broadly? Or is that the longer-term road map.

Devin McGranahan

So, what I will tell you is the recipe for success is discipline, discipline and discipline. Every own store comes with fixed operating expenses that include lease expenses and employees as well as the normal power light water sort of stuff. So, you have to both be selective in the locations in which you put them to ensure you can generate enough revenue to cover the fixed expenses and then enough execution critical mass in any market to be able to manage the hiring and staffing across a network of stores because it's too expensive to do it one-off.

So, you really have to go into it with a network mindset to get critical mass, and then you have to be quite disciplined in the locations that you choose in order to get the return. We are modeling on the many years that the Company had in Argentina and Brazil. We've expanded the network in Peru, in Panama and now in Mexico. We've been building out in certain countries in Europe, where we see the conditions to be ripe for that, including Spain, Italy, Switzerland and some parts of the Netherlands.

As you see what we've done in Asia, we're looking to expand that further to a couple more countries outside of Singapore. But it is a measured process that can come on market in one country at a time with extreme discipline. We think long term, it's really important to the strategy, and we'll provide a foundation that makes the retail business viable and as an important component in our retail to digital escalator, but it is something that's going to require patients to build out.

Matt Cagwin

Ramsey, the only thing I'd add to what Devin just said is, as you know, we have approximately 400,000 active agent locations. We never anticipate this to be a very large percentage. But to Devin's point, we've had two or three different markets around the world when we get closer to the work and they were very small impacts, whether it be Singapore and a trip we did there two years ago and channels a team to get to much better margins.

They've been able to increase it meaningfully over the last couple of years, they've been working tenaciously or here in the U.S., where we have a handful, we're now starting to expand it by another handful is they're working it and making sure that they have the right approach. So, it will always be a small number, but it is an area that's important to actually control the distribution.

Operator

Our final question will come to us from Bryan Keane from Deutsche Bank. Please ask your question.

Bryan Keane

I just wanted to ask, Matt, about the adjusted operating margins. I know, I think you came in -- coming in at 19.2% year-to-date and you get the range out there, which is pretty wide 19% to 21%. So just curious why not narrow the range? Is there any reason why you would come in towards the mid- to high end of the range?

Matt Cagwin

Bryan, as high is probably unlikely to be at the upper end the range. We've not changed that range since we started out. Our main focus is to deliver our revenue and EPS and continue to grow sustainably over time. We've just not really adjusted. It's been 200 basis point wise when we started.

Operator

There are no additional questions at this time. Thank you for joining today's Western Union third quarter earnings results conference call. We hope you have a great day.