Raj Agrawal
Chief Financial Officer at Western Union
Thank you, Hikmet, and good afternoon, everyone. Let me first summarize second quarter performance. And then, I will provide more color on the Business Solutions divestiture, the planned termination of our defined benefit plan, and finally, our 2021 full year outlook. Moving to the second quarter results, revenue of $1.3 billion increased 16%, on a reported basis or 13% constant currency. Currency translation, net of the impact from hedges benefited second quarter revenues by approximately $29 million compared to the prior year. In the C2C segment, revenue increased 15%, on a reported basis or 12% constant currency, with transaction growth partially offset by mix. B2C transactions grew 15% for the quarter led by 33% transaction growth in digital money transfer, and supported by growth in retail money transfer, which improved sequentially, particularly in North America and Europe and CIS. In line with our expectations, spread between C2C transactions and revenue growth moderated this quarter and was flat on a reported basis or three percentage points constant currency, as we cycled through the mix impact from the high growth of digital partnership transactions, which represents a lower revenue per transaction category. We expect the spread will remain fairly tight during the remainder of the year. Globally, we continue to see pricing environment as stable. Total C2C cross-border principal increased 29% on a reported basis or 25% constant currency driven by growth in retail and digital money transfer. Total C2C Principal per Transaction or PPT was up 11% or 8% constant currency. Both, retail and wu.com continued to experience higher average PPT, due to mix and changes in consumer behavior. Digital money transfer revenues which include wu.com and digital partnerships increased 22% on a reported basis or 19% constant currency. Wu.com revenue grew 18% or 15% constant currency on transaction growth of 18%.
Wu.com cross-border revenue was up 23% in the quarter. Digital partnerships continued to show, strong growth across revenue, transactions and principal in the quarter. Trends in our digital business moderated somewhat as expected, from the exceptional growth we experienced from the second quarter onwards last year, as demand for our digital services grew significantly, adding incremental revenue, profit and transactions to our business. While we expect this moderating trend will continue the remainder of the year, we are now growing off a much larger base. Moving to the regional results, North America revenue increased 4% on both a reported and constant currency basis, on transaction growth of 3%. The increase in constant currency revenue and transaction growth was driven by US outbound, partially offset by current US regulations in Cuba that limit our ability to operate and declines in US domestic money transfer. US domestic money transfer represented approximately 4% of total C2C revenue in the quarter. Revenue in the Europe and CIS region increased 18% on a reported basis or 10% constant currency on transaction growth of 26%. Constant currency revenue growth was led by the United Kingdom, France and Russia with the spread between transaction and constant currency revenue growth driven by the digital partnership business in Russia. Revenue in the Middle East, Africa and South Asia region increased 19% on a reported basis or 18% constant currency, while transactions grew 22%. The digital partnership business in Saudi Arabia led constant currency revenue growth in the quarter, followed by Kuwait and Qatar. The impact of the digital partnership business on the spread between transaction and constant currency revenue growth diminished in the quarter but was still the primary contributor. Revenue growth in the Latin America and Caribbean region was up 70% or 68% constant currency on transaction growth of 42%.
Constant currency revenue growth was broad-based across the region, led by Chile, Ecuador and Mexico. Much higher average principal amount resulted in constant currency revenue growth greatly exceeding transaction growth in the quarter. Revenue in the APAC region increased 20% on a reported basis or 13% constant currency led by the Philippines and Australia. Transactions increased 3% with the Philippines driving the difference between constant currency revenue and transaction growth. Business Solutions revenue increased 25% on a reported basis or 16% constant currency, benefiting from favorable comparisons to prior year. Revenue trends remained on a positive course with the continuing recovery in cross-border trade. The segment represented 8% of company revenues in the quarter. Other revenues represented 5% of total company revenues and increased 8% in the quarter. Other revenues primarily consist of retail bill payments in the US and Argentina and retail money orders. Turning to margins and profitability. The consolidated GAAP operating margin in the quarter was 19.8% compared to 19. 9% in the prior year period. While the consolidated adjusted operating margin was 20.2% in the quarter compared to 20.4% in the prior year period. Adjusted operating margin excludes M&A expenses in both the current and prior year periods and last year's restructuring expenses. The decrease in consolidated operating margin continues to reflect how COVID-19 impacted the level and timing of certain expenses and investments as the company curtailed spending last year. Compensation-related expenses and strategic investments in marketing and technology were the primary contributors to the slight margin decrease in the quarter. Foreign exchange hedges had a negative impact of $2 million on operating profit in the current quarter and a benefit of $7 million in the prior year period.
Moving to segment margins. Note that M&A expenses are included in other operating margins for both the current and prior year period, and segment margins exclude last year's restructuring charges. B2C operating margin was 20.7% compared to 21.8% in the prior year period. Given that our C2C segment comprises most of total company operating income, the decrease in operating margin was driven by the same factors that impacted total company margin. Business Solutions operating margin was 10.9% in the quarter compared to 1.6% in the prior year period. The increase in operating margin was largely due to increased revenue, partially offset by increased compensation-related expenses. Other operating margin was 16.2%, compared to 21.9% in the prior year period, with the decrease driven by higher M&A expenses, related to the divestiture of Western Union Business Solutions announced today. The GAAP effective tax rate in the quarter was 14.5%, compared to 16.2% in the prior year period, while the adjusted effective tax rate in the quarter was 14.2%, compared to 15.7% in the prior year period. The decrease in the company's GAAP and adjusted effective tax rates was due to changes in pretax earnings, including differences in the composition between high tax and low tax jurisdictions. GAAP Earnings per Share or EPS was $0.54 in the quarter compared to $0.39 and in the prior year period, while adjusted EPS was $0.48 in the quarter compared to $0.41 in the prior year period. The increase in GAAP EPS reflects benefits of revenue growth, the gain on an investment sale and a lower effective tax rate, partially offset by debt retirement expenses, compensation-related expenses and strategic investments in marketing and technology. Both the gain on an investment sale and the debt retirement expenses are excluded from adjusted EPS, in addition to the expenses we noted earlier during the operating margin discussion. The net impact of these two items was a $0.07 benefit to GAAP EPS in the quarter.
Turning to our cash flow and balance sheet, year-to-date cash flow from operating activities was $349 million. Capital expenditures in the quarter were approximately $48 million. At the end of the quarter, we had cash of $1.1 billion and debt of $3 billion. We returned $171 million to shareholders in the second quarter, consisting of $96 million in dividends and $75 million in share repurchases. The outstanding share count at quarter end was 407 million shares. And we had $633 million remaining under our share repurchase authorization, which expires in December of this year. As Hikmet highlighted previously, today we announce the divestiture of Western Union Business Solutions. The sales price of $910 million is expected to generate in excess of $800 million in proceeds, net of tax in 2022 and result in a gain on sale. Our net proceeds estimate is based on current tax policy and is subject to certain regulatory and working capital adjustments. The transaction is expected to close in two stages with the majority of the business and the entire proceeds, transferring in early 2022 and the European business transferring by late 2022. Both closings are subject to requisite work council consultations, regulatory approvals and other customary closing conditions. Following the transaction, we will evaluate options for the use of proceeds based on market conditions and opportunities and in accordance with our established capital allocation priorities, which include reinvestment in the business to drive organic growth, dividends, acquisitions, including technological capabilities that support our growth strategy and share repurchases. As a reference point, during the last 12 months ended June 30th, 2021, the Business Solutions segment generated revenue, EBITDA and operating profit of $374 million, $64 million and $33 million, respectively.
Turning to our outlook for 2021, the outlook we provided today assumes moderate improvement in macroeconomic conditions as the quarters' progress in line with current prevailing macroeconomic forecast with no material changes related to the COVID-19 pandemic. We reaffirmed our expectations for revenue growth, including our expectation that the digital business will achieve over $1 billion in revenue this year. We also affirmed our remaining metrics on an adjusted basis while updating our full-year GAAP financial outlook for pension plan termination expenses and M&A costs related to the sale of the Business Solutions business. The pension plan termination is expected to accelerate the recognition of approximately $110 million of non-cash expenses on a pre-tax basis, lowering GAAP EPS by approximately $0.22 in the fourth quarter and will be recorded to other expense in the P&L. With our plan over funded by more than $35 million as of June 30, we believe it is a good time to transition the plan to an annuity provider. We continue to expect full-year 2021 revenues will grow mid- to high single digits on a GAAP basis or mid-single digits on a constant currency basis, which also excludes the impact of Argentina inflation. GAAP operating margin is expected to be approximately 21% and adjusted operating margin is expected to be approximately 21.5% with the difference attributable to M&A costs. We anticipate our effective tax rate will be in the mid-teens range on a GAAP and adjusted basis. GAAP EPS for the year is now expected to be in a range of $1.82 to $1.92, which now reflects the impact of pension plan termination expenses and M&A costs. Adjusted EPS is still expected to be in the range of $2 to $2.10. As we move into the second half of the year, let me provide some context for how we think the results may progress over the remaining quarters.
Starting with revenue, our underlying assumption for revenue progression includes moderate improvement in the global macroeconomic environment in line with the current prevailing economic forecast. However, as Hikmet discussed earlier, global uncertainties remain, especially related to the emergence of the delta variant and the potential risks this poses to broader economic recovery. As the quarters progress, we expect moderate improvement in our business similar to the current prevailing economic forecast, although overall company growth rates will be lower than we have seen in the second quarter due to the grow-over impacts from last year. We continue to expect to generate over $1 billion in digital revenue this year, along with a relatively stable retail business. Lastly, we expect that the Business Solutions and other segments will continue to rebound this year as global macroeconomic conditions improve. With respect to margins, we expect the margin for the second half of the year will be above our full-year adjusted margin outlook of approximately 21.5%, primarily driven by expected higher revenue levels. To wrap up, we delivered a solid second quarter performance and are on track to achieve our financial outlook for the year. With the planned divestiture of the Business Solutions business, we are also sharpening our focus on the strategy that Hikmet laid out.
Thank you for joining our call today. And operator, we are now ready to take questions.
