西聯匯款 (WU) 2006 Q3 法說會逐字稿

Good day ladies and gentlemen and welcome to the Third Quarter 2006 Western Union Company Earnings Call. My name is Cindy and I will be your coordinator for today.

[OPERATOR INSTRUCTIONS].

As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Gary Kohn, Vice President of Investor Relations. Please proceed, sir.

Thank you, Cindy. Good morning everybody. We are very excited to welcome you to the first-ever Western Union investor conference call.

With me today are Christina Gold, CEO, David Barnes, our Executive Vice President of Finance and Strategic Development, and Scott Scheirman, our Chief Financial Officer.

Today's call is being recorded. Our comments today include forward-looking statements and I ask that you refer to the cautionary language in the earnings release and in Western Union's filings with the Securities and Exchange Commission, including the information statement contained in The Western Union Company Form 10, for additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements.

During the call, we will discuss items that do not conform to Generally Accepted Accounting Principles. We have reconciled those measures to GAAP measures on our Web site at www.westernunion.com under the "investor" section.

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.

As Cindy said, we leave time at the end of our prepared comments for Q&A. And with that, it is my pleasure to turn the call over to Christina Gold, Western Union's Chief Executive Officer.

Thank you, Gary, and good morning. The third quarter marks an exciting new chapter in the Western Union story. I am excited about our business and the tremendous opportunities before us. Western Union is the global leader in the money transfer business with a rich heritage of serving consumers for more than 150 years with speed, trust, and reliability.

Western Union is uniquely positioned in a growing market. The trends that power this industry -- global migration and cross-border remittances -- are projected to continue to grow at strong rates. We have three brands -- Western Union, Orlandi Valuta, and Vigo -- which together offer services in approximately 285,000 agent locations, connecting consumers in more than 200 countries and territories. And we have a history of strong, consistent financial performance. We are guided by proven long-term strategies, focused daily on the needs of our customers and value for our shareholders.

We delivered third quarter results in line with the expectations communicated in the September 18th press release and I am confident we will deliver our 2006 full-year guidance.

We operate in two segments. Over 80% of revenue comes from the consumer-to-consumer segment. Total consumer-to-consumer transactions increased 24%, or 15% excluding Vigo Third quarter consumer-to-consumer results were driven by strong performance in the international business, which represents 60% of total Western Union revenues.

International transactions increased 30%, or 23% excluding Vigo. International revenue grew 18%, or 16% excluding Vigo.

India and China, which are strategic markets for us, delivered strong growth. India transactions more than doubled compared to third quarter 2005 and China transactions increased over 35%. This growth has been driven by aggressive brand building investments in these markets and an agent network of about 60,000 locations. Both India and China represent significant long-term growth opportunities for Western Union.

Internationally, we formed new relationships with the National Bank of Argentina, the largest bank in that country, UralSib Bank, Russia's second largest, Barclays Bank in Ghana, and we added a fifth country to our Standard Chartered Bank agent network in Africa.

Our domestic and US to Mexico businesses, which represent a little less than 25% of Western Union revenue, continued to be impacted by the immigration debate. In the third quarter, domestic money transfer declined 5%, while Western Union branded transactions from the US to Mexico increased 4%.

Controversy in the US around the subject of immigration, and in particular changes in the approach of various government entities to the regulation of businesses that employ or sell to immigrants, have created fear and distrust among many Hispanic consumers regardless of their status. This phenomenon affected the entire money transfer industry. Total US to Mexico industry transaction growth, as reported by the Bank of Mexico, has slowed from 22% year-over-year growth in the first quarter of 2006 to only 6% growth in August.

There is no quick fix here. We are very focused on this issue, delivering targeted action plans with the support of our agents, to retain and win-back valued customers, while introducing Western Union value, trust, and convenience to new customers across these markets. Let me describe what Western Union is doing in the US and Mexico markets, right now.

First, we are maintaining and building an even stronger distribution network in the US and Mexico. In Mexico, we renewed a long-term contract with Banamex, a subsidiary of Citigroup. During the quarter, we also began to take advantage of our expanded relationship with Elektra. We now have two super agents in Mexico that will offer all three brands at nearly 7,000 locations, and both have committed to adding new locations to drive long-term growth.

We re-signed Publix Super Markets to a long-term contract. Publix is one of our largest agents in the United States, with 900 locations. We also signed Harris Teeter in the southeastern United States. Harris Teeter adds 150 locations in the high traffic grocery store category. And, we continue to sign many independent locations.

Second, in the US and Mexico, we are enhancing communications and promotions to attract and retain long-term, valued customers. We are stepping up our communication efforts with our existing, high-value customers, leveraging our Gold Card loyalty program to recognize their value with improved service and transactional rewards. We are targeting marketing investments, tailored to specific markets to promote Western Union's value and convenience, including speed, trust and reliability.

In selected markets, we are lowering fees and foreign exchange spreads in response to increased competitive activity. Finally, we are increasing our attention on consumer and community outreach, both in the US and in Mexico. We are working closely with our agents, community leaders, and state and federal regulators as champions for our consumers and their needs to send and receive money.

We are monitoring progress everyday, and we are confident that, over time, these steps will deliver improved results in the US and Mexico. Meanwhile our international business continues to grow as we expand our network and build the Western Union brand around the world.

As we look to the fourth quarter, total consumer-to-consumer transaction growth during the first three weeks of October is consistent with growth in the third quarter.

Let me now update you on our consumer-to-business segment, which delivered solid results in the third quarter and represents 14% of Western Union revenue. Third quarter transaction growth was 8% and revenue growth was 4%. We are very focused on growing this segment. Long-term, we expect that consumer-to-business growth will primarily come from international expansion through acquisitions and alliances.

At this time, I would like to introduce Scott Scheirman, our CFO, to walk you through the financials in more detail. Scott?

Thank you Christina, good morning. As you review our financial performance, keep in mind that profit and cash flow comparisons with prior years are meaningfully impacted by the fact that up until September 29, we were a segment of First Data Corporation, while we are now an independent public company. In particular, interest expense and corporate overhead costs are substantially different going forward than they were in the past.

During third quarter 2006, Western Union delivered $1.1 billion of revenue, up 12% compared to third quarter 2005. Earnings per share were $0.34.

Third quarter operating income, on a GAAP basis, was $337 million, down 2% compared to third quarter 2005. Operating income, excluding $14 million of spin expenses related to the spin-off from First Data, increased 2%, in line with the expectations we communicated on September 18. The $14 million of spin expenses was comprised of stock compensation expense from stock options granted on September 29, the date of our spin-off, reorganization expense, recruiting and relocation expenses, and other items.

Third quarter operating income margins were 29.6%, down from third quarter 2005. Operating income margins were impacted by several items, including a shift in our business mix reflecting stronger growth from our international business which carries lower profit margins compared to slower growth from our Western Union domestic and US to Mexico businesses which have higher profit margins, spin expenses, and Vigo which contributed $37 million in revenue and broke-even on the bottom line in the third quarter, compared to losses in the first two quarters of 2006.

Included in the income statement for third quarter is $5.4 million of income related to derivative gains on foreign currency forwards. In September, we re-established our foreign currency forward positions to qualify for FAS 133 cash flow hedge accounting. As a result of this re-hedging, on a go-forward basis, we anticipate the amounts you will see in the 'Derivatives gains and losses' line in our income statement will be minimal.

In addition, included in the income statement is $14.2 million related to foreign exchange gains on notes receivable from First Data affiliates. On September 29, First Data paid Western Union cash to settle these notes.

Interest expense for the quarter was $1.1 million reflecting two days of outstanding borrowings. The tax rate for the quarter was 32%, consistent with the first two quarters of 2006.

Consumer-to-consumer segment revenue reached $961 million in the third quarter, up 14% from last year. The consumer-to-consumer segment generated $280 million in operating income in the third quarter, and a 29% margin.

Consumer-to-business segment revenue was $158 million in the quarter, 4% higher than last year, generating operating profit of $54 million.

Before I turn things over to David to walk you through our cash flows and capital structure, I want to provide you with additional perspective on a few items. We acquired Vigo in October 2005, which we will anniversary in fourth quarter of 2006. This will impact reported revenue growth rates. Year-to-date spin expenses through third quarter 2006 were $16 million, of which approximately $5 million were non-recurring expenses. For fourth quarter 2006, we estimate spin expenses of approximately $20 million, the majority of which are ongoing expenses. 2007 spin expenses, which represent estimated incremental expenses associated with operating as a stand-alone company, will be in the range of $65 million to $75 million.

At September 30, we had $3.5 billion of debt outstanding and $1.3 billion of cash. In the fourth quarter 2006, below operating income, we estimate interest income, interest expense, and other income, will net to an expense of $30 million to $35 million.

Under the accounting rules, for all periods prior to September 29, 2006, the date of the spin, basic and diluted shares outstanding will be equal to approximately 764 million basic shares outstanding on September 29, 2006. Based on current forecasts, we estimate diluted shares will be 12 million to 16 million greater than basic shares annually, which on a weighted average basis equates to 3 million to 4 million shares for full-year 2006.

David?

Thanks Scott, and good morning everybody. During the first nine months of 2006, cash flow from operating activities were more than $750 million. We estimate full-year 2006 cash flows from operating activities will be approximately $1 billion.

Third quarter capital expenditures were $43 million, including $27 million for capitalization of contract costs. Estimated 2006 and 2007 capital expenditures remain consistent with the guidance we provided on September 18. In 2008 and beyond, our long-term outlook is that capital expenditures will be less than $200 million annually.

At the end of the quarter, we had total debt of $3.5 billion. In September, we completed a $1 billion, 10-year bond offering. In addition, we have a $2.4 billion bridge loan that expires in September 2007 and which we plan to re-finance within the next six months. Supported by strong, consistent cash flows and an objective to maintain strong credit ratings, we expect to reduce debt from $3.5 billion to $3 billion by year-end 2007.

The Western Union Board of Directors authorized a stock buyback program of $1 billion through 2008. We plan to buy back up to $400 million of stock through 2007.

Western Union's financial guidance provided in our September 18 press release remains unchanged. We are committed to delivering the numbers for 2006 and 2007, previously shared with investors, and building long-term value.

And with that, Cindy, we are now ready for questions.

Cindy, we are ready for questions.

Thank you, sir.

[OPERATOR INSTRUCTIONS]

And your first question will come from the line of James Kissane of Bear, Stearns.

Thanks. Christina, it doesn't seem like MoneyGram is seeing some of the issues that you are seeing in the Mexican corridor.

Right.

So, I think a lot of people are thinking this is more a market share issue than an immigration issue. Can you sort of reconcile what's going on?

Yes, I think -- Jim, I think what we are really seeing is because of the size of our business and the volume of transactions that we have been putting through our business, we are more greatly impacted by this issue. And then, compounding it is in particular states where we have had seizures and other issues, it has created for our consumers a level of concern and fear and we've done research to get feedback from customers. So, we feel that we are feeling more of a brunt of this. Plus, I think also if you just look at the Central Bank of Mexico showing the decline from a 22% first quarter growth rate down to a 6, there is clearly something that's happening in the marketplace. Recognizing as well, if we look at our total business and market share, in the last few years, we had about 10% share of the total remittance funds moving around the globe. Last year, we were at 15. And this year, we should be between 17% and 18%. So, we clearly see our strong in our share. It's just a question of our visibility in Mexico and some of the issues we are facing there.

Can you give us an update on what's going in Arizona and some of your thoughts?

I think it is a very difficult situation for us and also for the State of Arizona. And as you know, we are going to be appearing before the court, 30th of this month. So, we would hope that we would be able to come back after that discussion in the court. But, right now, because it is in the court, we would rather just leave that issue alone today.

Just one last question. Do you think more and more money is going underground as a result of their actions?

I don't know. It's hard to tell. I think that would be a big concern because it is so important in these days to be able to see the flows of fund. So, I hope that that is not the case.

Okay. Thanks, Christina.

Thank you, Jim.

And our next question will come from the line of Kartik Mehta of FTN Midwest. Please proceed.

Thank you. Christina, have there been issues like this in the past, just from a historical perspective where Western Union has faced something like this in other markets that you might be able to look back and see what happened and then after that?

The challenge for us is that because we operate in 200 countries, the opportunity is that no market is that large that can cause us this much of a disruption as we are seeing with the Mexico and US domestic. But this is 25% of business that's feeling some impact. So, I don't think as we look back we have anything like that. But we are confident that this is something that we will move through and anticipate making our guidance and achieving the results that we stated to you earlier.

And then, you said on the -- you have two super agents in Mexico and that will carry all three brands. Does that pose any problems especially from a pricing standpoint, and sometimes you might price each brand differently and could that in longer-term have a negative impact on margins?

Not really because I think the Mexico business basically, those agents, it is a receive situation, so the send side vary across the United States. So, consumers make that choice when they make the decision where to send, from which agent, whether it be a Vigo, or an OV or Western Union. So, we don't see that as an issue and we just see it as more convenience for our customers and better in terms of service to our customers.

And just one last question. On Vigo, this quarter you broke even. What are your expectations for margins for that business and over what timeframe would you think that you would achieve those margins, whatever you have laid out internally?

Obviously, Vigo has been a challenge, but it's been a great acquisition for us because it does give our customers choice in terms of service and we are seeing nice growth in the business and we see pick up in that business. I think we have a breakeven in third quarter. We are looking to a modest improvement in margins as we go to 2007, but I will ask Scott to give a little bit of color to that.

Yes, Vigo has been a great acquisition for us. We are looking towards a plan in place to have Vigo profitable in 2007, longer-term in 2008 and go forward, it will have solid margins. But, probably it won't reach the margins you would see in Western Union just because of how that product is positioned in the marketplace.

Thank you very much.

Thank you. And your next question will come from the line of Adam Frisch of UBS. Please proceed.

Thanks. Good morning. Can you talk a little bit about some of the other income lines, specifically FX gains, derivative gain, other income? Scott, you mentioned it a little bit on your comments. But how do you model those because they seem to be a lot higher than prior quarters and the result a lot of the upside in the quarter?

Sure. Let me give you some color on those. First on the derivative gains, we had about 5.4 million this quarter. We have rehedged our foreign currency position. So, on go-forward basis, that line will be fairly nominal, pretty small. With First Data, prior to being a public company, we had notes receivable with some of the affiliates there. We settled those note receivable on September 29. One important thing to keep in mind there is we do have 1.3 billion of cash on our balance sheet, but keep that in mind as your are modeling the cash and interest we will earn on that. And then also, part of other income, we do have smaller amounts, but they are still meaningful to us, is some equity income from our various agents across the globe that we have equity investments in.

Okay. What about derivative gains -- I am sorry, about the FX gains?

The foreign exchange on the notes receivable?

Yes.

That will be relatively zero on a go-forward basis since those notes have been settled with First Data.

Okay. And then, on the top line related to the business, the FX revenue growth of 23%, do you think that's sustainable going forward?

Yes, and if you think about that, it really corresponds real well with our international transaction growth. Excluding Vigo, international transactions were up 23%. With Vigo, it was up about 30%. So, it should correspond with that growth on a go-forward basis.

Go forward there. Okay and then, on the interest expense line, there was a question on First Data call earlier today, it seems like there is discrepancy in terms of the way people are modeling it. What are you guys thinking about interest expense going forward?

Here's how we are thinking about it, we have about 3.5 billion of debt in the third quarter, that was outstanding for two days. We saw about 1.1 million of interest expense. In the fourth quarter, it will be for the entire 90 or 91 days. So, we have full quarter's worth of interest expense.

Okay. And then, switching gears here a little bit, on customer demographics, I have seen some industry studies out there talking about your customers and the percentage that have bank accounts in some studies are saying 80% to 90%, more conservatives are saying maybe like in the 70% range. Is that a right number to go by?

Adam, we have done research as well and we are looking -- and as we see it, it about the 70% to 75% range.

One of the parties of the consumer-to-consumer transactions having a bank account?

Yes.

Okay.

Usually on the send side.

Usually on the send side?

Yes.

Okay.

Yes.

And then final question here, thanks for taking my slew of them. But --

Okay.

The investment spend in -- but you have been answering them quickly, so that's good. So, the investment spend in advertising, marketing and so forth, what kind of lag do we see in these kind of initiatives and when they have an impact on better growth and margin expansion?

It depends in terms of what the investment is, so some of that can take maybe up to let's say two months or a quarter. So, we had a high investment in second quarter, you can see that. But it also depends, let's say in the loyalty program, which we now have 7.5 million active cards out there, that builds over time. So, that's not a quick type of thing. You have to sort of get the cards in place and then start really building that relationship with the customer. The other thing though is, as we look at the investment spend in marketing, we are also right now, as we look at our US business and the US to Mexico, we are very much looking at pricing and street-corner pricing in FX spread. So, that doesn't really show up in your marketing line but it does impact in terms of what we are investing in the business to drive growth.

So, we should start to see maybe improvement if your strategies are taking hold in the next couple of quarters?

I think as we look at the way we set up the guidance, we anticipate that we would see that improvement by second quarter 2007 and right now, our consumer-to-consumer business is consistent with third. So, we are pleased with that.

Got it. Great, thank you.

Okay, thanks.

And your next question will come from Liz Grausam of Goldman Sachs. Please proceed.

Hey, good morning. On the domestic business, can you help us understand, how much of the slowdown is driven by the Latino population and how much of it are you seeing in other portions of your domestic business?

As we look at our business, about -- in the domestic business, about 30% of that business is Hispanic consumers and really the bulk of our slowdown has been in that segment. Really, it has not been across the board, it has been in that segment.

So, I guess that over double digit declines then in the sending in Latino population domestically, is that correct?

Yes, I would say in that range, yes.

Okay. And then looking at your C2B business, there has been some weakness in that revenue line as well. Can you help us understand what the strategies are there to drive growth in your bill pay functions?

Yes. I think we are quite pleased with the third quarter because we were allotting this third quarter our contract from last year of the SBC contract that we signed up. But, we are pleased we have a new management team in there. They have really worked hard in developing our strategies. We are working on some new products that we hope to bring to market. And also, we are very actively pursuing international expansion, particularly through acquisitions. We feel that that is the way for us to take, leverage the knowledge we have in the US business and take it outside of the US into markets where it really fits.

Okay, great. Thank you very much.

Thank you.

And your next question will come from the line of Bryan Keane of Prudential. Please proceed.

Hi, good morning. Where does your research say that these immigrants are going with their transactions? Are they going to the black market or are they going to competition or where are they sending money home to and how are they doing it?

Part of it is is saying that there is less being sent. I think that's one of the big issues we see here -- we see that confirmed by the Bank of Mexico and so there is slowdown there. And so you are seeing less money being sent, and then, not only fewer times but fewer -- lower in terms of amount. So, we are seeing that. And then, in terms of competitive, we do see that there is as there is a shrinking of growth, there is more competition and particularly on the FX spread. So, we are seeing that and we are dealing with that on a street corner by street corner type of situation.

Okay. You mentioned that changes by some governments have been impacting immigration. Is there other things besides Arizona that's been impacting it?

Not really. I think it's just a total debate across the US. In various states, there is a lot noise and uncertainty. And I think the sooner that we can get to some type of resolution, the better.

Okay. And then finally, locations are now at 285,000. I think Rich stated a goal of 300,000 by year-end. Does that still hold as the goal?

Our target was 295 and we anticipate hitting our target for 2006.

Okay, now if you did 295, that's going to be about 10% growth year-over-year. I think in the past, location growth has been more or like in the 20. So, are we getting more to a state of maturity in location rollout?

I think we are looking at about 25,000 to 30,000 locations a year as being a good amount to add to the network. It's really a question of where are the opportunities, where is the growth and what do we need to expand the network. Like we just got the new one in Argentina and the one in Russia, these are important additions to the network. So, if there is opportunities, we will go for it and but I think we will see a 25,000 to 30,000 locations a year growth.

Okay, thanks a lot.

Thanks.

And your next question will come the line of Greg Smith of Merrill Lynch. Please proceed.

Yes, hi. How do we get comfortable that the Attorney General activity in Arizona doesn't spread to other states?

I think we can never -- I don't have crystal ball but I think that as we have gone into dialog with other states, I think there is a concern in other states as we are concerned about what's happening to the consumers. So, I think we have support on our side. So, it's just a question of trying to resolve it. We respect very much Arizona's concern as well, but we have to find and be the advocates for our consumers and our customers and making sure that they can send money without any concern.

Okay, and then have you seen just in the State of Arizona broadly, whether it's inbound or outbound transaction, have you seen any further deterioration or are we kind of out bouncing along the bottom here?

No, I think we are sort of where we are is where we are because remember, that we also reduced our inbound to $450 is the limit what we will accept into the State of Arizona. So, we really haven't seen a lot of change there at this point.

When was that put into effect?

The 450, I think we put in about a month and a half ago, two months ago.

Okay. Great. And then, can you remind us where did the stock options price for management?

They priced at the close on the September 29 at $19.13.

All right, you are up a bit, good. And then, can you just quickly just remind us of what next to US-to-Mexico, what are the next biggest corridors? And just even within domestically, what are some of the biggest inbound and outbound states? Just looking for some high-level answers to those questions.

We really don't really give that information. I think that we have a very broad portfolio of corridors and countries. But, really, we only isolate the Mexico and the US business.

Okay, fair enough, thanks a lot.

And your next question will come from the line of Pat Burton of Citigroup. Please proceed.

Hi, good morning and congratulations on your first quarter as a public company.

Thanks.

My question deals with all the opportunities in front of Western Union, now that you are not part of First Data. Christina, could you talk about maybe the opportunity for new alliances or things like that that may be in the past were complicated by the parent owning the Company? Thanks.

I think, obviously, first of all, the thing that is for us is the most exciting is we are the masters of our ship and it is our destiny that we are creating here. So, when we look at opportunity, one of the most important things for us is that we set our strategy and we stick to it. We will not have to compete with other business units for investment, whether it be cash or whatever investments we need to make. At the same time, as we look at First Data's customers, our banks and financial institutions, and we look at alliances that we may want to make are products that we want to deliver to our consumers, it gives us much more flexibility in the marketplace to go out and explore different opportunities in terms of office space. I think also we have the Western Union Bank, which we have in Austria. We have no intention of becoming a retail bank but that bank is going to allow us to expand some of our services that connect with customers, not competing with our agent banks but expanding our product portfolio for Western Union.

On the acquisition front, would there be opportunities now for Western Union that perhaps you couldn't have done under First Data, back to your capital argument or perhaps even competing with what used to be the parent?

I think First Data has always -- was very supportive of Western Union. I have to very much appreciate that. But I think in terms of acquisitions, we are a little nimbler and faster now and so I think that we are able to really look at opportunities and go after them as quickly as possible.

Thank you. Good luck.

Thanks.

And your next question will come from the line of John Kraft of D.A. Davidson. Please proceed.

Good morning and just a follow-up on the specific slowdown in the US-to-Mexico corridor. Have you guys noticed that maybe some of the other brands like Vigo have been less affected by that? And I guess, if so, is that because of the lower pricing structure or the brand is less targeted maybe or a different customer base or what?

I think you are right on the money. I think we are seeing that. As we have gone through this situation clearly, there has been increased competition on the spreads and we have taken advantage of moving our spreads around in our OV and Vigo businesses, but again, because they do not have the high profile, we are seeing stronger growth in those brands.

Okay. And then, lastly, maybe I missed it in the release -- in the past, you've provided a same-store sales growth number.

Right. Our same-store sales in terms of the United States is at about 7% for the quarter, which again that is really the impact of the US-to-Mexico and the domestic business.

Okay. Thanks, guys.

Thanks.

And your next question will come from the line of Tien-tsin Huang from JPMorgan.

Hi, thanks, it's Tien-tsin. Congrats on the nice start.

Thank you.

Question on SG&A. It looks like the incremental spend for a new dollar of revenue I guess stepped down. How do you expect the SG&A to track in the coming quarters? And I am curious, how much of the SG&A is truly discretionary in the short run?

Look, let me just give you to Scott. He can take you through some of the fundamentals of that and then we can come back if there is questions in terms of the marketing spend. Scott?

Sure, sure. I would frame it, is that some part of the SG&A is discretionary and some is fixed. And what you will see from quarter-to-quarter are some timing differences as we spend money, whether it is in marketing or other discretionary programs. What you saw a little bit in the shift is that we are continuing to invest in marketing, [throwing] up lot of money there. As you look out on a go-forward basis, we factored the SG&A, our revenue growth, all those into our longer-term guidance for 2007 of 10% to 12% top and 6% to 9% on the bottom excluding the spin cost. But, there will be some timing differences with [the put] in the SG&A.

I think also what we are seeing is we are very targeted in terms of the spreads and pricing and so that's where some of our investment in essence is going right now.

I see. So, would it be reasonable to assume that we could see a $200-plus million quarterly run rate on SG&A going forward?

I wouldn't prefer to provide that level of detailed guidance. But, it factored into the overall guidance we provided for 2007.

Fair enough. I am sorry if I missed this, how is OV or Orlandi Valuta tracking versus plan? Can you give some metrics there?

OV has been a little bit problematic for us and what we are very pleased to see is improvement in that business and part of that is with the super agents of Elektra and Banamex and being able to operate in both of those agents and also having weekend payout, we are seeing an improvement in that business. We are pleased with the progress.

Thank you.

Okay.

And your next question will come from the line of Craig Maurer of Soleil. Please proceed.

Yes, good morning. Two questions for you. I was wondering if you can comment on possible changes in the competitive environment you are seeing from your competition in the US-to-Mexico corridor? In addition, if you can comment on the situation currently involving the major US banks and their aversion to the money transfer business and how that might be affecting your business? Thanks.

Just in terms of the competitive landscape, I think what we are seeing, we have a lot of competition in this space. We are seeing, because of the compression of growth down to 6%, which we saw in August, that's the latest sort of figure that's out there, there is more competition as it relates to FX spread and some pricing. So, we are seeing that in the money transfer industries, so we see that. In terms of the bank and what is happening with the banks in terms of the bank account, that really has not been so much of an issue for Western Union because of our brand and our relationship with banks, we have been able to handle that and help our agents if they had issues with bank accounts. What is a bit concerning is that for the smaller money transfer agents, it is a difficulty, not within our brand but in other brands, they may have difficulty in terms of getting a bank to do business with.

Thanks.

Okay.

And your next question will come from the line of Charlie Murphy of Morgan Stanley. Please proceed.

Thanks very much. I wanted to ask about David Barnes' comment about the CapEx.

Okay.

Sure.

I am sorry. I am not sure if you could hear me back there, my phone is acting up. David, you said that CapEx should be below 200 going forward. Why would that be the case? Why wouldn't the capitalized contract cost continue to increase as the agents that you haven't renewed yet see these contract costs?

Charlie, as I think you know, our contracts are multi-year in duration. And it's the nature of these kind of things that they come in ebb and flows and it happens to be the case that in 2006 and 2007, we anticipate seeing sign-on bonuses that would be higher than the long-range trend. So, you extrapolate that out in 2008 and beyond, we expect lower than 200.

Okay. And then, India and China, what was revenue growth in the third quarter individually?

I don't think we give those numbers.

We have not provided those. But, I would say we are very pleased with the revenue growth we saw.

Yes.

Okay, thanks.

And your next question will come from the line of Andrew Jeffrey of Robinson Humphrey. Please proceed.

Hi, good morning.

Good morning.

One thing that sort of jumped off the page to me this quarter was a pretty market convergence between international transaction growth and revenue growth to the positive.

Right.

Is there something specifically that's going on there? Is that sustainable because it clearly implies that the potential for faster growth irrespective or assuming anyway a stabilization in North America and Latin America, if that trend would persist?

We are very pleased with that. I think one of the things that we saw previously when you saw these, in fact, the differential was higher, was really the impact of the [intra] businesses like in the Philippines and Chile which really propped up the transaction growth rate but did not have the same impact on revenue. So, as those have lapped, we see our results coming together in much more of a convergence there. So, we are pleased with that and we feel that that is sustainable at the growth rates we have.

So, new real change in competition or pricing strategy driving that? It's more mechanical anniversary of greater historical [inaudible]? Okay.

Absolutely. It's really the intrabusinesses that we have introduced into the business and we still continue to invest about 3% of revenue in pricing and that's been consistent all along.

Okay. And a housekeeping question. Can you please tell us what D&A was in the quarter and I realize there is probably going to be some pro forma or normalized number perspectively, if you give a little guidance on that?

Yes. The depreciation and amortization was $26 million for the quarter. The perspective on that, David talked a little bit about the capital expenditure and so, you will see some growth in that line as we move forward.

But that's a normalized level for you, there is no pro forma adjustment needed there perspectively post-spin?

The 26 million is a GAAP number.

Okay. So, then given the different capital structure post-spin, I imagine that number will go up in the fourth quarter and beyond?

Yes. It will be driven primarily by the increase in capital expenditures for 2006 and 2007 that we talked about previously.

Okay, thanks.

And your next question will come from the line of Chris Mammone of Deutsche Bank. Please proceed.

Hi, just a quick one. I am sorry if I missed it. But what was the -- what was the top line currency impact for the quarter?

It was about $10 million, about a percentage [point in Euro].

Okay, thanks.

And your next question will come from the line of Tim Willi of A.G. Edwards. Please proceed.

Thank you, good morning. Two quick questions, one, and both about China. Could you talk about plans for agent expansion relative to your stated target of 25,000 to 30,000, would areas like China and India be getting the vast majority of that growth or will it be probably more broad based on a global basis? And then I have a follow-up.

I think it really is more broad based because I think, as I said earlier, China and India now represent 60,000 locations. So, as we grow that business and we see the need, we will build the network out. Clearly in India, because of the different corridors we have created, we have opened up more locations in different parts of India to meet the needs of our customers. But, I think it is really going to be broad based, looking at opportunities across the globe.

Okay. And then the second question was, are there any -- I don't if the right word is regulatory or legal changes going on within China? I know they have a deadline with their World Trade Organization membership in a way that allows the western banks to expand much more liberally or are there any other kinds of issues like that that would impact your ability to more aggressively grow the brand and transactions whether it be cross-border or intra-country within China?

We have an excellent relationship with our agent partners in China. We last year renewed our contract with the China Post and so, they are the bulk of our locations and then we also have the Agricultural Bank of China. So, we have good relationships. We work very well together. We work in harmony in terms of looking at location expansion, where it is appropriate and we also work together in terms of marketing and brand awareness. So, I don't see any dark clouds on the horizon, I just see great opportunities for continued growth and expansion in that market.

You are not able yet to do intra-country transfers?

No, that is something that's controlled in China.

Okay.

Okay.

And there is nothing out there that you are aware of that could work to your favor?

We are always talking about it, but these things take a long time and it really is something that the government of China controls.

Okay. Great, thank you very much.

Cindy, at this time, we have time for one more question please.

Okay, sir. Your last question will come from the line of Craig Peckham of Jefferies. Please proceed.

Good morning. I will wrap up here with a couple of Mexico questions. I am sure you are glad to hear that. First of all, the pricing initiatives on transfer prices and also the FX side in Mexico.

Right.

Are those reflected in the third quarter numbers at all, as we look at margins?

Yes. Some of the activities would show up there.

But, probably on a full-quarter basis, right?

You know what, it is not a full-quarter basis because what we are doing is we are doing it on a very targeted and everyday we have discussions and we look at what's going on in the marketplace and decide what our next move is. So, this is a living, breathing thing that we are constantly looking to. So, it will increase, not decrease, in terms of our activities as it relates to Mexico.

Can you talk about the extent, if any, to which the attention you have had to pay to these investigations and regulatory dynamics, how that may be impacting your margins?

I think in terms of the regulatory area, we are very proud of our record in terms of compliance and really being a leader in worldwide compliance. We spend about $35 million a year on compliance. We have over 250 employees engaged in compliance. So, we think we are the standard for others and we are very much focused on that and the whole Company is committed to making sure that we are doing everything not only by the law but also the spirit of the law and the leaders in terms of compliance around the globe.

I guess I am trying to sense as far as how much, shall I call it, extra spending is going into reacting to some of these --?

I would not say that that is a logic spend, it is more an issue of an upset for our customers and that's really the expense that we have. It's hurting our business.

Okay. Why are the margins in the US-to-Mexico corridor better than what you see elsewhere? I would have thought that given generally lower pricing and a more competitive market that there wouldn't be such a margin differential?

Craig, this is David Barnes. Generally, the thing we are coming out of the US, we are the -- we hold the money transfer license and so we don't have the multiple layers of agent networks that we do in some other international markets. So, any business like Mexico that's so heavily dependent or reliant on the US tends to have higher margins. And what it means is that not only are they higher in absolute level, but we have more fixed cost and fewer variable costs, so that's good when business is healthy. And when we see challenges as we have seen in the last few months, it hurts the bottom line more than a similar upset with somewhere else in the world.

Can your international margins catch up to what you have in the domestic and Mexico corridors over time?

Well, I think there obviously are structural differences in the way we do business. We have more fixed cost and capital employed in the US business. So, it depends on how you are going to look at margins. But, just looking simply at the gross margin line, I would say it is not likely to reach the US levels because we have a different business structure.

Okay, thank you.

Thank you.

And I just wanted to thank everybody for being on the call today. We are very excited about our business. We are committed to delivering to the shareholders and we look forward to talking to you next quarter. And as we said, we are committed to our guidance and thank you very much for your attention today. Thank you.

Thank you for your participation in today's conference. This does conclude the presentation and you may now disconnect your lines. Everybody have a wonderful day.