西聯匯款 (WU) 2007 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first quarter 2007 Western Union Company earnings conference call. My name is Shantala, and I will be your coordinator today. I would now like to turn the presentation over to the host, Mr. Gary Cohn, Vice President of Investor Relations.

Good afternoon, everybody, and thank you for joining us on Western Union's first quarter 2007 conference call. With me today are Christina Gold, Chief Executive Officer, and Scott Scheirman, Chief Financial Officer. The agenda for this afternoon's call is first Christina will review the quarterly results and discuss the current state of our business. Scott will take you through financials in more detail and, as always, we'll save time for Q and A. Today's call is being recorded. Our comments include forward-looking statements and I ask that you refer to the cautionary language in the earnings release and in our filings with the Securities and Exchange Commission including the 2006 Form 10-K 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 the GAAP measures on our website at WesternUnion.com under the Investor Relations section. All statements made by Western Union officers on this call are the property of the Western Union Company 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. With that, it is my great pleasure to turn the call over to our President and CEO, Christina Gold.

Thank you, Gary. Good afternoon. Thanks for joining us today and also for your interest in Western Union. We accomplished a lot during the first quarter with operational and financial results generally in line with our expectations. And I want to thank our employees, our agents, and, of course, our customers who continue to trust Western Union to handle their financial transactions. Revenue was $1.1 billion, up 8%, and earnings per share were $0.25. We generated strong cash from operating activities of $287 million. In reviewing the quarter, it is clear that the international consumer-to-consumer business had another strong performance. The Americas, namely U.S. domestic and outbound businesses and Mexico, delivered transaction growth rates consistent with the fourth quarter of 2006. We continue to be very pleased with the consumer-to-business segment which had solid revenue growth of 13%.

Operationally, highlights for the quarter included signs of stabilization of the U.S. domestic, Mexico and U.S. outbound businesses; transaction growth was driven by targeted pricing, promotions, and marketing effort. We welcome Sepsa, a leading walk-in bill payment company in Argentina that operates under the brand name -- for the first full quarter. Our integration is progressing nicely and the business is on track to deliver its goals in 2007. We crossed a 300,000 agent location milestone and now have more than 305,000 agent locations.

We continue to enhance our distribution network by adding or renewing agents in key end markets like HEB, one of the fastest growing, privately owned retail chains in the United States, -- a bank in Portugal, -- a bank in Spain, Camator, also in Spain and Capitalia Group in Italy. On the receive side we added or renewed the Tunisia post, Farmacias Guadalajara in Mexico and Orlandi Valuta announced the launch of service at -- supermarkets. These signing and renewals represent approximately 5,000 agent locations. We continue to invest worldwide in our brand utilizing very localized campaigns and continue to make investments in pricing, foreign exchange rates and promotions to drive transaction growth. Finally, we continue to enhance convenience and choice for our consumers. For example, in the first quarter, we rolled out services such as next-day money transfer to additional markets and expanded WesternUnion.com to Germany and New Zealand.

The consumer to consumer segment which totals over 80% of our revenue posted another solid quarter with revenue and transaction growth of 8% and 14% respectively. These results continue to be powered by the international performance. The international business generated revenue growth of 15% on transaction growth of 21%. Our Europe, Middle East, Africa and south Asia region continues to achieve extremely strong growth as a result of our focus on expanding distribution and investing in brand awareness. In the past five years, we added 100,000 locations and saw 3,000 new corridors begin moving transactions as connections were established between new send and receive locations.

One of the stars of the region is India. The opportunity here is huge. Based on the world bank's current market size projections, we believe that India now ranks as one of the largest receivers of remittances with over $20 billion per year. We have a number of excellent agents throughout India, including eight of the top ten national banks, the national post office and many retailers. Through these relationships we provide services in more than 40,000 locations in cities, towns, and villages within India.

We compliment our unparalleled distribution with the country-specific marketing strategy that encompasses community focused promotional activity, sponsorship and customized corridor by corridor pricing flexibility. Today brand awareness in India is close to 80%, up significantly from a few years ago. As a result of our targeted approach of opening locations and building brand awareness, transaction growth for India has exceeded 90% in each of the past six quarters. Another key region is Asia Pacific, which includes markets such as China, Hong Kong, Australia, and the Philippines.

For China, the first quarter contains the country's most celebrated holiday, Chinese new year. So we ran several advertising campaigns and promotions leading up to this holiday. We saw great results around the holiday and were very pleased with the transaction growth for the quarter. I am very confident about the opportunity in many growing markets throughout Asia. One in particular, Vietnam, is very promising as the country is experiencing burgeoning economic growth and became the 150th member of the World Trade Organization on January 11th of this year. I just returned from a trip to Vietnam where I met with 30 Western Union agents, all of whom are extremely eager to maximize their growth. We have nearly 3500 agent locations in that country and together with our agents, we are poised to capitalize on this opportunity.

We have talked a lot about our plans to invest more heavily in the first half of the year to improve results, particularly in the United States domestic and outbound markets as well as Mexico. We remain focused on improving trends here as modest improvements in revenue growth will have a meaningful impact on profitability. Our investments and action plans remain focused on the four areas that we shared with you earlier: distribution, promotion and advertising, pricing and foreign exchange, and community outreach. On the distribution front, we had many significant signings throughout U.S. and Mexico. In Mexico, where we have over 13,500 agent locations, both Elektra and Banamex continue to expand the network. In the first quarter we added nearly 1400 agent locations throughout this important country.

Second, our marketing and promotional spending was up in the first quarter year-over-year driven in part by the rollout out of a new Spanish language campaign in the U.S. Our advertising contains both thematic and promotional messages. This creative celebrates a heroic role our consumers play supporting their families and stresses the choice that Western Union now provides to consumers sending money within the United States and between the U.S. and most Latin American countries. During the quarter we completed the rollout of our U.S. domestic, next-day service and decreased our fees at higher principal bands for Mexico. And the advertising communicates that Western Union has a better offering to value-conscious consumers. We continue to utilize a multibrand strategy in Mexico by offering our consumers price and service level choices throughout our three brands. Western Union, Vigo, and Orlandi Valuta. The marketplace has been competitive on foreign exchange spread, so this is where we are focused.

In the first quarter, our pricing investment in the Mexico business were mostly reductions in foreign exchange rates. We also made several management changes early in February. We are excited about the new management team and the talent that they bring to the Western Union business. They are working diligently to take a fresh look at the long-term prospect for the Americas, and they're aimed at increasing transactions and market share.

We continue to reach out to our consumers and community leaders in the United States and Latin-American countries. We are continuing with our U.S. and Mexico media tour, representatives from our public affairs group are visiting with media in major cities to share stories about our philanthropic activities on behalf of the Mexican and Hispanic community. They met with key cabinet members and officials to discuss issues facing immigrants living in the U.S., remittance regulation and the Four Plus One program which is a partnership with all levels of the Mexican government, hometown association, and Western Union, aimed at creating job opportunities and improving economic conditions in the communities across Mexico. We are also working with Hispanic communications network in the United States on segments for -- a national radio show that reaches more than 200,000 immigrants in the U.S. And on the regulatory and legislative fronts, we are still working with U.S. federal and state authorities, including the Arizona attorney general, to ensure our consumers and their funds are treated with respect in accordance with the law.

Additionally, we are improving profitability at Vigo by combining many of their business functions with Orlandi Valutas. The Orlandi Valutas and Viga brands remain separate and distinct product offerings with individual services and distribution networks and we are confident that the combined approach will enable us to achieve efficiencies driving increased profitability and to be more proactive in the marketplace by providing our consumers additional service offerings. The result of our efforts and investments is that our Mexico and domestic businesses are holding steady. In the first quarter, Mexico transactions grew 2% with nice acceleration within Vigo and Orlandi Valuta. Domestic transactions declined 6%, a slight improvement from the fourth quarter. We are encouraged by the results and we believe we are making the right investments to drive continued improvements in these markets.

The consumer to business segment, making up about 15% of total revenues, had an exciting quarter as well. We are off to a great start with Pago Facil, which helped drive 13% revenue growth for the consumer to business segment. Pago Facil is a great fit for Western Union because of its platform, recognizable brand, and expansive distribution network. We look forward to unlocking growth throughout Latin America by combining their strengths with ours to capture the immense bill payment opportunities.

You saw in this afternoon's release that there are several factors affecting revenue growth for 2007. One issue I'd like to provide a little more detail about here is the slower revenue growth in our WesternUnion.com business. In the U.S. there has been increased credit and debit card fraud as a result of more frequent retail database compromises. These compromises are not related to Western Union. However there has been a direct impact on our consumer's ability to use their debit or credit cards to initiate WesternUnion.com transactions. We have also tightened our controls in response to the increased fraud to better protect our consumer and Western Union. We are working closely with the financial institutions and card associations to resolve these issues. Meanwhile we are pleased with the growth from WesternUnion.com outside the U.S. where there is no impact from this issue. Our full bank license in the European union enables us to expand WesternUnion.com in Europe. Recently we activated Germany and we are online in seven EU countries. Currently 15% of WesternUnion.com's revenue comes from 11 countries other than the United States.

Today ours is a cash to cash, person to person business where approximately 95% of our consumer to consumer transactions are traditional cash money transfers involving our walk-in agent locations around the world. This has remained consistent over the years. In 2002 about 97% of transactions were traditional cash money transfers involving one of our agent locations. We are unmatched in our ability to serve this need through our more than 305,000 agent locations that cover most every corner of the world. Even though the preponderance of transactions is cash to cash, we invest in technologies that will allow us to offer even more choice. We have services that allow for transfers direct to bank account. We have prepaid card offerings, we have on-line offerings, and we are currently in (inaudible) with a partner testing mobile phone money transfer capability.

Our ability to attract new consumers and increase the loyalty of existing customers across 200 countries and territories by providing relevant services in the most convenient and reliable manner will remain the key to increasing shareholder value over time. We have more than 8.5 million active Western Union gold cardholders worldwide. In January I shared with you our financial goals for 2007 and our long-term objectives. Our focus is not on quarter by quarter results but rather on achieving our long-term goals. Outstanding execution of our strategies, combined with our commitment to investing in our brand is the basis for this long-term success. I remain excited about delivering another solid year of financial and operating results.

Our outstanding financial characteristics provide us the resources to continually invest for the future. This financial strength, our willingness to invest for the future, our incredible brands, our localized feet on the street employee and agent base, and our unmatched ability to deliver relevant products almost anywhere in the world separate us from our competitors and position us to create the long-term shareholder value we are committed to delivering. Western Union success comes from being known worldwide as the most trusted, reliable and convenient way for people to send money, together with their hopes and dreams throughout the world. We do not take this responsibility lightly. At this time, I would like to turn the call over to Scott Scheirman who will explain the results in more detail. Scott.

Thank you, Christina. Good afternoon. As you review our financial performance, please keep in mind that profit and cash flow comparisons with prior years are meaningfully impacted by the fact that up until September 29th, 2006, Western Union was a segment of First Data Corporation while we're now an independent public company. In particular, interest expense corporate overhead expenses are substantially higher than they were in the past. Western Union delivered $1.1 billion in revenue during first quarter 2007, up 8% over the first quarter of 2006. The Pago Facil acquisition contributed $15 million in revenue during the quarter. Excluding this acquisition revenue growth was 7%. The Euro benefited revenue by approximately $19 million during first quarter 2007. First quarter operating income on a GAAP basis was $305 million, a decline of 3% compared to first quarter 2006. Operating income, excluding $15 million of incremental public company expenses, increased 2%. Western Union's operating income margin was 27% in first quarter 2007.

The change in operating income margin is primarily related to two factors. First, the ongoing mix shift from the higher margin U.S.- originated money transfers, those being U.S. domestic, U.S. to Mexico, and other U.S. outbound to the faster growing, lower margin international business. Second, first quarter 2007 included $15 million of incremental public company expenses compared to 0 in the first quarter of 2006. Most of these factors will also impact operating income margin throughout 2007. Vigo has also been impacting operating income margin. This quarter Vigo turned slightly profitable and profitability will improve throughout 2007 as we continue to enhance the systems, increase operational efficiencies and capture more synergies. Our total net income for first quarter was $193 million and included incremental interest expense compared to the first quarter 2006 of $48 million. Earnings per share calculated on $783 million weighted average diluted shares outstanding was $0.25. Our tax rate was approximately 31.5% in the first quarter.

In addition, we adopted FIN 48, accounting for uncertainty in income taxes effective January 1st, 2007. As a result of the required adoption, the noncash cumulative adjustment to retained earnings was a decrease of approximately $1 million. The adoption of FIN 48 will not materially impact our 2007 effective tax rate. The consumer to consumer segment increased transactions 14%. Total segment revenue of $926 million was 8% higher than first quarter 2006. The segment's operating income margin was 26%. Consumer to business revenue was $182 million, up 13%, or 14% excluding the acquisition of Pago Facil. First quarter operating income margin was 33%.

We are very pleased with the strong cash flow from operations of $287 million during the first quarter 2007. Capital expenditures were $38 million in the first quarter and are expected to be between 200 and $250 million for full year 2007. As of March 31st, 2007, we have $3.280 billion in debt, a decrease of approximately $45 million from December 31st, 2006. We repurchased 5.2 million shares for $113 million. The average price was $21.70. We have $876 million remaining under the board authorized stock buyback program through 2008. We now estimate our 2007, full-year GAAP revenue growth will be in the range of 10 to 11%, a change from our previous guidance of 11 to 13%. Our revenue growth estimate has been influenced by several factors including our intention to continue with strategic pricing actions expressed in the first half 2007 somewhat offset by re-allocated marketing spend.

Full year pricing and foreign exchange investments are targeted to be approximately 3.5% of 2007 revenue, an increase from last year. In the shortfall in WesternUnion.com revenue of 20 to $30 million. These factors will also impact our operating income, growth both reported and excluding incremental public company expenses. We now expect GAAP operating income growth to be at the low end of our guided range and operating income growth excluding incremental public company expenses to be at the low end of our guided range. We continue to expect 2007 full year GAAP earnings per share of $1.07 to $1.11.

We have updated some of our assumptions. We now expect net expense from interest expense, interest income and other income to be approximately $100 million. This $10 million improvement from previous guidance is a result of increases in anticipated full-year interest income and other income. We have lowered our full year tax rate assumption to approximately 31% from 32% as a result of increased foreign-derived operating income. We now expect incremental public company expenses to come in at less than $60 million. The improvements related to more interest income, lower effective tax rate and reduced incremental public company expenses will have a positive impact on profits and cash flows. Our forecast contemplates that the first half investments we're making in pricing, foreign exchange rates and promotions, together with our outreach and other activities in the marketplace will result in revenue and operating income growth accelerating in the second half of 2007.

We're encouraged by the results we see and we'll continue to invest heavily during the second quarter. Also, the impact of the immigration debate began in the second quarter of 2006, therefore comparables ease as the year progresses. We continue to estimate full year weighted average (inaudible) shares outstanding of 780 to $785 million. One thing I would like to call to your attention is that the proposed acquisition of First Data would likely impact both our earnings per share and weighted average, fully dilated shares outstanding. There are Western Union options and restricted stock awards outstanding which were converted from First Data grants at the time of the spin-off. These options and restricted shares, mostly from grants made in February, 2006, were issued under the 2002 First Data long-term incentive plan and retain the terms of the original grant, including the requirement that they fully vest upon a change of control of First Data. If a change of control of First Data occurs and these awards were to vest there would be an acceleration of FAS 123R accounting for stock-based compensation charge that would impact earnings per share by approximately $0.02. Of course this is a noncash item.

In addition, depending upon stock option exercise activity, as well as the fact that these options would be fully vested, Western Union's weighted average, diluted shares outstanding may increase. Any impact to our guidance as a result of a change in control of First Data will be addressed if and when necessary. Our cash flow outlook remains unchanged. We expect to deliver full year cash flow from operations of approximately $900 million. Our priorities for the use of cash remain unchanged. First, paying down debt. We anticipate our debt will be paid down to approximately $3 billion by the end of 2007. The second priority is to invest in the future growth of our business, both internally and through acquisitions. Third, returning capital to shareholders through stock repurchases and dividends. With that, operator, may we take the first question.

(OPERATOR INSTRUCTIONS) Your first question comes from the line of Liz Grausam of Goldman Sachs.

Thank you. The spread between transaction growth and your revenue growth in international widened again this quarter. Could you help us understand with the Euro being so strong in the quarter what that arose from? Were there pricing initiatives maybe in Latin America that drew that down, the revenue basis?

Liz, it's a little bit of that because I think we're very, very pleased to see that 21% transaction growth continue through. But we also do pricing early in the year and we have a little bit of that in the mix but it's a normal level of pricing that we did in the international piece.

And was it focused on any reason specifically, and what is the contribution of Latin America to that international business, if you can help us?

Just to give you a flavor for it, that Latin America is part of the international numbers. We did do some movement on next-day pricing in that region. If we -- we normally don't give that Latin America number but if you would take Americas impact to international your transaction would be in the high 20s. You'd be much higher up.

Okay.

Okay.

And then in terms of the balance between increased ad and marketing spending and your choice to use pricing and NFX, how did that balance out and how did that maybe change with the change in management you had in the quarter?

I think that was a very important point. With the new leaders in both the U.S. business (inaudible) and Latin America, they really went in and did a deep dive and came back, and their recommendation was we're still using media in some of the tradition that we use, but they felt there was an opportunity by moving on our next-day pricing, particularly in the domestic money transfer, and also moving up on the next-day scale in the Mexico business, they thought that was more important, and also just making sure that the media and all of it combined to really focus on the Hispanic consumer. So we feel very good about that. We continue to invest in our international business to ensure that we continue that strong growth but feel good about how we positioned it all. I think it the's the right move and I have every confidence in the team and the decisions they have made.

Thank you.

Thanks.

(OPERATOR INSTRUCTIONS) And your next question comes from the line of Bryan Keane of Prudential. Please proceed.

Good afternoon. Just a couple clarifications. What would the revenue growth have been on a constant currency basis internationally if you take out the FX benefit? I don't know if you gave that. I might have missed it.

Brian, this is Scott. We didn't, but what I'd guide you to is that international is over 60% of our revenues and the foreign currency benefit was about $19 million. I'll let you do the math on that. Okay. $19 million. Okay. And then the reduction in the 3.5% of total revenue in 2007 for investments in FX and fee reductions is that just in the Americas or is that worldwide?

It's the total that we would have across the business because normally we were running at about 3%. Now with the things we've done incrementally with some of the changes in management and the decisions we've made, it's moved up to 3.5% but there's impacts in different parts. It's mostly focused on the decisions in the U.S.

Okay. And then the China and India growth continues to be good on transaction growth. Just curious, does the revenue growth track the transaction growth or does that still lag in those regions in China and India?

It's varied, and we really don't disclose that number, but it's very good. We're very pleased with the results in both those areas, both those countries.

Okay. Thanks for the help.

You're welcome.

(OPERATOR INSTRUCTIONS) And your next question comes from the line of Adam Frisch of UBS.

Thanks and good afternoon. Wanted to take a closer lack at your cost trends, your cogs were up sequentially when they were down last year, your SG&A was down in a quarter where they were up last year. I know there's a lot of moving parts, some could argue that your agents are squeezing you more on pricing and you're cutting your advertising fees to compensate but with so many moving things it's hard for an outsider to really gain a good aspect of what's happening. I was wondering if could you address the puts and takes in your cost structure?

Maybe I'll pass that one to Scott, to give you some flavor on that.

Hi, Adam. It's Scott.

Hey, Scott.

Let me give you some color on a couple of the line items. The cost of services, what we're seeing in that line is the mix shift where we have the slower growth, domestic U.S. outbound Mexico businesses where that mix is shifting to the international business which is lower margin but higher gross. We've got that natural mix shift there from resigning agents and so forth, you know, our agents are partners. We've been able to renegotiate our agreements, fair terms to both parties, so there's not a big shift when we're renegotiating.

On the SG&A, a couple things. Our spin expenses are impacting that line. We have $15 million that impacts both the SG&A line and also the cost of services line because a number of those things are IT systems related. We also did increase our marketing spend in the first quarter, but also the team on the SG&A line, the team around the globe has done a good job of managing expenses, leveraging our (inaudible) or cost infrastructure to have a very cost competitive environment.

That's definitely helpful. The things that you're doing in the first half of the year, I know the comps get easier in the back half but the things you're doing today to improve revenue and margin that Christina spoke to generally in her comments, maybe Christina, what kind of lag is between what you're doing, ultimate implementation and eventually when we see it show up on the P&L?

Some of it depends in terms of what area and what we're working on. I think some of the things we've done in Vigo we're starting to see the profitability come in, but then let's say within Vigo and (inaudible) combining sales forces, looking at synergies, those things will come through over time. We've also taken some call centers that we had in Asia and moved them into lower cost countries. So again, there's a cost at the time when you make those things happen that over the next, let's say 6 to 12 months you reap the benefits in making those decisions. So there's quite a lot of things like that being done on the cost structure but sometimes it takes you a little bit, let's say 6 to 12 months.

Last question on international growth. Was wondering if transaction growth includes any material contributions from acquisitions, or is it predominantly organic, on the C to C side?

C to C is organic because we've lapped Vigo, last year in December, so it's strictly all organic.

Given the expansion you've had in your agent base, I think you said like 100,000 in the last five years. Most of that was outside the U.S. Why aren't we seeing transaction and revenue -- why are we seeing transaction and revenue growth decelerate a little bit?

I think transactions look pretty strong. If you look at 21%, we feel very good if you look at the size of the base of the business. Just in terms of locations, to put it in perspective, 40,000 of those new locations, the bulk of that, is in some of the major markets, like India has 40,000, 25,000 in China. We're really building the network for that future growth and those are all part of what future growth will bring. I don't think it's really decelerating. I think as you look at scale and how we're growing we'll see that (inaudible) hold at a strong level of 2, if not more.

Thank you.

You're welcome.

(OPERATOR INSTRUCTIONS) And your next question comes from the line of Chris Mammone of Deutsche Bank. Please proceed, sir.

Hi, thanks. Just to be clear, are you talking marketing spending will increase in the second quarter relative to the first?

I think it's the mix of marketing spending. I guess what we're alluding to is that we're front loading a lot of our spending in the area in terms of the first and second quarter in terms of our total spend and we continue to see some movement on pricing that we're doing and FX in the Americas and the U.S. outbound business, mostly the Americas and Mexico.

Okay. As far as the pricing initiatives, Latin America, how were the -- how was that allocated among the three brands? Sort of equally or was Western Union more?

It's really based on opportunity. We look at the business at the 27% margin business it's a very nice result for us. We look at the total business. We manage what the customers need, where the transactions are, what's the market share, and look at all three portfolios and decide where the investments and how do we get the best return and make sure we build the share.

Okay. Then maybe for Scott, do you have the growth rate of the intra-country business during the quarter?

I don't. We haven't disclosed that, but it's been very healthy and we're very pleased with that. That's over a $65 million business for us, but we're very pleased with the growth rate.

Okay, thanks, guys.

Thanks.

(OPERATOR INSTRUCTIONS) And your next question comes from the line of Jim Kissane of Bear Stearns.

Does the 3.5% pricing take into account next-day service? I remember when you rolled out next-day service in Mexico it was like a one-year drag on your revenue growth. Just wondering how many international markets you've rolled out, next-day, and what the impact will be?

That 3.5% includes the next-day in it and we've put in 17 different corridors that we've launched the next day, so that's really -- it's built in.

India has been outperforming China for sometime. Can you compare and contrast the market?

They're very different. I think they're different culturally, obviously, but also in terms of the remittance business and the acceptance of traditional methods of transactions, also the banks in terms of the banking partners we have, the agents that we have, the post offices in India, we feel that we're very happy with both and yet we've seen that in India, there's a different acceptance of a more traditional money transfer business. So we're very delighted to see that but we're also very proud of our Chinese numbers and our results there because we see good growth and strong growth both in revenue and transactions in that market.

If I get one last question, can you kind of elaborate on the WesternUnion.com issues?

That's been a tremendous growth story. We still see growth in that business. What actually happened, and it started happening about February, there was an issue with the issuing banks in terms of not accepting credit cards for on-line transactions or debit cards. What's happening, is with the compromise, some of these credit cards and databases, which has nothing to do with Western Union at all, the banks are having an issue, the issuing bank, so they're not accepting the cards.

So, that really negates our ability in WesternUnion.com to do a transaction. So, we're now working with the banks, working with the issuers to find some solutions to the concerns that we all have. It's not an issue of fraud on our part in terms of us losing money but it's an issue of our not being able to do the transaction. So that's the crux of the problem. The thing that we do have is 11 other countries where we now launched dot-com outside of the United States, we run it through our bank, we have a different method of sign up and control, so we don't have that issue. So, we will be pushing harder to drive international expansion on the dot-com as quickly as we can, and we'll be working with the issuers to try to solve some of the problems we have in the United States to try to negate some of what we see in terms of stemming our growth in that business.

Is this an association directive or an issuer directive?

Jim this is Scott. It's really the issuing banks that we're working hand in hand with to make sure we've got the right controls in place and right limits. It's going to take some months if not some quarters to work through with that.

thank you.

you're welcome.

(OPERATOR INSTRUCTIONS) And your next question comes from the line of Greg Smith of Merrill Lynch. Please proceed, sir.

Yes, hi, thanks. Just on the WesternUnion.com, isn't there the possibility that you end up picking up those transactions anyway in your more traditional business?

It could happen, but I think one of the things that we noted when we went into the dot-com business, it was a very different consumer and almost -- at this point now, almost 50% of our customers are not traditional, walk-in cash payment consumers. They were really doing the transaction because of the convenience and ease of doing it so we may get some of it but clearly at this point now we're trying to sort out what's happened and where is that customer going and how do we bring them back into the franchise.

Okay. And then on the domestic -- excuse me, consumer to consumer business, do you feel like we're bottoming there and this business can turn around and grow, or is this one we should expect to be in some sort of secular decline?

No, I think we said that this was going to take awhile to recover, and it's a step by step thing, because a number of things have occurred in this particular business. We did see basically a stabilization in the first quarter because we saw minus 7 transactions in fourth and minus 6 in first. That was very good news. I think we've taken steps in terms of pricing initiatives on next day.

We are doing joint promotions to Hispanic consumers so we feel this is a growth business but this is going to take us a bit of time to get back to the level of growth that we would be happy with. We're going to take it step by step. We're looking at various alternatives in terms of how we run this business, how we price this business but it's not an overnight fix and as we said we are coming into the second quarter where we expect to see some improvement. We saw some in first. A slow buildup on this business but I truly believe that it will become a growth business again.

That's good to hear. Lastly on Vigo, it it's been in the fold for over a year and you're still talking about synergies. Why can't you get all those synergies today? Why does it take so long?

I think part of it was really, firstly when we bought the business there was a lot of operational issues that had to be sorted out before we could actually work with Orlandi and some of the other parts of the business, put them together. It was really a question of stabilizing their own settlement systems and how they operated and also we have the management team in there that's really focused on driving that, so I think that it did take a bit too long. I agree with you on that. But I think that as we've really looked at the growth, as we've looked at Mexico, as we look at managing three brands and now Liz manages Orlandi, Vigo and Western Union, we're going to maximize all three to make sure we're going to get the return and the growth.

Thank you.

You're welcome.

(OPERATOR INSTRUCTIONS) And your next question comes from the line of Mark Sproule of Thomas Weisel Partners.

Maybe to shift to Mexico, I guess you're mentioning improving stability. Is that in the context of we're starting to lap the beginning of the immigration discussion or we're starting to see functional improvements through the marketing initiative, pricing initiatives that you've been taking over the last little while?

I think we're seeing both. I think we're obviously lapping the issues that starts in the second quarter of '07 but also as we took some decisions in terms of promotion and pricing and also we did the outreach we saw 2% in the first quarter although that's not what is we saw years ago in Mexico, if you look at the Bank of Mexico, the numbers for February were 2% and we were right on. We saw Orlandi and Vigo a little bit more than that. So we feel we're coming out of that and moving forward on the Mexican business.

I know you didn't give this. Is there a growth rate just on the Western Union branded to Mexico?

Now that we've lapped the acquisition it we're just going to put Mexico as one large number for us so we can keep you appraised of what Mexico looks like.

Maybe I guess to shift a little back to your comments that you made earlier about the margin pressures, understanding that the mix shift from the international segments is going to drive a little bit of pressure, how much are we at a point where we should expect that to continue to erode some margin, this quarter and next? Where do we see it sort of bottoming out?

Mark, this is Scott. As we move throughout 2007, we expect improvements in domestic U.S. outbound and Mexico business and so forth so the mix shift you're seeing should lessen. We have 27% margins in the first quarter. We'd like to continue to run at that level. If you look at the guidance, we've given you the math, would get you to about that number so we are looking at less of an impact from the mix shift as we see strengthening in the domestic U.S. outbound business.

We'll continue to work the cost structure whether it's our incremental public company expenses, Vigo profitability or other initiatives we have in place. The beauty of operating in 200 countries is we can pick the best places to operate and have the best cost structure, best quality of service.

Lacking at the cost of service element, obviously a little pop up this quarter, imagine that should drive up a little further as we go forward because the incremental benefit from these international sides. Is that fair?

Longer term you're always going to have that mix shift because the international business will almost always grow quicker than the domestic business and Mexico business. So there will always be a bit of a mix shift

Thanks.

(OPERATOR INSTRUCTIONS) And your next question comes from the line of Charlie Murphy of Morgan Stanley. Please proceed, sir.

Thank you very much. I wanted to ask about the -- I'm sorry, can you hear me?

Yes.

I wanted to ask about the domestic business and briefly review the key forces challenging growth there. You've talked about the immigration stuff which affects approximately 30% but what is the general market softness you refer to, and when could that abate?

I think there's a couple of things going there. Obviously we have an immigration issue. We also have seen a reduction in principal and I think that has a lot to do with some of the economic conditions that we've heard about from the immigration reform and kind of people holding back. So that's impacted our revenue as well because a principal has come down. We do have, as we've looked at this business, I think we do have an opportunity in terms of lacking at our price structure, and that's why we've moved to a next day -- national next-day offering across the United States now. And we feel that that will be important for our consumers.

Great. Can we briefly touch on the EBIT margin in that business. You said it's structurally higher than international. Is that improving year-over-year? Do you expect it to improve and maybe get some timing on that?

I think both the Mexico business and the U.S. domestic are extremely high in terms of, they're very solid in terms of margin. So I think every penny we get on that side in terms of improvement, that really helps our profitability for the bottom line.

Okay. Thanks.

You're welcome.

We have time for one more question, please.

(OPERATOR INSTRUCTIONS) Yes, sir. And your final question comes from the line of Tien-Tsin Huang of JP Morgan.

Is there anything unusual we should expect on marketing spend in Q2? Notably Mother's Day. Is there a compare there? Last year Mother's Day had a pretty big promotion.

For us Mother's Day is always an important occasion and an occasion where we do make sure we put the right investments in place to maximize that gift giving opportunity.

Is there, in terms of marketing this year versus last year, last year was obviously impacted by immigration starting. Trying to understand the year on year comparison if there's anything unusual we should expect?

Without being too helpful to our competition, between pricing and marketing we're looking at making the right investments in the second quarter and third and fourth quarters at the right time and right places.

Okay. Then I guess WesternUnion.com, what's the relative profitability of that business? You talked about the revenue impact.

It's basically -- it's certainly not at the same profit level as a normal cash to cash transaction that we would do in a retail location but does it deliver profit.

So it's lower profitability?

Absolutely.

Thank you.

Well, thank you very much, everybody, for being with us today. I really appreciate it. I also want to again thank our agents and employees for a terrific job. We are very confident in our future. We know we have some challenges in our Americas business but we have a great team, a great leadership team addressing it and we have a very, very strong international business and our consumer-to-business business is really going out on all cylinders so I feel confident about the year, and I appreciate your time, and look forward to talking to you next quarter.

(OPERATOR INSTRUCTIONS) Thank you for your participation in today's conference. This concludes the presentation.