西聯匯款 (WU) 2008 Q2 法說會逐字稿

Good day, ladies and gentlemen and welcome to the second quarter 2008 Western Union earnings call. My name is Clarissa, and I will be your coordinator for today. (OPERATOR INSTRUCTIONS).

I would now like the turn the presentation over to your host for today's call, Mr. Gary Kohn, Vice President of Investor Relations. Please proceed.

Thank you Clarissa. Good morning everybody and welcome to the Western Union second quarter, 2008, conference call. Thank you for joining us today. As we have indicated in our press release announcing earnings we have prepared slides to accompany this conference call and web cast. These slides are available at westernunion.com under the investor relations tab. The slides will remain available after the call for your convenience and reference.

Before turning the call over to Christina I will take a moment to remind you today's call is being recorded and that our comments include forward-looking statements. I'd ask that you refer to the cautionary language in the earning release and in Western Union's filings with the Securities and Exchange Commission including the 2007 Form 10-K for additional information concerning factors that could cause actual results to differ materially from the forward-looking statements. During the call we will discuss items that is do not conform to generally accepted accounting principles. We have reconciled those measures to GAAP measures on our website, westernunion.com, again under the investor relations section.. All statements made by Western Union officers on this call are the property of the Wester Union company and subject to copyright protection. Other than the replay, Western Union does not authorize and disclaims responsibility for any recording, replay or distribution of any transcription of this call. With that it is my great pleasure to introduce our president and CEO, Christina Gold.

Thanks Gary and good morning everyone. The geographic diversity we have built in our business has once again proven to be a key advantage in delivering results from quarter to quarter that stand out in these challenging economic times. In this past quarter not only did the international business continue to perform well but we also saw improving trends in the domestic, US out bound and Mexico businesses. Revenue was $1.3 billion up 12% or 9% excluding the $38 million benefit from Euro translation. Consumer to consumer revenue was up 14% from transaction growth of 13%.

Our international business, which represents 2/3 of our total revenue, posted a 19% increase in revenue and 18% in transactions. The fastest growing part of our business, the subset of international transactions that originate outside of the United States grew revenue and transactions 26%. This subset represented 55% of total revenue in the quarter. Domestic revenue declined 7% in the quarter. The rate of decline has moderated by about 300 basis points from second quarter, 2007. The Mexico business achieved 3% revenue growth on 1% transaction growth reflecting the stable pricing environment. We also continue to out pace the market growth as reported by Banco de Mexico. On the topic of Mexico I know many of you read about the recent court opinion in Arizona. We were disappointed with the opinion. With that said, this is one step in a lengthy legal process we will pursue all avenues available to us including the appeal we will file later this week. Within the sea to sea business we are very pleased that pricing decreases are running favorable to our plan. In fact, we expect sea to sea pricing reductions to be about 2% of total revenue this year versus our plan of 3%. Excluding the $23 million of restructuring expenses we earned $0.33 per share, a 27% increase over the same quarter last year. Reported EPS was $0.31 a share, an increase of 19%. The business continues to perform in a predictable manner driving consistent first half results giving us confidence in our ability to achieve our 2008 goals. As important as the result so far this year is our confidence in the long term. As we shared with you during our investor conference on June 20th., we believe Western Union is well positioned to continue to build shareholder value in the long term. Migration trends remain strong and remittences are growing. Our strengths have put us in a unique position to capitalize on the opportunity. We enjoy a leading position in the huge money transfer market. As the [IAT] research shows the cross border money transfer remittence market is estimated to be $400 billion this year and continues to expand on average 8% annually.

Our remittance principle has consistently grown over 20% annually and as a result our market share continues to grow. We have developed an unmatched distribution network of 355,000 agent locations. We have built one of the most well-known brands. Western Union translates to trust, speed and reliability to customers the world over. We have a globally diverse revenue stream with more than half of our revenue originating outside the US. We have all of the advantages of scale and the ability to leverage our infrastructure. We have a first-class compliance program and enjoy strong relationships with regulators around the world.

We are in a solid financial position. Our prudent policies have helped us maintain strong credit ratings and gives us flexibility to invest in our future. And of course, it is the energy and hard work of our employees and agents who posess great local knowledge that make the organization complete. These attributes give us the confidence to reiterate our long-term objectives of 10 to 12% revenue growth and 15 to 18% EPS growth. We introduced our fourth growth priorities in January and provided more details a few weeks ago. The priorities were developed to best align our resources to the opportunities. They are sound and we will continue to execute on them. Our first priority is to grow the sea to sea business. We continue to grow the core business with the expansion of our global footprint. In the quarter, we added 10,000 agent locations to bring the network to more than 355,000. Our locations across 200 countries and territories cover the most urban to the most rural spots on the globe, making Western Union one of the most convenient service providers in the world. We continually sign new agents and expand existing relationships as agents look to partner with Western Union so they can be a part of our extensive network and benefit from our compliance expertise as well as the customer base our world class brand brings.

In the past quarter, I traveled to many countries to welcome new agents and to celebrate extensions of existing relationships. To highlight just a few. In Asia-Pacific we added two outstanding agents. One was [Bank Danaman] a leading Indonesian Bank. This was a competitive take-away. The other was the Agricultural Promotion Bank in Laos. In our EMEA South Asia, we renewed our relationship with the State Bank of India which has extensive rural coverage with more than 4700 locations. We signed a multiyear agreement at more advantageous commission rates with our long-standing agent, The First Bank of Nigeria. We added the Sri Lanka post where we expect to begin service in more than 600 of their 4,000 locations this year. And we added [Puballi Bank] in Bangladesh with more than 400 locations. Additionally, after making an equity investment in Grace Kennedy in 2007 we worked with them to expand our footprint in the UK and we are now better positioned to serve the large UK to Jamaica corridor.

In the Americas region, we have many signings and exciting renewals. In the US, we renewed our relationship with two of our largest check cashing groups, PLS Check Cashiers and Multistate Financial Services. And in Brazil, we renewed our agreement with Bank de Brazil for five more years adding to our ten year successful relationship. The renewal structure will further increase our margin and allows us to sign other agents in Brazil. Other highlights in the sea to sea segment this quarter included, on the customer loyalty and relationship front, we continue to provide unique features for our customers and have launched an auto notification pilot that brings the value added service of notifying the receiver that a transaction is ready to be picked up and notifies the sender that funds have been paid out.

At quarter end we had 10 million gold card members. For the full year we expect sea to sea pricing reductions to be around 2% of total revenue versus 3% as previously expected. We had a successful Mother's Day in Mexico which is very key for us, and it is important to note that last year's Mother's Day was strong as well. We saw improving trends within our westernunion.com business. Dot com posted positive revenue and transaction growth for the first time in five quarters driven by improvements in the US and continued international strength. In our [Vego] expansion effort we added 3,000 received locations in Russia and the Ukraine.

Our second priority is to expand our C to B business to other countries through joint ventures, acquisitions and [Pago for Seal] expansion. We are driving hard to bring Pago for Seal to additional countries and we have made significant progress and are on plan to offer bill ment services in Peru later this year. We are also on track to begin offering Vego branded bill payment in the United States on a test basis in the fourth quarter. Acquisitions remain a key component of our [CDB] growth plan and we have a good pipeline. Our third priority is to drive innovation by developing new services and technologies. The mobile pilot we launched in the first quarter with Smart Communications and Global Telecom continues for transactions between Hawaii and the Philippines. We believe mobile financial offerings provide an attractive opportunity in the coming three to five years. We are in discussions with major mobile operators around the globe and we will have several announcements in the near future.

Our micro lending pilot remains on track. We and our partner, Prime Credit a subsidiary of Standard Charter Bank, are encouraged by the results so far and we will be sharing more with you as this pilot moves forward. Another key priority is our focus on improving profitability. We are committed to delivering 2008 operating margin excluding restructuring expenses consistent with 2007 at around 27%. Additionally, we are taking steps to insure we deliver up to 50 basis points of margin improvement next year. These steps have included relocating several functions to operating centers in Costa Rica. I, together with members of the senior management team visited our new facilities in Costa Rica and I am very proud to report that everything is on track. The new Western Union team members are energized and up to the task. I want to thank them as well as the rest of the team involved in making these transitions seamless. And, this will has been no small undertaking.

In the second quarter we took another step to improve our cost structure to our decision to close our operating facility in San Francisco and relocate the functions to existing US facilities and to third party out sourcers. Regardless of the economic environment we strive to run this business as efficiency as possible while maintaining our commitment to providing our customers and agents the highest level of service. Ours is a scalable business and we have as an objective to deliver long-term margin expansion as we not only pursue cost saving initiatives but also leverage our infrastructure in the markets the world over. As we shared on June 20th we have been able to expand margins after we have made the investments for growth over time like in [A-PAC] and in EMEA South Asia we have expanded margins as transactions and revenue scale. Our leadership position is a result of our global diversification, our global distribution, our world class brand, geographically balanced portfolio, scalable infrastructure, industry-leading compliance capabilities and our financial position. I have great confidence in our team and our ability to achieve the goals we have set for 2008 and beyond. And now I will turn to Scott Scheirman our CFO who will discuss our second quarter financial performance and 2008 outlook in greater details. Scott.

Thank you, Christina. Our leadership position in the global money transfer marketplace and our execution of our growth strategy allowed us to deliver yet another strong, predictable quarter of financial results. Revenue for the second quarter grew 12% to $1.35 billion excluding $38 million of benefit from translation of the Euro, revenue grew 9%. The profit benefit on the translation of the Euro was $5 million. Earnings per share on a reported basis was $0.31 a 19% growth, and earnings per share excluding $23 million restructuring expenses was $0.33 a 27% growth. Transaction fee revenue which makes up over 80% of company revenue grew 10% driven by ongoing healthy transaction growth and improving pricing trends.

Foreign exchange revenue, which is generated from the difference between the exchange rate we make available to our customers and the rate at which we our agents are able to acquire foreign currency, grew 25%. Foreign exchange revenue is 17% of total company revenue and is driven by our international business. Second quarter margin was 25.0% as reported or 26.7% excluding $23 million of restructuring expenses. This compares to a 2007 second quarter margin of 26.8%. C to C margin was 70 basis points higher year-over-year as a result of continuing to leverage our scale in the international business. C to B margin was down 380 basis points. The margin was impacted by the ongoing product mix shift from the US cash bill payment services to electronic. Excluding restructuring expenses we expect full-year 2008 Western Union margins to be consistent with margins in 2007. Margins in the second half of the year are estimated to be stronger than in the first half of the year with the fourth quarter having the highest margin. Of the $23 million in second quarter restructuring expenses, $20 million was included in cost of services and $3 million was included in SG&A.

Consistent with the first quarter, restructuring expenses were not included in the operating segments. For full year, 2008, we expect to have a total of approximately $80 million in restructuring expenses. As a result of these initiatives, we estimate expense savings will be $10 million this year and $35 million annually in 2009 and beyond. These initiatives and other initiatives will help us deliver margin expansion of up to 50 basis points in 2009. Cost of services grew 16% in the quarter and was 59% of revenue. Excluding $20 million dollars of restructuring expenses, cost of services grew 13% and was 58% of revenue which is consistent with first quarter 2008. The growth in cost of services which is primarily agent commissions is attributable to the faster growing international C to C business and the mix shift in the C to B segment. SG&A in the quarter grew 10% excluding $3 million of restructuring expenses SG&A grew 8%.

The tax rate in the quarter was 25% compared to 31% in the second quarter of 2007. The tax rate was lower primarily as a result of increased foreign derived profits which are taxed at lower rates compared to US derived profits and within the foreign derived profits a higher proportion of those being earned in even lower tax countries. Additionally this lower tax rate is due to the finalization and implementation of foreign tax strategies that will drive sustainable cash benefits this year and annually going forward. As a result of our strategies and with the international profits growing faster than the US profits we now expect a full-year tax rate of 26.5% an improvement from our previous estimate of 29%. The 26.5% tax rate is calculated on our expected full year GAAP pre-tax profit. In updating your models please keep in mind that when you exclude the restructuring expenses, the effective tax rate is 27.5%. Lower tax rates are a real cash benefit to Western Union. Our net income as reported was $232 million a 13% increase. Excluding restructuring expenses, net income was $244 million, a 19% increase.

We continue to convert a high percentage of our net income into operating cash. For the six months of the year, we have generated $560 million of cash flow from operations and are on track to achieve our target of $1.2 billion of cash flow from operations this year. At quarter end, our cash balances totaled $1.9 billion. In the second quarter capital expenditures were $57 million bringing the total for the first half of the year to $80 million. In the quarter, capital expenditures included signing bonuses which were part of the capital expenditures guidance for the year. We still anticipate total capital expenditures to be less than $200 million in 2008 or about 17% of cash flow from operations. When considering our high cash balances, our ongoing cash flow generation and our relatively low capital needs, it is clear we have the ability to invest back in the business while returning immediate value to our shareholders through stock buy back. In the quarter we bought back 17 million shares for $385 million at an average price of $23.32 . Since being public we have repurchased $1.4 billion or 66 million shares of our stock at an average price of $21.65. Last month, the board authorized an additional $1 billion for stock buy back. At quarter end we had $1.6 billion authorized for stock buy back for 2009.

On another note in October 2009 we will take over the management of the settlement assets and liabilities generated be by our retail money order business. The settlement assets and liabilities are currently being managed by Integrated Payment Systems, a subsidiary of First Data Corporation and on average total approximately $800 million. The settlement assets will be transferred to Western Union in cash in an amount equal to the settlement liabilities. We want to remind you that the management of settlement assets is not a new skill for us and the addition of this portfolio to our existing money transfer settlement assets will not change our prudent investment philosophy and will not change our overall risk profile.

Our investment philosophy is to preserve capital, insure appropriate liquidity exists to meet daily settlement funding obligations and invest in high quality, high credit quality securities that are well diversified. Our C to C segment which is 85% of total revenue had revenue growth of 14% and transaction growth of 13%. Operating income increased 17% and operating margin was 27% which is 70 basis points improvement from last year's second quarter. The international C to C business remains our fastest growing business and we have delivered yet another stellar quarter. Our total international consumer to consumer business grew revenue 19% and transactions 18% during the second quarter.

The subset of our international C to C business, those transactions that originate outside of the US and total 55% of Western Union's revenue and 80% of total Western Union-- and 80% of total international C to C revenue grew revenue and transactions 26%. Also helping the international business is modestly improving US outbound trends although still showing low single digit revenue declines, the rate of decline has slowed by 300 basis points since second quarter 2007. On June 20th we presented a view of our business made up of three regions that shows how geographically diversified our business is. The regions are the Americas, Europe, Middle East, Africa, South Asia and Asia Pacific. Revenue growth for the Americas was 1% marking the first quarterly positive revenue growth in seven quarters. Transactions grew 4%. Within the region our domestic money transfer business benefited from moderating declines in the US, westernunion.com business. In the second quarter, domestic.com revenues and transactions declined slightly year-over-year but less so than in previous years. Also driving America's results was the ongoing strength in South America.

Our Europe, Middle East, Africa, and South Asia regions posted revenue growth of 23% with 24% transaction growth. This region is driven by a wide variety of geographic corridors, includes India, the world's largest remittance receive market. As a result of our extensive network totaling more than 50,000 agent locations in India, and the strong sub (inaudible) network across the globe, we achieved 54% revenue growth in this huge market. Transactions increased 65%. The Asia Pacific region represents a huge opportunity for us, as to date only comprises a small percentage of our total revenue but includes large remittence markets like China and the Philippines. Asia Pacific grew revenue 30% and transactions, 25%. China reported 27% revenue growth and 18% transaction growth. The consumer to business segment which represents 13% of our total revenue grew revenue 3% and transactions 2%.

Operating income was down 10% in this quarters operating margin of 28% compares to last year's second quarter margin of 32%. Impacting the year-over-year operating income decline and margin is declining traditional US cash bill payment business as compared to the faster growing US electronic bill payment and Pogo for Seal businesses which have lower margins. For 2008, our revenue, cash flow from operations and capital expenditures guidance is unchanged from what we shared on June 20th. We expect to deliver revenue growth at the higher end of our 9% to 11% range, cash flow from operations of $1.2 billion, our capital expenditures to be less than $200 million, and we estimate the net other expense line to be approximately $110 million for the full year. We are raising our 2008 earning per share guidance as a result of the improved full year tax rate expectation which is a real cash flow benefit. Our new guidance for earnings per share excluding restructuring expenses is $1.29 to $1.33 and we expect to likely be at the higher end of this range. We have added $0.04 to our prior guidance of $1.25 to $1.29 to reflect the change in tax rate. Remember, as I stated earlier, the tax rate on this non-GAAP earnings per share guidance is 27.5% We now expect GAAP earnings per share of $1.22 to $1.26. This reflects the lower tax rate of 26.5%.

In the second quarter we again saw the benefit of our international business in driving revenue and earnings. Through the first half of this year we have delivered consistent predictable results and remain on track to deliver on our financial objectives. We are committed to expanding margins. We expect higher second half margins this year especially in the fourth quarter. And we are expecting up to 50 basis points of margin expansion in 2009. We are also pleased to have recently raised out long term earnings per share growth objective to 15% to 18%. We generate strong cash flows which gives us the flexibility to invest to grow to business, execute on our strategy and to return capital to our share holders. In summary, all this will drive long term share holder value. Thank you. And now Christina and I will open up the call for

(OPERATOR INSTRUCTIONS) And your first question comes from the line of [Carl Techmeda] from FTN Midwest. Please proceed.

Thank you. Good morning. I wanted to ask you, Christina, about the renewals you had for your agents. Have you noted or have you been able to reduce any of the commission payments with these renewals or have you been able to keep them stable?

Net-net I think we were seeing a positive in terms of the commissions with our agents particularly in the international side. That's where we have been focused. As you saw with the Banco de Brazil we had better financials for us. We are continuing to look at a lot of the receive markets as well as when we sign up new agents we also have more favorable economics (inaudible) So, we feel good about where that's going.

I think you talked about finding an agent that was a competitive win. I was wondering is there more or less competition in your ability to try to sign new agents.

I think there's always a lot of competition but really with the size of our network now at 355,000 locations and the power of our brand, people want to come to us because they value the traffic that we bring and the volumes that we bring. So yes it is competitive but we really are the preeminent leader in the space and recognized as such.

Scott, a question on the settlement assets will be that be a net benefit in 2009 or would you anticipate it to be neutral as you transfer those assets to Western Union.

It will be few neutral for us. We will get at today's estimate about $800 million in the form of cash but it will be neutral to us.

One last question, Christina. As you look at your worldwide transactions are you seeing any kind of an economic slowdown impacting any of those transactions at any other regions outside of the US?

You know, as we look at our portfolio of countries and all of our corridors we are really delighted to see our international rates up 26%, improvements, in the domestic, the US and Mexico numbers. So, we're very happy with what we see. Also because we are in so many countries, the US is our biggest market but no country is more than 7%. We really balance our investments to make sure that we deliver the results as we move guard.

Would it be fair to say you are not seeing any real slow down from a transaction standpoint, which you had anticipated?

If we look at where we came out of the quarter at 26% revenue in transactions for the international that's right on the button in terms of where we expect it to be.

Thank you very much.

Okay.

Your next question comes from the line of Elizabeth Grausam of Goldman Sachs. Please proceed.

Thank you. Just wanted to touch on your comments around pricing. You sound a little more optimistic on the pricing environment certainly this year relative to last year. If you could give us a sense of what's really driving the kind of 2% pricing this year relative to 3% last year (inaudible) geographic aspects to that you can share and how much of it is tied to your ability to consolidate the market share with your competitors at the point in the cycle?

It is a combination of things. Obviously as we look at the US, particularly the Mexico and domestic, we did pricing in early 2007 so we've lapped that, but I think also really as we look at our portfolio and our business, what we are really try to go do is add value so that pricing is really the last lever that we pull. We really look at how can we add value through our loyalty programs, sharing in terms of rewards with our agents. Looking at other ways to compete. Also as we look at some of the developing markets in the world as we started to grow those markets we started in a very different competitive position and so we see that 2% being a realistic number for 2008. We delighted to see that. Obviously the profitability of our business and the profit of competitors you can see that there is an important element of profitability for all of us to make this work.

Is there any effect of having your gold card base on the price instability that you see in markets as you get users into more of a loyalty business (inaudible) rewards or loyalty points tied to agent bases in those markets where you can stabilize your own pricing.

You know, Gail and the team are working in terms of how do we really even more maximize those gold cards because we do see that stability. We also, in terms of the rewards, they don't necessarily get paid through Western Union but rather through the agent. That gives us leverage there as well. It is really a win had-win situation for us.

And then just lastly-- this is the second quarter in a row that you specifically have flags, a fairly large competitive take away-- competitive agent take away.. Can you give us a sense of what the pipeline looks like going forward? Are you even going-- to see some consistent announcements from you of international competitive wins? Is this unusual? Has it picked up in the last few quarters, or is this consistent with where you have been historically?

I think it is consistent. I think we have always been targeted in terms of looking at what are the networks available out there and clearly with the results that we bring and the locations that we have, the competitors are looking-- in terms of the agents coming to us because they see not only the brand T location and the network, also the compliance capabilities So, I think we bring a lot to competitors who come to us. It has been relatively consistent and maybe a little bit more in the last 12 months.

Great thank you.

Your next question comes from the line of [James Crossman] from Banc of America. Please proceed.

Thanks. Good job, guys. Scott, where do you think the tax rate will settle out given the mix shift toward international, say over the next couple of years.

Sure, sure. On a long-term basis we do believe the tax rate will continue to move down and that is a real cash flow benefit to Western Union.

Yep.

The jumping off point, it is too early to give 2009 guidance, but I would probably focus you on the non-GAAP tax rate of 27.5% as a starting point and then we believe that tax rate can continue to move down over the next three to five years as the international business will likely grow faster than the US business.

Can you give us a sense of the difference in the tax rates on employment basis-- where your .

I don't want to-- the US statutory rate is clearly 37.5%.

Yep.

The international rate is substantially lower than that, and it all factors into our long-term objective growing earnings per share at 15 to 18% but a lower tax rate will be helpful and one of the elements in addition to expanding margins as we move forward to drive strong growth of 15 to 18% earnings per share.

Excellent. Can you review the plans for money order business. Are you now issuing the money order business instead of out sourcing to First Data.

First Data is still doing the technical issuing of the money orders. We run the sales and marketing of that business. It is a business that we are very familiar with, and then beginning the latter part of '09 into 2010 we will begin issuing the money orders and investing the assets and liabilities. It is something we are very familiar with and our team has run the sales and marketing arm of that since the spin off.

Okay, and just one last question. The margin pressure in C to B, I guess the primary factor was the shift away from cash payments but when do you expect some stability in C to B margins.

I think we will be in the high 20s in the C to B margins, and I think the key for us is really (inaudible) when we expand Pago for Seal, but it is in term of acquisitions and that's what we're working diligently on right now. Hopefully by the end of the year we will see something there.

Okay. Good job.

Thanks.

Your next question comes from the line of Tien-tsn Huang of JPMorgan. Please proceed.

Hi, thanks definitely a great quarter. I just had a couple of questions-- the better pricing commentary. I want to clarify. Does that factor in better commission economics or is that a separate discussion.

That's really separate. The only thing is that when we do impact pricing it impacts the commission as well for the agents so we all share in term of a pricing decision, but as we look at the marketplace right now we feel 2% is what we are going to need for 2008.

Okay. So commission economics could be incremental to the 2% if you want to think about that longer term?

Not necessarily. It will be the same percentage that it would always be because there's a sharing percentage that always existed with the agent. So, it's not as though they're going to have more or less because when you take pricing down their revenue goes down as well.

Okay. I think in the past you have mentioned that 3% was your pricing.

Yeah.

Investment longer term. Should we consider 2% as a better proxy now, or--

Ill say 2% is great for '08 but I think we are always looking at opportunities and as new quarter come up and new opportunities exist, we may push back to the three. So, somewhere between 2 and 3. As we go into guidance for '09 we'll give you a better flavor for it because we'll have a better sense of what we think we need to do for next year.

Then on growth margins that was actually up sequentially, I think for the first time in a while. Can you help stack that up for us. How much was pricing and currency. You mentioned improving in is second half of '08. Is that primarily going to come in G&A or should we expect even better gross margins as well.

Well, I think the margins on C to C were up 70 basis points in the quarter and some of that is scale as well. But I will leave that to Scott to give you a flavor on that.

We are pleased with the margins we delivered in the second quarter and exactly to Christina's point, we have been able to leverage our international scale, the sea to sea business those margins were up 70 basis points. As we look at the second half of the year we expect the margins to be stronger in the second half of if year than in the first half of the year. And the strongest in the fourth quarter.

What's driving the fourth quarter to some extent is the seasonality where our customers are sending more money to their loved ones around the globe because of the various holidays. We have a fixed cost structure that we can very effectively leverage in the fourth quarter. But we see '08 margins consistent with 2007 right around 27%.

Okay. Just a few more quick ones. The commission and other revenue was down a little bit after a period of modest growth. Anything to read into there?.

Just a small item there in that that's tied to interest rates. There's some slow based income in there and with interest rates being down a little bit over the last 12 months it is down slightly for that.

And then in domestic C to B, what is the mix now between traditional-- I guess you call it the cash base bill payments versus electronic bill payments.

We haven't precisely disclosed that. Each portion is a good part of that business. Clearly the electronic piece is growing faster than the cash based portion. And we'be been very pleased with Pago for Seal, it is a cash-based business, but that one continues to over achieve its business plan and it's going to allow us to expand to other geographies around the globe.

Toward the end in terms of mix shifting toward the electronic domestically or is there still some time to go there?

It is hard to say for certain. We are focused with C to B is-- we think it is a lot of opportunities to grow this business globally, both through organic high growth and through acquisition expansion. Even in the US we think there's opportunities to extend our product offerings. (inaudible) is a product that we're very excited about. So it is hard to say for certain. Long term, C to B we want it to have margins right with our corporate averages. That's our long-term objective.

Great. Thanks.

Thanks.

Your next question comes from the line of [Bob Napoli] of Piper Jaffray. Please proceed.

Thank you. Good morning and congratulations on a very well executed quarter.

Thank you.

Christina, in-- assuming we do feel like the global economy is clearly starting to slow down a little bit more. I know your numbers were very strong in the second quarter and you said you haven't seen any change in the trends, but what would you expect, assuming the global GDP were to decline by a few hundred basis points in 2009 from the trends that we see? How would you manage that and what effect do you think that would have on the overall growth and profitability of your business-- your international business?

You know, it is difficult to define and we will give a clearer line of site when we give guidance for '09. But I think the important thing to remember for our customer is-- our customer is a cash-based individual who goes to countries to serve out work to send money home. This is not a credit card person, doesn't have a house, really is kind of strapped and they are challenged. It is a very mobile person. So, what we would see-- sometimes we can see-- is perhaps the principle being a little less.

As we look at the challenges we face around the globe, and you see it. You can see changes in principle but we can manage that through moving the prices to drive transactions or investment in other parts of the world where we see-- like in the Middle East we see a lot f o people going into the Middle East, so we're driving that business very hard. A couple of years ago it was really an (inaudible) business and we really didn't understand it now we have a team there that does a phenomenal job and we drive a very big chunk of business out of there. So, and the other thing-- I was just in Poland, it was very interesting, a couple of weeks ago and we signed the Bank [Picow]. Poland has been a receipt market for many, many years but as that economy is now picking up they're starting to build infrastructure in different parts of Eastern Europe so all of a sudden now. we have corridors from Poland to Viet Nam, Poland to China, they're bringing in migrants because they lack the labor force to do the work. It is very important for us to identify new trends, new opportunities and continue to market and build those corridors. So, it is really a balancing act but I feel confident that we have the people on the ground and the intelligence on the ground to maneuver our investments to make sure we continue to see that growth.

What has been through the prior recip-- , if you go back to 2001-2002 where we did have a global recession, how did Western Union, manage through that? Is there a difference

What I would say is that our business is much more diversified today than it was five or six years ago. We are in 200 countries, 355,000 agent locations. One thing I would keep in mind is we're in a $400 billion remittance market that's growing 8% a year.. We have consistently grown greater than 20%. If you look back, over the last five years, 2002-2007 our revenue has grown at a 12% compounded annual growth rate and cash flow has grown at a 13% compounded annual growth rate, so the . good news today is we are much more diversified today than we were five and six years

Thank you very much.

Your next question comes from the line of Bryan Keane of Credit Suisse. Please proceed.

Yeah, hi. Good morning. Do you guys expect a new court decision in Arizona to impact Mexico business at all

I think that we took the brunt of that issue in mid '06 and early '07. I think-- It is disappointing what happened with the decision and we will take all the actions necessary. But impacts about 20 locations in northern Mexico. So I really don't see us having a kind of relapse of the issues we had a year or so ago and plus the strategies that we put in place at that time are still in existence. So I feel confident about that.

Okay. Great. When you guys talk about (inaudible) operating margins to remain in the high 20s, so that would translate into less of a drag year-over-year. What's the reason for that because I assume the business mix is still going to hurt you. Why would margins stabilize that?

I think we're lapping a little bit of the change that we've seen if we go back to 2007. So we had both in the first quarter and second quarter about a 3 - 400 basis points decline. But it is sort of landing in about the territory where we think it is going to land and at the same time, we are pushing in terms of our expansion strategy and also looking at, as Scott said, the (inaudible) deals, Google deals and also Pago for Seal and acquisitions.

Okay, and then finally, what's the average principle per transaction. How does that look like year over year.

The average principle now it is at about $400 which is more than-- it's increased over time and it is about 4 or 5 percentage points higher.

Okay. Great. Thank a lot.

You're welcome.

Your next comes from the line of Adam Frisch of UBS. Please proceed.

Thanks, good morning. Nice quarter. I just wanted to ask again a little bit about pricing. I know it has been talked about a lot here so far but if transaction trends continue to slow a little bit and I am not sure if 2Q is an anomaly, it's hard to make a trend out of one data point, but if. we continue to see that on the heels of a slowing global economy, do the favorable pricing trends actually reverse or are those prices locked in for multiyear.

Pricing is very fluid. It's something we monitor day-to-day on 15,000 corridors but we look at what's going on in the marketplace and what with we need to do. So. it is not locked and loaded. As we do our plans for '09 we look at what we think we are going to need but we feel very confident in that. Also a 26% for our international outside of the US growth rate is tremendous and also seeing very strong growth rates in our subset as well. We feel good about where the transactions are growing and going and don't see the need to push that much more on the pricing button.

Okay. Great. Then, I think Jim touched on the question about tax rate and sustainability, but continuing with the theme of sustainability on margin expansion. Obviously '09, 50 basis points higher, can we expect further margin expansion going forward? Are the changes you are making now enable you to kind of leverage your fixed cost base more going forward or do we need to see more things like, I don't know, if it is (inaudible) things offshore, doing other things on the cost side to continue that trend of margin expansion over time?

I mean I think we are working on both fronts. One is in terms of efficiency in our cost structure. That's why we did quite a bit this year with the $808 in charges. But the other thing is we showed to investors at the meeting in June as the Asia and the EMEA have scaled they've gone into the 20s and mid-20s. We have seen that scale as we have built the awareness, built the network. We really do see margin expansion in our market. So we have more opportunity in those markets to grow margin through scaleablity and Scott I don't know if--

What I would add to it, is Adam. It will be both we have opportunities to leverage our global scale I believe in certain areas we are reaching an inflection point where we can continue to drive margin expansion and then there will be some opportunities to improve our cost structure, the actions we took this year, difficult actions but $80 million of expense. But annually we will save $35 million beginning in 2009. So, we'll have opportunities. We have a plan in place and we have reached an inflection point in certain markets.

Okay. Great. Thanks so much.

Thank you.

Your next question comes from the line of [Glen Green] of Oppenheimer. Please proceed.

Thank you. Good morning. A couple of questions. The first one has to do with-- if you look at your quarter-over-quarter trends, transaction revenue and year-over-year they all look stellar. I was just wondering if there is anything you could glean from the monthly trends you are seeing either across domestic, Mexico or the international that gives you any sort of indication where we are headed going forward either positive or negative.

I think we are delighted with the quarter. We are reaffirming our guidance for '08 and our long term guidance as well so we feel confident in our strategy and where are business is going.

So, you didn't see anything unusual in the quarter? June didn't slow, June didn't get better across the major territories?

We feel good about our business. I don't know, Scott.

We don't want to get into month over month, but second quarter was a strong quarter. First quarter was a strong quarter. We reaffirmed our guidance, it will be at the-- likely at the upper end of the 9 to 11% revenue growth and at the upper end of the $1.29 to #1.33 earnings per share.. So with 355,000 locations and a $400 billion market there's a lot of opportunity to grow.

Okay, then second question has to do with the agent commission renewals and actually more favorable commission rates that you are trying to glean here. Does that benefit you on a near-term basis meaning how much of that is sort of implicit in your up to 50 basis point guidance for margins for '09 or is there a longer tail to that where it has more of a benefit in 2010-20011.

That has a longer tail until the sense it depends on when actually the new contract goes into play because we do negotiate these things about a year out. It takes a little while for some of that to roll out. The other thing is on the 50 basis points we wanted to, at the time we took the restructuring charge was to clarify also that we would take the charge but we would give back to investors the 50 basis points. So, we are still targeting to do more as we can, but we are not committed yesterday to 2009 except for the 50 basis point we have already given.

But the 50 basis points-- is there a meaningful contribution from the agent commission rates or--

In that, no. I would say no, not there. No.

Okay. Great. Thank you.

That's separate.

Your next question comes from the line of Greg Smith Merrill Lynch. Please proceed.

Yeah hi, good morning. With regards to Western Union taking over the management of the settlement assets on the money orders, what's the reasoning behind that. I don't think we have hard why you are doing that.

When we first spun off from First Data, they did the processing of that. As we went public time just didn't permit necessarily to do that. We are getting, the licenses we need and other things we needed to do that. Money order is an important business to us, we sale over 50,000 location, 2/3 of our money transfer agents in the US offer that, so it is strategically important and since spin off we run the sales and marketing arm of that. Now in October, starting in October through 2010, we will have full management. Of that business and that product.

Will you get more aggressive in growing that business, hopefully not more aggressive in how you manage money, but in actually growing

We will not g b aggressive in managing the money by no means. We'll get cash of $800 million and we will invest that wisely just as we have with the money transfer business. Without being too helpful to my competitors out there, money order is important and we'll continue to drive growth behind

Okay, interesting. And then, with some of your office closures and moving call centers and what not, it sounds like you are increasingly using third party out sourcers, just want to get an update on how that is going. Are you getting service levels and whatnot you hoped for.

We are really quite pleased with the progress we've made. Obviously it was a difficult decision but it's one where we were very well planned. We have a large operation in Costa Rica. We actually have over 1000 employees there now. So the bulk of the work, a large chunk of it is being done by our employees in Costa Rica, in other parts of the Philippines and other parts of the world. The out sourcers that we've used we had been using them over a period of time and we have very strict in terms of SLAs and what we expect so the service there is very good. So as we have gone through this transition we really have not skipped a beat as it relates to service and our expectations are high and the performance of our centers and the out sourcers have been very good.

Excellent. Thank you very much.

Clarissa, this is Gary. At this time we have time for one more question, please.

Your next question comes from the line of Charlie Murphy of Morgan Stanley. Please proceed.

Thanks very much. I just wanted to return again to agent commissions. Can you give us any sense for situations where you are adjusting agent commissions how much you are adjusting them. For example if I was an international agent and I was making 25% the transaction, what will I be making in 2009.

We really don't disclose the finite details of it but I think the differences are, it depends on the size of the market and the business whether you are a send or receive and the cost structure the agent has. We are cognizant of their profitability and our profitability because we work on both fronts. As we create these advantageous contracts for ourselves we also insure that we are going to drive volume through their business so they also maintain their profitability. So it is a win-win and we also look at other ways in terms of marketing, investment and other things to do that we can do to drive the business with them.

Okay. Great. Very quick follow up. I note that you appointed a new manager in the US Canada business. Is it possible to get any early impressions from him or what he he be asked to do?

I mean obviously we are delighted that Stewart has joined the company. We were in search for a period of time. I think he brings a lot of marketing expertise to the corporation and we look forward to what he can do for business and work with the team to drive it forward. So probably over time you will have an opportunity to meet him and see how his plans are going. But it is early days yet. He has only been with us for about 30 days.

Thanks.

Okay? Thank you very much. Appreciate everybody on the call today. Again, to all of the employees and agents of Western Union, thank you for a terrific quarter. We feel confident in our year. We are confident in our business and we are just delighted to be able to share the results with you and look forward to next quarter. Thank you for joining us today and have a great summer. Thank you.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.