西聯匯款 (WU) 2009 Q2 法說會逐字稿

Good day, ladies and gentlemen and welcome to the second quarter 2009 Western Union Company earnings conference call. My name is Dan and I will be your coordinator for today. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Mr. Gary Kohn, Vice President, Investor Relations. Please proceed.

Thanks, Dan. Good morning, everybody. Welcome to the Western Union's second quarter 2009 earnings conference call. Thank you for joining us today. Today's call includes comments from Christina Gold our President and CEO, and Scott Scheirman, Executive Vice President and CFO. As we indicated in our press release, we have prepared slides to accompany this slide and webcast. These slides are available at westernunion.com under the investor relations tab and were made available after the call.

Before turning the call over to Christina, I want to remind you that today's call is being recorded and our comments include forward-looking statements. I ask you refer to the cautionary language in the earnings release and in Western Union's filings with the SEC including the 2008 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 do not conform to Generally Accepted Accounting Principles.

We have reconciled those measures to 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 introduce Christina Gold

Thank you, Gary and welcome to our second quarter call. During the quarter we performed well against our business and financial objectives and made important strides in broadening our market opportunity. Our revenue was $1.3 billion for the quarter, and we earned $0.31 per share. Our cost reduction initiatives continue to contribute to profitability as indicated by our operating margins which were 27% during the quarter. Through the first six months of 2009, we have generated over $600 million of cash flow from operations and at June 30th, we had cash of $1.8 billion. This financial strength allows us the flexibility to invest in and enhance our competitive position, particularly in a tough economic environment.

Our C2C transaction growth moderated for the period as did the average amount of money sent per transaction by our consumers. Revenue per transaction was consistent with the first quarter. The C2C business delivered transaction growth of 3% year-over-year, and we handled just shy of 50 million transactions during the quarter. As our transaction growth indicates, remittances are not necessarily discretionary. In fact, most of our customers have a pressing need to consistently send money home for essentials such as food and shelter. Before I turn to the regions, I want to update you on several initiatives. Westernunion.com continues to perform well, particularly internationally with transactions growing more than 20%.

With the addition of Spain during the quarter, we now have 14 send countries including the top five European send markets activated with dot com service. We are pleased with the continued growth of our intrabusiness where transactions are growing at approximately 20%. And in the account to cash base, there are now nine banks offering this Western Union brand of service worldwide which includes visibility with millions of account holders. Our account to cash offering is growing transactions at approximately 60%. Our focus remains on gaining market share in this challenging time. We believe we are well positioned given our world class brand, network scale, and financial strength.

Turning to our C2C regions, EMEASA, consisting of Europe, Middle East, Africa and South Asia represented 45% of our total revenue for the quarter and experienced a revenue decrease of 5% on 11% transaction growth. On a constant currency basis, revenue was up. Most of our largest Western European countries grew transactions consistently with first quarter growth rates. Within EMEASA, Spain and Russia remain challenged. In an effort to better target the consumer, we have launched our Vigo branded service in Spain which allows us to capitalize on Vigo's price value proposition. Revenue and transaction growth rates in the gulf states and India remain strong for the period but moderated compared to the first quarter. India experienced revenue growth of 11% on transaction growth of 27%. We added to our EMEASA agent network base with the recent agent signings of the [Institutio san Banc Popolate Italiana] in Italy, Union Bank in Sri Lanka, Janata Bank in Bangladesh and CMS Limited as a sub-agent of Paul Merchants Ltd. in India. And we renewed Post [Morak] to a multiyear contract. In Turkey we added GarantiBank which expands our account to cash capability.

In the second quarter, the Americas region represented 32% of consolidated revenue and experienced a revenue decline of 11% year-over-year, on a transaction decline of 5%. The domestic and Mexico businesses continue to be challenged. Our domestic business saw 12% revenue and 8% transaction declines. Revenue in Mexico which represents 6% of Western Union declined 20%. Transactions were lower by 15%. In the second quarter, our Mexico results trailed that of published by the Banco de Mexico. Trends indicate that our independent agents, both Western Union and Vigo are performing below the levels of our regional and national agents. In addition, we discontinued Vigo service at nearly 600 nonexclusive locations this year due to credit issues caused by this challenging economy. It is worth noting that our large retail channels performed slightly better than the Banco de Mexico data.

Our efforts to improve Mexico include strengthening the independent agent base, supporting our key national accounts and driving our bank channel strategy and marketing program. We expect Mexico will continue to be challenging throughout the remainder of 2009. Transaction trends within our US outbound business, the largest revenue component of our Americas region have remained stable over the past three quarters. We are executing on our banking strategy with the recent agent signing of Fifth Third Bank, the first time they're offering a third party money transfer service. In Canada, we extended our relationship with Scotia Bank through a multiyear agreement and we rolled out 2800 US bank locations during the quarter. In South America, we signed an agreement with [Neuesta Senora de la Sonseon] serving the Argentina Paraguay corridor The agent will offer Western Union money transfer service in place of their own brand. Asia Pacific revenue was flat on a 19% increase in transactions.

We were encouraged to see China's transaction growth turn positive and revenue decline moderate. China is the world as second largest remittance receive market and our goal is to replicate our success in India by implementing a localized focus. We are in the process of opening our second business office in [Guan Cho] and as the market recovers we expect to leverage our expanding presence. Our Philippines inbound remittance growth outpaced the growth reported by The Central Bank of the Philippines. As we have stated in the past, we see significant potential in this market as migrant flows from the Philippines continue. Other progress includes a five year renewal with VietinBank in Vietnam under which the bank becomes a direct agent. We continue to see opportunity in the broader Asia Pacific region as it accounts for about 20% of the global remittance market yet it is only 8% of our revenue.

Moving to our C2B segment, which we now refer to as global payments, revenue was down 8% on transaction growth of 3%. Trends which are comparable to the first quarter. Our bill payment business in Argentina [Havovacil] continues to grow. Scott and I recently visited Argentina and saw first hand how the strong consumer value propositions, and ability to process a transaction in seconds has made them one of the leading walk-in bill payment providers in South America. We have leveraged our success in Argentina and have launched walk in bill payment services in Peru and Panama. In the near term we are focused on expanding into Brazil.

In summary, the key to growing our global payments will be product and geographic expansion. Finally, we announced an agreement to acquire Custom House which expands our product offering to the business to business payments market. Before turning the call over to Scott, I would characterize the second quarter as one where we executed against our 2009 business and financial objectives and just as important, we continue to invest in our strategic priorities. Scott?

Thank you, Christina. Second quarter revenue was $1.3 billion, down 7% on a reported basis and down 2% constant currency adjusted. In the second quarter we delivered $0.31 earnings per share on a GAAP and constant currency adjusted basis which was down 6% from last year when adjusted for restructuring charges in 2008. EPS was impacted by $0.01 in the quarter for a $12 million charge related to an investment in the Reserve International Liquidity Fund. Second quarter transaction fee revenue, which makes up 80% of company revenue, declined 8%. Foreign exchange revenue declined 7% year-over-year. Both were affected by translation of foreign denominated revenue into US dollars, and slowing C2C transaction growth.

A World Bank report released last week on remittance market forecast that migrants will send 7% to 10% less principle to developing countries in 2009. This provides the March 2009 report which estimated migrants would send 5% to 8% less principle in 2009. Encouragingly, the World Bank anticipates a return to growth in 2010, and notes that the remittance market supported by a base of migrants remaining in their host countries. Our trends suggest similar patterns. Year-to-date, our Consumer-to-Consumer total cross border principle handled declined 5%, or grew 1% constant currency adjusted. During the quarter we handled $16 billion in C2C cross border remittances down 8% year-over-year or down 1% constant currency adjusted. Our consumers continue to send funds as evidence by transaction growth this quarter. However they are sending less principle on average with principle per transaction down 11% or 5% constant currency adjusted. Even though principle is down, our revenue is not impacted proportionally because of the component of C2C revenue.

First approximately 80% of revenue comes from the transaction fee which is charged for sending money transfers. This fee is less sensitive to the amount of principle sent as we primarily use banded pricing. The fee also depends on the send and receive locations. Second, foreign exchange revenue which is 20% of our C2C revenue does vary with the amount of principle sent. By way of example, the largest contributor to the moderation in transaction growth this quarter was the Gulf States in which principle per transaction is high but revenue per transaction is not. Therefore the slow down in the Gulf States had a more significant impact to both principle and transaction growth than revenue.

In the second quarter, trends in countries with higher revenue per transaction remain consistent to the first quarter 2009 which allowed us to achieve our revenue objectives. This highlights the benefits of our geographically diverse revenue stream. Now turning to costs. To get a meaningful comparison to 2008, we excluded the $23 million of restructuring expenses incurred in last year's second quarter. On an apples to apple basis in the second quarter, cost of services declined about 200 basis points to 56% of revenue versus 58% in the second quarter of 2008. This improvement included the benefit of taking FEXCO direct, selective agent commission initiatives, cost reductions, and overall expense management. SG&A was 17% of revenue in the quarter, representing an increase of about 150 basis points, from the second quarter 2008 primarily due to costs related to the FEXCO acquisition. We continue to invest in our brand, with marketing spending totaling 5% of revenue.

Second quarter consolidated operating margin was 27%, consistent with the second quarter of 2008 excluding restructuring charges. With about 2/3 of our costs being variable, head count reductions, call center relocation, agent commission initiatives and the consolidation of our C2C regions contributed to a strong margin at 27% despite revenue declining in the second quarter. When the market improves and revenue grows, we expect to expand our margins. The tax rate for the second quarter was 25.5%. We continue to benefit from the higher proportion of foreign direct profits which are taxed at a lower rate compared to US derived profits and the effect of tax efficient strategies implemented in 2008.

Now turning to our segment, our C2C segment which was 85% of total revenue declined 7%. Constant currency adjusted, revenue was down 2% on transaction growth of 3%. Transaction growth rates remained relatively consistent throughout each month of the second quarter. Our international C2C business saw revenue decline 5% around 1% constant currency adjusted. Transactions grew 8% as growth moderated from the first quarter given the global economic challenges. The portion of the international business representing transactions that originated outside of the US saw revenue decline 5% or growth of 3% constant currency adjusted while transactions grew 12%. Second quarter C2C operating margin was 28% compared to 27% in last year's second quarter, and benefited from our cost saving initiatives. As slide 21 details, the spread between C2C revenue and transaction growth rates was 10 percentage points. Currency translation was the largest contributor to the total C2C revenue and transaction growth rate difference totaling half of the spreads.

Three additional factors impacting the spread were, geographic mix, where revenue per transaction differs depending upon originating geography and destination; product mix where intertransfers carry lower revenue per transaction and finally price decreases. The combined impact from geographic mix, product mix, and price decreases remain generally consistent with recent quarters. We have changed the name of the C2B segment to global payments which will include the results from the pending Custom House acquisition. There are no other changes to the global payment segment. This segment, which is 13% of Western Union revenue, saw revenue decline 8% in the second quarter. Operating income for the segment was down 11% and second quarter operating margin of 27% was down about 100 basis points from the second quarter of 2008. We have taken cost out of the business and continue to target reductions. We are also allocating capital behind new opportunities to expand our product offerings and geographic footprint.

Our cash position, cash flow generation and our A minus A 3 credit rating allow us to invest in the future. Year-to-date cash flow from operations was $606 million. Our capital expenditures were $40 million, and our stock repurchases totaled $100 million. As a reminder, on October 1st, Western Union will receive cash from First Data which will be invested in a flow portfolio supporting our retail money order business. These investments will appear as settlement assets on our balance sheets with related increases in settlement liabilities. While the balances will fluctuate, the average amount is approximately $800 million. We will continue our prudent investment philosophy by investing in highly rated liquid debt securities, just as we have done with our existing money transfer settlement assets.

At June 30, we had $1.8 billion of cash on hand, about evenly split between US and international cash. We had debt of approximately $3 billion, our nearest debt maturity is November of 2011. In addition we have a $1.5 billion line of credit that expires in 2012 that's fully available. Our financial strength and strong balance sheet gives us a competitive advantage. For 2009 we are reaffirming our outlook. We expect constant currency revenue to be down 2% to 5% and GAAP revenue to be down 5% to 8%. Reaffirming our revenue outlook is based on the following factors. Price decreases estimated at 2% of revenue for the full year, a pricing model that maintains revenue per transaction despite modest changes in principle amounts, the diversity of our business including presence in 200 countries and 15,000 corridors which enable us to shift investments. As a result, the underlying drivers of revenue may vary from quarter to quarter. For example we had anticipated additional transaction growth in our intrabusiness given our roll out plans which have been delayed due to licensing.

Similar to my previous comments around the Gulf States, (intra) will have a much more significant impact to transaction growth than revenue. In summary, we are comfortable with our revenue outlook for 2009. For EPS, we are reaffirming our ranges which is $1.16 to $1.26 on a constant currency basis and $1.18 to $1.28 on a GAAP basis. We are expecting the full year margin to be around 27%. As a reminder, our outlook does not include the pending Custom House acquisition which is anticipated to close in the third quarter. We expect about a $0.01 of delusion to 2009 earnings per share with the largest portion attributable to expensing of transaction related costs. The Custom House acquisition is expected to benefit revenue by less than 1% in 2009. In addition to our revenue and EPS outlook, we reaffirm the following; cash flow from operations, in excess of $1.1 billion, capital expenditures of less than $150 million, $400 million of stock buy back for 2009, and finally we expect the full year tax rate of about 26%. Christina?

Thank you, Scott. We are pleased to be tracking to the business and financial expectations we laid out in February. More importantly we are encouraged by our strategic process. As we stated earlier in the year, difficult times often present the best opportunities and we believe that the initiatives we are pursuing today will serve as the foundation for sustainable and diversified growth over the next decade. We have a focus that is strategic initiatives and I will provide an update on five of these including banking, payment services directive in Europe, business to business cross border payment, prepay and mobile.

First our banking strategy. We are expanding our distribution and more importantly extending our brand to new customers through physical bank locations as well as online distribution. Account to cash presence in key send markets provides an attractive opportunity to reach a new demographic. This market likely has greater access to bank services and may be less reliant on relocation to find employment opportunity. A stand out among our bank relationship has been Scotia Bank, which has witnessed strong growth and serves mostly new customers who send higher principle. In our opinion, this bodes well for our recent bank signings including US bank and Fifth Third. We plan to continue to sign banks throughout the United States. In Europe, we are also investing our time and resources in advance of the upcoming payment services directive implementation in November 2009.

The acquisition of FEXCO provided us a platform including a sales force and operating infrastructure on which to build throughout Europe. Through PSD we will attract additional customers while expanding the classes of trade that can offer money transfer services, and our sales force is already pursuing many opportunities. As you have seen, Western Union is also focused on areas beyond the $400 billion C2C remittance market. We see the cross border business to business payment space as offering a similar market revenue opportunity as our C2C business.

Our pending acquisition of Custom House positions us well in this area, and we believe it is a game changer. With operations in seven countries today, and annualized revenue run rate of $100 million and strong margins, our objective is to accelerate international expansion by leveraging our brand, global footprint, and financial strength. Custom House offers small and medium size businesses, exceptional customer service, reliability and competitive pricing. Another growth opportunity is prepay. We now have eight million Western Union gold cards issued in the United States. We recently began offering reloadable Visa debit cards to a group of these loyalty card holders. Our physical locations and detailed understanding of customer behavior is a key asset in addressing the market opportunity.

Our Americas team also broadened the home delivery test of the Western Union money wise prepaid reloadable Visa cards to two additional markets. Mobile money transfer is an emerging initiative that allows customers to send or receive remittances using their mobile phone. Our brand, network and compliance infrastructure are assets that we will leverage as the three to five year opportunity takes form. In the second quarter, we formed a strategic alliance with Zane, a leading mobile operator in the Middle East and Africa. We will pilot cross border mobile money transfer services between Western Union and Zane's zap mobile platform in select markets once we have obtained regulatory approval.

We are also pleased to announce an extension of our service with Vodafone and sister company Safaricom. Beginning next week, consumers can visit select Western Union agent locations in the UK to send money directly to the mobile wallets of Safaricom subscribers in Kenya. This effectively extends our reach in Kenya to more than six million consumers whose mobile phones will act as virtual Western Union locations. Our ongoing mobile money transfer pilots are providing value information as we expand with operators in new countries and test various marketing strategies with current operator agents. One example of our learning and modified go to market strategy, focus is on giving the receiver of a Western Union money transfer in the Philippines the option to load the remittance on to the mobile wallet or to pick the cash up at an agent location. This initiative provides choice and convenience to receiver customers and another reason to recommend Western Union to the sender for future remittances. The mobile channel compliments our core business and we are playing a leading role in this evolving opportunity.

So in closing, I would like to stress the overall strategic progress we have made in 2009. We are the market leader in consumer money transfer and expanding into the broader payments market. We have a world class brand and an unmatched physical network enabling people and businesses to move money around the world in a fast, convenient manner. We have a scalable infrastructure, industry-leading compliance capabilities and we have the financial strength to invest in market expansion when others may not have that opportunity. The ability to commit capital and resources to opportunities that leverage our core strength is laying the foundation for global market share gains, positioning Western Union for earnings leverage when the global economy rebounds. Thank you for listening to us today, and with that we would like to open the line for questions. Operator?

(Operator Instructions) Your first question comes from the line of Tian-tsin Huang from JP Morgan. Please proceed.

Great. Thanks. I just wanted to-- first ask about Mexico. Basically all the metrics for all the other regions and growth et cetera, are all in line. I guess Mexico is really the only difference from our expectations.. You highlighted some of the reasons, Christina, I was just curious. Can you quantify for us the impact of closing some of those Vigo stores and maybe give a little more detail on what's going on competitively there on the ground?

In Mexico there were a couple of factors, obviously we saw on the revenue side we did do a little bit of pricing on the Mother's Day campaign so you saw that a little bit in the distance between revenue and transactions. But really, a big issue for us has been the credit lines we can extend to some of our agents. Not only did we discontinue 600 had, we suspended over a thousand over a period of time.

So that does impact our business, and the thing you have to remember on this is that these particular locations are not exclusive. So they can be offering four or five different brands at one time so that if we are not at the table, the operator may still continue to operate but we are not willing to deal with that agent anymore because of the credit risk. So that transaction can go to a competitor but we will not take the risk on that credit.

Got you. So, have an impact on the trends, timing wise when did that happen in the quarter and should we expect the second half to look a little bit weaker than the first half given some of the actions you are taken.

I think we are going to see challenge in Mexico for the year but I think that there's a lot of things going on that will really help to firm up the Mexico business. Obviously, the Americas team is very focused on the independent agents looking for more credit worthy agents they can put on. Also the banking strategy is moving pretty quickly and we are very delighted with the US bank, the 2800 locations we rolled out in May are already producing pretty effectively. So now, with Fifth Third, I think that's going to help us a lot. The thing that's very encouraging is our large chain and retailers are doing well. We will also be focused on them. So we'll try to sort of shore it up, balancing all of the different things that are going on in Mexico as we move forward.

Great. You mentioned there's still some bank deals to be had here in the US. Just to confirm, will there be any signing bonuses that we should think about that could be unusual as these deals come through and also just the commission structure and margin structure. How different is it from your typical agent.

They're really in line with any of the agreements that we would have with agents in the United States, and I think as Scott alluded to, we are not expecting CapEx to be over $150 million for the year. There's nothing unusual in the plans, but we are definitely looking to sign more banks this year.

Great. Maybe one last quick one for Scott. The SG&A was up sequentially a bit. Is this a good run rate to assume going forward or were there some one-time expenses in there?

I would think about it is that we are targeting 27% margins for on a full year, a couple of things to cause the up tick if you will from first quarter to second quarter. We did spend a little more on marketing, we are closer to 5% of revenue compared to 4% in the first quarter and we picked up for a full quarter, the FEXCO operating expenses. Back in the first quarter it was probably about four or five weeks. But as you factor it in, think about the 27% margins on a full year basis.

Thank you. Well done.

Thank you.

Your next question comes from the line of Julio Quinteros from Goldman Sachs Please proceed.

Sure. Hey, Scott, I just want to come back to a comment you made about the expense management and leverage, and obviously as we start looking to 2010 how do we think about the, the factors that could add to leverage into 2010 and what type of margin expansion are you willing to commit to at this point into 2010 beyond 2009.

You know it is probably a little early to talk about 2010 in specifics, but let me tell you how we thinking about our business over the next few years a bit. We do believe as the market rebounds as revenue accelerates we have margin expansion opportunities in our business as we move forward. Other areas that we will be focused on is continuing to manage our costs appropriately, balance with making the right investments in the business. We made very solid investments with buying FEXCO this year, Custom House, that's a huge opportunity for us in the B2B space. We will continue to balance the cost savings with investing in the business and then, as I mentioned, we believe our business model as revenue grows, as the market improves we can drive market expansion.

Related to FEXCO and Custom House have you guys disclosed the incremental amortization would be for those acquisitions.

We have not. What we have talked about is that FEXCO would be about $0.02 dilutive to 2009 and Custom House we have not included that in outlook but we have talked about that being $0.01 dilutive, primarily due to deal costs that need to be expensed under the accounting rules.

So, your margin commentary for leverage and expansion would already factor those in as well.

Yes. We take that in consideration as we think about the long-term.

Got it. Then just on the transactions, the overall transaction growth did come in a little bit lower versus where you were in the first quarter. Are we at a point now where we can see the transactions that bottomed or is it still a bit early to sort of call bottom in transaction? How do we think about where you guys are? One of your comments was that there had been relative stability at least on a month to month basis through the quarter. Just wondering if we are at a point we see a bottom there.

It has been really consistent throughout the quarter. I think that as we saw the transaction come down to that 3%, a lot of that is really the transactions coming from the high growth areas of the Middle East moderating as, still growing but not at the pace it was before. We feel very comfortable with the guidance that we've given in revenue and I think the other thing that we're very pleased to see is our revenue per transaction is consistent and is holding. So the transactions that we have sort of seen come down are lower revenue per transaction. So it is much more efficient for us in terms of our revenue number.

Okay. Great. Thanks, guys.

Thanks.

Your next question comes from the line of Jason Kupferberg from UBS. Please proceed.

Thanks. Good morning, guys.

Morning.

I just wanted to start with a question on margins and follow up on an earlier question. It looks like you are above the full year target with the year half over and wanted to get a sense whether this is because of timing or how some of the marketing and other investments are laying out on a quarter by quarter basis versus your original expectations or have there actually been additional cost cutting actions perhaps in the area, of aging commissions, et cetera, that might actually have been a drive upside to this margin target especially if transaction trends don't decelerate much more during the balance of the year?

Yes. A couple of things that we're thinking about. We are targeting a 27% margin for the full year, as you may recall we entered the year a little bit cautious in our investment spending because of the challenging global economy. So that drove some strength in the first quarter margin that we spoke about, about 90 days ago. Some of this is clearly a timing of our investment spending. Also, we are going to invest in certain areas such as PSD and mobile as we move through the year we are very excited about those opportunities both short term and long term. And in the last factor that will drive margins somewhat will be the revenue performance as we pull through the third and fourth quarter of 2009.

Okay. So are you essentially saying a revenue picture plays out as you expect during the back half and folks should not really expect upside potential to the 27% margin target? .

I would point you too, that our top line outlook of revenue being down 2% to 5%, and then within that, we are targeting a margin right around the 27% threshold.

Right. Right. Okay. And can we drill a little bit more into what's going on with the agent commission structures in this environment that keeps talking in the past about renegotiating some deals there, and maybe if you can help us quantify some of the benefits you have realized clearly that's an important moving part in the cost of services line, and sustainability of that as well would be helpful.

Just, I can just give you a little color on it and then Scott can talk to it as well. It is something we are focused on every year, this is an on going challenge, in terms of focus, it is not a one year and over and out. The interesting by taking on FEXCO, obviously that improves our margins. As well we just signed a VietinBank in Vietnam which is now becoming a direct agent to us. So again our margins improve but those types of deals and we are focused on new agent signings in term of really making sure that the economics are better for the company and as renegotiate particularly on the receive side we do work with our teams to make those numbers better for us as well. Scott, I don't know if there's anything else.

No, I think Christina summarized it very well. It is very targeted, very strategic. Every year we have an annual goal, we had one for '08, '09, we'll have one for 2010. It's also balanced with signing new agents at lower commission rates. We believe those will be helpful to the business model?

If I with squeeze one more in. You had talked about moving some call centers to low cost regions. Are there still opportunities to migrate any other parts of your cost structure to lower cost areas around the world.

I think when we moved the call centers last year, we also moved some of our back office our settlement and some other functions were sent there. We also moved Australia call center into the Philippines. We are constantly looking at that. We're also looking as we build out with our new FEXCO acquisition just what we want to do in Europe with some of our on call facilities as well That's something we constantly monitor looking for the best cost per transaction and per call.

Thanks for the commentary.

Okay.

Thank you.

Your next question comes from the line of Greg Smith from Duncan Williams. Please proceed.

Hi, guys. Just quickly, the $12 million charge, is that in the other income.

Yes, that's the other income, Greg.

Okay. Then you guys didn't repurchase any stock in the quarter; is that correct?

That is correct. You know, in any given quarter there's a variety of factors we take into consideration as we look to buy back stock. But we're very committed to buying back $400 million of stock in 2009.

Okay. And then just how is the branding working with fifth third? Is the Western Union brand still prominently displayed.

Yes. It will be like any other agent in term of having the Western Union brand at the Fifth Third locations.

Okay. And then it may be early but I guess US bank's up and running and they previously were offering money transfers. Just wondering what the transaction volume looks like out of a bank branch versus a typical nonbank agent location.

It is early days but I think all parties are extremely happy with the preliminary results.

Okay. That's it for me. Thank you.

Thank, Greg.

Your next question comes from the line of James Kissane from Bank of America/Merrill Lynch. Please proceed.

Great. Thanks. Can you give us the margin trends across the different C2C segments? I mean the APAC, Americas, EMEASA.

I think that. we usually give those once a year but I think that we know as we look across the regions they're all coming pretty close to support the corporate margins now. They all pretty well in sync.

Just given that Mexico was pretty soft in the quarter,.

Yes.

And Americas had reversed a little bit?

We don't really give that but you can judge it from there but we have a lot of strength in Europe and other parts of the world that are driving our margins as well.

I know you touched a lot on Mexico but you didn't mention swine flu, do you think it had an impact.

It is really hard to tell because we know Mexico City was shut down for a couple of weeks, there was a lot of concerns but it is really difficult to say, but we do know there were a lot of credit issues with our independent agents.

Okay. This last question you touched on Mexico but maybe market share trends in the various regions.

We are pleased to see. We will gain market share in 2009. We are seeing that. I think we saw a little bit of trailing on the Mexico number but I know Stewart and the team are focused to make sure that that is really where we needed to be by the end of the year I feel comfortable in our position to market share and our growth.

Thanks, Christina

Thanks.

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

Good morning. Just on the P&D initiative-- I know you will open new channels of trade, will that happen right on the change of regulation I think November '09 or does that fake take a few months before you can actually toll out new locations..

It is going to be like anything it takes a little time to roll them out but we are in a lot of negotiations and discussions with major retailers right now in many of the countries. So that's already the team is out there targeting in that and then signing or looking at contracts to get some of them signed. But it is also a new business for many of the retailers in Europe and something they're not used to. It is a lot of educations and working with them as well. Our team is doing a great job. We will see the benefits some will come right on in November and others will roll over into 2010 and beyond.

So you don't have any of the major retailers signed up today and you plan to at least add a few of them by the time year end.

We are working on it.

Okay. It is just hoping to get some color on the prepaid opportunity. How do you guys get paid there and how meaningful do you think it will be to top line in years to come?

This is a very profitable, very good business for us. I think that we look at that as a huge opportunity as you look at the prepaid market in the United States and around the world just on the money wide Visa reloadable. It is extremely profitable because not only are we doing the money transfer. We are doing the home delivery and we participant in all parts of that. So it is-- the economics are very good.

Is it by transaction you get paid?

Yes. When we do a money transfer, you load up and you do the transfer and then also you pay the transaction and you pay for the home delivery.

Okay. And then just last question for me, just turn it over to the C2C business, Europe you talked about being relatively stable. Can you just talk about that besides I guess Spain and Russia we are still weak, and I guess is it just tied to unemployment there?

I think Spain we know that we saw that happen quite early on in the economic crisis because they really were also in one of these construction housing bubbles. So we saw that, but we see the France, Germany, UK Italy, are pretty consistent in terms of their performance. I think Russia is a little different. I think Russia has other issues as it relates to oil and obviously Russia was an inbound and outbound market and now a little stress in that business on all of our business in Russia but the bulk of western Europe we are pleased with what we are seeing.

All right. Thanks a lot.

Thanks.

Thank, Bryan.

Your next question comes from the line of Glenn Greene from Oppenheimer.

Thank you. Good morning. I was also going to ask about what you are seeing in Europe specifically Spain and Russia. Is there anyway you could quantify the order of magnitude of the decline, Is it similar to what you are seeing in Mexico, and I guess I'm not exactly clear on what order of magnitude it represents of your business. Mexico is 6% but a little unclear how big Spain and Russia is.

No country is larger than Mexico except for United States. You can put that into perspective. I think that probably our most challenged market has been the United States with the Mexican market. So you can kind of putting that into perspective because we haven't really given numbers on Spain but the real issue if you look at Spain, unemployment is 15 to 16% and that continues to be a big problem in terms of looking at how-- we don't see further declines, but it is down and it is kind of staying at the same level at this point in time but it is not rebounding in Spain.

Okay. And then different direction just a little more color on the strategic rational for the Custom House acquisition. It is clearly a different type of money transfer business. Not really even a money transfer but just trying to understand how you think about it from a strategic perspective and (inaudible) synergies with your core C2C money transfer business at all?

As we look at Custom House, we look at our business, we obviously do the remittance business but we see we are really experts in terms of moving money around the globe and this Custom House really moves money for small to medium size businesses so there is a correlation in terms of the types of licenses that are needed, the compliance knowledge you need to have. We have that in 200 countries. That opens the door for Custom House to piggy back on a lot of license.

At the same time we have a great brand name and people trust us to get money to many countries very quickly. So with Custom House they are giving us excellent service, they have actually, they make money on the spreads, this is not a fee based, it is spread based business. So we understand currency, we understand how to do that. So that again comes back into our business but the other thing is we have 385,000 locations. We have super agents around the world and they have a lot of business relationships in terms of the need to pay for goods, the need to move money not in the 3 or $400, but the 30 and $40,000 transaction and by really utilizing that part of our organization we can expand Custom House from seven countries into 40 countries. That's really our objective.

They have a unique proposition and our brand, our network and our financial strength, putting those two together with their team and their know how I really see a huge opportunity and this had is a market that really can give us the same types of revenue stream as our C2C business. We see this as a big win for us.

If I hear you right does it sounds like you are rebranding this under Western Union or keep the Custom House name.

We are debating. We're looking at different parts of the world. It could be Custom House powered by Western Union. Our marking teams are working on that. We haven't finally closed the deal. We hoping to do that in the next 30 days. That's one things we're working on is how do we position it and how does it look around the globe.

Thank you.

You're welcome.

Thanks.

Your next question comes from the line of [Carson Netta] Northcoast Research

Thank you. Good morning. Christina, I wanted to understand a little better about your banking clients especially maybe the US bank one because that has been going on longer. What do you see is the difference between the customers you get there versus the customers at your regular agents, or the non-bank agents. Is there a difference?

There is. I think that-- and also when I look at it, I look at Scotia Bank, which we've been working with them for about a year. You can see that they have both the retail, and then they have the online capability which will be coming to US banks a bit later this year. What we see in many cases is second generation people migrants who really are, have been in the country for 10, 20, 30 years, looking to send money back or to send money to family.

We see larger principle. We see a bank consumer. So, and yet it is a consumer who looks at Western Union as the fastest way to get money from let's say the US to India or the US to any other part of the world. So, it is a larger principle, and it is a fast transaction because we can pull it right out of a bank account.

And do you think recently the GA came out with a statement they wanted to reduce, significantly reduce the money transfer costs. Do you see this having an impact on the business in anyway or would this be more of a nonevent?

I think that we have heard that from time to time, but I think the industry is extremely competitive. When you look at the numbers companies that are involved the money transfer not just Western Union but also looking at the bank, looking at the postal institutions around the world that are run by governments. We see that a lot and I think the competition will push pricing where it needs to be. Obviously, if you look at places like the Middle East it is highly competitive as it sits right now and that's where we see much lower RPG in those markets. It is something we monitor and keep our eye on but we are proud of our price position and we feel we are very competitive and we offer good value.

The final question, it seems like recently Oklahoma, state of Oklahoma, came out with a surcharge on money transfers. I am wondering fa that's had an impact on the business or if it is too early to tell but more importantly are you seeing that anywhere else or do you anticipate that happening anywhere else in the country.

It really hadn't had an impact. We are not seeing it anywhere else. We are monitoring it. Our team works very closely with state and federal regulators across the country. So this is a one-off situation that we have seen.

Thank you very much.

Thanks a lot.

Your next question comes from the line of Mr. Willie from Wells-Fargo. Please proceed.

Thank you. Good morning. I had two questions one on mobile and one on China. First, on the mobile payment opportunity, as you look out, I think you have talked about five year opportunity to embrace. In your discussion about margins overall for the company, to what degree does the evolution of mobile payments, is it a driver of margin expansion or a head wind that you will have to fight based upon how the product is sort of evolving right now and how you think it may evolve in terms of pricing and margin structure.

As we see it right now we see it as margin supportive. Obviously, in terms of how it evolves over time, it is more difficult to say. I think the other thing we do see right now is most of the mobile transactions you see tend to be much lower principle and $50 transaction, so it is a volume driven business. So obviously, the importance there will be the efficiencies and everything else (inaudible) and that's one reasons why we have certified some of the suppliers and really making sure we get the right people that can help in terms of putting that together. But I think that over time, it will grow not only from a money transfer perspective but also from a bill payment opportunity. I think we are really well position approximated to take advantage of the opportunity, I think this will obviously support our margins and we will work closely in terms of what we need to do to make sure our cost structure supports the margins that we need.

And in terms of compliance, security, and fraud safeguards, in terms of the mobile versus more traditional money transfer, are the systems and infrastructure you have in place adequate to support that or are there nuances about mobile that you see that might require additional CapEx or build out of the infrastructures if that market grows.

We have invested not a large amount. We have invested some in our systems and technology as we have been rolling out the mobile in different parts of the world but it is not excessive. Also, with our vendor certification we have pin pointed certain vendors who really have the right type of equipment, and wallets or with [Sybase, Unibon]-- some of the other suppliers that really offer the security that you need to be able to do it. And then the compliance that has been one of our strength always. So we bring that to the table. So we feel comfortable we can handle that, but it is something we monitor and I think it is a reason why many of the mobile carriers are now coming to Western Union because they recognize we now how to move money and protect that money as it moves around the world and to protect our reputation.

Great. Then on China in terms of sort of refining how you approach the market there,.

Yes.

Do you have any thoughts about the sort of the product curve and sort of any kind of expectation you have for getting that market sort of jump started again?

I think the team is working very hard there. I know that (inaudible) was in Beijing last week. I think that we have seen a stabilization transactions have come up a little bit plus one. I think that it will still be a challenge as we go through 2009, but I would anticipate using the model from India, using those types of marketing techniques that we should start to get more traction in 2010.

Wonderful. Thanks a lot.

Thanks.

Your next question comes from the line of Andrew Jeffrey from Suntrust. Please proceed.

Good morning. You made some comments about your marketing spend and I understand it tends to move around. Broadly speaking, as you scale out internationally, do you think that we go back to a situation where you are really leveraging the fixed cost around spend at such point the transaction volume recovers? Longer term is that still a central tenant of the long-term earnings opportunity for Western Union? So much for that.

Anyway I want to come back on the quarter and say we are pleased with the quarter. We felt we met our targets for the quarter. We were very pleased with that. We invested in our strategies. We see a lot of growth, a lot of opportunity. Our markets are really relatively stable. Our revenue per transaction is very good. We see market share gains, we see a lot of strategic progress and we just also want to say to all employees around the globe, thank you very much for a terrific quarter. And we look forward to talking to you next quarter. Thank you very much.

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