西聯匯款 (WU) 2011 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second quarter 2011 Western Union Co. earnings conference call. My name is Chantelay and I will be your facilitator for today's call. At this time all participants are in listen-only mode. We will be facilitating a question and answer session towards the end of this conference. (Operator Instructions) I would now like to turn the presentation over to your host for today's call, Mr. Mike Salop, Senior Vice President of Investment Relations. Please proceed, Sir.

Thank you and good morning, everyone. On today's call we will have comments from Hikmet Ersek, our President and Chief Executive Officer, and Scott Scheirman, Executive Vice President and Chief Financial Officer. The slides that accompany this call and webcast can be found at westernunion.com under the investor relations tab and will remain available after call. Additional operational statistics have been provided in a supplemental table with our press release. As a reminder, today's call is being recorded and our comments include forward-looking statements. Please refer to the cautionary language in the earnings release and in Western Union's filing with the Securities and Exchange Commission, including the 2010 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 some items that do not conform to generally accepted accounting principles. We have reconciled those items to the most comparable GAAP measures on our website, 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. I would now like to turn the call over to Hikmet Ersek.

Thank you, Mike, and welcome to everybody on the call. We continue to see solid trends across our business in the quarter. We reported revenue increasing 7% and constant currency revenue up 5%. And we are pleased to be able to raise our full year outlook for both revenue and earnings per share. In the consumer to consumer segment, constant currency revenue increased 5% for the third consecutive quarter. Reported revenue in C2C increased 8% and was aided by the stronger euro. Each of our regions provided good revenue growth. Asia-Pacific increased 16%, which included double-digit growth from China. Revenue into Europe, Middle East, Africa and South Asia region grew 8%. Most of the large European markets continued to perform well and we also saw good growth from the Gulf states and a double digit revenue increase in India.

There was still some negative impact from the Ivory Coast, as agent locations were closed in April and then gradually reopened through May, but region's largely returning back to normal by end of the quarter. The Americas region delivered 5% revenue growth. It continued growth into (inaudible), still challenging business in Mexico and further strong performance from US domestic money transfers. Domestic money transfer revenue increased 9% on 19% transaction growth and we continue to be very pleased with the results of the repositioning we undertake in late 2009. We were also able to make further strides with our North American banking strategy in the quarter, as we signed Regions Bank and its 1700 US locations as an agent for both money transfers and expedited bill payment, with plans to add a comp-based money transfer over time.

Globally, we added another 15,000 agent locations in the quarter bringing our total to 470,000 locations. Turning to global business payments. Revenue increased 4% thanks to contributions from both Western Union Business Solutions and the bill payment business. In bill payment, we reported revenue growth of 2%, our first quarterly increase since 2008 and also delivered good margin improvements. Just this month we launched a new service in AliBaba, a global e-commerce leaders based in China. Now, buyers of goods on the AliExpress.com e-commerce platform have the option of paying cash at Western Union agent locations in more than 160 countries and territories. This service provides convenience to buyers, free cash flow to sellers and a new revenue opportunity for Western Union, leveraging our brand, agent network and cross border money moving (inaudible).

Our senior Business Solutions delivered 14% revenue growth in the quarter. We also took our first steps toward utilizing our agent network to distribute business payment services in some markets. We signed agreements with agents in the Philipines, (inaudible) which will offer the services to the same as in these countries later this year. These agents will double up sales forces and utilize local contract and market knowledge to build the business. This model also lowers the cost of entering a new market for Western Union Business Solutions. And of course we announced earlier this month that we agreed to acquire Travelex Global Business Payments from Travelex Holdings. As I mentioned on our July 5, conference call, I'm very excited about the foundation we will establish in business-to-business cross-border payments by combining this business with Western Union Business Solutions.

The B2B market is big and growing and the cross-border payment needs of small business are largely underserved today. That position will immediately give us a presence in 16 countries, including seven where Business Solutions currently is not present. We will have a combined sales force of 450 people, strong product and service capabilities, and expansive banking and payment connectivity across the world. We also have the opportunity to leverage the Western Union brands, balance sheet, agent network and global financial institutions and regulatory relationships. In addition to serving small and medium-size enterprises, Travelex Global Business Payments also has a sizable business providing international payment services to third-party distribution channels, such as banks, with over 500 financial institution customers in North America and Australia.

We expect this acquisition to close late this year. It will take some time to integrate the companies and platforms and implement our combined growth strategies, but we believe this will be a great growth opportunity for many years to come. Let me also give you a quick update on some of our strategic initiatives. In electronic channels, which includes westernunion.com, account-based money transfer and mobile money transfer, revenue increased over 35% in the quarter and represented 3% of our total Company revenue. Our electronic account-based money transfers transactions, which includes cash to account and account to cash through banks, increased approximately 40% in the quarter. We now have over 60 banks signed to offer account-based money transfer services with 30 active. In Italy our ATM-based service, Banca Intesa Sanpaolo, is now being activated.

The bank customers will be able to send electronically money transfers from their accounts using ATMs. And we expect to roll out to 7000 Intesa Sanpaolo ATMs in the third quarter. Westernunion.com had transaction growth in international markets of nearly 40% and globally transactions increased by over 25%. In mobile money transfer we have 18 agreements in place with mobile network operators and banks and over 100,000 of our agent locations in 57 countries are enabled to provide cash to mobile service. In the quarter we added an iPhone app that allows US consumers to transfer money from their phone with a debit or credit card. We also have in place a service that allows Western Union Business Solutions customers to initiate international payments from their accounts to smartphones.

As you can see, all these examples demonstrate that we are making good progress with our electronic channel initiatives. In stored value our prepaid cards in force in the US now total 1.1 million with retail distribution at 12,000 locations. In the second quarter, approximately $120 million of principle was loaded onto Western Union prepaid cards through 500,000 loads. We continue to expand our efforts in the US and we have some very good, potential partnership opportunities in the pipeline. Due to the late timing of these partnerships and retail distribution deals, we probably will not reach our goal of doubling the cards in force this year, as we have been adding about 100,000 cards each quarter. However, as stated previously, we still expect prepaid revenues to be approximately 1% of total Company revenue in 2011. We're also continuing our work for international expansion launches later this year in the UK and other markets. International expansion of [start] value is a great opportunity, but will also take some time to develop market by market.

So, our initiatives are moving forward and our overall business performance has been solid. We do not expect global economic conditions to improve significantly this year, but we have confidence in our business trends and are comfortable increasing our financial outlook. We continue to deploy our strong cash flow to invest in the business, make strategic acquisitions to aid our growth strategies and return funds to shareholders. In addition to the Travelex Global Business Payment acquisition, which we expect to close at the end of 2011, we completed the Angelo Costa agent acquisition in Europe in April and plan to complete the Finint acquisition by end of the year. We also have been active with returning cash to shareholders. In the first two quarters we have purchased $660 million of our shares and paid $95 million in dividends, which included a 14% dividend increase in the second quarter. Now, to give you a more detailed review of the quarter and our full-year outlook, I would like to turn the call over to Scott.

Thank you, Hikmet. Overall for the quarter we delivered consolidated revenue growth of 7% on a reported basis or 5% on a constant currency basis. Currency translation added approximately $32 million to GAAP revenues in the quarter, primarily due to the strength of the European currencies. Transaction fee revenue increased 6%, while foreign exchange revenue grew 12%. Within C2C revenue increased 8%, with transaction fee revenue of 7% and foreign exchange revenue up 12%. Foreign exchange revenue was primarily driven by growth in cross-border principle, which increased 10% in the quarter. The consolidated revenue increase reflected continued solid growth in each of our consumer to consumer regions, the translation effect of stronger European currencies and growth in Western Union Business Solutions. In addition, our bill payments business turned a positive revenue growth in the quarter.

In the consumer to consumer segment revenue increased 8%. Constant currency revenue growth in C2C was 5%, which was consistent with the first quarter, while transaction growth was 6%, down just slightly from the first quarter. The Company's C2C cross-border principle increased 10% or 6% on a constant currency basis. C2C principal per transaction increased 4% year-over-year and was flat on a constant currency basis. In the international C2C business, revenue grew 8% on a reported basis and 5% on a constant currency basis. International transaction growth was 5%, consistent with the first quarter. International constant currency principle per transaction increased 1% compared to the prior year, which was the third consecutive quarterly increase.

This is a positive trend, as consumers sending word money generally indicates they have more confidence in their economic outlook or have a better employment situation. Including the impact of currency, international principal per transaction increased 6% in the quarter. The market research firm [Iady] just published its revised estimates of the cross-border remittance market for 2009 and 2010. Iady estimated the principal market at $398 billion in 2010, a 3% increase from 2009 and projects growth to improve to 5% in 2011 and 2012. Based on Iady's data, Western Union's cross-border market share was 17.2% in 2010, an increase of approximately 50 basis points from 2009, and we are confident we will gain share again in 2011. Turning to the regions. Our C2C business in the Europe, Middle East, Africa and South Asia region grew revenue at 8% on transaction growth of 4%.

Transaction growth was consistent with the first quarter, while revenue growth improved primarily due to the strengthening of the euro. Constant currency revenue trends in Europe improved slightly compared to the first quarter, led by Germany. France and Russia also continue to deliver solid growth. We completed the Angelo Costa acquisition in April and signed an agreement to purchase Finint, which we expect to close later this year for approximately EUR100 million, subject to a working capital adjustment. Costa and Finint were two of our largest super agents in Europe and further advance our European strategy of having more direct access to the agent locations and creating scale efficiencies. In India, trends increased relative to the first quarter, with 11% revenue growth and 8% transaction growth. We still have some negative impact in the quarter on transactions and revenue from the Ivory Coast and Libya.

Ivory Coast agents started to reopen about midway through the quarter, while Libya is still almost entirely shut down. Egypt was open throughout the quarter. In the Gulf states, our growth rate improved from the first quarter. Turning to the Americas region, revenue increased 5% on transaction growth of 7%. Domestic money transfer continues to have strong momentum, with revenue growth of 9% on transaction growth of 19% in the quarter. Mexico continues to be challenging, as revenue increased 1%, while transactions declined 1%. Midway through the quarter we began to pilot some new pricing from the US to Mexico to test different levels of price elasticity and consumer usage. The test include adding a $5 for $50 promotion and a mix of other different value propositions.

It is too early to make any conclusions, but initially, we have seen some positive transaction lift and relatively neutral impact on revenue. The tests are ongoing and we will continue to tweak the model based on consumer reaction. One positive impact we are seeing is some shifts from next day to money in minutes, as we have reduced the price difference between the two. In the Asia-Pacific region, results remained strong with revenue growth of 16% on a 12% increase in transactions. There was good growth across the region with acceleration in Australia and China. China posted increases of 13% in revenue and 7% on transactions. For the overall C2C business, the spread between transaction and revenue growth in the quarter narrowed to 1 percentage point, excluding the impact of currency, which had a 3-point benefit.

Mix was neutral in the quarter and the impact of pricing was 1%. For the full year we now expect price decreases to be between 1% and 2%, as fee reductions are slightly smaller than planned and there is some offset by modest increases in FX spreads in some corridors. For the next couple of years, we expect net price decreases to be in the range of 1% to 3%, but we are constantly evaluating the elasticity dynamics in the different corridors and we will only implement where we think we can drive additional revenue over time. Moving to the global business payments, the overall segment revenue increased 4%. The bill payment business turned positive, with revenue increasing 2%, as continued strong international growth, increases in US electronic payments and moderating declines in US cash payments drove the improvement.

Western Union Business Solutions revenue increased 14% and remains on track for a mid-teen revenue growth for the year. Turning to margins, the second quarter consolidated GAAP operating margin was 25.7%, which compares to 24.4% in 2010. Excluding restructuring charges, the consolidated operating margin was 26.3% in this year's second quarter compared to 27.1% in the prior year. The current quarter includes $6 million of deal costs related to the acquisition of Travelex Global Business Payments. Currency translation aided revenue by approximately $32 million that negatively impacted operating margins. As a reminder, the strengthening of the European currencies favorably impacts revenue, but has a less significant impact on operating profit due to the Company's hedging programs.

As we stated at the beginning of the year, a 5% movement in the European currencies would impact revenue by approximately $55 million on a full year basis, but would only impact operating profit by about $7 million. The second quarter operating margin, excluding restructuring expenses, declined approximately 80 basis points from the same period last year, as the negative currency impact, higher spending on initiatives and Travelex costs offset operating efficiencies, including restructuring savings and revenue leverage. We recorded $9 million of restructuring expenses in the quarter related to our previously announced programs. Approximately $500,000 of expense is included in cost of services and $8.4 million is in SG&A. This compares to $35 million in restructuring charges in the second quarter of 2010. These charges are not included in our segment operating results.

For the full year, we now expect approximately $45 million of pretax restructuring charges, which is slightly lower than our previous estimate of approximately $50 million. We continue to expect approximately $50 million of related savings for the year and $70 million in 2012. We realized $13 million of savings from restructuring activities in the quarter. We recorded a $29 million gain in other income and expense in the quarter. This gain reflects the remeasurement of our previous 30% equity interest in Angelo Costa upon closing of the acquisition. The tax rate in the quarter was 21.1% or 21.4% excluding the impact of the restructuring charges, which compares to 18.8% or 20.7%, excluding restructuring charges in the second quarter of last year. Our full year estimated tax rate is now in a range of 23% to 24%, down from our previous range of 24% to 25%, primarily due to the resolution of certain foreign tax matters.

Earnings-per-share in the quarter were $0.41 or $0.42 excluding restructuring charges. GAAP EPS was $0.33 in the second quarter of last year or $0.36 excluding restructuring charges. Our C2C segment operating margin in the quarter was 28.6% compared to 29.1% in the same period last year. The decrease was due to the impact of currency and higher spending on initiatives, which offset other efficiencies, including restructuring savings and revenue leverage. Global Business Payments operating margin was 19.9% in the quarter, which compared to 18.9% in the second quarter of 2010. The margin improved compared to last year primarily due to revenue increases, restructuring savings and lower integration and investment spending in Western Union's Business Solutions. We continue to expect Business Solutions to be non-dilutive to earnings for the full year.

Moving to our cash flow and balance sheet. Year-to-date cash flow from operations was $506 million and capital expenditures were $75 million. Our year-to-date depreciation and amortization expense was approximately $90 million. At quarter end, the Company had total debt of $3.6 billion and cash of $2.1 billion, of which approximately $1.1 billion was outside the United States. In the quarter we spent $135 million to repurchase 6.6 million shares or 1% of the total shares outstanding at an average price of $20.35. We also paid $50 million in quarterly dividends. As of June 30, we had $755 million remaining under our stock repurchase authorization, which expires on December 31, 2012. Also as of June 30, our basic shares outstanding were 627.5 million shares.

We continue to manage our capital structure to target an A minus credit rating. Turning to our expectations for the full year, we are raising the outlook for both revenue and earnings per share. In revenue our outlook now calls for constant currency revenue growth in the range of 4% to 5% and GAAP revenue growth in the range of 5% to 6%. This compares to our previous outlook of 3% to 4% constant currency growth, with no impact from foreign exchange. Constant currency revenue is benefiting from better than expected revenue per transaction, driven by higher principle per transaction and slightly lower pricing reductions than originally forecast. We have also changed our currency assumptions to reflect current foreign exchange outlooks around the globe. As an example, we are now projecting the euro in the low $1.40s compared to the low $1.30s in our February and April outlooks.

Our outlook does not include any revenue from Travelex Global Business Payments, which is expected to close late this year. For earnings-per-share, the new outlook is GAAP EPS in the range of the $1.48 to $1.53 and EPS, excluding restructuring charges, of $1.53 to $1.58. The 2011 projected GAAP EPS range has increased by $0.07 compared to our previously stated outlook and the EPS range, excluding restructuring expenses, has increased by $0.06. Restructuring expenses are now slightly lower than expected at $45 million, down from approximately $50 million previously. Excluding restructuring expenses, there are four primary drivers of the $0.06 increase in EPS. First, there is a $0.02 per share positive impact from the increase in constant currency revenue. Second is a $0.01 positive impact from the additional 1% increase in GAAP revenue due to currency translation net of a partial offset from hedges.

Third, there is a $0.01 positive impact from acquisition activity not included in the April outlook. And finally, the current outlook reflects a positive $0.02 impact from a 1% reduction in expected tax rate range. The current range is 23% to 24%, which is down from the prior range of 24% to 25%. The $0.01 acquisition impact is derived from the combination of Angelo Costa, Finint and Travelex. We are projecting a $0.02 benefit from an anticipated second half gain on our previous 30% ownership position in Finint and a $0.01 higher than expected benefit from Angelo Costa acquisition. These benefits are partially offset by a negative $0.02 impact from the deal costs related to Travelex. Other than the impact of the Travelex deal cost and the negative impact of foreign exchange, our operating margin outlook remains similar to the April outlook.

The current GAAP operating margin outlook is in a range of 25% to 25.5%, including Travelex deal cost of approximately $15 million. Operating margins, excluding restructuring charges, are now projected at a range of 26% to 26.5%. On a constant currency basis, these margins are projected at 26.5% to 27%, including the Travelex deal costs. We are still projecting full year marketing expense similar to last year at approximately 4% of revenue. However, our second half timing will differ, as we have extensive marketing plans for the third quarter. We expect marketing expense to be around 5% in this year's third quarter, compared to about 3.7% in 2010 and then to be lower in the fourth quarter. Consequently, our fourth quarter operating margins are projected to be higher than the third quarter.

The gains from the Angelo Costa and Finint are recorded in other income and therefore, not included in operating margins. GAAP cash flows from operating activities are expected to be at the lower end of our previous range of $1.2 billion to $1.3 billion for the year. Compared to 2010, operating cash flows are being negatively impacted by changes in working capital. Two factors are impacting the working capital comparison. First, in 2011, we will spend the major portion of the cash relating to the restructuring charges incurred in both years. The cash outflows associated with almost half -- the cash outflows associated with almost all the 2011 restructuring charges of $45 million and over half of the 2010 restructuring charges of $60 million will be paid in 2011. The second item impacting working capital relates to an in-flow in 2010 that will not recur to the same extent in 2011.

Specifically, we realized a significant cash inflow in 2010 relating to closing out interest rate swaps when we completed our debt exchange in the first quarter of last year. Also, as a reminder, the gains recorded on Costa and Finint in 2011 are non-cash items. In 2012, we do not expect to be impacted by these working capital items, as payments for restructuring activities will be largely complete by the end of this year. In summary, we are comfortable increasing our full year revenue and earnings per share outlook based on our first half performance and our expectations for the remainder of the year. We will continue to execute against our strategies, deploy cash against investments in the business, strategic acquisitions and share buyback and dividends and target a strong balance sheet. Operator, we are now ready to take questions.

(Operator Instructions). Tien-Tsin Huang of JPMorgan.

Thanks for all the disclosures, too, is helpful just still trying to go through it. But just on the guidance range and the raise there, happy to see that. Obviously, there is a lot of worries out there about Europe. I am just curious, Hikmet Ersek or Scott, what gives you the confidence that Europe is not going to get worse and potentially impact the guidance here. I'm wondering if PSD, the loan is enough to carry you through any negative surprises in the region?

Tien-Tsin, if you look at Europe, I think that we are pleased with the numbers. Germany is doing very well. Russia and France are also doing very well. Being in all countries in Europe and actually being in 200 countries worldwide give us comfort that every country has their own dynamics and generally we are pretty well positioned in Europe. There are always some issues in some countries, but I would say our position is very well in Europe and we are growing the business. There will be in different countries different dynamics, but I would say that we are very well positioned in Europe. And, regarding PSD, it is not only PSD. As you know we have PSD locations and we are comfortable with our outlook, 1% additional incremental revenue coming from PSD. We have about 3500 locations active there and their productivity is quite high. They do good revenue, but we have also post offices and the banks and we are expanding our presence. We recently signed also Banca Intesa Sanpaolo with ATM transactions, where customers can go to an ATM and send money from the ATM upon their account. So I think Europe is pretty well.

This is my quick follow up. The bill payment business, that did turn up, I think as you suggested last quarter, the question that I have is, is this fix permanent? Meaning is the growth sustainable here going forward?

I think as I mentioned previously the team is doing good, signing new billers. We do have the right marketing activities on place. Definitely economy and environment always helps us, but we started to diversify our billers and we see the first impact here. Now, it is early to say how -- I will be cautiously optimistic here, Tien-Tsin. I think obviously early signs the team is doing great job and it's good.

Great, thanks. Great job.

Thanks, Tien-Tsin.

Kartik Mehta, Northcoast Research.

Hikmet, I wanted to get your thoughts on the prepaid market. Obviously, it continues to evolve and the new rules that are in place will obviously have banks make different decisions and I'm wondering how Western Union will evolve its prepaid business in this changing environment?

I think if you look at our prepaid business cards, as I said before, we are in the US only a little bit about a year active. We have about 1.1 million cards and we have 12,000 locations. Now, our sales could be better. We were estimating about doubling our cardmembers then last year, but the activities on the cards are pretty good, so we are assuming 1% of our revenue will come from prepaid cards. Now, our activities in the US will continue. We will be having -- getting new retail sales here. But I also see opportunity international. Next one is definitely the UK, the team is focused to expand our prepaid activities in the UK, our stored value. And other countries to come. But, it is a market and market initiative and it takes some time to put your (inaudible) in the market, to understand the market and growing the market. It has to be a good, profitable business and we are focused where we do good revenue growth and similar profit margins that we have in our core business.

And, Kartik, the other thing I would add is that from a consumer value proposition we are very focused on being fee friendly and with the strength of the brand and the distribution, not only in the US but globally, we believe on a long-term basis that that's a winning combination for us.

And then just as a follow-up, on the C2C side, Scott, you said higher spending initiatives. Does that mean, just price reduction? And what could those initiatives mean to C2C margins for 2011?

Overall, on a consolidated basis, we're calling for margins to be up in 2011 compared to 2010, excluding the restructuring charges. Specifically in the third quarter we are going to spend some more money on marketing, so the margins in the third quarter will be a little bit lower, but margins will be higher in the fourth quarter, but really, making investments to drive the top-line growth as we move forward. Keep in mind on a full year basis, Kartik, the marketing spend will be about 4% of our top-line, which is generally consistent with 2010, but overall, we are on pace to expand our margins on a consolidated basis in 2011.

And, Kartik, we had higher spending in our initiatives factored into our original outlooks. So, it's really when you're looking at change right now it is really just currency that is negatively impacting the margin.

And so, it sounds like higher spending initiatives means more marketing, not price reductions? Is that the right conclusion?

Yes, I would say it would be around marketing, other investments we'd make. As you may recall on pricing, the original outlook had pricing in that 2% to 3% range and now we are closer to a 1% to 2% range, so it is not more pricing.

Thank you very much, I appreciate.

You bet, thanks.

Darrin Peller, Barclays.

First question on the margin front. Again, just the business segment, the global payments segment obviously had a very nice pickup in the margin. Is that, first of all, associated with the bill pay strength and the mix from that? And it sounds like you're at least cautiously optimistic that would be sustainable, so obviously that should be impactful to the margin as well?

Yes, things that are helpful to that margin, we are pleased with it being at 20%, if you will. It's up from the prior year and up from the first quarter, too. Clearly, having 4% top-line growth on global business payments and then purely the bill paid business had 2% top-line growth, so the [TAT] is helpful from that standpoint. We did have some restructuring savings and then some of the integration and investment spending in the Western Union Business Solutions has come in a little bit lower, if you will, as we anniversary some things there. So, overall we are pleased with a 20% margin and clearly, that is up from where we were at a low point in the fourth quarter.

And so, if you think about that margin going forward and that been somewhat sustainable, ideally. The C2C margin was obviously impacted a lot by currency. First of all, what was the actual currency? I don't know if you said already the currency impact specifically on this quarter's margin?

We didn't provide a specific number, but how I'd have you think about it is we recorded $32 million in, I'll call it, additional revenue because of currency translation, but the profit impact on that was significantly less. The full year metric, I would give you, Darrin, is back to the 5% movement in European currencies is $55 million of revenue, $7 million of profit, so the margin on that analogy is about only 13%.

Right. Now, just because all in, Scott, you have 26.5% to 27% constant currency margin guidance for the year, which is pretty similar to what the guidance you had before. Obviously the impact, I would think, is mostly the 30 basis points or so from Travelex deal cost. And so theoretically, if you added back Travelex you'd have about a 26.8%, over 20%, 27% margin guidance for the year and I would imagine some of that is just benefit from the strengths you're seeing, again, finally and the bill pay segment being a positive?

The bill payment has definitely been helpful and then I agree with your math, if you will, that what's impacting the full year margin is roughly the 30 basis points or $15 million from the Travelex deal cost.

I think, Darrin, the math you put together is right on.

And then just one more follow-up if you don't mind, the spread between the transaction growth and revenue growth looks pretty good. I mean, international transaction growth was 5%, constant currency revenue growth 5%. It looks like the spread between the two has tightened versus prior quarters. I think you alluded to pricing being about a 1% to 2% adverse impact. I mean, is this less of a better environment from a pricing standpoint than I think you've seen in the past?

Ladies and gentlemen, please standby. Ladies and gentlemen thank you for your patience your conference will resume momentarily. Hello?

Yes it's Darrin Peller.

Sorry about that, Darrin, something happen.

No worries. I was just trying to get some color on pricing environment. It obviously looks like it's trending in the right direction based on the spread. I think you alluded to about a 1% to 2% adverse impact on pricing. Is it a better environment now than it has been in the past? Is it fair to say that? You said 1% to 3% going forward. Can you just comment there real quickly?

Sure, Darrin. We stated 1% to 3% going forward, we do have a -- and the pricing is a little bit (inaudible) competition, geographical mix and we currently see that the full year 1% to 2% and we are feel comfortable we continue to gain market share with that. And, we are going to continue to pricing investments, 1% to 3% where we gain long-term revenue growth.

And just if you don't mind last question on the buyback front. You had a nice first quarter with $500 million plus worth of buybacks. Second quarter, I guess, had an adverse impact or you couldn't do as much because of the Travelex deal. You still did over $100 million. Should we expect a nice sort of aggressive buyback to continue now that the Travelex and [Entiment] came and I will leave it at that.

Darrin, this is Scott. We believe investing in our stock, if you will, is a good investment. You are familiar with our capital allocation policies of investing in our business and returning cash to our shareholders. So, we will continue to be active in doing that. Through December of 2012 we have roughly $750 million authorized, so we'll continue to look forward to both investing in the business and returning cash to our shareholders.

Great, nice job, guys, thanks.

Thanks, Darrin.

David Togut, Evercore Partners.

Two quick questions. First, Scott, in your upgraded guidance for this year, are you including the $0.03 second quarter gain in other income?

Yes. Half that is included in that. At the beginning of February, when we originally gave the outlook, David, we felt Costa would have a net $0.01 positive impact to the full year. Now we believe it is a net $0.02 positive impact, so it's really about a $0.03 gain offset by about $0.01 of integration and other cost related to that deal.

And that is just from the mark-up of your stake, from your initial stake from buying out the rest of it?

Correct. Under the GAAP accounting rules when we went from a 30% ownership to 100% ownership, the GAAP rules requires a revaluation of that 30% interest, which generated approximately a $29 million gain in the second quarter on a pretax basis.

And just a quick follow-up on capital allocation. Following the Travelex deal, can you give us a sense of what your dividend policy will be for 2012?

We continue to want to be balanced in returning cash to shareholders. I think over the last 12 months you've seen us do a couple of dividend increases. So periodically the management team will review that. We'll spend time with our board. But our aim would be continue to return capital to our shareholders through buyback, but also at an aim towards, as the business performs ideally, increasing the dividend. But we will have to wait and see as we move through that, but we clearly want to balance payback to the shareholders.

Thank you very much.

Thanks, David.

Ashwin Shirvaikar, Citi.

And congratulations from me as well on the solid performance and the incremental details. Thank you for that. My first question is, Scott, you mentioned obviously operating cash flow at the lower end of prior range. Can you talk about, and this primarily is due to a big factor there is the higher cash restructuring, can you talk about the forward-looking benefit from the two sets of restructuring? What should we expect for that on margins?

Was the question on margins, Ashwin?

Yes, with regard to the specifically forward-looking benefit of the restructure.

Absolutely. Just to recap, the P&L benefit from the restructuring will be about $50 million of savings in 2011 and that will annualize a run rate into about $70 million in 2012. Our objective as a management team is to expand our margins as we move forward. We've got a business model that we can drive leverage with growth in revenue. 65% of our costs are fixed, 35% are variable, so the revenue leverage, if you will, the restructuring savings or productivity savings will be helpful and then probably a little bit of offset there with investing in the business to grow it, but clearly, as a management team, our objective is to grow our margins.

And speaking of those investments and the impact that can have on market share gain, the market share gain of 50 basis points in 2010, obviously, a good number. The historical number has been more closer to 100 basis points, if I am not mistaken. Can you reaccelerate that with all the investments you are making and specifically what areas?

That would be our objective is to continue to gain market share and gain market share at an accelerated pace and where we've been making investments is both in the core business, but also investing behind electronic channels where we think there is a little bit of a different customer segment there with question.com, account-based money transfer and mobile phone money transfers. So we believe there is opportunities not only to grow through the retail channels, but we are adding PSD locations in Europe, banks in the US, but then moving forward with initiatives in the electronic channels, too. So hopefully, all those things where the objective is to gain share at an increased pace.

I think just on that, with all this new channels and with all our initiatives, we are not gaining marketshare only on our core money transfer and core customer segment, but we are gaining new customer segments with electronic channels and also with our B2B activities now, which combining Business Solutions with Travelex, we are really entering a new customer segment. There is a need and I think there will be a growth here also, so I am very excited about the future.

It is great year. Thank you.

Thank you.

James Kissane, Bank of America, Merrill Lynch.

Thanks and good job.

Thank you.

Scott, I thought your pricing comments were very positive. Can you point to some of the regions where pricing is more favorable that is offsetting some of the pressure in Mexico? Thanks.

If you look at our business being 16,000 corridors and none of the countries are bigger, out of the US, bigger than 6%. It is really differentiates from country to country and from bank to bank, actually. We didn't distinct. The future for our business, the future for our management as that we are really managing 16,000 pricing actions, actually, within the different banks. So I think it differentiates from country to country, from corridor to corridor. The stable growth in the European business, in the Gulf states are coming back. Are also on the receiving center are China and India business are growing double digits. So, I think we are doing -- we really react to the market needs and the environment and the competitive environment.

Thanks, Hikmet. And any comment on trends in C2C commissions? And if you look back has integrating FEXCO helped C2C margins? And as you look forward the impact that Angelo Costa and Finint will have as you integrate those? Thanks.

I think, yes. I think we are very focused on the margins and on the commissions side both. So we have now direct access with the PSD and send direct to the sub-agents and I think that will help out also our long-term our commission rates. And as you look at our agent negotiations, end of the days has to be an ending situation. Our agents have to be and we have to be, but if you look at our position being in so many countries and having so many agents, I think we are in a very good position that having favorable commissions for Western Union.

Great, thanks.

Thanks, Jim.

Andrew Jeffrey, SunTrust.

So, it's nice to see some of the global economic trends create a bit of a tailwind for your business, namely the principle per transaction, whereas transaction volume growth has held kind of steady. Should we think about this as kind of a cyclical or macroeconomic kind of evolution whereby you see the principle increase first and then the transaction volume follows? Or, how are you thinking about the sustainability of transaction growth or the potential for acceleration over the next several quarters?

I wouldn't say that -- it's hard to make a global formula out of it. It really differentiates from region to region, from country to country, right. We do see, in some regions, higher revenue per transaction activities that the consumer confidence increased in some [sent] countries, but in other [sent] countries, I think the transactions are stable and the revenue per transaction is still the same. If you want to put on a global formula we do see a revenue per transaction increase maybe which is really mix and we are very pleased on that, right? And also, as I mentioned earlier on the pricing investment, we are probably going to have 1% to 2% pricing investment this year instead of 2% to 3%. So, these are good signs. Though the economic state is challenging I'm not seeing a big change on the economical environment globally. I think the management is very focused despite the economic challenge, not seeing an economic challenges, the marketing activities on the market is pretty well to respond to the customer need.

Okay. And as a follow-up, I thought the Regions deal was a particularly important one on two fronts, both the expedited bill pay piece. I'm wondering if you can just comment on the competitive environment there. And then also in terms of potentially turning on account to cash, can you just give us a sense of where you are in that product in the US? Should we start to see more banks kind of initiate account to cash solutions powered by Western Union in the back half of '11 as we look out into 2012?

I would say, long-term yes, definitely, Andrew, you will see that not only powered by Western Union, I think is branded by Western Union. That's the way we are growing. But, we have these (inaudible) now globally there are about 60 banks, 30 of them we activated to make a counter base transaction and we use definitely the Regions Banks and I believe with our banking, US banking strategy we will get more banks. We have more banks in line to get them, starting with the retail money transfer, walk-in locations and doing transactions, adding also account-based money transfer to give a convenience to the consumers. It is definitely something. We did it with the US Bank and now the Region Bank is online and other banks is to follow.

Okay. Great. Thank you.

Thanks, Andrew.

Tim Willi, Wells Fargo.

Two questions, the first one, just going back to the pricing commentary. Is there, in your opinion, just sort of tie that into the competitive dynamic in the 16,000 corridors that you manage. Are you seeing anything on the competitive front that maybe gives you more confidence in terms of managing pricing and maybe not having to discount as much as you would have thought when the year started? The competitive position has improved to that degree or competitors have weakened more than you would have thought?

I would say, competition is still on the market. And thanks, they keep us fit. All our reaction are being more intelligent, more closer to the market give us the capability to add up our pricing and being active in the market and that is why we are gaining market share. As I mentioned, before, Aite just came out with the recent statistics and it looks like we, again, gained about 0.5% market share versus 2009. So, these are good news. Generally, competition is here, continuous, especially the corridor specialists are active also branded one, but in different corridors we have very strong competition. However, people start to understand being in 200 countries, as you mentioned, and having 470,000 locations you can send one from one point to 16,000 corridors immediately money. I think nobody can match that, given there are 470,000 locations. So, this gives us definitely an advantage, competitive advantage and we are going to grow this brand, network, electronic channels, I think we have a good position to be more active and being competitive price.

And I would add it's always been a competitive environment out there, Tim. We've continued to gain share, as Hikmet mentioned. In pricing, as we do pricing, it's one of the drivers we look at to gain share, promoting the brand, adding locations or distribution and differentiating the product. And then as we do pricing, what we think about is pricing elasticity. What is the best thing to do to maximize long-term revenue growth and customers coming back to the franchise.

Okay. And then my follow-up was just around the tax rate. As we think about the slightly lower tax rate this year, is it something structurally in sort of your profit mix and your tax strategy that we should think about that flowing through into out years or would this be just sort of an '11 type tax rate when we consider our models for '12 and '13?

Two comments on that, Tim. One is I would say that the one item is more of a '11 item if you will. We resolved certain international tax items, so we had somewhat of a small, favorable benefit, expect a small favorable benefit in 2011. Although, as we think about the tax rate on a longer term basis, that as the international business, which I believe will grow faster than the US business, the international profits are generally taxed at a lower rate, so that will be somewhat helpful to our tax rate on a long-term basis.

Okay, great. Thank you very much.

Thanks, Tim.

Meghna Ladha, Susquehanna.

(technical difficulties)

(Operator Instructions)

Hi, sorry, can you hear me now?

Yes.

So, in general, Hikmet, what do you see as the two or three key levers to manage your margins? And, how should we balance these initiatives, what its growth for 2011?

I think, I am definitely looking for a long-term margin increased. I think our business model is built for that. The revenue growth always helps to increase the margin. The top-line is the best indicator for that and we are very much focused for the growth. Given our core money transfer business is growing, given also we said that on the SME business with the growth opportunity for the future, I believe that's the one thing. The other thing is we are also focused on our commission rates. Agent commission rates, which are variable cost and we do look at long-term, long relationships with the agents and having a favorable commission rate for both (inaudible) for both, but favorable for Western Union given our global presence. And the third one is, Scott can give you a little bit more color that, is our fixed cost structure. I think we are also pretty much focused on our processes, our initiatives, we have corporate initiatives to focus on our fixed costs. We have operating centers globally, we have people, very effective people in a very cost friendly environment. So these are the major initiatives. Anything, Scott?

No, just to add, it's really growing the top-line (inaudible) revenues, Hikmet mentioned, 65% of the costs are variable and 35% are fixed, so you have a natural way to move margins up there. And then, one of our key strategies is improving our processes and activity. And over the long-term we believe there is additional opportunities to create efficiency, even further improve customer satisfaction and get to highly efficient and effective processes that we believe will be helpful on a go forward basis.

Okay, thank you.

Thank you. Operator, we are going to take one more question.

Julio Quinteros, Goldman Sachs.

Thanks, this is actually [Roman Wealsted] sitting in for Julio. The first question is on pricing, what specifically, what leads you to, to introduce that pricing initiatives in Mexico versus other corridors? Does it make sense to introduce that elsewhere around the globe and how much of that is kind of baked into your 1% to 2% pricing kind of guidance for the next few years?

On the pricing initiative, generally we really look market by market. I wouldn't draw a global rollout of that $5, introducing $50 for $5 (sic -- see Website) in one market implement also the other markets. Don't forget also is that the $50 for $5 in some currencies, some different than dollar currency. So I believe that certain customer segment, which we do look corridor by corridor and understand the environment. So I would say that the pricing initiative 1% to 2% is for 2011 and we do keep the flexibility on an investment 1% to 3% long-term to understand the environment.

And on prepaid, I know you mentioned you're kind of progressing nicely here with some potential partnerships, are you looking more for to expand your current locations? Or, is this perhaps something where you could push more aggressively to open your relo network to third-party prepaid for your managers?

In the US we currently have about 12,000 locations and some of the locations are -- have exclusivity with the competition. That is why we are kind of locked to expand our distribution. But, when the time comes we going to get the most on our distribution to sell more cards. Generally I would say that I am very open to reload the cards. Our network is ideal. Also, international, I believe given the 470,000 locations, we are in a very well position to sell more cards than -- loads more cards and be more active with more cards.

Great. Thanks.

Thank you. I just wanted to say thank you for all questions and I would like to summarize the quarter and seeing if we summarize the quarter you see that our business is solid and we are very comfortable to raise our revenue and earnings per share outlook at this time for 2011. One more time, we have continue to have opportunities to grow our core money transfer business, both in cash retail money transfer and electronic channels. And also, the pending acquisition of Travelex Global Business Payments combining with Western Union Business Solutions will give us a very strong second leg to expand to new customer segments. And we will be continue to be active returning funds back to the shareholders through share repurchase and through dividends. So, thank you very much. Thank you joining the call and I wish you all a great day. Thanks.

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