西聯匯款 (WU) 2011 Q3 法說會逐字稿

Good day ladies and gentlemen and welcome to the third-quarter 2011 Western Union earnings conference call. My name is Jonathan and I am your operator for today. At this time, all participants are in a listen-only mode. We will be conducting a question-and-answer session after the prepared remarks. (Operator Instructions) As a reminder, this conference call is being recorded for replay purposes. I would like to hand the call to Mr. Mike Salop, Senior Vice President of Investor Relations. You may proceed, sir.

Thank you and good afternoon 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 www.WesternUnion.com under the Investor Relations tab and will remain available after the 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 filings 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 principals. We have reconciled those items to the most comparable GAAP measures on our website, www.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 everyone. Before I discuss the third-quarter 2011 results, I would like to take a moment and make a comment regarding the devastating earthquake that struck 3 days ago in my home country, Turkey. Western Union expresses the deepest condolences to the families of the people who died and we wish all the best to those who are injured. To support recovery efforts the Western Union Foundation is assisting the Turkish Red Crescent and we are also temporarily eliminating transfer fees for certain couriers in affected areas in East Anatolia, so our consumers can support their loved ones.

Now turning back to our results, our Business continues to be resilient. With solid consumer-to-consumer trends overall, improved the Consumer Bill Payment, and various from quarter from Western Union Business Solutions. Total revenue increased 6% or 5% on a constant currency basis. As you are all aware, there are a lot of turbulences in the markets in the third quarter. And certainly, we are seeing economic challenges in some parts of the world. However, our consumers are loyal, our Business is diversified, and we remain on track to achieve the full-year outlook for revenue that we provided in July so we have moved our EPS outlook to be at the higher end of our previous range.

In the consumer-to-consumer segment, our geographic diversity and ability to react quickly to changing conditions allowed us to deliver solid results in the quarter. Trends moderated slightly from the second quarter as there were some slowdown in Southern Europe and Russia; however, steady results for the US and the large markets in Europe, as well strength in Mexico led to 4% constant currency revenue growth in the quarter, reported revenue and C2C increased 6% and was aided by a stronger euro. I was pleased with my tour in Mexico last week, and still feel opportunity to grow our Business there. In the US, domestic message money transfer continues its strong momentum with revenue growth of 9% and transaction growth of 14%. Globally, our pricing remains steady and we now project declines of only 1% for the full-year. I also just recently returned from a market tour of Europe and Russia. Despite the negative financial headlines in Europe, our Business is holding up.

We have strong agent relationships and loyal consumers in the region and our Brand is well positioned. There is some competitive challenges from the local players in Russia, as we need to develop our retail network to complement our bank agent locations but we have good actions planned in place. We also continue to extend our network around the world in the quarter. Adding another 15,000 agent locations which brings our total to 485,000 locations. The growth rate in Global Business Payments improved in the quarter, with 7% revenue growth driven by a very strong quarter from Western Union Business Solutions and consistent Consumer Bill Payment Business. In Consumer Bill Payment, we reported revenue growth of 2%, the second consecutive quarter of positive growth led by our solid American business and steady trends in the US. We recently rolled out our enhanced walk-in service across the US and launched a national media promotion to make consumers aware of this convenient service with connections to over 10,000 dealers.

Western Union Business Solutions delivered 30% revenue growth in the quarter with strong performance across key markets including Canada, the US, and Australia. Currency volatility most likely spurred more SME transactions and there was also some currency translation benefit, but they're still strong results and we are on track for a very good growth year in Business Solutions.

As we speak, there many activities across the globe to capitalize on the business-to-business opportunity. We have signed additional Western Union money transfer agents who will now also sell the business-to-business service in certain markets with the Philippines already going live. Online and Mobile FX payments capabilities are now available for SME into markets such as France, Germany, Ireland, and Italy. And finally, we're on track to close a Travelex Global Business Payment acquisition the fourth quarter, following the receipt of all regulatory approvals.

The Business has been performing to our acquisition expectation since we signed the agreement and we have been diligently planning the integration. We're looking forward to combining this business with Western Union Business Solutions leveraging the many capabilities and assets of each to drive business-to-business growth for many years to come.

Let me know update you on some of our other strategic initiatives. Electronic channels which include www.WesternUnion.com, electronic account with money transfer, and Mobile Money Transfer, revenue increased 40% in the quarter and represented 3% of total Company revenue. Our account with money transfer transactions which include cash-to-account, account-to-cash through banks, increased almost 40% in the quarter. We now have over 70 banks signed to offer account with money transfer service with 35 active.

We recently added account with money transfer with la Bancpost in France which is 1 of our major European agents. Another electronic challenge for money transfers is through ATMs. And we now have money transfer service available through over 30,000 ATMs with various banks across Europe and Asia. WesternUnion.com on the other site had transaction growth of 30% with transaction growth in the international markets of 45%. Stored value card, our prepaid card in-force India is now totaled over 1.2 million with retail distribution at nearly 13,000 locations. In the third quarter approximately $120 million of principal was loaded onto Western Union prepaid cards through 500,000 loads. We recently announced that our prepaid cards will be available at several thousand 7-Eleven locations in the US in early 2012, which will significantly expand our distribution base. We will also be piloting prepaid card programs in the UK and the Philippines over the coming months.

Our differentiation and prepaid remains our Brand. Our relationship with underserved consumers, our global network, our agent network, and our consumer friendly fee structure, and we believe over time these will be able to leverage these assets and all of these market opportunities to organic growth.

The Company continues to generate strong cash flow. With year-to-date cash flow from operations over $880 million through September. In 2011, we're deploying approximately $1.3 billion of capital for the Travelex Global Business Payments, Angelo Costa, and Finint acquisitions. These transactions will help spur further growth and efficiencies in key strategic areas. There also actively returning funds to shareholders. Through the third quarter, we have repurchased $800 million of our shares which represent 6% of shares outstanding and declared $145 million of dividends.

Given the strong allocation of capital year-to-date and our capital structure targets, we do not anticipate purchasing additional shares in the fourth quarter. We will have the flexibility to resume repurchase program soon in 2012. The Travelex Global Business Payment acquisition in combination with our existing Western Union Business Solutions will give us all the assets we need to capitalize on the business-to-business opportunity. While we may continue to make occasional smaller acquisition that support our growth strategies, at this time I do not see us pursuing any sizable acquisitions.

Before I turn the call over to Scott, I want to take a moment to discuss the new business unit structure we announced during the quarter. To align with and drive our key growth priorities, we now have in place 3 primary business units. Most of our revenue today is in the Global Consumer Financial Services Unit led by Stewart Stockdale who is the President of this business. The unit includes our Consumer Money Transfer Service, and Consumer Bill Payment. This is the heart of the Company today and includes our agent network and go-to-market actions for consumer products and services.

We also created a separate unit for business-to-business payments which include Western Union Business Solutions and we'll add the Travelex Global Business Payments operations after the acquisition is completed. This unit is led by Raj Agrawal, who has been named President of Western Union Business Solutions. We believe there is a huge market opportunity for serving underserved SMEs with their cross-border payment needs and having a dedicated business unit and executive team will ensure that we execute against opportunities.

Our third unit is Western Union Ventures, this is a newly created unit led by our Chief Marketing Officer Diane Scott, who is now also President of Western Union Ventures. This unit will focus on leveraging the Company's existing assets such as global brand, our agent network and our extensive consumer relationships with the underserved to introduce new products and services. We want to deepen the relationship and share our wallet with the existing consumer but also add new consumers over time. WesternUnion.com stored value prepaid and Mobile Money Transfer are in Ventures, but the long-term intent is to develop new services for the untapped underserved customers as well.

As you know we are constantly looking to improve our Business to grow faster. Over the past several months we have assembled 2 project teams, 1 in Denver, another 1 in San Francisco consisting of some of our best people and represent the diverse functions from across the globe. The teams have been added to create the roadmap for making Western Union a truly consumer centric organization by accelerating growth in our consumer business and building a plan to significantly grow and enhance www.WesternUnion.com.

While these efforts are still in progress I can truly say I am energized and excited from what I have seen. We will share some of these strategies more with you next year. They will take some time and effort to implement but they are great opportunities to optimize the customer experience, accelerate our share gains around the globe, and elevate www.WesternUnion.com to become a truly meaningful channel. Now to give you 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 6% on a reported basis, or 5% on a constant currency basis. Currency translation added approximately $18 million to GAAP revenues in the quarter, primarily due to continued strengthening in European currencies. Consolidated revenue growth was driven by continued solid trends in our consumer-to-consumer segment, and strong growth in Western Union Business Solutions. In addition, our Consumer Bill Payments Business delivered positive revenue growth. Transaction fee revenue increased 5% while foreign exchange revenue grew 12% due to C2C cross-border principal growth and strong revenue from Western Union Business Solutions.

Within C2C, revenue increased 6% with transaction fee revenue up 5% and foreign exchange revenue up 9%. C2C foreign-exchange revenue was primarily driven by growth in cross-border principal which increased 8% in the quarter. In the consumer-to-consumer segment, reported revenue increased 6%. Constant currency revenue growth in C2C was 4% compared with 5% last quarter while transaction growth was 5%, down slightly from the second quarter. The transaction growth slowdown was mainly due to challenging comparisons in US domestic money transfer and slowness in Russia and parts of Southern Europe, partially offset by improvement in Mexico, and the reopening of the Ivory Coast business. The Company's C2C cross-border principal increased 8% or 5% on constant currency basis. We are confident we are gaining share again in 2011.

C2C principal per transaction increased 3% year-over-year and was flat on a constant currency basis. In the international C2C business revenue grew 5% on a reported basis and 4% on a constant currency basis. International transaction growth was 4%.

International constant currency principal per transaction increased 1% compared to the prior year, which marked the fourth consecutive quarterly increase. Including the impact of currency, international principal per transaction increased 4% in the quarter.

Turning to the regions, our C2C business in the Europe, Middle East, Africa, and South Asia region grew revenue at 5% on transaction growth of 3%. The transaction growth rate was down slightly from the second quarter with revenue trends moderated due to currency and some slowness in Southern Europe and Russia. Other large markets in Europe such as the UK, France, and Germany remain consistent with second quarter trends as did the Gulf states. In India, trends increased with 13% revenue growth and 11% transaction growth. The Ivory Coast business was operating throughout quarter which modestly aided EMEASA trends, some agents in Libya reopened but activity was light in the quarter.

Turning to the Americas region. Revenue increased 6% on transaction growth of 6%. Domestic money transfer continues to have strong momentum, with revenue growth of 9% on transaction growth of 14% in the quarter. Mexico trends also improved in the quarter, revenue increased 5% which we believe was partially driven by consumer sending more funds when the Mexican peso depreciated. Mexico transactions increased by 2%. We are still testing $5 for $50 and other price changes for the US to Mexico corridor including increases in higher bands. So far we have seen some transaction lift but the revenue impact has been fairly neutral.

US outbound growth remains consistent with the second quarter. Asia-Pacific revenue continue to increase in double-digits with the third quarter at 11% growth. Asia-Pacific transactions increased 7%. Australia and the Philippines delivered good growth although not as strong as the second quarter which contributed to the slower revenue and transaction growth for the quarter. In China, revenue grew 5% in the quarter while transactions increased 4%. China revenue growth was not as strong as the second quarter, which we believe was partially impacted by consumer reaction to the strength of the Chinese currency relative to some key send markets.

For the overall C2C business the spread between transaction and revenue growth in the quarter remained at 1 percentage point excluding impact of currency which had a 2-point benefit. The impact of pricing was 1%, while mix was neutral again in the third quarter. For the full-year, we now expect price decreases to be 1%, rather than our previous estimate of 1% to 2%.

Moving to Global Business Payments, the overall segment revenue increased 7%. Consumer Bill Payment Business continued its improvement with revenue increasing 2% led by strong international growth. US trends were consistent with the second quarter. Western Union Business Solutions reported strong revenue growth of 30%. Currency volatility during the third quarter most likely prompted many SMEs to complete transactions, and currency translation added about 8 points of growth. Overall, we are on track for high teens revenue growth in B2B this year.

Turning to margins. The third quarter consolidated GAAP operating margin was 25.7% which compares to 26.4% in 2010. Excluding restructuring charges, the consolidated operating margin was 26.7% in this year's third quarter compared to 27.5% in the prior-year. Currency translation aided revenue by approximately $18 million but negatively impacted operating margins. As a reminder, the strengthening of European currencies favorably impacts revenue but has a less significant impact on operating profits due to the Company's hedging programs. The third-quarter operating margin excluding restructuring expenses declined by approximately 80 basis points from the same period last year due to the impact of currency translation and higher marketing spending and $5 million of Travelex Global Business Payments deal costs. On a constant currency basis, margins would have increased as restructuring savings and revenue leverage offset higher marketing spending and deal costs.

Marketing expenses were 4.5% of revenue in the quarter compared to 3.7% in 2010. We reported $14 million of restructuring expenses in the quarter related to our previously announced programs. Approximately $3 million of the expenses included in cost of services and $11 million is in SG&A. This compares to $14 million in restructuring charges in the third quarter of 2010. These charges are not included in our segment operating results. The Company recorded a total $47 million of restructuring charges in 2011. As of the end of the third quarter, all restructuring actions related to these previously announced programs have been completed and all related restructuring expenses have been recorded.

We now expect approximately $55 million of related savings for the year, and $70 million in 2012. We realized $17 million of savings from restructuring activities in the quarter. The tax rate in the quarter was 23.6% or 23.9% excluding the impact of the restructuring charges, which compares to 22.7% or 23.2% excluding restructuring charges in the third quarter of last year. Our full-year estimated tax rate continues to be in the range of 23% to 24%.

Earnings per share in the quarter were $0.38 or $0.40 excluding restructuring charges. GAAP EPS was $0.36 in the third quarter last year or $0.37 excluding restructuring charges. Our C2C segment operating margin in the quarter was 29.0% compared to 29.9% in the same period last year. The decrease was due to the impact of currency and higher marketing spending, which offset other efficiencies including restructuring savings and revenue leverage. Global Business Payment's operating margin was 17.7% in the quarter which compared to 15.1% in the third quarter of 2010. Margin improvement compared to last year primarily due to revenue increases, restructuring savings, and lower integration and investment spending in Western Union Business Solutions. We continue to expect Western Union 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 $883 million and capital expenditures were $124 million. Our year-to-date depreciation and amortization was approximately $137 million. Capital spending has been approximately 3% of revenue year-to-date, which is the level we expected for the year. At quarter end, the Company had total debt of $4 billion and cash of $2.7 billion of which approximately $1.5 billion was outside the United States. As a reminder, we have $700 million in notes maturing in November of this year.

During the third quarter, we issued $400 million of 7-year senior notes at a rate of 3.65%. These proceeds combined with a $300 million we issued in the first quarter provided us the cash to retire the maturing notes in the fourth quarter. In addition, we entered into a $1.65 billion credit facility during the quarter which expires in 2017 and currently remains undrawn.

This replaces the previous facility which was due to expire in 2012. In the third quarter we spent $140 million to repurchase 9 million shares or 1% of total shares outstanding at an average price of $16.18. As of September 30, our shares outstanding were 619 million shares. We also declared $50 million in quarterly dividends which were paid on October 7. We manage our capital structure to balance the relationship among returns and cost of capital considering the mix of debt relative to earnings, cash levels, and the alternative uses of cash among other items. As Hikmet mentioned, we anticipate that the $800 million of share repurchases through the third quarter will complete our buyback program for the year.

As we entered 2012, a new year of cash flow generation, it will give us to flexibly to resume an active repurchase program. We have $650 million remaining under our existing authorization, which expires at the end of 2012. We believe managing and balancing our capital structure in this manner gives us the most flexibility in running our Business although we do periodically revisit our optimal capital structures with our Board.

Turning to expectations for the full-year, we're affirming our outlook provided on July 26 for revenue and moving our earnings per share outlook to the higher end of the previous range. Our revenue outlook calls for constant currency revenue growth in a range of 4% to 5% and GAAP revenue growth 1% higher than constant currency. Our outlook does not include any revenue from the Travelex Global Business Payments acquisition, which was expected to close in the fourth quarter. For earnings per share, the outlook is GAAP EPS in a range of $1.50 tons to $1.53 which compares to $1.48 to $1.53 in our July outlook, and EPS excluding restructuring charges of $1.55 to $1.58 which compares to our July outlook of $1.53 to $1.58. These EPS ranges include a negative $0.02 impact from deal costs associated with the Travelex Global Business Payments acquisition.

Our operating margin outlook is consistent with our July outlook as follows. GAAP operating margin continues to be in a range of 25% to 25.5% including Travelex deal cost. Operating margins excluding restructuring charges were projected at a range of 26% to 26.5%. On a constant currency basis, operating margins excluding restructuring charges are projected at 26.5% to 27%, including Travelex deal cost. This compares to an operating margins excluding restructuring charges of 26.2% in 2010.

We are still projecting full-year marketing expenses similar to last year at approximately 4% of revenue. We continue to expect GAAP cash flows from operating activities to be close to the lower end of the range of $1.2 billion to $1.3 billion for the year. In summary, we are pleased with the results we delivered in spite of challenging conditions in some parts of the world and are comfortable with our outlook for the year. Operator, we are now ready to take questions.

(Operator Instructions) Jason Kupferberg, Jefferies.

I wanted to start with a question actually on in the US and specifically the bank distribution channel. I know that you've had some nice success signing up some new banks. You talked about Regions last quarter and I think you added Key Bank as well if I am not mistaken. I wanted to get an update on what percent of your US agent network is now banks and where that might go over time. Is there any material difference in the number of transactions or principal per transaction that you guys see through the bank agent channel in the US compared with your non-bank agents? I'm just trying to get an overall sense of this bank channel as part of what is contributing to the domestic strength in your Business.

Sure. I think it's a huge opportunity Jason for future of that. It's too early to carve it out on retail, but on channel, but we see new customer segments, we see customers we didn't touch in the past, account holders using our service, we have now about 5 banks in the US, which do serve our service. As you recall we have the US Bank, Regions Bank, we have Alaska Bank, [Selvin] Bank, and as you know these banks do diversify our channels. As you know, we have that in Europe. Most of our European agents are the banks. And now we are going there with the retail and what we do in the US is we have the retail network, we go to to diversify our customer base also to the US banks. I think it's also important for the banks because they do -- besides the money transfer transaction, they have traffic to their location, they attract new customers, they cross-sell their products, I think it's a win-win situation with our agents also.

Okay. So is a principal per transaction typically higher with the banks, or is there no real appreciable difference?

Jason, it varies from bank to bank. So the customer segment is a little bit different, as Hikmet mentioned but from bank to bank it varies. In the US, the team has done a nice job of adding banks but it's still a small part of our distribution in the US compared to globally and we still see a lot of opportunities to continue to add banks as we move forward.

Okay, that's good to know. Just a question on the guidance. I know that the revenue in the margin outlook is unchanged for 2011, but you did nudge the EPS up to the higher end. Is that simply because of the buybacks that you have been doing or any other nuances kind of below the operating margin line we should be aware of? It sounded like your tax rate outlook is also not changing here.

Jason I'd tell you as much as anything is just our confidence in the business as we move forward. We've got 3 quarters under our belt, there's about 9 or 10 weeks left in the fourth quarter so just confident in the Business and where we are heading and so we moved the EPS to the higher end of the range that we had in July.

Okay and just last one for me, just to clarify on the restructuring, I know that you guys said that the program that had been announced in 2010 is now fully completed. Which is great to see. So is it fair to say that we should not be expecting anymore restructuring costs in 2012, at least nothing that would be big enough magnitude to actually call out?

I will take the first part. First I think we are constantly looking at our organization and constantly looking to improve our organization and adapting to the market. I would never say that restructuring of organization would ever stop, right? I think we did our job very well in 2010 and 2011. I think they're on track with our numbers here, and we did some really good achievements here. But we will give you more guidance in 2012 for 2012 in our February earnings release. And we will give you more direction there Jason.

Jason we will have a chat with integration expenses next year but we'll call those out for you as we get through the year.

Absolutely. Okay, great. Thanks guys, congrats.

Darrin Peller, Barclays Capital.

First question just on the pricing side, I think there was a comment saying that the expectation for pricing was about 1% versus your more typical 1% or 2% or even 3% of the past pressure. Which is a good thing to see, 1% I'm assuming is still -- is there still some of that coming from the US change that occurred earlier in the year or still dragged on early in the year? Or is there other things going on and why is it less now? Is there anything sort of fundamental going on in the industry?

I wouldn't say something fundamental is going on there in on the industry, our pricing investment changes from quarter-to-quarter from year-to-year. Currently what we see is we are very well positioned with our 485,000 locations, our Brand, our consumers like us despite the economical challenges they keep with us. I think that one person investment rising investment is the direction for this year, if you look at our pricing as Jason mentioned is 1% to 3% deposit gives us the flexibility depending on how we operate in the 16,000 corridors, gives us the flexibility to gain market share and to grow -- to have long-term growth.

All right. Another question just on the margin if you don't mind. The operating margin came in pretty strong. Sequentially was up a bit but it looks like it was more from the continued success in your Global Business Payments segment. In growth there. It looks like the bill pay is still growing obviously helps the margin. When you think about the C2C margins for a moment, you had revenue growth of 4% on a constant currency basis and yet your margin year-over-year was obviously not up in that segment. I know advertising -- correct me if I'm wrong, advertising may have been up a little bit, I don't know if that drove some of that, but we still expect this to be a fixed cost model with operating leverage, so should we continue to expect that to be materially evident in going forward in margins if this Business does keep growing and we will see that opportunity?

Darrin, how I think about margins on a long-term basis and then I will come back to the corridor here too. But on a long-term basis, our goal as a Management team over the long-term is to grow the margins and to your point we believe the business models are set up to grow margins on a long-term basis. On any given year or any given quarter, it will depend upon the revenue growth, what the productivity savings might look like, and then the levels of investments that we make in the Business. And to that, when you focus just say on the third quarter, a couple of the things that's impacting the margin in the C2C business, still very strong at 29% but compared to the prior-year we did invest more in marketing on a consolidated basis we are about 4.5% of revenue compared to 3.7% a year ago, so not quite 100 basis points but quite a bit of it there. And then currency, although currency helped the top-line on a consolidated basis, and in the C2C division did not have as much of an impact on the bottom-line. If you take out currency, if you factor in the marketing impact, C2C margins are still very strong in the third quarter.

Okay that's very helpful. Just last quick question for me and I will go back to the queue. In Europe, things have been pretty resilient and holding up well, but can you just give us a little more color, have you seen any evidence of anything slower or changing given the macro backdrop?

Sure. Well Darrin obviously there's no secret that Europe has an issue, economic issues and finance crisis and debt issues, everything is going on but our Business has been especially in countries like UK, France, and Germany, holding quite good. We do see some softness in Southern Europe and we do see a little bit challenges in Russia, but generally I would say I'm pleased with the European results. In the transaction and the revenue has been holding in these major countries pretty well. That shows also that we do our Business model being in some countries, we really diversify our opportunities and also manage to risk against the risk areas.

Yes, all right, great, thanks guys.

Tien-Tsin Huang, JPMorgan.

Just a follow up to Darrin's question. In terms of the softness that you're seeing in Southern Europe, did it get progressively worse month-to-month? And I'm curious how you define softness. Is it are you seeing lower principal per transaction or is it just transactions? I'm curious if you could give a little flavor on that.

Tien-Tsin, let me first probably talk about Europe and then drill down into Southern Europe, which is a much smaller piece of Europe if you will. But Europe continued to grow, in fact it was only down about 1 point of growth from Q3 compared to Q2. And if you back out Southern Europe, Europe in itself without Southern Europe had the same growth rate Q3 and Q2. So continue to see strength in markets such as the UK, Germany, and France. Southern Europe you've got countries such as Spain with 20% unemployment clearly have had some challenges there. So quarter-over-quarter there was a little bit more softness in southern Europe and not a tremendous amount.

Also Scandinavian and all Nordic countries have been holding pretty well.

Understood. Overall the Europe numbers are better than what we expected. I'm just curious if there's -- if this is the beginning of something to watch. It sounds like it's manageable. The other question I had I think you explained the Mexico strength due to peso depreciation. I'm curious, does stronger dollar or weaker euro globally have any real impact on demand? I'm wondering if that's something we should be mindful of now, given the FX trends.

Depending on the business-to-business solutions, it does obviously have on the business model affect, but on the consumer business, it depends really on the corridor, it depends really on the countries in some corridors we pay out in local currency and some quarters we pay out in euros and in dollars. So I wouldn't see from the consumer behavior, any changes the consumer really send home what they earn. They really -- they don't hold it so much back so it's little bit in Mexico, that changes a little bit. But I wouldn't build a general model out of that, Tien-Tsin.

A lot of times when it happens it's just a movement from one time period to another so somebody might expedite a send or delay a send because of the currency movement. So from a long-term perspective it's not really a change in behavior.

Right just a timing issue. Okay understood, that's all I have thank you.

Glenn Fodor, Morgan Stanley.

Great quarter. On prepaid you said the past internationals was an attractive proposition and I get your message on no acquisition -- large acquisitions near-term, but once we get past Travelex integration and beyond that. Can you talk about your international prepaid strategy and if it's biased towards partnering, acquiring, or a mix of both? And is there any aspect of the value chain where you will be focused? Such as the whole ball of wax, program management, or distribution only, or reloads, so on and so forth?

First of all I think we would like to grow the business prepaid business organic. The reason for that is we already have some fundamentals here. We have the Brand, plus we have the distribution channels with our agents and we do have the regulatory environment like in the Europe, the European license with the bank. And that will give us the issue and probably also holding funds in our overseeing the bank. These fundamentals will expand our prepaid strategy. Now, coming to the prepaid such would be I believe that our next market within the next months will be UK and Philippines. For our test expanding that -- don't forget though in prepaid every country has their own specific customer needs, consumer needs, so we had to adapt the programs to the consumer needs. But I am very optimistic that we will be very successful with our prepaid strategy long-term.

Just one more on prepaid and I will wrap it up. I thought the recent signing with 7-Eleven was very good. But just wanted to step back and get a sense of when you think about competing with your competitors out there, and think about the main decision engines for a consumer when he is presented with multiple cards at a J-hook such as he will be at 7-Eleven with yours versus Green Dot and multiple prepaid cards, what do you think is going to drive his decision and why should we think it's anything other than price?

First of all, obviously Glenn you said from the consumer friendliness, being friendliness does help to make the decision for us. But don't underestimate our model is a little bit different than the others, we do have the customer relationship with our Brands, we do right on our Brands, we advertised our Brands, and the prepaid product is really one of the major products to keep the customer long-term in our network in our Brand.

Okay, thank you.

Julio Quinteros, Goldman Sachs.

Real quickly, you guys touched on some of the things that you guys have been working on with regards to the Travelex acquisition. Curious on what you guys have learned in terms of incremental opportunities on Travelex, sort of weighing revenue growth opportunities versus cost synergies. Where are you guys in terms of thinking of where the upside in terms of contribution could come from as we move into 2012 with Travelex?

I'm very excited and motivated about as you can tell Julio, about that acquisition and putting together an integration. First of all, the deal has not been closed yet officially. We assume that the next few -- within the next few months we will have closed the deal, the regulatory approvals are coming one after the other. I am very optimistic to close this deal as soon as possible. And the next focus will be the integration and will give us the global footprint. I think one of the most strengths of Travelex is the sales force they have under them. They are very good at getting new customers, getting new accounts and they also have the financial institutions as customers. That will also expand to our new portfolio. Seeing that also don't forget the extensive Business Solutions now after we focus the first 6 months really delivers good numbers also, combining their operations with our operations I believe that about $400 million in 2012 will give us a very strong leg to expand to Western Union Brand also to new customer segment which is SMEs.

Got it. And then maybe just switching over to Scott on the margin expectations for the fourth quarter. If you can break out your expectations for Business Solutions relative to the C2C side, anything in particular we should be thinking about from an expense perspective as we think about the individual margin modeling here for the segment?

Sure. Just to start on Business Solutions, we do expect that business to be non-dilutive to earnings, on Global Business Payments, that division you did see margins of very strong compared to the quarter from a year ago and continue to expect to have improvements in those margins as we move forward in Global Business Payments, we think we are doing the right things there.

In then to talk about C2C Julio, or maybe just take it back to the consolidated level for the Business, and that on a full-year basis, our outlook from July to today is not too different. We do expect margins excluding restructuring charges and also excluding the impact of currency, the margins will be somewhere between 26.5% and 27% which will be up compared to the 26.2% in 2010 excluding restructuring expenses. Last quarter we did comment on how we saw the margins among Q3 and Q4, we did spend more marketing in Q3 as we anticipated but not quite as much as we thought 90 days ago. And in some of the deal expenses for Travelex, will shift into Q4. Overall, we are on track to hit our margins for the full-year and really reconfirming the margin guidance we had back in July, maybe a little bit of timing among the quarters but back to hitting those margins as we contemplated in July.

Okay. And just lastly, going back to the decision to hold off on the buybacks for the rest of the year, when you look at the stock at 10 times free cash flow yield of about 10% or so, what was the logic for not continuing to the buybacks into the rest of this year other than just feeling like you guys had done your part? But when you look at where the stock is right now, it seems like guys could still be pretty accretive on the buybacks side. Can you just walk us through maybe some of the thinking there?

If you step back Julio a little bit you will see that the repurchase of about $800 million in total year and we also -- it's almost 6% of our outstanding shares right Scott? Repurchased here and plus we paid about $145 million of dividend. So given the financial environment I think that's pretty well numbers. And plus we've given our cash flow -- we also deployed about $1.3 billion on the acquisitions on Finint, Costa, and Travelex which is also for future growth. I think if you look at that -- plus we are quarter-by-quarter having pretty good results, I think within that environment we've been very -- have a good balance here with the repurchase, dividends, and also hitting numbers.

The other thing I'd add Julio, we still have a lot of confidence in the Business and the long-term growth of the Company. We are trying to balance cash levels with earnings, with debt levels, and all those things, and just balancing all those things and we did buyback $800 million of stock which was 6%. And as we turn the page on the calendar to January, we will have the flexibility to continue to buy back stock and this is the type of business that generates the $1 billion plus of cash flow from operations.

Got it. So the rest of the buyback starts again in 2012 and I think you said it was $600 million or so left?

Yes we have about $600 million left on the authorization, we clearly have the flexibility to start that back up in 2012.

Okay. Got it, thanks guys. Good luck.

Kartik Mehta, Northcoast Research.

Scott I wanted to go back to a comment you made on marketing spend. I think you said you anticipate spending 4.5%, and I'm wondering is that a new level of spending or as you look at over the next couple of years, will you have to spend more on marketing because of the new businesses and maybe the Western Union Ventures program as well?

Yes. Maybe I should have clarified a little bit too. In the third quarter, we spent about 4.5% of our revenue on marketing compared to the third quarter of a year ago. The third quarter a year ago was about 3.7% on a full-year basis we still anticipate spending about 4% of our top-line on marketing. There was some variation quarter-by-quarter which has some impact on the margins and so forth. But overall 4% where we've been in 2011, 2010 that feels about at the right level. Now could vary little bit year-by-year but directionally I would call it out at 4%.

Hikmet, you've had good success using these new pricing bands in the US. I know Mexico is a little too early to determine how much success you will have are not have, but is there an opportunity to use this in other corridors? And could that have -- could that benefit the Company and maybe spur some growth?

If you look at our Business we've been doing that in many corridors already actually. Right? But $5 for $50 in the US was probably our biggest price investment ever we did. And by the way, it's not only $5 for $50 as you know Kartik it's also changing to other brands and even in some bands increased the prices here. So we did promote the $5 for $50 in the US and we were very successful. We did also some in the UK to promote that, we had some successes there. We are looking market-by-market in some countries given this current currency it doesn't -- $5 for $50 go very well, in different currents it may be $10 for $100. Right? We use it as a promotion, we use it as attracting customers, gaining market share, and increasing our revenue long-term. Yes, the short answer is yes, we do it, but given our pricing investment, and this year we have about, you heard before, we have about 1% pricing investment.

And then just last question, on PSD, how much revenue has PSD generated in 2011? And kind of where it is in terms of your expectations so far for the year?

I am very pleased with the PSD actions. We have -- we already said it's going to be 1% additional incremental revenue to the retail locations which we're on track. And we are hitting the numbers 1% incremental revenue and are pleased with -- and also I'm not only pleased, the consumers are pleased because they're using it and they like it with the longer opening hours and with the big locations. I think we have been having good results on PSD.

Thank you very much.

Bryan Keane, Deutsche Bank.

I just want to follow up on the pricing question. I guess it's interesting that it's only 1% this year. Is it just a factor that there's just not other corridors that would make sense to drop price, to drive transactions? Because typically over the history I've covered the Company, it's hovered more at 2% to 3%, and just kind of interesting it's down to 1% so maybe there isn't as many opportunities this year as there has been in the past. And I just wanted to get your thoughts there.

Yes. I think, first of all if you do pricing investment Bryan, if you quarter-over-quarter as you recall throughout year just because pricing investment was in the US, that impacted our pricing generally on the investment. But we do also sometimes FX increasements and increasement also in the pricing. So we would like to keep the flexibility between about the historical flexibility which we had to invest in the right moment, the right pricing. But currently, I would say that we are very comfortable with our 1% and also with our revenue guidance and obviously the global reach, strong brands, agent relationship helps consumers like them and stick with us.

Okay and let me just ask about 2 countries. One maybe you could just talk about Ivory Coast. It sounds like, is that fully operational? And how much does that help the numbers? And then second on Russia, it sounds like there was some competition in the retail market and then you guys had a strategy to combat that. I'm just interested in that. Thanks so much.

Yes we are operational in Ivory Coast. It's helping us to drive the revenue up. Which we had some, I think it was Q2 or Q1 we had some issues. You know that closed right?

Ivory Coast is up and running. So it's somewhat helpful to the Q3 trends.

On Russia, I just recently came back. In Russia we have about 17,000 locations. With SpareBank, with post offices, with all the banks, it's mainly the financial services and no one has 17,000 locations as we do as we cover the country. However they are all financial institutions. Russia recently announced that they will also get the kind of a PSD opening the retail network there also for money transfer and other financial services. And we will like to be there also and that's the plan to expand like the PSD we did in Europe and also Russia. Expanding the retail network there.

Okay and the weakness in Russia was because there was some competition in the retail area, or was there more an economic issue?

There is some local players especially to Russia to central Asia corridors. And their local players has been doing some actions there. And that has impacted a little bit our Business. And also we feel a little bit on the economic environment here. There it's also a little bit cold there outside there.

Okay. Thanks much.

Ashwin Shirvaikar, Citigroup.

Congratulations on the good quarter. My first question is on B2B, the revenue growth seems to have accelerated sequentially and I know you mentioned currency. But was there any other factors, have you changed anything, is this the investments paying off that you see in the business? What is going on there?

First of all, currency, we mentioned that. But also the team is doing a good job. After the customer's rebranded the Western Union Business Solutions we have dedicated teams going after sales approaches, I think the team is doing good. Great. We have businesses which -- they are loyal to us. Once they sign with us, once they enjoy our service they stick out -- they stuck with us and they stay with us and they are loyal so that helps also. And that has been a very good quarter and depending on the quarter, but we believe that we are on the right track to have high teens here. Raj Agrawal and the team is doing a good job on that. That's why we also created his own business unit. And with the Travelex acquisition and combining this too, I think we can have a very strong second leg for the future.

Okay. And second question probably for Scott here, the SG&A growth being faster than revenue growth, how much of that is one-time in nature with deal cost and restructuring type stuff? Versus discretionary marketing investments that you are doing? And if you could get into some detail on the kind of marketing investments and what you expect from them.

Ashwin, the first part of your question kind of broke up. Could you repeat your question? Sorry about that. Kind of broke up coming through on our end.

Sure. Yes. The question was on the rate of growth of SG&A relative to the rate of growth of revenues. And what part of the differential is sort of explained by one-time factors such as deal costs and restructuring versus marketing impact that could be discretionary? And the second part was what are you spending the marketing dollars on? Is it more agent -- is it specific things that you're doing that are seasonal in nature?

On SG&A, let me just give you a couple of numbers that might help us think about it too. In the third quarter, if you strip out restructuring charges, SG&A ran about 16.8%. If you compare that to third quarter a year ago, it was about 16.3%. Clearly, we had deal costs of $5 million that's driving up that line in the third quarter of '11, but also the timing of the marketing where we spent about 4.5% of our revenues on marketing in the third quarter compared to 3.7%. So timing of the investment spending, still on track for the full-year margins. As we think about marketing, what's great about our Business is we are in 16,000 corridors, 200 countries, so the campaigns can really vary anywhere from national media campaigns with radio, all the way to grassroots events in local villages in India and then kind of run in between all that. And so in the third quarter we saw some opportunities to spend and invest and we did that and we think that will aid the top-line growth as we move forward too.

Okay. Great. Thank you.

Tom McCrohan, Janney Capital Markets.

I just have two questions, one on prepaid, and one on Mexico. On the prepaid, what is the cost to buy the prepaid card through the 7-Eleven retail channel?

It's going to vary, but generally, when you first buy the card, you've got to pay a $4.95 fee to reload the card at that time. And then as you subsequently reload it at retail, the $4.95 fee or if you get a direct deposit straight out of your bank account, there is no fee from that. Really the consumer proposition for us is having a strong Brand and then also positioning as a fee-friendly card. And being able to in the US top off the card at almost any of the 50,000 locations in the US.

Will there be a fee Scott, to buy the card?

No, it'll be included in that first -- when you first load the card the $4.95 to load the card.

Got it. And the price including the reload is it different for 7-Eleven versus going to a Western Union location?

No. It's pretty comparable at all the 13,000 locations that are selling our cards today.

Okay. Great. And then just on the Mexico trends, if you can talk about October given seems like currency played a role in the quarter and the peso just seems to have been kind of moving sideways since the end of the quarter. So I'm wondering if you've seen any moderation of trends in Mexico through today? Thanks.

The currency time, definitely helped us. However, we are pleased with our Mexico numbers, with our position of our 3 Brands actually. With our Western Union Brand, Vigo Brand, and Orlandi Valuta Brand. We have pretty much covered the market and are very well positioned, and I recently was in Mexico last week actually, our Business is doing well but I do still see hopeful opportunities to grow the business in Mexico, and the team is working hard to have that long-term success. Continued success in Mexico.

That's all I have. Thank you.

Bob Napoli, William Blair.

Just on the trends in the quarter, did you see -- and I understand your guidance is pretty much in line on the top-line with where you were, but as you went through the quarter, July, August, September, October, did you see -- have you seen slowdown? Has a slowdown accelerated through the quarter? Has it been pretty steady? How does October look relative to September? If you can give a little color -- obviously different markets are different.

You're absolutely right Bob. Different markets are different and we did see strong in the US-Mexico business as I mentioned before pretty well. And also our India business double-digit growth, Middle East is holding, we had this last year of kind of Middle East-Gulf issues. I think the Gulf states are quite good. We do see some softness in the southern part of Europe and parts of Russia impacted in the end of Q2, Q3 a little bit, but generally I would say I am pleased with our transaction growth despite the environment out there, our Business is holding pretty well.

You've been adding a lot of locations, you continue to add a lot of locations. The revenue per location has been coming down. Are you at the point where with close to 500,000 locations, are the incremental locations essentially less, incrementally profitable but less so than older locations? What types of locations have you generally been adding? When you add 10,000 to 15,000 a quarter, there's a lot of different types in there. But are we incrementally getting less value add on the locations that you are adding on?

I think first of all under my leadership expansion to other locations will continue. I believe that every corridor, investing in Brand is essential to continue to drive the transaction and customer loyalty and revenue. That will continue. Most of the location though we are adding are on the receive side giving the coverage in the rural areas of Asia or other parts of the world. But also I think PSD locations, a new class of trade like in Europe and in the US with financial services, the banks will continue to add that. The team is doing a great job, we're going after every opportunity here to expand our agent network, and together with that, our location network.

Now, I wouldn't say that the productivity is going down, because if you go to a send location, you ask the question can I send money to the rural area of Vietnam? The answer you will get, yes with Western Union, you can do that because we have the locations, and that's going to go. So on the send side the productivity, the other side it increases even if you expand your location globally.

Last question. You talk about more competition in Russia but are you seeing broadly around the world incrementally more competition than you have in the past from some up-starts, we've heard of some new smaller players that are growing pretty rapidly with aggressive pricing. Are you seeing that more than in Russia? Are you seeing it in other methods of distribution, besides retail, mobile, online?

Shortcut to your answer is that competition is there but we are gaining market share. And we are continuing to gain market share, that puts us in a very good position. We do have competition corridor-by-corridor, country-by-country, but from the global perspective, we are very well positioning at gaining market share and especially in the cross-border money transfer business but also in the DMT with the US, what we did in the US is very well positioned. Our electronic channel is growing like www.WesternUnion.com, international for instance is growing by 45%. Or also our account-based money transfer, electronic money transfer is growing by 30%. This won't grow if you don't have the locations, if you don't have the network, if you don't have the Brand, so I'm very confident also that we are very well positioned to grow with our new channels, the electronic channels.

Thanks.

Andrew Jeffrey, SunTrust.

Apologize for the fire alarm in the background here. Kind of just a big picture question. Western Union would appear to have seen some nice organic revenue growth reacceleration irrespective of a challenging global macroenvironment. And Hikmet I think that's attributable to a lot of the things you have done internally and some of the pricing changes and so forth. From here, if we look at marketing that's going to run for around 4% of revenue, if we look at a constant pace of new agent additions, what gets the growth kind of to the next level? Is it cyclical at this point? How much do you control your own destiny, vis-a-vis sort of the second derivative of your revenue growth?

I don't have the fire alarm here but I am fired up with the Business. But what I would say is that it's both. Obviously economic environment helps our Business, drives a lot of job creation, drives a lot of the Business and we do see some impact as you know some parts of the world to our Business. However, we are driving the Business. What are we doing as the big picture is that we are diversifying our portfolio. We are reaching really to new customer segments with our electronic channels in the core Business, with our DMT, money transfer, with our price positioning in the US, reaching out to new customer segments with our SMEs, that brings Western Union to a growth area which we would like to see it. That is all our investments, that's all our focus to reach into new customer segment, and keeping the existing loyal customers within their networks which happens. That's the answer to a big question.

So in aggregate, given that you've had the success you've had in a relatively short period of time, all else being equal, can 2013 or 2012 sorry, conceptually be -- not asking you to give guidance but conceptually be a better year for Western Union still than what we saw in '11?

Well generally we always hope and aim to be every year is better than the other year, right? Obviously we work hard on that, but we have the strategy as we outlined in the last September meeting, we will get more color in our strategy in February meeting. But as I said with the 3 Business lines we have it now, I think we are quite well positioned to gain further market share and be active but economic environment definitely will also help to drive this Business.

Thanks a lot.

James Friedman, Susquehanna.

I wanted to ask with regard to your marketing spend related to prepaid, could you give us some order of magnitude about how much of the marketing is being directed towards that product line?

Hi James this is Scott. In each of our areas, whether it's B2B, C2C, Global Business Payments, and prepaid. We are investing in behind each of those business; sometimes that means people, sometimes that means marketing, sometimes it's technology and so forth. So it's hard to specifically break out how much we're investing behind each initiative because it will vary by quarter and by year but we are excited about the prepaid business. We think globally as Hikmet mentioned earlier in the call, with the strength of our Brand, our distribution, the bank where we can issue the product. Hundreds of millions of customers, we do believe prepaid is a nice long-term opportunity for Western Union.

Okay. And then Scott, if you wouldn't mind just revisiting Slide 16? I know there's been a lot of questions asked about the operating margin, but you actually went through some numbers in your prepared text. If I could ask you just to restate them to support the statement that on a constant currency basis, operating margins increase. That would be really helpful. Thank you.

Sure. If you look at the consolidated margins, as you think about Q3 and even on a full-year basis, is that we will get benefit from top-line revenue from currency rates that will be about $18 million in the third quarter. But because of our hedging programs, and how those work, in some quarters we actually will have a small profit or even some quarters we would have a loss, if you will. Just based upon when the hedges were put in place. But the goal of the hedging program is to have a long-term predictability of cash flows from that standpoint. So again, you can get a lot of -- in the third quarter $18 million on the top-line but it has much less or even potentially a small negative impact on profit, which when you take those back apples-to-apples, you would have a slight margin improvement on a currency basis.

James if you want to go through that, you can call me later. It's a little bit complex on the nuances but we can walk through that.

Got it. Okay, thanks so much.

Thank you for your questions, I just wanted to recap the quarter once again, despite some economic slow down in parts of the world our Business really is holding up and well. Large markets across the globe are delivering consistent results in the Consumer Money Transfer. Our Consumer Bill Payments turnaround continues and we are seeing that Business Solutions is providing strong growth.

We are comfortable in affirming our full-year revenue and moving earnings per share to the high-end of the previous range and we are on the track to complete the Travelex Global Business Payment acquisition in the fourth quarter. So thank you once again joining the call, asking good questions, and we wish you all a good day. Thanks.

Ladies and gentlemen, we appreciate your participation today. This does conclude the presentation. You may now disconnect. Have a good day.