西聯匯款 (WU) 2012 Q2 法說會逐字稿

Good morning and welcome to the Western Union second quarter 2012 earnings call. All participants will be in listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note this event is being recorded. I would now like to turn the conference over to Mike Salop, Senior Vice President, Investor Relations. Please go ahead.

Thank you and good morning, everyone. On today's call, Hikmet Ersek, Western Union's President and Chief Executive Officer, and Scott Sheirman, EVP, Chief Financial Officer, and Global Operations will discuss 2012 second quarter results. Following their remarks, we will open the call for questions. The slides that accompany this call and webcast can be found westernunion.com, under the Investor Relations tab, and will remain available after the call. Additional operational statistics have been provided in supplemental tables with our press release.

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 2011 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 the call are the property of The Western Union Company and subject to copyright protection. Other than the replay noted in our press release, Western Union has not authorized and disclaims responsibility for any recording, replay, or distribution of any transcription of this call. I'd now like to turn the call over to Hikmet Ersek.

Thank you, Mike and welcome, everyone. We remain focused on delivering on our vision to become the premier financial service provider for the underserved around the globe, as we outlined at a recent Investor Day in May. Our foundation is strong with a solid, core business in consumer money transfer and significant competitive strength such as our agent network, our high brand awareness with the underserved around the world, our global compliance capabilities, and our global organization and resources.

We have the right strategies in place to capitalize on these strengths and drive accelerated growth over the long-term by focusing on expanding our network and increasing consumer retention in global consumer financial services, expanding penetration and added new services in business solutions, and developing and growing new services for the underserved in Ventures. The investments we have made in Business Solutions and Ventures are provided us diversified revenue streams and as we exhilarated the growth over the long-term, we expect to drive margin expansion.

We also continue to focus on generating strong cash flow and deploying it for our shareholders. In 2012, we remain on track for the revenue, earnings per share, and cash flow outlook we provided at the beginning of the year, despite economic challenges. In the second quarter, our consumer money transfer business, which represented over 80% of revenues, continued to deliver solid results. [Agency] constant currency revenue increase 3% with consistent year-over-year operating margins. There were some very strong large markets such as Germany, Saudi Arabia, and India that helped offset economic softness in Southern Europe and expected challenges in Mexico and Russia.

Westernunion.com online money transfer also continued to deliver strong growth. Interestingly, we are seeing some changes in consumer movements developing from the economic situation in Southern Europe. Portugal, which was historically being a primarily send market, is now almost even split between inbound and outbound. Although Greece is still primarily an outbound market, the inbound business increasing significantly and represented almost 30% of the country's mix through the first half of the year. Due to our global network and local market expertise, we are very well-positioned to react quickly to these changes in patterns.

We are also making more progress ramping up our agent location expansion, including some key retailers in Europe such as Lottomatica, in terms of locations, one of the largest retailers in Italy. We now have approximately 510,000 agent locations globally, but there are also an additional 50,000 money transfer touch points throughout ATMs and other transaction-capable spots. These are a great base to achieve our long-term goal of 1 million touch points.

Our access to consumers is even higher when you consider the millions of account holders that can utilize our services throughout online banking and mobile phones. We have agreed to add account based money transfers with large banks in India and China and we will continue to expand our services to offer even more convenience and choice to our consumers. Our account based money transfer momentum remains strong with revenue growth of 34% in the quarter.

Turning to business solutions, pro forma constant currency revenue growth was the same as the first quarter at 4%. Although we have tempered our 2012 expectation for this business, primarily due to the impact of slowdowns in global trade, we have not changed our long-term outlook. C2B business development remains strong as we recently signed new partners such as ICICI Bank, through which we will transact international student tuition payments from India on behalf of our university customers and IBInvestor in the US, a global business incubator for media companies.

We also expanded Business Solutions to its 26th active country, by partnering with our agent in Chile. We continue to believe we will obtain low double-digit revenue growth in B2B over the next several years as the global expansion and new customer acquisition become more material components of our business. In Ventures, westernunion.com continues to deliver strong growth while we invest in new capabilities. We are piloting new strategies and pricing actions to drive customer acquisition, upgrading platforms to increase functionality and improve the consumer experience, and building a highly skilled team at our new San Francisco office.

There will continue to be enhancements to our services throughout the year, which will position us well for the future growth. There is also major activity in our stored-value business. Our US prepaid card distribution will be getting a boost from the signings of retailers such as Dollar General, which will add thousands of locations over the next several quarters. And our global expansion continues as we will shortly be launching special receiver focus prepaid cards in the Philippines. We are building a solid foundation for stored-value and these recent actions are major steps to drive growth in the future.

Finally, we continue to deploy our capital for shareholders, buying back over $160 million of stock and paying over $60 million in dividends in the quarter. Year-to-date, we have now returned over $430 million to shareholders through our buyback and dividends and plan to continue to pursue strong deployment throughout the year. Our core business is sound, and our cash generation is strong. We are executing against our strategic plans and look forward to advancing them further to accelerate our growth over the long term. Now, to give you a more detailed review of the quarter, I would like to turn the call over to Scott.

Thank you, Hikmet. Overall for the quarter, we reported consolidated revenue growth of 4% on a reported basis and 7% in constant currency. Consolidated pro forma revenue increased 2% constant currency, including Travelex Global Business Payments in the prior year period. In the Consumer-to-Consumer segment, reported revenue was flat with the prior year period on transaction growth of 4%.

On a constant currency basis, revenue increased 3% in the quarter. Second quarter constant currency growth rates were below first quarter trends, primarily due to some additional economic softness in Southern Europe and the expected challenges in Russia and Mexico and we had slightly lower growth in the US. The global distribution of our portfolio helped stabilize us against isolated regional dynamics and strong growth in countries such as Germany, Saudi Arabia, and India, helped drive overall growth. B2C cross-border principal declined 2% in the quarter, but increased 1% on a constant currency basis. B2C principal per transaction declined 6% year-over-year or 3% on a constant currency basis, which was consistent with the first quarter.

Turning to the regions, C2C revenue in the Europe and CIS region, which represented 22% of consolidated revenues, decreased 8% year-over-year. This decline included a negative 5% impact from currency translation. Russia is generally tracking to our outlook, as it will take 2012 to implement our turnaround strategies, including building a regional network. Germany continued strong growth, while other large markets such as the UK and France have been stable, but economic conditions in Southern Europe have led to further declines in Italy and Spain.

Turning to North America, revenue was flat with the prior year period on 2% transaction growth and the region represented 21% of total Company revenue. US outbound revenue increased, although not as strong as the first quarter, while domestic money transfer revenue grew 4% on transaction growth of 7% in the quarter. The domestic $5 for $50 continues to have strong growth, even compared to very high growth rates in the prior year. Some of the higher tiered bands did not increase as fast and we are implementing new marketing programs to drive further growth.

Mexico revenue declined 7% and transactions decreased 5% in the quarter. As you recall, we anticipated revenue climbs and share losses in Mexico this year, as we implement changes to our compliance related practices and business model. Results were strong in the Middle East and Africa region. Revenue in the quarter increased 3%, including an negative 3% impact from currency, while transactions grew 9%. Saudi Arabia and much of Africa were key drivers of the growth.

The Asia-Pacific region revenue grew 4%, including a negative 2% impact from currency translation. Aside from the currency impact, trends were consistent with the first quarter. India contributed strong growth, while the revenue decline in China moderated from the first quarter rate. The Latin America and Caribbean region reported strong results again in the quarter. Revenue grew 5%, including a negative 2% impact from currency and improved slightly relative to the first quarter growth rate. Westernunion.com C2C revenue increased 23%, including a 4% negative impact from currency translation.

We introduced some [C] promotions in certain corridors in the quarter to attract new customers, which negatively impacted revenue in the short-term, which should aid future growth. Westernunion.com transaction growth was a very healthy 35% in the quarter. As a reminder, westernunion.com results are not included in the growth rates for the other five regions, although they are included when we discuss specific country trends.

Total electronic channel revenue, which includes westernunion.com as well as account based money transfer and mobile, increased 26% in the quarter and represented 3% of total Company revenue. Westernunion.com's C2C revenue increased 23% in the quarter and revenue from account based money transfer through banks increased 34%. We now have nearly 100 banks signed for account based money transfer with 47 launched. We also have nearly 30 mobile number contracts, with 13 actively operating.

Prepaid revenue increased 6% in the quarter. In total, prepaid including third-party TopUp, represented just under 1% of Company revenue. We expect prepaid revenue growth to increase in second half of the year, as we benefit from greatly expanded distribution in the US and some of the international introductions. We will roll out our cards to Dollar General's 10,000 locations, as well as adding Fred's general merchandise stores. We're also continuing to ramp up distribution at the 7-Eleven convenience stores. Our prepaid cards were available at approximately 22,000 retail locations globally, including over 21,000 locations in the US at the end of the quarter. The new agreements will represent a significant step up in our distribution.

Turning back to the total C2C business, the spread between transaction revenue growth in the quarter was 1 percentage point excluding the impact from currency, which negatively impacted the spread by 3 points. The impact of net price decreases was approximately 1% in the second quarter, while mix was neutral. Moving to the Consumer-to-Business segment, revenue decreased 3% in the quarter, but was flat on a constant currency basis. The South American business continues to grow, while the US revenue is still stabilizing but was affected by business mix and the passing through of some of the debit fees savings related to Durbin in the quarter.

Business Solutions reported revenue of $92 million in the quarter, which compared to $31 million a year ago. On a pro forma basis, including TGBP results in the prior year, Business Solutions revenue increased 4% on a constant currency basis, which was consistent with the first quarter. We are below our revenue plan in Business Solutions and have lowered our full-year outlook to mid single-digit revenue growth. Although our transaction growth in the quarter was low double-digits, our principal per transaction was down, which is consistent with economic slowdowns in key markets.

In the near-term, Business Solution's results are largely driven by the amount of principal existing customer sends. Over time, the new customer acquisitions and geographic expansion will become more meaningful parts of the growth. As integration is completed and the new customer business grows, we remain confident Business Solutions can deliver revenue growth in low double-digits over the next several years.

Turning to consolidated margins, second quarter consolidated GAAP operating margin was 24.3% compared to 25.7% in the prior year. Excluding $14 million of Travelex integration expenses, consolidated margin was 25.3% compared to 26.3% excluding $9 million of restructuring expense in the prior year period. Operating margin of 25.3% excluding TGBP integration expense did increase from 24.3% in the first quarter. EBITDA margin excluding integration expense was 29.3% compared to 29.7% excluding restructuring expenses in the second quarter of last year. The Consumer-to-Consumer operating margin was relatively flat compared to prior year, but consolidated margins declined primarily due to the incremental $10 million of depreciation and amortization in Business Solutions.

Consolidated margin was also negatively impacted by investments in westernunion.com and additional compliance costs mostly related to the Southwest Border. These impacts were partially offset by benefits from currency, lower bank fees related to Durbin, deal costs in the prior year, restructuring savings, and lower marketing expense. We realized approximately $18 million in restructuring savings in this year's second-quarter compared to $13 million of savings in the prior year period.

As we mentioned at our May 9 Investor Day, implementation of the Dodd Frank consumer financial protection bill remittance disclosure rules is going to add some expense in 2012 that is incremental to our previous outlook. We have completed detailed implementation plans to prepare our systems, call centers, and entire agent location networks in the US for adoption of these rules by early 2013. We expect incremental expense of approximately $15 million in 2012 to cover the requirements for consumer money transfer, bill payments, Ventures, and Business Solutions businesses.

These costs include expedited implementation of enhancements to our point-of-sale systems at many US agent locations, training for the agents, IT development, call center costs for new error resolution procedures, expenses related to the creation and distribution of new receipt forms. We'll have some small, one-time costs to complete implementation in early 2013 and we estimate around $5 million to $10 million of ongoing annual costs related primarily to call center time and additional forms.

We have also adjusted our full-year 2012 outlook for operating margin reflect higher spending for other compliance costs, primarily relating to the Southwest Border Agreement. Were working on dozens of projects around enhanced risk controls that have continued to evolve and we have increased our projected spend in 2012 primary for IT development and higher personnel costs.

We expect global spending on compliance activities over the next couple of years will not change significantly from the 2012 levels as the breadth and complexity requirements and sustainability around the globe continues to expand. But we view our ability to adapt to this environment as a long-term competitive advantage. Turning back to the second quarter, other income and expense of $36 million of expense increased $17 million last year, as the 2011 period included a $29 million gain on the remeasurement of our equity position in Angelo Costa.

The tax rate in the quarter was 12.5%, which compares to 21.1% in the second quarter of last year. The decrease in our tax rate is primarily due to the resolution of the treatment of our international operations, as we noted in the announcement of our agreement with the US Internal Revenue Service last December. In addition, in the current quarter, we had a nonrecurring benefit related to favorable resolution of certain foreign and US tax positions. For the full-year, we now expect a tax rate of between 15% and 16%, which is lower than the previous outlook, due to the nonrecurring benefit in the current quarter.

Earnings per share in the quarter of $0.44 compared to $0.41 in the prior year. EPS was $0.46, excluding Travelex integration expenses, which compared to $0.42 excluding restructuring charges in the prior year. The prior year EPS included a gain of $0.03 related to the Angelo Costa remeasurements. Excluding integration expense in the current quarter and restructuring expenses in the prior year period, earnings per share increased 10%.

The C2C operating segment margin was 28.5% compared to 28.6% in the same period last year and an improvement from 27.7% in the first quarter. Compared to prior year, the margin benefited from currency, lower average commission rates and lower marketing, but these benefits were offset primarily by higher compliance costs, Costa [Enceinte] acquisition-related costs and investments in westernunion.com. The Consumer-to-Business operating margin was 22.4% in the quarter compared to 24.6% in the prior year period. The margin decreased primarily due geographic and product mix and some higher bank fees, partially offset by decreased debit fees related to Durbin.

Business Solutions reported an operating loss of $15 million for the quarter compared to an operating loss of $2 million in the prior year period. Last year's loss does not include Travelex Global Business Payments. This quarter's $15 million loss includes $15 million of depreciation and amortization and $14 million of Travelex integration expense. There is approximately $1 million that is included in both amortization and integration expense. Depreciation and amortization in last year's second quarter was $5 million. We continue to expect Business Solutions' profitability, excluding integration expenses, to improve throughout the second half of the year, as we benefit from better revenue leverage and initial cost savings from synergies.

Turning to our cash flow and our balance sheet, we continue to have a strong position. Year-to-date cash flow from operations was $446 million, which includes the impact of approximately $100 million of tax payments relating to the agreement with the IRS. We currently do not expect to make additional payments related to this agreement until 2013. Capital expenditures in the quarter were $46 million or 3% of revenue. We continue to expect capital expenditures to be 4% to 5% of revenue for the full-year, due to increased signing bonuses on some major agent contract renewals and new signings, as well as investments in technology. We expect capital expenditures to return to approximately 3% of revenue on average after 2012, although any given year could be impacted by additional new agent signings or other initiatives.

Depreciation and amortization expense was approximately $59 million in the quarter. At quarter end, the Company had debt of $3.7 billion and cash of $1.4 billion. Approximately 0.5 of the cash was in the United States. We continue our strong capital deployment policies. We repurchased approximately 10 million shares totalling $163 million in the second quarter, at an average price of $16.87. This represents approximately 1.5% of the total shares outstanding. In addition, we paid out $61 million in dividends during the quarter. As of June 30, our shares outstanding were 604 million shares and we had approximately $305 million remaining under our existing repurchase authorization, which expires at the end of 2012. We remain committed to continuing with strong return of funds to shareholders during the remainder of the year and beyond.

Turning to our outlook for the full-year, we are affirming the revenue outlook provided on April 24. We are reducing our operating margin outlook due to the incremental compliance costs and we are slightly increasing the earnings per share outlook, primarily to reflect the nonrecurring tax benefit recorded in the second quarter. We have also increased operating cash flow outlook due to the timing of tax payments. For the Company overall, we are maintaining our revenue outlook, which includes 6% to 8% constant currency revenue growth, including a 4% benefit from the full-year inclusion of Travelex, and GAAP revenue growth 2% lower than constant currency.

Turning to margins, we have adjusted our operating margin ranges for 2012 due to the increased compliance related costs relative to our original outlook. Incremental costs include the $15 million related to Dodd-Frank and additional spending primarily related to the Southwest Border. Our current outlook for margins is approximately 24.5% for GAAP or 25.5% excluding the Travelex integration costs. The outlook for EBITDA margins, excluding integration, is consistent with our previous Outlook at approximately 30%.

We are now projecting an effective tax rate of 15% to 16% for the year, down 1% from the previous outlook, due to the nonrecurring benefit recorded in the second quarter. The high end of our earnings per share outlook has been increased by $0.02 compared to our previous outlook, and we have also narrowed the range. Although our operating margin outlook is lower, this is being offset by the lower tax rate and slightly lower expenses in other income and expense. Our assumptions for share repurchases have not changed. Our updated earnings per share outlook is GAAP EPS in a range of $1.68 to $1.72, which compares to $1.65 to $1.70 in the previous outlook. EPS, excluding Travelex integration expense, is $1.73 to $1.77, which compares to $1.70 to $1.75 previously.

Our outlook for cash flow from operations has increased by $100 million, due to the timing and estimate of tax payments related to the December 2011 agreement with the IRS. New outlook is a range of $1.1 billion, to $1.2 billion, including payments of $100 million that have already been made relating to the IRS agreement. There are approximately $90 million in tax payments related to this agreement that remain to be paid, but we expect to pay the majority of those in 2013. Excluding these tax payments, our 2012 outlook for cash flow from operations remains consistent with the prior outlook of the $1.2 billion to $1.3 billion.

Overall, we're on track to deliver our financial outlook, despite the expected macro and other challenges and higher compliance costs, as our diversified portfolio allows us to produce stable results and generate and deploy strong cash flow. Operator, we're now ready for the first question.

(Operator Instructions) Tien-Tsin Huang, JPMorgan.

Hi. Thanks for all the details. First, on Business Solutions, the lower guidance isn't a surprise, but I'm curious, is it all macro-related or did you see some challenges in your sales efforts as well? I'm just trying to better understand if improved distribution and loan can get you to double-digit growth next year if the macro situation stays the same. That's why I want to parse those two together or parse those two out.

Tien-Tsin, hi, this is Hikmet. It's mainly driven through the global trade. Our existing customers' revenue in some parts of the world has been, especially in the US and some parts of Western Europe, has been depending on the existing customer. It has been lower and that's because of the global trade slowness. We do have new acquisitions; we do have new clients. As I mentioned before, ICICI Bank and the universities in the US and also, IB investor.

And we also opened a new country. As you recall, we started after, about 8 months ago, 10 months ago, we had 16 countries, now we are in 26 countries in the Western Union Business Solutions. At the new rate, revenue takes some time, it comes and our aim is expanding into new countries, but I would say that's mainly driven by global trade, has impacted our B2B business.

Okay. The compliance costs moving up, do you think this will eventually apply to some of your smaller peers as well and perhaps, ease some of the competition, especially in pricing, going forward?

I think, Tien-Tsin, it's upgrading our compliance. As you know, we're very focused here and we are very serious. It's a competitive advantage, long-term. I think we are investing heavily here to be, really I think as an industry leader, we are setting the tone here and I think we are very focused here and I see that as definitely a competitive advantage.

Okay. Very good, thank you.

Glenn Fodor, Morgan Stanley.

To follow up on Tien-Tsin's question on B2B, just the whole market share issue, people, I believe, are expecting you guys to offset any macro weakness with share gains. Just straight up, do you think you're winning share yet? And if not yet, when do you expect this to happen?

I believe we are gaining share, we are getting new customers, we're really getting share. In some parts where we had existing customers, we had some global trade issues, but generally, we are expanding and we are gaining share. I just want to repeat, again, we have only 2% market share globally and it can go only up and the team is very focused to signing new sales efforts. I think, Glenn, we are definitely on the road, gaining share.

On a normalized basis excluding integration costs, looks like you made some progress by our calculations in the operating margin in B2B from 1Q to 2Q. Can this trajectory continue even without an acceleration of the top line over the near term, just from synergies and cost optimization?

Yes, yes, Glenn. If you look at first quarter compared to second quarter, if you just look at the EBITDA margins excluding integration, EBITDA margins in the first quarter were about 8% and the second quarter they're about 15%, so they almost doubled, if you will.

We did have some earlier upfront spending. We're beginning to see synergies, but it's a very leveragable business model, so as we bring the two businesses together to pick the best technology, the best products, get the talent aligned and go to market, we believe, over the years to come, this business can have EBITDA margins somewhere in the 30% range.

As we move through the year and move into 2013, we continue to expect to make progress. As we exit '13, we do believe we'll be on a run rate of about $30 million of expense synergies. We want to continue to drive those margins north and believe we can.

It's $30 million, just to be clear, of expense synergies with overall company or within the B2B segment?

Glenn, just within B2B. Within B2B, we see about $30 million of expense synergies on a run rate as we exit 2013.

Okay. Thanks. I appreciate the color.

Bob Napoli, William Blair.

A little more color maybe on North America, Mexico and some of the troubled regions on some of the trends that you saw there? I think you outperformed what you thought in the first quarter; you certainly had pointed towards trouble in Mexico in the second quarter. Could you go over, again, the growth rates in North America and Mexico and what you expect over the next several quarters?

Sure, let me start with some color, more color on North America, Bob. I think, the Mexico business, North America outbound to Mexico business has been meeting our expectations. We were expecting some slow down due to our, some changes we implemented in the southwest border area. Don't forget that it's about 25% of our revenue is from the US outbound to Mexico is coming from the southwest border area. 25%, so it has slowed down.

We put some higher restrictions there, we put some higher requirement for customers and I think it impacted short term our business. Long term we believe that we're going to be upgrading and we're going to set some industry standards here. That has been some Mexico.

Our DMT business in the US is still growing well. Don't forget, we started about two years ago, our pricing $5 for $50 has been growing over the years and still growing pretty well and I think DMT has been a very strong business for us in the US. Do you want to add something?

The only thing I would add that the third component of the North America business is US outbound and it continued to experience growth in the second quarter. Not quite as strong as the first quarter, but it was still growing. Just to reiterate with Mexico, it's really what we expected to have some challenges in 2012. But as we work through evolving the business model and so forth, we believe that will put us in a much stronger position on a long-term basis with Mexico.

Thanks. If I could just follow up on WesternUnion.com and the prepaid business. The prepaid only growing 6%, I'd just like a little more color on that. It seems like the industry's growing much faster, obviously. And then on WesternUnion.com, the gap between transactions and revenue growth, do you expect that to continue?

Let me start with WesternUnion.com. Our target $500 million in 2015 is still on. We are currently about a $150 million business and we would like to have $500 billion business in 2015. We are on plan, we are growing transactions about 35%. We did some fee promotions in Q2, which gained new customers and we've been very happy with the results in WesternUnion.com, so I'm very confident that the team is doing the right thing to grow that business, continue to grow that business.

That's the gap, mainly the gap is between due to price promotions we have implemented in Q2. On the prepaid side, don't forget we have been quite limited on our expansion in the past and now we are starting to get new retailers. We have about 21,000 retailers in the US. We added Dollar General. I believe it is going to have a huge impact. It's our customer segment that is looking for a retail segment that's looking of customer segment I believe that will help us to grow the prepaid business also. You want to add something on that?

Yes, there's one thing I would add. In the second quarter, specifically, is that we did do some incentives and those incentives impacted the revenue line on prepaid, so it was the 6% growth. We do expect, to Hikmet's point, stronger growth in the second half of the year in adding Dollar General, Fred's, a spin-up of 7-Eleven stores. Then just some of the international markets we're in, Germany, UK, Austria, we think also those things will be helpful to grow that business a little bit stronger as we move through the year with prepaid.

But it's a nice opportunity, because it's 1% of our revenue and globally, we can leverage our brand, our distribution network, and the hundreds of millions of customers we see every year. Near term won't be as meaningful, but long term, it is a nice opportunity for us.

Thank you.

Kartik Mehta, Northcoast Research.

Hikmet, in a slowing economy does Western Union have an advantage in maybe signing new agents or renegotiating agreements with them? As you look at the last recession we had, anything you can take from that if we do go through another slowing that you could have some advantages?

Our target signing new agents has not changed. If you look at that, we are at 510,000 locations and we just have signed another 150 people on the sales force on the market and day-to-day, they are signing new agents and we have been very actively pursuing that. I'm very confident that we're going to sign new agents and definitely in some environment helps.

Signing new agents means also adding new transactions and we also, besides that we also added, going to new customer segment about 50,000 ATMs globally. If you go to (inaudible) or Sao Paulo in Italy or if you go to 7-Eleven Bank of Japan, the people are doing transactions via at their ATMs. They use the ATMs to put the money transfer number, send or receive money from that. I believe I'm going to continue, Kartik, to look to sign new agents.

Are you seeing any trends in the business, maybe leading trends that would give you a look at what's happening with the economy; something you saw last time the economy slowed? Anything that, in the trends, gives you concern?

The environment is tough out there. It has not been changed since our Q1. I think it's a tough environment. Southern Europe is definitely slowing down. We can see in our numbers, I would say that parts of the business are still holding pretty well; Germany, northern countries, Northern European countries are holding.

It's not that a major change happened since Q1 and Q2, but it's tough out there. We believe that we are gaining market share by expanding our -- long term I would say we would gain market share by expanding our network. But it's tough there. I think the economy is not the strongest to help our business.

One last question, Hikmet -- what do you see the impact on the industry from all these new regulatory and compliance issues in terms of consolidation or pricing? What do you think the overall impact will be on the industry?

I believe that industry will upgrade, has to upgrade their, adapt to the regulatory requirements. As the industry leader, obviously, we are very active here, upgrading, investing heavily on that. I think the industry has to follow that one.

I can't make any comments to the competition, but I believe overall industry has to upgrade their requirements and adapt their requirements to the regulatory. Don't forget, we are in 200 countries and every country has their requirements and some countries are more reasonable, some countries less. But we are adapting constantly our regulatory environment.

Thank you very much.

Tom McCrohan, Janney Montgomery Scott.

Circling back to the guidance questions, again, given the macro headwinds, the slowdown in global trade and other challenges that are impacting the core consumer business, you still kept your full-year revenue guidance unchanged. I'm wondering if there were some offsets that you can call out as far as other areas of the business that are exceeding expectations or maybe just add some other comments around why you kept the revenue guidance unchanged given those factors?

Overall, if you look at the C2C business, it's 80% of our revenues and that's had good, solid, consistent performance on a year-to-date basis. You're seeing growth very strong there at the 4% range, so we're at the higher end, just on a year-to-date basis. WesternUnion.com continues to grow well. We've seen growth rates in the 20s and 30s from a revenue standpoint. Although Business Solutions has been a tad bit softer than we expected, it is about 6% of our top line.

But we believe long term only having a 2% market share, leveraging our brand, our distribution, our global footprint, we can continue to grow in the low double-digits on a long-term basis. But overall, the core C2C business is strong, it's solid. We had consistent margins with a year ago and so we feel good about where that business is at and where we're heading.

Great. If I could ask a follow-up on WesternUnion.com, which seems to be a bright spot for you folks. What kind of trends are you witnessing in that business in terms of the metrics like customer retention and pricing? If you can compare that to the traditional agent business and although it's only 2% of revenue today, you had some great growth there. Just trying to understand the economics there and some of those metrics like customer retention?

Sure. What we are doing here is building on our fundamentals of our global network, global compliance capabilities, and global brands. We are connecting electronic with locations, with retail. No one but Western Union can connect 16,000 corridors with electronic and locations. No one else can send money from US to New Zealand in minutes or to Chad or to Morocco in minutes than us. We can do that. What we are doing is seeing here huge growth.

It's also a different customer. The cannibalization, it's very, very low here. It's not the customers who are using retail to retail money transfer, it's the new customer segment. The cannibalization is really very low and it helps to grow our business. That helps our patterns.

Pricing-wise, it's the similar pricing we use it here. We do use some corridors, pricing in some corridors to respond, but that's the similar also in the retail money transfer business. Corridor by corridor, you adapt your prices, but generally I would say their margins are similar and excluding the investment we did, I would say the similar business.

Thank you.

Darrin Peller, Barclays Capital.

While I think we all recognize there's been macro challenges impacting most businesses and I think you may have touched on this earlier in the call a bit, but can you just perhaps call out and list off the issues that may have inhibited growth rates in C2C over the past year that are really not correlated with macroeconomics, such as regulatory issues like those in Mexico and Russia?

Or the pricing changes in Russia or the opportunities in Russia have had an impact on market share? Or anything else that may be unrelated to macro but have inhibited growth and about how much it did affect growth rates that could abate maybe and how that could trend better next year?

Sure. I can do that. No secret is the Mexico southwest border investment that has been impacting our business and we think that has part of our slowdown on our growth. And the other part is Russia. In Russia it has been, as you know, we were late to the market in Russia due to some regulatory changes. Since the first of January, we could expand retail.

We have a team there. They're expanding to the retail network like we did in the PSD and the European Union. We had some issues in China. China slowdown had impacted our business a little bit and besides that, what else? I think 6% is only the B2B business, so global trade doesn't have an overall revenue impact. But on the C2C business, I would say these three areas had an impact to our business.

Okay. That's helpful. If you were to sum up the impact of those three areas, and I think there's been a couple of other little smaller ones probably also, what would you say was the total impact to your full-year growth rate from those? If you can at least give us a sense?

I would just probably characterize them that if those markets were growing versus where they're at, it would be helpful to where we're at. But I don't want to put a precise number on that, because we're in 200 countries, 16,000 corridors, so there's some puts and takes. But I think the good news with each of those three markets, China, Russia, and Mexico, we've got plans in place. It will take its 2012 to execute and work through those plans, but hopefully on a long-term basis, we'll be in a much better competitive position there.

Just to add on that, Darrin, largest market out of the US is 6% of our revenue.

Right. Understood. I'm just trying understand what a normalized growth rate would be, even in a tough macro environment, to compare now versus a normalized macro environment, notwithstanding all these issues.

Sure. I know, it is tough there. But, as we have again in the C2C, a solid 3% growth rate. That has been helping our business.

Just one quick follow-up question on the capital side. Obviously, there is still around two-thirds of your cash flow generated outside the US. Any considerations recently by the Board to adjust the strategy on capital? I know that you've been doing decently with the dividend and buybacks to some extent, but still, a lot of cash can be really easily used. I know you have some near-term benefit from the tax benefit, but still, if you were to extrapolate or really just consider the repatriation of some of that cash, more so, maybe that would help or even leverage conditions would be considered differently. That could maybe change the way some investors look at the story. Any thought there?

Yes, I think, obviously, as a management, I am constantly, with Scott, together reviewing our capital structure with the Board. We are constantly talking about our capital structure on the Board. We are a very strong cash flow company, but if you look at that, our aim is returning back cash to shareholders and we were very active in the first two quarters and I don't see a future acquisition coming up from that.

We recently had the acquisition of Travelex. We're very focused on integrating Travelex to the B2B business and growing that business, expanding to new countries. We recently opened Chile as a new country. We are very focused and we are constantly reviewing with our Board, our capital structure.

All right. Thanks, guys.

Bryan Keane, Deutsche Bank.

I just wanted to ask about Southern Europe. Does it feel like that's going to get worse before it gets better, on an outlook perspective?

It depends on, in part, some parts of Spain it's still an issue. Some parts of Southern Europe is changing. We can see Portugal being 50% inbound, 50% outbound. The southern Europeans are going in other parts of Europe, sending back home to their countries now, the typical outbound countries turn to be a little bit also inbound countries. Even in Greece, it's 30% of inbound now.

I think it's depending. It is hard to say that it will change dramatically. I don't see big changes since Q1 and Q2. It's a slow down, continuous, but it's hard to say that it's going to be harder or not. I think I would say, cautiously, I would stay cautious.

Okay. When you look at your metrics versus the World Bank or other competitors, do you feel like you're maintaining share or do you feel like there are a few regions that you are losing some share?

Bryan, you've been following our business for a long time. Generally, since 2001, we've gained share. It was 7%, now we are at 17% across border [evidence] market, if you compare it. In some years we are gaining market share, in some years we are losing market share. In some corridors, we are getting in market share in some corridors and losing in market shares.

Our principle the last six months has been flat in 2012 and constant currency principal growth was about 2% and just a projection of (inaudible) for instance, was 5% growth rate, but that was July 2011 last forecast. I would put things also in perspective. As I said in some corridors yes, some corridors adapting the market share, but overall our aim long-term is gaining market share.

I know I got the additional color on some of the compliance costs. Do you have any idea if you think that'll be an ongoing future cost of the business there? I think you said there's an additional maybe $10 million in the business, but any idea if you feel the environment is becoming more compliant, there's going to be more compliance costs that are going to be out there that are going to continue to be in the business model going forward? I don't know if there's any way to give your big picture thoughts on the rising cost of compliance that might not be in the numbers?

Yes, Bryan. As we've thought about that and it's hard to say for certain on anything because the compliance and the regulatory environment continues to evolve. The overall spend in 2012 we think, comparable-wise that's about where we're going to be in 2013 on a macro basis, specifically with Dodd-Frank as an example. We think it there will be $5 million to $10 million of ongoing expenses because of call centers and forms and so forth.

But on a macro basis, we think the compliance spend, '13 looks probably a lot like '12, just because of the broad global environment. But long-term, we believe that will be a competitive advantage for us as we move forward. Our goal is always to comply with the letter and the spirit of the law and we will continue to drive that direction.

Okay. That's helpful. Thanks, guys.

Ashwin Shirvaikar, Citi.

I just wanted to ask you to elaborate on the intra-corridor trends for C2C. Overall, the only geo with negative transaction growth was Europe, but just for Europe as well as other geos how did transactions trend each month in the quarter and if you can possibly give some color on July, how it's looking?

First I'd say the broad headline is we're confident with the guidance that we've provided, the 2012 outlook we've provided today for revenue growth, margins, and EPS. We're confident in the guidance that we've provided. As you may recall, our historical practice is we don't comment within a quarter or how the quarter looks because there could be seasonality, other things, as you go within a quarter or just looking at month by itself. But the headline I would give you, Ashwin, is that we're comfortable with the guidance we provided today.

Sure. I certainly understand that, but when you look at the sequential, Q2 is not as good as Q1, which is not a surprise to anyone. But is it continuing to get worse or has it stabilized? Your guidance would seem to imply it's stabilized.

Again, I would probably go back to we're confident in our full-year outlook. If you compare the first quarter and the second quarter, Europe and the Americas, North America had some slighter softness, but if you look at Asia-Pacific, Latin America, the Middle East and Africa, each of those markets had growth rates that were very comparable to the first quarter, so they were strong. We saw good growth with India, Saudi Arabia, Germany, and so forth.

That's the beauty of our business. We're 200 countries, 16,000 corridors; it's a portfolio approach. From quarter to quarter, month to month, you might have some puts and takes. But overall within the 200 countries, we feel like we're driving in the right direction and doing the right things.

Understood. It's good to hear. I want to ask about pricing. It's still only a modest negative. It seems like it's lower than historical trends, except for sporadic pricing initiatives. What's a good price trend line for the next 12 months? Negative 1 to negative 2? Or will it get back to a historical negative 2 to 3?

Ashwin, I think generally as we are looking corridor by corridor on our pricing, we are going, in 2012, we are going to be around 1%. And 1% to 2%, that will be the next forecast. Given the environment, we are looking at price action corridor by corridor, but I would say 1% to 2% around that will be in 2012, probably.

Okay. Scott, just a clarification on tax rate -- clearly for this year you get the non-repeating benefit, but the longer-term tax rate, should that still be in the 16%, 17% range?

Yes, I would say directionally, yes, Ashwin. The only caution or caveat I'd put around that, it depends upon if there's tax law changes in any countries or how much cash we may repatriate, but your point's well taken. The benefit we have to the tax rate this year is more one-time, so we'll probably be closer to that 16% to 17% range, unless other things may change. But, the one-time benefit in the second quarter.

Okay, great. These are good results considering the background.

Jim Kissane, Credit Suisse.

Hikmet, can you provide a little more color in terms of your turnaround strategies for Mexico and Russia? Thanks.

Sure. I think 2012 will be still both countries a little bit challenging until we turn around. I think we're investing on the Mexico and there are two different issues here. In Mexico, it's more about upgrading our compliance in the Southwest border and other areas and setting the industry standards that long-term we are meeting the standard. I think in Russia, the issue is more than signing new retailers. You know that in Russia, we have financial institutions and we are leading the financial institution there.

We are a very good business, now we are going to the retail sector and adapting our pricing and we hired new salespeople. It will take some time in 2012 turning around Russia. It will take probably 2013 and once we have signed the retailers, then we will also start with some promotions to attract back the customers to our locations. We will see the turn around probably in '13.

Hikmet, you think the compliance issues are the main problem in Mexico?

I think, in Mexico, one thing also happened is that we -- as the exclusivity ended, we are starting to negotiate with new agents, potential agents. As we speak, the team is there in Mexico and I think we are actively pursuing new agents there in Mexico that will help also to grow our business long-term in Mexico.

Great. What's driving the stronger performance in Latin America? Any particular corridors?

I think in parts of Latin America, we've been very strong in the business. We did, in Latin America, also, we see new corridors sending intra-Latin American corridors; not only country but intra-countries, within the country is also growing strong. Our B2B, our business, bill payment business is doing very good in Argentina and other countries. That helps also to grow our business there.

Just one more question -- did FX volatility in the quarter help Travelex or the B2B business?

Not really. I think it was really the transaction principal growth was the impact. Not really, we didn't see a huge change here.

I thought more volatility actually helps the business? Is that the right way to think about it?

Yes, it does. If you look at the VIX index, just as one indicator, Jim, Q1 and Q2 in round numbers, I'm slightly off in this, but that index was around 20 both Q1 and Q2. I wouldn't say there was a lot of meaningfully different impact in volatility between the quarter. Maybe some slight amounts, but not meaningfully.

Okay. Thanks.

Sara Gubins, Bank of America Merrill Lynch.

You mentioned in your prepared remarks that the higher-tier bands in the US didn't increase as rapidly. Do you think that's a function of the economy or more the competitive environment?

On DMT, I think it's probably, could be a little bit of each. It's hard to tell for certain. That business still had 4% growth. We are going to do some additional marketing there with the domestic business, but it probably could have a little bit economic impact. Not sure about the competitive side. Then, any corridor, any market you decision variability from quarter to quarter. Overall, I would say we're pleased to the business, it's growing. It's a 30% margin business and we continue to see that as a growth business as we move forward.

I think, Sara, also, I think we are going to implement also some -- because $5 for $50 and the lower bands are growing very healthy, but is also going after the higher bands. We may implement also some marketing promotion actions in the future.

Great. You mentioned some potential ramp marketing spend. Does that change your plans for marketing spend for the year as a whole?

No, Sara. I think we are directionally the same.

Okay. Thank you.

Andrew Jeffrey, SunTrust Robinson Humphrey.

You'd mentioned some relatively large agent re-signings in the back half of the year. In the past, you've done a good job of driving down commission rates upon re-signing. Is that a trend that we should expect to continue, thereby being a little bit of a tailwind for EBIT margin longer-term?

I think if you look at the last three or four years we've been driving our cost of sales down, I think from 44% to approximately 41%.

In 2010, we're around 57%, 2011, a round number, 56%, so it's been moving down.

It takes some time, Andrew, until it comes down. I think generally, I would say that we are signing new agents globally in a lower commission rate as we did it in the past.

Okay. Think about the trends continuing and the effectiveness of your efforts in that direction as well?

Some years up, some years down but you are right, directionally, yes, correct.

Any given year, there could be some variation, but long term those opportunities continue to optimize the commissions on a long-term basis.

Okay. To be clear, just to make sure I understood you, Scott, in terms of long-term CapEx, '12 sounds like it's going to be above trend line?

Yes, '12, our view is we'll be somewhere around 4% to 5% of our revenues. As we turn the calendar to '13, on a long-term basis, we think it will be closer to 3%, which is where we run, historically. Again, any given year could vary if there is an agent opportunity or some other initiative, but we think the normalized run rate looks closer to 3% long term.

Okay. One last one, if I may, on China, you mentioned that there's a little bit of softness there. Would you characterize that as competitive or macro? Do you still have big ambitions for what could be a pretty significant market opportunity long term?

I think we are very committed to China and I see the really long-term market opportunity in China. Given our presence there, given our agents and I think it has something to do with a little bit macro and it's a mix of macro. I wouldn't see that as a huge competitive trend. I think we are very well-positioned there. I see China as an opportunity.

Thank you.

David Togut, Evercore Partners.

EBIT margin excluding restructuring and TGBP integration expenses was down 100 basis points in Q2 versus 200 basis points in Q1. As you look out to the balance of this year and 2013, can you give us the puts and takes on the margins? I'm more focused on 2013, since you've already commented on 2012. Specifically, what are your thoughts with respect to investment in electronic channels? And then number two, can you dial back expenses if we remain in a tough global economy, particularly Southern Europe?

We are very focused, obviously, on the long-term margin expansion, that's clear. Revenue growth will help us to expand the margins, that's for sure. But once we have a strong revenue growth, the margin expansion is here. I would say that we did a significant investment in our San Francisco office in our digital. These numbers are already showing that we are growing very fast here.

We're going to continue to invest, obviously, but I am not sure; it could be higher or lower in the future the investment in that part. I'm long-term committed to grow this business and long-term margin expansion if you want to grow this business.

I'd also add, David, Scott mentioned earlier, we do have the Business Solution synergies coming. We'll have about $30 million of cost savings, once we, that's annualized after 2013, but we'll get a fair amount of those in 2013 as well.

You spend about $200 million a year on advertising and marketing. Do you anticipate dialing that spend back next year if the economy remains weak?

No, I think marketing is obviously our brand, our customer relationship, our expansion is very important for us. We are positioned, we want to expand, we want to gain market share. I think marketing is one of our tools to gain that.

I see. Thank you very much.

Thanks, everyone, for joining us and we wish you a good day.

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