西聯匯款 (WU) 2013 Q1 法說會逐字稿

Good afternoon. Welcome to the Western Union first quarter 2013 earnings conference 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 of Investor Relations. Please go ahead.

Thank you and good afternoon, everyone. On today's call, Hikmet Ersek, Western Union's President and Chief Executive Officer, and Scott Scheirman, Executive Vice President and Chief Financial Officer, will discuss the Company's first quarter results and then take your questions. The slides for the Company this call and webcast can be found at 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 2012 Form 10K, for additional information concerning factors that could cause actual results to differ materially from the forward-looking statements. During the call we will discuss some items that do not conform to generally accepted accounting principles. We have reconciled those items to the most comparable GAAP measures on our website, WesternUnion.com, under the Investor Relations section. All statements made by Western Union officers on this call are the property of the Western Union Company and subject to copyright protection. Other than the replay noted in our press release Western Union has not authorized and disclaims responsibility for any recording, replay, or distribution of an transcription of this call. I would now like to turn the call over to Hikmet Ersek.

Thank you, Mike and good afternoon. Our first quarter results are largely consistent with our expectations and have provided signs that we are making progress against our key strategies. As we outlined last quarter, we expect 2013 to be a transitional year as we make pricing adjustment and other investment to enhance our competitive position and drive future growth. We are focused on three main strategies in 2013. Strengthening our consumer money transfer business, driving growth in customers and usage in business-to-business, and generating and deploying strong cash flow for our shareholders. So far, results are in line with the expected impact of the initiatives although they are also being impacted by some compliance and regulatory related actions in various parts of the world.

In consumer money transfer our experience shows that price reductions lead to revenue declines in the initial 12 months and revenue increases thereafter. Early transaction results indicate our strategic pricing actions are working as planned and we feel positive about the results. For example, in November of last year, we implemented the US to Mexico pricing change. Banco de Mexico recently reported there is a softening in the Mexico market in early 2013. However our Western Union brand transaction growth has accelerated from a 2% increase in the fourth quarter of last year to 9% in the first quarter.

We're also seeing very good results on our Africa inbound pricing actions and recently start to see improvements from the Latin America and Caribbean pricing as awareness is beginning to spread. The WesternUnion.com online pricing actions are yielding very strong results and overall WesternUnion.com money transfer transaction growth accelerated from 46% in the fourth quarter of last year to 60% in the first quarter. As of end of the quarter we had initiated about 75% of the planned pricing investment for the year and overall we are meeting our transaction objectives. Entering the first quarter we had completed about 50% of the planned pricing investment. In the quarter transaction in this priced quarter increased in the low teens. Excluding the digital pricing actions, transactions in this quarter increased in the mid single digits, up front flattish prior due to pricings. So just to state again, our pricing actions are working as planned so far.

Our overall Consumer-to-Consumer transaction growth in the quarter was negatively impacted by the Vigo location closings last year, softness in some markets and other compliance related actions. I should note that in addition to the Southwest border we have been implementing compliance and fraud prevention enhancement in various other countries and we are continuing to expand them. These actions have impacted our results but we are committed to best-in-class programs and we believe over the long term enhancements in these areas will be beneficial for our business and customers. Aside from pricing and compliance actions we made progress in many other activities designed to strengthen consumer money transfer.

We are expecting, we are expanding our global network. As the regional leadership teams around the world are now reporting directly to me, we have further increased our emphasis on aggressively adding new points of presence. I just visited Mexico last week and saw that we are starting to gain traction rebuilding our agent network there. We recently signed several new agents including financial institutions such as Banco Pel and Banorte, as well as non-financial retailers. Combined, these signings will give us over 10,000 additional agent locations in Mexico once they are fully implemented which means doubling our network in the country. We also recently signed Carrefour, a major retail chain in Argentina for both money transfer and bill payments and we also will soon be adding Alexandria Bank in Egypt which nearly triple our location network in this country.

In addition, in the US, we completed multi-year renewal agreements with Safeway adding bill payments and money orders to our existing money transfer service and with Pay-O-Matic also. Western Union money transfer services are now available for bank customers at over 103,000 ATMs and we continue to add excess through mobile phones. We now have 19 active mobile phone partners and mobile access to WesternUnion.com is available in the US and Australia.

We continue to explore new ways to leverage our network and assets to provide more services. For example, I recently visited Haiti where a new type of service allowing government social payments to be distributed to Haitian parents, students and senior citizens through Western Union agent locations across the country. And we are further expanding capabilities in channels which had 18% revenue growth in the quarter. WesternUnion.com is acquiring customers at a fast rate as evidenced by 60% increase in money transfer transactions in the quarter. Even our US originated online transactions increased over 70%. We are consistently seeing over 80% of first time online customers being new to Western Union meaning new online customers in the past 12 months had not used our brand in the prior 12 months. This gives us confidence that our online channel is not significantly impacting our traditional retail business.

Many capabilities are being rolled out which should further aid our online growth including new platforms, new mobile apps, direct to bank pay outs, more funding options, new countries and more robust risk management tools. These futures help drive customer acquisition and conversion and we expect WesternUnion.com transaction and revenue growth rates to accelerate as we move forward. Our electronic account money transfer transaction through banks increased 45% in the quarter. We now have almost 70 banks active with the service, including most recently Bank of Montreal in Canada. Overall, we expect consumer money transfer trends to improve each quarter throughout the rest of the year. This growth should be driven by completion of our pricing actions, increased traction from the actions, added capabilities in online and agent location expansion. We continue to expect our Western Union brand fee to fee transaction to increase mid to high single digits for the full year with good momentum in the second half.

Our second key strategic initiative for 2013 is to drive growth in customers and usage in business-to-business. I am pleased to report that Western Union Business Solutions revenue increased 7% in the first quarter. Although global trade growth is still restrained our business improved as we benefited from enhanced go to market processes. The quarter's growth was driven by incremental hedging activity from customers and the addition of the French Travelex business which we completed in the second quarter of last year. While Travelex integration continues, we now have a strong business team in place focused on driving new sales and retention. We continue to introduce new products and services such as a new cash management dashboard tool for SMEs, new university focused services, and currency options in the UK, and we plan to add new markets this year as well. There are still many actions to be executed in Business Solutions and quarterly results may vary, but we feel we are starting to gain some momentum with our teams and sales processes and still believe this is a great long term opportunity for Western Union.

Our third strategic initiative for 2013 is to generate strong cash flow and deploy it for our shareholders, a key part of our commitment to deliver increased shareholder value over the long term. In the first quarter we generated $237 million of cash flow from operating activities and returned $260 million to shareholders. This consisted of $190 million of share repurchases and $70 million of dividends. We expect to generate $900 million of operating cash flow for the year with $700 million returned to shareholders. This represents returning to shareholders over 8% of the current market capitalization.

Overall we are on track to meet the full year financial outlook we provided in February. We expect that the first half of the year to be challenging due to impact of the pricing actions and other investment and initiatives. As these actions take hold, we are beginning to see positive trends develop and we believe transaction and revenue growth rates will improve as we move through 2013.

In the second quarter we will complete our planned pricing investment and continue to market our actions. We will also execute against our many growth drivers in online money transfer at strategic agent locations and implement the Business Solution strategies to add customers and usage. Since we are uniquely positioned to be in 200 countries we have a view of the mix indicators of the global economy and global regulatory environment. This makes me believe that 2013 environment will be challenging like last year but I remain confident that the actions we are taking will lead to return to revenue and profit growth in 2014. We believe we will exit 2013 with strong momentum and we look forward to reporting on our progress throughout the rest of the year. Now to give you a more detailed review of the financial results for the quarter, I will turn the call over to Scott.

Thank you, Hikmet. As mentioned our strategic actions are tracking to our overall objectives and we have affirmed our full year financial outlook for 2013. In the first quarter we reported total consolidated revenue of $1.3 billion which was down 5% compared with the year ago quarter or 4% on a constant currency basis. As expected, the revenue decline was driven by the C2C segment as the result of the price reductions and compliance related changes. Business Solutions delivered a solid quarter with 7% revenue growth.

In the Consumer-to-Consumer segment, revenue decreased 7% primarily due to the price reductions. The C2C revenue decline also included negative 1% impact from currency and a negative 2% impact from the Vigo and Orlandi Valuta brands which are still being impacted by the compliance related changes from last year. We will face negative comparisons for Vigo and Orlandi Valuta until we anniversary those actions in the middle of the third quarter. Western Union branded transactions increased 2% in the quarter although overall transactions declined 2%. Year-over-year comparison in the quarter were challenging as we had relatively strong transaction growth of 7% in the first quarter a year ago. As Hikmet mentioned we are pleased with the progress we are making on the pricing actions.

Total transactions in the corridors where we initiated price reductions prior to the beginning of the first quarter increased in the low teens in the quarter. Excluding digital, transaction in these corridors increased in the mid single digits and we expect trends to accelerate as we build awareness. In the first quarter, the transaction growth benefit from the price reductions was partially offset by the impact of compliance related actions and some general softness in certain markets. In addition to the Southwest border changes affecting Vigo and Orlandi Valuta, we continue to invest in and enhance our anti money laundering compliance and fraud prevention practices in the US, and other markets around the world. These actions include enhanced procedures around areas such as realtime risk assessment, customer callback and verification programs, and other fraud prevention activities.

Overall, C2C cross border principal declined 3% in the quarter with no impact from currency while Western Union branded cross border principal increased 1%. Total principal per transaction declined 1%. Global agent locations increased to 515,000 as of the end of the quarter, increasing the expansion of our points of presence going forward is an important part of our strategy to provide more choice and convenience to our consumers. The spread between C2C transaction and revenue declines in the quarter was five percentage points including a negative 1% impact from currency. For C2C, the impact of net price decreases was approximately 6% in the quarter while mix had a positive impact of approximately 2%.

Turning to the regions. C2C revenue in the Europe and CIS region, which represented 21% of total Company revenue, decreased 6% year-over-year with no impact from currency. Transactions in the region were down 1% compared with the year ago quarter. Germany continues to grow and pricing actions from Europe to Africa are working well, but Southern Europe and Russia remain challenged and business was also impacted by some compliance related actions in the UK and Spain. North America revenue declined 15% from the prior year while transactions were down 7%. The region represented 19% of total Company revenue. The transaction decline in North America was primarily driven by the Vigo and Orlandi Valuta brands where revenue was also impacted by price reductions and declines in higher principal spends in US domestic money transfers.

Domestic money transfer revenue was down 2% on transaction growth of 5% in the quarter, although we continue to see growth in the low principal bands of domestic money transfer, from a revenue perspective this is offset by declines and high principal bands. Mexico revenue declined 32% and transactions decreased 16% in the quarter as expected. The revenue decline was driven by the compliance related reduction in Vigo and Orlandi Valuta locations last year and by pricing investments. For the Western Union brand, Mexico revenue declined 20% while transactions increased 9% in the first quarter. The Western Union brand is growing faster than the market which declined slightly in the first two months of the year according to Banco De Mexico data and our pricing actions are providing the lift in transactions we expected.

Revenue in the Middle East and Africa region was flat compared to the year ago quarter with no impact from currency while transactions grew 4%. Asia Pacific region revenue was down 5% in the quarter with no impact from currency translation on flat transactions. The Latin American Caribbean region revenue declined 7% including a negative 3% impact from currency, transactions declined 10% in the quarter. Trends in the region were negatively impacted primarily by Vigo declines and further limitations we placed on our business in Argentina to manage currency exposure. WesternUnion.com C2C revenue increased 13% on a reported basis with no impact from currency. Transaction growth accelerated significantly to 60% as customer acquisition continues to be driven by new capabilities and marketing, customer conversion improvements and pricing investments to enhance the value proposition.

Total electronic channels revenue which includes WesternUnion.com, account based money transfer through banks, and mobile increased 18% in the quarter. Electronic channels represented 4% of total Company revenue, up from 3% of revenue in the year ago period. In addition to the strong growth from WesternUnion.com transactions from account based money transfers through banks increased 45%. Prepaid revenue, including third party reload was flat in the quarter. Our prepaid cards were available at approximately 44,000 retail locations globally at the end of the quarter, including approximately 2,500 locations outside the US, and we continue to explore new avenues and partnership models to introduce our cards around the world.

Moving to the Consumer-to-Business segments. Transaction trends were similar to the fourth quarter. Revenue declined 1% in the quarter including a negative 4% impact from currency translation. Continued growth from South America and the US electronic business was offset by declines in the US cash walk in business and some lower pricings as a result of pass throughs to customers of Durbin related savings. Business Solutions revenue increased 7% compared to the first quarter a year ago with no impact from currency translation. Business Solution services are now available in 31 countries with China being the most recent addition.

Turning to the consolidated margins. The first quarter consolidated GAAP operating margin was 22.4% compared to 23.9% in the prior year period. Compared to last year's first quarter, the margin was negatively impacted as expected by the pricing driven revenue declines as well as increased compliance costs and strategic investments primarily in digital. These impacts were partially offset by improvements in Business Solutions' profitability. We continue to expect the full year operating margin to be approximately 20%, which is lower than the first quarter due to the timing of expenses around cost savings initiatives and other investments. There were approximately $4 million of expenses related to cost savings initiatives in the quarter while the full year projection remains around $45 million. EBITDA margin was 27.1% compared to 28.4% a year ago.

Reported earnings per share in the quarter was $0.37 compared to $0.40 in the prior year. The C2C operating segment margin was 25.4% compared to 27.7% in the same period last year. The margin was impacted in the quarter primarily by pricing driven revenue declines, digital and other strategic investments and increased compliance costs. The Consumer-to-Business operating margin was 24.7% compared to 26.5% in the prior year period. The margin was negatively impacted by Durbin pass throughs and mix compared to the year ago quarter.

Business Solutions' operating loss improved to $6 million for the quarter compared to a loss of $15 million in the year ago period. The current quarter was positively impacted by revenue growth, cost synergies, and lower Travelex integration expense. The first quarter $6 million loss includes $15 million of depreciation amortization and $4 million of Travelex integration expense. Depreciation and amortization in last year's first quarter was $15 million while integration expense was $6 million.

Turning to our cash flow and balance sheet. Cash flow from operations for the quarter was $237 million while capital expenditures were $38 million. At the end of the quarter, the Company had debt of $3.7 billion and cash of $1.4 billion. Approximately 40% of the cash was held by United States entities. As a reminder we have approximately $100 million of remaining tax payments related to the IRS agreements announced in late 2011 which we expect to pay in the second half of 2013.

During the first quarter we repurchased 13 million shares at an average price of $14.30 totaling $190 million. In addition we paid $70 million in dividends. In March, we also paid out $300 million of floating rate notes when they matured. As of quarter end we had 559 million shares outstanding and $200 million remaining under the repurchase authorization which expires at the end of 2013. As a reminder, we expect to generate approximately $900 million of cash flow from operations this year, or approximately $1 million excluding the IRS agreement payments.

Turning to our expectations for the full year. We are affirming our outlook that we provided in February. As we stated we expect 2013 to be a transitional year as we implement our strategic actions and we are making progress. We continue to expect transaction revenue growth to improve sequentially through the year as the pricing and other actions take effect and we drive the business towards our objectives of revenue and profit growth in 2014 and beyond. Laura, we are now ready for the first question.

(Operator Instructions)

Tien-Tsin Huang, JP Morgan.

Great. Thank you so much. Hikmet, I heard you mention compliance and regulatory actions a few times. Anything new that wasn't contemplated before? I heard UK and Spain I think. Any other countries that are new that are putting in some changes around remittances? And can you size maybe at a high level what the impact was on transactions if possible?

Well let me give you an overview and maybe I can give it also to Scott and he can be more in detail but we as a leading Company of Western Union are very committed to compliance and we see that as a long term competitive advantage. We do have some short-term adaptation on our rules and changing the rules in some countries, it is no secret that the financial service overall get more regulated and within that also we want to be best-in-class. We create this cultural compliance within our Company and so that's the environment we are in currently, and we see that as a long term competitive advantage. But we did have some impact in our business like Vigo. Maybe Scott you can give a little bit?

Yes, Tien-Tsin, let me give you a little bit of color. As Hikmet said that we are committed to a strong culture of compliance and best in compliance programs and let me give you a flavor of maybe some things that have been ongoing not only in the first quarter, but prior quarters too. We're doing things to really protect the customer and protect the business. It might be things such as realtime risk assessment when the transaction happens at the point of sale, verification programs related to high principal transactions whereby we call back the sender and make sure the transaction is appropriate. But as Hikmet mentioned we believe this will be a long term competitive advantage for us. Near term there are some headwinds but it's the right investment to make in the business. We leave it will be a competitive advantage and we continue to work towards that. As far as specific models or specific countries we did mention the UK and Spain. Another one of my highlight is Venezuela where we had to do some things to reenroll or reregister our customers and we're largely through that in the middle of March from that standpoint but we will continue to comply with the letter of the spirit of the law and really see that as a competitive advantage long term.

Okay that makes sense. And just to be clear, these are broader changes that apply to remittances or are they changes tied more towards broader payments if you will? I'm trying to understand how specific or narrow some of these rule changes are.

I think it's general, Tien-Tsin, if you look at the regulatories it starts with protection, which we are very focused on that. It's not only evidence, it's just general in the US, you're more similar to Dodd-Frank issues, are also the compliance issues, but also internationally it's more on the compliance, but also consumer protection activities. Plus also the regulatory environment, right? We are fortunate that we are licensed in 200 countries. So we are working very close to expand our relationship and adapting the regulatory environment. And it's not only the US, it's globally, where it's getting all in financial service the general trends to more regulated.

Okay.

I would just add Tien-Tsin, everything isn't necessarily black and white in a rule but we work with regulators in countries around the world to try to do the right thing for our business and for our customers.

Understood that's good to know. Just quickly B2B, obviously up 7%, that was a pleasant surprise. Looks like C2B margins also improved a lot. Curious if both of those metrics are sustainable given what you saw in the first quarter.

I think we are very focused, the team is working on the sales and the team is very, we have a new process, the integration process is still going on but we are in much better environment. The team is very focused on sales and I will generally say the quarters may vary depending on the tax rates. Everything, but generally we are on the good path. I'm optimistic that it's a long term growth opportunity for Western Union.

I would just add compared to 2012 we expect the revenue growth and the margin of the profitability profile of this business unit too to improve and long term, we expect this business to grow revenue in the low double digits. We only have a 2% share today.

Right. Glad to hear. Last one I promise, just buybacks, dividends going forward given your US cash situation. Can you drive your future buybacks and dividends from operating cash flow or are you going to have to tap into the debt markets to do that or borrow to do that? Thanks.

Scott I'll start, maybe you can jump in but first of all we are very committed and glad to see that our strategies are working and we are performing against our strategy. As you know, Tien-Tsin, we are constantly, Scott and I, talking about our capital allocation and we are looking at, we are also constantly talking with the Board, and we are very committed on our long term shareholder value. And Scott?

What I'd add, Tien-Tsin, is that in the fourth quarter we did buy back about $350 million of stock. In the first quarter, $190 million and in 2013, we've been very public about that we'll return about $700 million to our shareholders, roughly $400 million through buyback and $300 million through dividends. And that represents about 8% of our market cap so pretty healthy return of capital. Specifically coming back to your question, we do generate, excluding the IRS payment we'll make this year, about $1 billion of cash flows and now about roughly three quarters of that is international, about 25% is US. So we do have cash flows from the US that can fund buybacks but we also have some room on our balance sheet. We're going to continue to target investment grade credit rating but we continue to have some room there as we think about it, but as Hikmet mentioned, we'll continue to talk with our Management team and have periodic discussions with our Board. But we have had a rich history of returning capital to our shareholders and we've got a franchise that does generate very strong cash flows.

8% of market cap, right.

Thanks for the details, thank you.

Thanks, Tien-Tsin.

Darrin Peller, Barclays.

Thanks guys. You seem to have been showing some good early traction with regard to the pricing changes and elasticity around it. Can you give us a sense first off how much of the price change is relative to your goal of the 25% of revenue change has actually been completed and really as a follow-up to that is how much have you actually marketed around it? In other words while the changes could have occurred is there a lot more to go in terms of awareness for your customers?

Well, if you look at our pricing actions we are very pleased what happens currently. We implemented about 50% of the pricing actions which are fully on the mark, and started to execute it. We are marketing it and still we started to have 75% of our pricing actions and more to come in Q2. We are looking by quarter by quarter. We understand the customer needs and I think that the pricing action we put in place are working and high teens. And so I'm very pleased with the actions we are having in the place and I think that we are looking quarter by quarter and as we outlined in the fourth quarter, we started to do that and it's working and the learnings are we did hundreds of them and these are the big ones and we are focused on the issues and they are paying back.

I'd just add Hikmet, that we did start the first quarter with only about 50% of the pricing actions implemented. By the time it got to the end of the first quarter about 75%. And those pricing actions that we just put in place in the fourth quarter drove low teens transaction growth and so we continue to see more traction being built, more awareness being built. We'll continue to push more behind the marketing programs and we expect those pricing actions to gain momentum and accelerate as we move through the quarters.

That's helpful. Do you believe that the 25% number you originally quoted is still on tap? In other words, is it still just 25% of the business or is there anymore than that now?

No, I think it's the 25%. We do it, we affirmed also the 2013 numbers as you know, they are in, and I believe we are going to have a strong growth year, transactions growth as projected. Q1 numbers looks like very good. The rest of the quarter is business as usual. As you know we do hundreds of them, and we have 16,000 corridors globally and our teams on the field are looking on that so I don't see any additional pricing investment than we said in last quarter from today's points of view.

Okay, and just one quick follow-up and then I'll turn it back to the queue, but on the online business, have there been anymore, how substantial are the pricing changes online? And have there been any promotions going on, let's call it like one month free for a certain corridor, something along those lines and if so, how long is that? Is that a way to just operate the business because once you gain customers online they are sticky and they stay with you?

Absolutely, Darrin. You are absolutely making the right point here. First of all it's all about customer acquisitions. Last year we had $150 million revenue business and I think we are expanding very fast. The strong growth on the transactions, the customer acquisitions, and we see once customers dig in with us, they use us more and so we are still on track with our $500 million, 2015 goal in revenue and I think it's a great business. The team is doing a great job, even into the US, even in US, we are growing 70% transaction wise. Globally we are growing at, WesternUnion.com is growing 60% so that's great numbers.

Okay, all right. Thanks guys.

Thanks, Darrin.

Thanks, Darrin.

Bryan Keane, Deutsche Bank.

Hi guys. I know we talked about this year pricing for the C2C business to be down 6% to 7%. Now that you've gone through a lot of the pricing actions and are 75% through it, does that look like the right number, or do you think it will be, does it have to be more than that or is that right on track to be what you're getting what you expected?

Bryan, it's tracking well to our expectations. Our pricing initiatives to improve our consumer value proposition are working so as we communicated about 90 days ago it's about 5% of our total Company revenue, $300 million or to your point 6% to 7% of our C2C revenue from that standpoint, so we're seeing good progress in Mexico, from Europe to Africa, in the digital business. And again I would say pricing is just one driver of how we're going to grow the business. We are going to add more locations, we're going to expand WesternUnion.com, we're going to evolve our product offerings so we can drop, fund into bank accounts and so forth. But what we feel like is the pricing we set is in the right range, and then longer term we feel like we're going to be in that 1% to 3% range as we turn the calendar to 2014.

I just want to add-on that, Scott, Bryan, as you know business very well, it's, pricing is the not only thing we do. I'm very pleased with our expansion policy also on the network. We have more than 600,000 touch points if you include also ATM's here and recent signings, 10,000 additional locations are coming in Mexico, and that's doubling our Mexico networks. Also Egypt is a huge signing and Carrefour in Argentina, I think these are big signings coming and also more to expect to come, the teams are focused and that will give us also the expansion and gaining more transactions.

Okay. That's good to hear. And then just Hikmet, it sounds like we've troughed in the transaction growth numbers, you expect them to improve in the second quarter and then improve especially in the back half of the year. Just your confidence level. I know I've asked that question before but I think it's key to see the transition. How confident are you that the transaction numbers will start to turn because you've had a full quarter, at least a partial pretty good size quarter to see that the pricing actions take place. But the key to the story now is going to be to see the transaction numbers get better and that the first quarter was the trough.

Yes, I'm glad you are asking that question, Bryan. I'm very confident about that and the transaction, don't forget as I mentioned earlier, only 50% of the pricing actions has been implemented in the market and 75% just started to be activated and the early signings are very much looking very positive that, as you know usually after 12 months the revenue also picks back, and it comes back. One of the ones we did three years, our DMT pricing actions and it came back revenue. I'm very confident that 2014 and '15 will be great growth years of revenue.

Okay, last question for me. I guess Scott, just when you're talking about some of these compliance changes, I know that's been going on throughout the world over the last probably couple years almost, but I notice the guidance didn't change, so it doesn't seem like there's any change in the guidance due to kind of that ongoing kind of regulatory compliance issues that are out there.

Yes Bryan, you're right. We reaffirmed our guidance today. And again the regulatory environment continues to evolve and change and it's based upon what we know today as we reaffirm our guidance and so forth, but our goal is to comply with the letter and spirit of the law, have best-in-class compliance programs and really protect our customers and protect our businesses. Near term it has been a little bit of a head wind but we think longer term it will put us in a better competitive position.

Do you think those comps get easier in 2014 for those, on a year-over-year basis for those compliance and regulatory charges?

Bryan, I think the general financial service industry is getting more regulated and we are very focused on that. I think we have a great compliance team in place and they are working hard. Generally I'd say also being a market leader here as a competitive advantage. It's one of our investments. We don't see that as a cost or something like that, it's our investment to protect our customers and protect the Company brand, I believe that's going to be a competitive advantage long term.

Okay, great. Congrats on the progress.

Thanks, Bryan.

Thanks, Bryan.

Sara Gubins, Bank of America Merrill Lynch.

Thank you. Have you seen any pricing reaction from competitors at this point, and do you have any sense where you're beginning to see the traction in transactions? Do you have any sense of where you're taking share from?

Sara, generally as you know, we have competition always and this business is complex in 200 countries, we always have corridor specialists, competition is always there. But on the big thing in the actions where we put in place we did not see big competition reaction here yet, and we feel confident that we're going to gain market share there and we are going to have more transactions. We see good pricing actions from US to Mexico, we see US to also Latin America corridors and we do see Europe to Africa and especially our online transactions are going very well. As I said 60% growth in WesternUnion.com, 45% growth in electronic money transfer, account pays money transfer. These are good numbers, so where we put pricing and where we also expanded our network of ability, I mean you have to, it's WesternUnion.com also needs the physical location to send money and that you can send money from 23 countries to 200 countries via Western Union in minutes so that's a big competitive advantage.

The color I would add Sara is where are we taking market share. I'll give you a couple data points but Mexico it's early days but when you look at the first quarter we grew at 9% with our brand, and Banco de Mexico reported the market for January and February being down a couple points so we're gaining share there. If you think about digital, digital being up 60%. We know the electronic market is growing a little bit faster than the other market but growing 60%, we're clearly taking share and 80% of the customers are new to the franchise.

Okay, great and then separately, do you have any sense of how long it will take to get reported transaction growth in Mexico to turn positive as you benefit from the lower pricing?

Well, the Mexico business, in total we have also Vigo and Orlandi Valuta.

Right.

And that's as you know, we believe that will take a few quarters to overcome that, but on the Western Union branded transactions I believe that we are going to continue to grow our transactions and our revenue will usually catch up about 12 to 18 months so that will be approximately the timing.

Yes, what I'd say on the transactions if you will the Western Union brand is already positive. It's growing 9% in the first quarter and then the key thing we have to do Sara is we have to anniversary the Vigo and OV compliance issues we had in the third quarter of '12 where we took down 7,000 locations, so if you will think about the fourth quarter for total Company and transactions growing.

Thank you.

David Togut, Evercore Partners.

Thank you, good afternoon, Hikmet and Scott. Did you quantify the actual physical agent locations at the end of the March quarter and how much they were up or down year-over-year?

We had 515,000 locations and we added --

Yes, compared to a year ago we had 49 5,000, so we're up about 20,000 locations in the last past year if you will. What's important is not only locations that we've added David, but we've got some rich pipeline, whether it's the bank in Egypt or in Mexico where we're going to bring probably within a year, bring on another 10,000 locations online, we've got a good pipeline with signings too.

I see, and then sticking to agents for a minute, can you quantify for us the increases in agent commission rates that you started to institute a quarter or two ago?

As you know, our business David, it depends on the year-end quarterly agent renewals, right? Generally, not every agent renewal is in one year. It's spread over the years. It depends on the year. We had some increase on the CapEx this year due to agent signing bonuses but generally, I would say that we are very focused on the agent commission and on our costs of services. I believe long term we believe it will go down and it's a win-win situation right, David? I think that long term we are very focused also to look at our variable costs.

Would you expect agent commissions to go up this year as a percentage of revenue?

David, we are somewhat if you will, from our Q1 remarks, agent commissions did not impact the margins in the first quarter so they were flat if you will. We did renegotiate some agreements, primarily in the US, to really increase our competitive position, so we do expect that to tick up somewhat but as we reaffirmed our guidance and in having approximately 20% margins it's all baked in there.

Quick final question on capital allocation Scott. When does the Board next take up the future dividend policy?

Yes, let me first talk about our philosophy and then specifically to the Board. But our goal is to have a balanced pay out between buyback and dividend and our goal with the dividend is to grow the dividend consistent with our business performance. And with that said, we did a large dividend increase in October, about six or seven months ago, and Hikmet and I periodically have discussions, we have four or five Board meetings a year so we periodically have discussions with our Board. And we'll continue to allocate our capital to invest in our business but also get cash back to our shareholders. So it's probably worth repeating that our goal is to grow the dividend consistent with the business performance.

I think it's 3.5% currently.

Yes. It's about a 3.5% yield on the current stock price.

Thank you that helps. Appreciate it.

You bet. Thanks, David.

Thanks, David.

James Friedman, Susquehanna.

Hi. Scott, you had mentioned some of the new capabilities on WU.com, WU.com transactions accelerated on my math about, was that 60% from 40%. Could you elaborate on what the source of some of the transaction volume acceleration might be?

Sure. We're very pleased with that business, and in fact Hikmet and I were in San Francisco last week and the business team continues to perform really well there, so we're very excited, But there's a number of things that are driving it. One I would say our pricing actions are helpful, that we have a strong consumer value proposition. We've also enhanced the website if you will so if you have an opportunity to use it from a consumer standpoint the flow of the pages are better, it's more intuitive. We're also giving our customers, we're not fully implemented yet, but giving our customers more options of how to pay in or pay out from a cash standpoint, and we continue to get more sophisticated from a risk management standpoint, so all of those things are helpful. It's hard to point to any one thing in particular, but all those things are helpful and we'll continue, the good news, there's even more progress that we can make behind those and that gives us confidence of being at a $500 million business top line in 2015. And I've said it but it's worth repeating that 80% of the customers are new. We're attracting new customers into the franchise.

One thing I would like to add on that also, don't forget that we are only in 23 countries, sending originating WesternUnion.com transaction to 200 countries. As we speak, James, we are, the team, as you know, we just came from San Francisco, the team is expanding new countries, to new countries and that will also gain, you have even a stronger transaction growth long term.

With regard to the $500 million target in 2015 was just wondering what happens then?

We want to grow further from there, that's just, in my view, just the starting point is $500 million. We know the electronic market is growing a little bit faster than the other markets. We're growing at 60% but again we think there's a lot of opportunity to grow there. That we're seeing new customers come in. We can leverage our brand, leverage our global footprint and where we're excited is we want to offer more payment capabilities such as a same day ACH, we are not there, or being able to drop money into a bank account around the globe. So the $500 million is just a data point, 2015, but we've got aspirations to grow well beyond that.

I think it's also reminds me on the retail money transfer as we build the retail money transfer, we expanded country by country by country and as we built the retail money transfer expansion the same goes with the WesternUnion.com expansion. And combining these two things I think is a huge opportunity also for the future.

Last thing for me. With regard to the new Mexico affiliates, this is encouraging to see you investing in that market again. I was just wondering, are those arrangements exclusive? And if that's not the appropriate question then, could you talk about who you may have taken those relationships from?

Well as you know, parts of them, I can't go into details but parts of them are, we have good strong, let me leave it there. We have good strong relationship, more to come on that. More in detail. For competitive reasons, I don't want to talk about the details of the agreement but I'm very confident that we did the right steps, we worked very hard and I personally was there last week and I'm very confident that we are going to see more growth coming from Mexico.

Thanks for the color, Hikmet, Scott.

Thank you.

Thank you.

Ashwin Shirvaikar, Citigroup.

Hi, it's Phil Stiller on for Ashwin. I guess I wanted to first ask about the margins which were better than we expected. Scott, how much of that was due to the timing of some of the one-time investments you were planning to make in the quarter versus kind of sustainable actions in terms of simplifying the business over time? And how should we think about the progression of the one-time costs as we move through the year?

Sure. Phil, it was really, it was primarily timing if you will of some of our investments but also our cost savings initiatives, but the costs were related to those. So as you recall from the call, we did reaffirm the full year EPS in the approximate 20% margins if you will. Our cost savings programs are tracking well, in fact we expect to spend about $45 million in 2013. And Phil I'd have you think probably more so in the second and third quarter when you'll see a lot of that being spent with our actions. That will generate about 30 million of savings in 2013, and importantly, if not more importantly, about $45 million of savings in 2014. So we're tracking well there.

Is that $45 million number different than what you said in February? I thought we had $65 million.

No. Let me give you the color. The $45 million is the same. We also will incur $20 million of Travelex integration expenses in 2013. We don't expect that $20 million to repeat in 2014 so it's probably where you came up with the $65 million.

Understood, okay. Going back to the transaction trends, do you guys have any data that would be helpful in terms of understanding the momentum through the quarter, either by month or what you've seen through April so far so we can get a sense of how the pricing actions are gaining traction?

Yes, probably as you know, Phil, consistent with our past practices because of calendar impact and other things we don't necessarily talk about any given month or the month that we're in as we release earnings. But what we've seen through the first quarter, through April clearly gives us confidence, early indications that our plans are working. We're seeing those markets we priced in the fourth quarter with low teens transaction growth and we reaffirmed our guidance today, so we're tracking well to our expectations on the plan with pricing.

Okay, and then last question on the buyback, we did a lot in the first quarter. Should we expect it to be a little more ratable as we move through the course of this year and what was the share count at the end of the quarter?

As far as the buyback, we did buyback $350 million in the fourth quarter, $200 million or $190 million in the first quarter, we have $200 million remaining, so we'll take a number of things into consideration as far as uses of our capital, other factors from that standpoint. Hikmet and I continue to have dialogue with our Board around buyback and capital deployment so we'll continue to deploy the capital. We think given where the stock price is at it's a good investment if you will. To your question on how many shares were outstanding, we had 559 million shares outstanding at the end of the quarter.

Great, thanks guys.

Thanks.

Julio Quinteros, Goldman Sachs.

Julio?

I apologize. Mr. Quinteros. Please go ahead.

Can you go off, can you mute your line?

Julio, I can hear you.

Oh, you can hear me, great sorry. We have multiple things. On the principal transaction count and principal mix, can you just talk a little bit about what drove the site dip there on the principal? I think you mentioned something on the call, I might have missed it up front.

You're looking at principal per transaction, is that what you're asking for, Julio?

Yes. Sorry.

It was down 1%, although when you look at the last three or four quarters, that's an improvement where it was down 3%, down 2%, so some of the pricing actions that we've done, we've seen some new customers enter the high principal bands. And so we've seen some, in certain quarters some uplift with the higher principal bands but that is actually trending a little bit more favorable compared to what it was the last two or three quarters.

Okay, got it and then looking at the percentage of revenues I think you guys disclosed an E-channel versus a WU.com segment. What's the difference between those two? Like what other revenue contributors would be in the E-channels versus the WU.com revenues?

Yes, in the E-channels it's 4% of revenue.

Right.

If you just look at WesternUnion.com, it's 3%, so the simple delta is account based money transfer. That business was up 45% in the first quarter, but it represents about 1% of our revenues. So WesternUnion.com is 3%, account based is 1%, gives you the 4%.

4%, yes.

Okay.

Account base electronic money transfer, Julio, as you'll recall.

Through the bank.

Through the banks?

On the online banking platforms.

And then just lastly profitability on Business Solutions, is there a target for the year of when you guys expect that to see turn profitable again?

Well we're pleased with where we've been. If you just take the first quarter, EBITDA and if you exclude integration costs, those margins were up 14%, comparable period a year ago the margin was 8%, so we've made good progress. Our goal in that business is to improve the profitability in 2013 compared to 2012, and longer term, as we've mentioned, we believe this business can grow in the low double digits and could have EBITDA margins comparable to the Company, so we'll kind of take it one quarter at a time, but we do like the revenue growth we saw. We like the profitability improvement, and we think it's a very leveragable business model from a scale standpoint.

Okay, great. Thanks guys, good luck.

Thanks, Julio.

All right. We've got time for one more question.

Jason Kupferberg, Jefferies.

Hi, thanks guys for squeezing me in here. Just a follow-up question on WU.com. As we think about 2014 and 2015 as you guys march towards the $500 million target, which is encouraging to hear you reiterate that, are you assuming stable pricing more or less for WU.com beyond 2013 as part of that $500 million target?

As you know, Jason, thank you for asking the question. I think it's a great question. We are currently only at 4,500 corridors with our WesternUnion.com. As we expand to the corridors we are always adapt our pricing corridor by corridor as you know, and that may change. But I would say that generally we have the right pricing now that attracts so many transactions and I know that the customer once they join us, they use us much more often. So I believe that the pricing strategy is in the right moment, and as we expand to new countries we will adapt our pricing to the countries, and I think it's long term profitable business, especially today we are using the credit card payments mostly. And once we also adapt our payments, via comp payments, we have also lower interchange fees and on the sense side we don't have the agent commission, so I think it's long term, it's a very profitable, very great business.

Yes, the reason I asked just thinking ahead about the pricing, obviously the gap is huge right now between revenue and transaction growth because of the price cuts, and I know you had a tough comparison on revenue growth here in Q1. It just seems like even if you accelerate the full year revenue growth in WU.com this year to, I don't know, call it 25% or so from 13% in Q1, I think you still need a CAGR north of about 60% over 2014 and 2015 to get to the $500 million bogey. But it sounds like a lot of that growth you would expect to come not necessarily from just more transactions and revenue in the existing markets but as you had alluded to earlier just expanding WU.com to a lot more countries. That's clearly part of the story here?

Yes, Jason. You're absolutely right.

Okay.

I think about expanding and I think we have a road map and we are checking it monthly and daily against our $500 million goal and we are reconfirming the goal of $500 million again.

Okay, and then just one last one for me. I think in the past you've made some general comments that Western Union carries approximately a 20% or so price premium to the competition. And obviously that varies by corridor, but curious kind of how that figure looks after all of the current price cuts are implemented, and would that current or new premium be more or less sustainable over the longer term based on how you see the market right now?

I think yes, we deserve a premium because of given our global reach, given our quality, given the protecting the customer brand, I think our brand deserves a premium and don't forget that we don't do regular pricing, right? In certain corridors where we have digested numbers and I believe that we deserve a premium price and that it's going to continue.

Okay, very good. Thanks guys. We'll see you next week.

Thanks.

See you next week. Thanks everyone for joining us for the call today and have a good afternoon. We'll talk to you soon.

Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.