西聯匯款 (WU) 2013 Q2 法說會逐字稿

Good morning, and welcome to the Western Union second 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, sir.

Thank you. Good morning 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 second quarter results and take your questions. We expect the call to last about 45 minutes. The slides that accompany this call and webcast can be found at www.Westernunion.com, under the Investor Relations tab, and will remain available after the call. Additional operational statistics have been provided in supplemental tables with the 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 reconcile those items to the most comparable GAAP measures on our website, www.WesternUnion.com under the Investor Relations section. All statements made by Western Union officers on this call are the property of the Western Union Company and are 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 would now like to turn the call over to Hikmet Ersek.

Thank you, Mike. Good morning all. Earlier this year, we reoriented our strategy for growing our global business so that we could return to revenue and profit growth in 2014. By strengthening consumer money transfer, increasing customers end usage and business solutions, and generating and deploying strong cash flow for our shareholders, we said we could restore our competitive position and drive future growth.

Now, halfway through our transitional 2013, our second quarter performance shows we have made substantial progress in achieving these objectives and demonstrated the strength and resilience of our business model. As we expected, our second quarter consumer money transfer transaction growth rates accelerated compared to the first quarter as our pricing actions continued to build momentum with consumers. Electronic channels growth also increased with strong contributions from both WesternUnion.com and electronic account based money transfer through banks. Western Union Business Solutions delivered a second consecutive quarter of solid growth, and more importantly, initiated new services, partnerships, and markets to drive future performance. Additionally, consumer Bill Payments and improved with strong constant currency revenue growth in the quarter. While consolidated operating margins are down from last year, as expected, partially as a result of our strategic pricing and other actions, we remain solidly on track with our full year financial outlook, and we are affirming our 2013 guidance.

Before turning the call over to Scott to discuss our financial results in more detail, let me give a few examples of progress in each of our key strategic priorities for 2013. In consumer money transfer, we're seeing that our pricing actions are having the desired effect. In Mexico, Western Union branch transactions increased 22% in the quarter. This was an improvement from the 9% growth in the first quarter and 2% in last year's fourth quarter, when we first implemented the price reductions. We are regaining momentum in Mexico, which should also be aided by activating new agent locations over the next several quarters. The price actions in other quarters are also performing well, and overall, we are meeting our transaction objectives for the priced corridors.

Entering the second quarter, we have completed about 75% of the planned pricing initiatives. In this price corridor, transactions increased 17% in the quarter or 11% if you exclude Westernunion.com. Prior to implementing the pricing, transactions in these retail corridors were decreasing slightly, so we are seeing a good lift in consumer usage. Westernunion.com online pricing actions are also yielding very strong results. Overall, Westernunion.com money transfer transaction growth accelerated to 68% in the quarter.

As of the end of June, we have initiated substantially all of the previously planned pricing actions. We also made progress in other areas to strengthen consumer money transfer for the future by further increasing the number of agent locations, expanding our electronic channels, introducing more direct to bank services, and becoming more mobile. Our total agent locations increased to 520,000 as of the end of the quarter. We remain focused on adding productive new locations and other points of presence, although there have been some offsets as we remove some locations that were dormant or required compliance-related changes.

We mentioned last quarter that we have signed agents in Mexico, which will give us approximately 10,000 new locations there once implemented. We also just greatly expanded in Germany. In July, 3000 additional locations were activated with the German [Plus] Bank, increasing our presence in that country by over 50%. I am pleased with the new relationships we continue to formulate. Recently, we added a major new bank in Saudi Arabia with the signing of Riyadh Bank, which will offer both cash and account based money transfer services in one of the world's top three outbound markets for [rainedemptions]. And this month in the US, we also activated 1500 agent locations with SunTrust Bank, which has a strong branch network across the southern states.

Electronic channels revenue increased 26% in the second quarter. Westernunion.com money transfer transactions increased 68%, and account based money transfer transactions increased 51% as we activated new services with banks in Turkey, Jordan, and Vietnam. We now have over 70 banks connected for account based money transfer service.

Earlier this month, I was in India for the launch of a new direct-to-bank service, which give us the capability to send money transfers from Westernunion.com and agents locations in the US and UK directed into a bank account in India. Direct-to-bank is a large market opportunity that we plan to develop over the coming years.

I also visited Nigeria, where we are working to expand account based and mobile money transfer services with both banks and mobile network operators. We now have 17 active partners globally for mobile money transfer, and our money transfer services are also available for bank customers at approximately 115,000 ATMs, including new rollouts with banks in Thailand and Turkey. Providing both senders and receivers their choice of channel is a key element of our money transfer strategy, and we continue to add online, mobile, and account based options for our foundational retail network around the world. Western Union is uniquely positioned to connect the digital and physical roles for money transfer, and we believe these new channels will be a key driver of future growth. Overall, we're on track with our plans for consumer money transfer in 2013, and continue to expect our Western Union brand C2C transactions to increase mid to high single digits for the full year.

Our second strategic initiative for 2013 is to drive growth in customers and usage in business-to-business, and during the quarter, we made solid progress. Western Union Business Solutions delivered 6% revenue growth in the quarter or 8% in constant currency terms. We are gaining traction in the market with our refocused sales efforts and continue to expand our service offerings and capabilities. In the quarter, we launched a new service with the MasterCard business network, where we provide cross-border payment services to their business customers. The network is an online resource that helps streamline business operations and enhance productivity for small and midsize businesses.

We also significantly expanded our services in India and Japan. We increased offerings for university student cross-border tuition payment services in several countries, including China, India, and South Korea. Business Solutions now offers cross-border payment services in 32 countries, with Columbia being the most recent addition. Although we still believe that we can generate stronger Business Solutions growth in the future as global trade recovers and our new services and market contribute more meaningfully, we are pleased with the progress we have made so far in 2013.

Our third strategic initiative for 2013 is to generate strong cash flow and deploy it for our shareholders. Year-to-date, through June, we generated $478 million of cash flow from operating activities and returned over $450 million to shareholders. This consisted of $314 million of share repurchases and $140 million of dividends. As Scott will discuss in a moment, we continue to expect to generate $900 million of operating cash flow for the year with approximately $700 million returned to shareholders, representing approximately 7% of the current market capitalization. Based on the year-to-date performance and current trends, we have affirmed our full year financial outlook. Our consumer money transfer actions are meeting our objectives, with Western Union branch transactions increasing 7% in the second quarter, up from a 2% increase in the first quarter.

Electronic channels are growing rapidly, with revenue growth of 26% compared to 18% last quarter, and we're adding more choices and convenience for consumers around the world. Business Solutions is picking up, momentum with constant currency revenue growth of 8%, compared with 7% last quarter. Consumer Bill Payment is delivering good constant currency revenue growth of 7%, up from 3% last quarter. We continue to generate strong cash flow. So far, our strategic actions are working, and we remain confident that these actions will lead to revenue and profit growth in 2014. 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, we are pleased with the progress we're making in our key businesses, and we are affirming our full year financial outlook for 2013. In the second quarter, we reported total consolidated revenue of $1.4 billion, which was down 3% compared to the year ago quarter or 2% on a constant currency basis. Pricing investments in compliance actions led to C2C revenue decline as expected, but the rate of decline moderated compared to the first quarter as transaction growth accelerated. As Hikmet mentioned, Business Solutions and Consumer Bill Payments each delivered good revenue growth in the quarter.

In the Consumer to Consumer segment, revenue declined 4% or 3% constant currency. The decline included a negative 1% impact from the Vigo and Orlandi Valuta brands, which are still being affected by the compliance related changes implemented in the third quarter of 2012. Transaction growth for Western Union brand accelerated to 7% in the second quarter, compared to 2% for the first quarter. The second quarter growth was driven by the pricing actions and strong performance in the electronic channels. Overall transactions, including the Vigo and Orlandi Valuta brands, increased 3%, up from a decline of 2% in the first quarter.

C2C cross-border principal increased 2% in the quarter with no impact from currency, while Western Union branded cross-border principal increased 5%, including a negative 1% impact from currency. Total principal per transaction declined 1%. The spread between the C2C transaction growth and the revenue decline in the quarter was 7 percentage points, including a negative 1% impact from currency. For C2C, the impact of net price decreases was approximately 7% in the quarter, while mix had a positive impact of approximately 1%. We continue to expect our full year pricing investments to be approximately 6% to 7% of C2C revenue or approximately 5% of total company revenue.

Turning to the regions. All of the regions delivered improved transaction growth rates compared with the first quarter trends. In the Europe and CIS region, C2C revenue decreased 4% year-over-year, including a positive 1% impact from currency. Transactions in the region increased 3%, aided primarily by pricing actions and continued strong growth in markets such as Germany and France. North America revenue declined 12% from the prior year while transactions were down 2%. The transaction decline was driven by the Vigo and Orlandi Valuta brands, while revenue was also impacted by price reductions.

Mexico revenue, including Vigo and Orlandi Valuta declined 23%, and transactions decreased 3% in the quarter. For the Western Union brand, Mexico revenue declined 11% while transaction growth accelerated to 22%. The Western Union brand grew significantly faster than the market, based on the Banco de Mexico data available for April and May. Domestic money transfer revenue was down 1% on transaction growth of 5% in the quarter. The difference between transaction and revenue was attributable to fewer large principal transfers and price reductions in WesternUnion.com. Lower principal bans and domestic money transfers continued to perform well, with increases in both transactions and revenue.

Revenue in the Middle East and Africa region was flat compared to the year ago quarter with no impact from currency, and transactions grew 6%. We're seeing good results from our pricing actions from Europe to Africa, and the Gulf states are providing steady growth. Asia-Pacific region revenue was down 4% for the quarter, including a negative 1% impact from currency translation, while transactions in the region increased 5%. The Latin American Caribbean region revenue was flat with the prior year period including a negative 7% impact from currency, while transactions declined 3%. Revenue in the region was positively impact by geographic and product mix, although this was offset by currency translation.

Turning to our digital business, WesternUnion.com again delivered strong results, with money transfer transaction growth of 68% and a revenue increase of 25% for the quarter. US-originated online transactions increased over 75% in the quarter. Total electronic channel revenue, which includes WesternUnion.com, account based money transfer through banks, and mobile increased 26% 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 transfer through banks increased 51%. Prepaid revenue, including third party reload declined 9% in the quarter, primarily due to softness in our US business.

Moving to the Consumer to Business segment. Revenue increased 2% in the quarter or 7% in constant currency terms. [Grid] growth in South America and in the US electronic business drove the Consumer Bill Payment improvement, with a partial offset from declines in the US cash [blocking] business. Business Solutions reported another solid quarter with revenue growth of 6% or 8% constant currency. Both spot payments and customer hedging activity contributed to the growth, with particularly strong performance from the UK and several countries in Asia. The acquisition of the French Travelex global business payments business, which was completed in May of 2012, contributed 1 point to the Business Solutions growth in the quarter.

Turning to consolidated margins, as expected, the second quarter GAAP operating margin was 20% compared to 24.3% in the prior-year period. The margin decline was primarily the result of increased compliance costs, pricing driven revenue declines in mix, strategic investments primarily in IT, expenses for cost-savings initiatives, and higher marketing. These impacts were partially offset by lower Travelex integration expense. There were approximately $14 million in expenses related to the cost-saving initiatives in the quarter. Increased compliance costs included additional expenses related to anticipated extension of our Southwest border agreement. As noted in an 8-K filing in June, we agreed with the State of Arizona to extend the current Southwest border agreement, which was due to expire on July 31, by an additional 90 days. The extension is intended to give both parties time to discuss potential amendments to the settlement agreement, which may include further extending the terms to allow additional time to implement the monitor's recommendations.

EBITDA margin was 24.8% compared to 28.4% a year ago. Reported earnings per share in the quarter were $0.36, compared to $0.44 in the prior year. The C2C operating segment margin was 23.2% compared to [28.5%] of the prior year period. The margin was impacted in the quarter primarily by increased compliance cost, strategic investments, price driven revenue declines in mix, expenses related to cost-savings initiatives, and higher marketing. The Consumer to Business operating margin was 20.5% compared to 22.4% in the prior-year period. The margin was negatively impacted compared to prior year by pass-throughs to billers of [durman] related debit card savings which reduced revenue.

Business Solutions reported an operating loss of $7 million for the quarter compared to loss of $15 million in the year-ago period. The reduction in operating loss was primarily driven by lower Travelex integration expense. The second quarter $7 million loss, includes $15 million of depreciation and amortization, and $6 million of Travelex integration expense. In the second quarter of last year, depreciation and amortization was $15 million, while integration expense was $14 million.

Turning to our cash flow and balance sheet, year-to-date cash flow from operations was $478 million. Capital expenditures were $69 million in the second quarter. At the end of the quarter, the Company had debt of $3.7 billion and cash of $1.4 billion. Approximately 50% of the cash was held by United States entities. During the second quarter, we repurchased approximately 8 million shares at an average price of $15.92 totaling $125 million. In addition, we paid $69 million in dividends. Earlier this month, we also declared another $0.125 quarterly dividend which will be paid on September 30. As the quarter and, we have 552 million shares outstanding, approximately $80 million remaining under our repurchase authorization which expires at the end of 2013.

We continue to project 2013 repurchases and dividends to total approximately $700 million this year, or about 7% of current market capitalization, including $400 million of share repurchases. We expect to generate approximately $900 million of cash flow from operations or approximately $1 billion excluding the remaining $100 million of tax payments from our 2011 IRS agreement. These payments are included in our 2013 cash flow outlook, although it is possible some of the payments may not occur until 2014. We are affirming the 2013 full year financial outlook that we provided in April. As we stated at the end of last year, we expect 2013 to be a transitional year as we implement our strategic actions. We are pleased with the progress we have made during the first half of the year. Laura, we're now ready for the first question.

At this time, we will begin the question-and-answer session.

(Operator Instructions)

We will pause momentarily to assemble our roster. Tien-Tsin Huang, JPMorgan Chase & Co.

Good morning. Great results here. Certainly better than we expected. I wanted to ask about industry growth in general. It sounds like, listening to your comments, Hikmet, and obviously what your peers have said, it feels like industry growth is improving. Can you elaborate on that? I'm just curious if it is safe to say that there is an improvement in industry growth broadly speaking?

Fortunately, we are acting in a market, which is growing and totally, as you know, especially the cross-border dividends market. It is [well-buying] 5% to 6% growth approximately.

About 6%, yes. (multiple speakers)

It's about 5% to 6% growth in principal amount. Obviously, the revenue's a little bit different on the part. Generally, I would say that I am very pleased with our performance, and as you recall, we said last year, that we're going to implement all of these actions. The actions are working, and to gain market share. We're very pleased with the results. Just to give an example, the [Vassini] branded transaction in Mexico, growing by 22% up from 9%, and it was lower than the quarter before.

So I think the actions are working, other actions in different parts of the world are working. And price is not the only one -- price which impacts -- we are having 520,000 locations. Electronic channels are growing very fast, we have 115,000 ATMs. Being everywhere, anywhere, and serving the customers, it does work. I am pleased with the progress we have made.

Two quick clarifications. Transaction growth in the corridors where pricing was not addressed, it looked like it accelerated from 1% to 5%. Are we calculating that correctly, Scott?

It's correct. It was right around 4%, Tien-Tsin, but the specific number is 4%. We feel good about those corridors and the progress that we saw.

So it did accelerate. Just lastly, any impact on transactions in general from all the FX volatility? I know that was called out, especially with the group move. Any impact on transactions worth calling out?

In simple terms, no. Consumers do vary their behavior a little bit, but the [beenbee] and rupee, there was some movement there. We're in 200 countries, and India is a very important market. The consumers, their loved ones have needs, so they routinely send money back. It didn't have a significant impact on our results this quarter.

Just a reminder, Tien-Tsin, we have 123 currencies that the customers use. That is definitely also something. We do not see the impact from that too much.

Very good. Thank you so much.

Bryan Keane, Deutsche Bank.

Hi guys. Wanted to ask about going forward. Do you still expect transaction growth to accelerate in the third and fourth quarters given what you see so far?

The answer is yes. We are forming our year-end guidance. Part of that is the acceleration of the transaction growth, and the pricing actions are working. We have now implemented over activated 75% of them, implemented all of the pricing actions. They should work on -- and nonprice quarters are also improving. 1% to 4% of growth. Generally, I see a good momentum.

Scott, can you remind us when OV and Vigo -- I know it's been a tough comp here. When does it anniversary? Is that in the middle of this quarter?

It would be in the middle of the third quarter. We have some during the third quarter. The fourth quarter will be the first clean quarter, if you will, where the comps get easier from that standpoint.

[Forties] north to measure it.

And finally, for me, do you still expect pricing to return to its normal declines of 1% to 3% cycle in 2014 after given the pricing initiatives this year?

I believe that we did a big investment in 2012, which affects 2013 numbers. Generally, I would say it's not only pricing. I think that we really pulled the strategy here, which we are -- our focus is profit growth for 2014. To achieve that, there are many factors, and pricing is one of them. I do not see that we're going to have a big investment as we did in -- from today's point of view -- as we did in 2012.

Great. Congratulations on the progress.

Smittipon Srethapramote, Morgan Stanley.

The first question is, I was wondering if you are seeing any different trends in this round of price reductions versus past rounds of price reductions that you guys have implemented?

Smitti, I would say that we are in 200 countries, 16,000 corridors, so you do get some variations. But I think that the key headline is the price investments are working. And in those corridors, we did make pricing investments, transactions were up 17%, so they are spot on to our objectives.

Got it. For WesternUnion.com, are the top corridors that you have in that business similar to the top corridors was that you have in the off-line space?

Generally, yes. If you look at our business, we're in 32 countries in WesternUnion.com.

We're in 23 countries.

23 countries. And sending to 200 countries. So you can multiply the 23 to 200 countries which means that we're serving many, many corridors. Our goal is to expand the countries by adding more and more countries, which means adding more and more corridors and eventually being in 200 countries with our WesternUnion.com and electronic channels, and the team is working very hard on that.

Great. Thank you.

Julio Quinteros, Goldman Sachs.

This is [Roman] in for Julio. Thank you for taking my questions. First, a clarification in Mexico. The agent locations that are to be added there, are these agents that have been signed up and just need to be implemented, or do these include some that are perhaps in the pipeline and not yet signed up?

They have been signed up.

That's helpful.

It takes time to implement it. You have to activate the IT systems and everything. The programs, compliance programs. But we have signed them.

Just to be clear, Roman, we have signed about 10,000 locations that will rollout in the next 12 months. They are signed agreements.

Great. We noticed that, so that is helpful. Maybe as a follow-up, we can speak specifically to Mexico or the corridors. But as you add agent locations in corridors that you reprice, how do the dynamics work? Are you trying to manage the pricing a little differently with these new agents, or is the pricing going to be the same as the new prevailing prices in those corridors?

Generally speaking, we price to the market where we see the consumer value proposition buying. As new agents come on board, what they love about our business is the strength of our brand, that we can connect 520,000 locations. We have Westernunion.com on the payout side. The pricing market by market will vary, but generally, we treat all of the agents the same, which is important to our brand and who we are.

And signing on Business Solutions, what type of revenue growth do we need to see there in the near term to get to profitability? The integration expense coming down obviously helps. But what kind of top line performance do we need to see there?

As I stated in our -- last time, we do see a long-term lower double-digit growth rate in this business. I think now that we have accelerated our constant currency revenue growth from 7% to 8%, and I think the team is focused, and expanding also the countries there. We have a road map to go there. That has definitely helped the bottom line. But maybe, Scott, do you want to add something on the -- ?

Yes. The other color I would give to add to Hikmet's comments, if you look at the margins on a year to date basis, EBITDA margins might intregation expense, those margins are in the neighborhood of 14%, if you well. So it is profitable today, and those margins are up compared to a year-to-date basis from the prior-year. As we expand to more countries, as we gain scale, as we launch more products -- for example, we launched the options in the UK in the last quarter, we signed a deal with MasterCard this quarter that we are excited about. As we generate that long-term double-digit revenue growth, the scale and leverage, it should allow us to get EBITDA margins comparable to the Company average.

All right. Thanks, guys.

Greg Smith, Sterne Agee.

Can you comment on the prepaid business? It looks like it is kind of weakening there. What are your thoughts broadly on the opportunity in the US and as well as international?

(multiple speakers) If you look, our prepaid business is a small part of our business today. It is around 1% of our revenue. It has been a little bit difficult to build [davernas] and get advantages of that.

However, it does open to Western Union brand. All of these cards are Western Union branded cards, and once the customer gets the loyalties, uses also potential other products. What we do is, we're really bringing the prepaid customers to our core business. It is cash in, cash out, or are we using the money transfer of Bill Payment businesses? Do want to add something on that?

I think, Greg, the other opportunity for us, as Hikmet mentioned. To take our prepaid business, which we think is a nice long-term opportunity, but we're experimenting with some different business models in different countries, and better connect that back to the core business, which we think leverages our brand, our distribution and our customer base. We want to, as the years come, tighten those a little bit closer together as we move forward.

If you step back and think about your business as it is moving to digital channels, is that happening faster than maybe you had expected a year ago? Or slower? Or obviously about as expected?

If you recall, we said that we want to accelerate our growth year. Don't forget that we had 2%, 3%, 4% of our total revenue in electronic channels. The Westernunion.com, as you know, we opened an office in San Francisco. This team is doing great. It is growing by 68% on transactions. We're right on our plan to achieve approximately $500 million by year 2015.

The revenue has also accelerated from 18% to 26% in this quarter. We have a road map to get there on WesternUnion.com, and our digital business. One good thing is also on the digital business, electronic account base money transfer business, we have 70 banks globally on that, and where you go to your electronic banking account and click and send money worldwide to 200 countries. That grew by 51%. I think our strategies on the electronic channels are working. Last year, just to compare it with the environment, the revenue was $150 million on Westernunion.com. This is something that we want to bring that to $500 million by the end of year 2015.

The other color I would add, Greg, which I think is important, too. Really two things. One, we are well positioned to bring together the best of the electronic world and the retail world with our brand and our network. But also, on the electronic channel with Westernunion.com, all of -- 80% of the customers we are seeing are new.

Great. Thank you.

George [Mulhallos], Credit Suisse.

This is Ryan Davis calling in for George. I had a few questions. First, following up on the question earlier in the second half. Can you give us an update on the July trends, whether there is a big acceleration in transactions in the quarter relative to the second quarter?

Hi, Bryan. This is Scott. Thank you for joining us this morning. It is customary, with our past practice, we do not comment on trends within a quarter during a quarter. What I will say is that we are cognizant of what those trends are. If you will, it led to the confidence to reaffirm our guidance for 2013. So we are pleased with how the year-to-date results have been through June. Our outlook gives us confidence to reconfirm the guidance.

Okay. Can you provide color on how the transactions progressed throughout 2Q monthly?

I will come back to my prior comments. Just consistent with past practices, we do not comment month by month. The reason being is you have holidays or calendar impact and other things. But what we saw in the first quarter, in the second quarter, again, transactions increased from 2% in the first quarter to 7% in the second quarter. Very nice accelerations. Price markets went up by 17% growth. All of those things give us confidence that our strategy is working. Our customers love the brand and the network. They're coming back in the front door, so we did reaffirm guidance.

One more. What is driving principal per transaction lower on a constant currency basis? I thought it was the online channel, should it not be reversed?

Just to frame it. For the quarter, it was down about [1%]. I think one of the key points is C2C transactions grew 7%, so customers came back in the front door. The one item that had some impact on that, and we called it out during the call, is domestic money transfer, the high principles sent there were down somewhat. But overall, what we really like about our business model is that as the transactions come in the door, the most important thing is getting the transaction. That drives our revenue model.

Thank you. That is all I have for you. Thanks.

Sara Gubins, BofA Merrill Lynch

This is David Chu for Sara. How should we think about pricing for the second half? Should we expect more significant impact in Q3 versus Q2 and less of an impact in 4Q as we lapse some of the Mexico initiatives?

Thanks, David. How I'd frame it is, from a customer transaction standpoint, we do expect transactions to accelerate in the second half of the year versus the first of the year. As far as lapping pricing, we did start the pricing actions mid-November of 2012. We will begin lapping those in mid-November 2013.

When you look at the reporting, David, the actions themselves are a largely done at the end of the quarter. At the end of the quarter, we've completed most of the pricing. But if you look at the reporting in the third quarter, it will probably be the highest because all of the actions will be in place, we start anniversarying as Scott said in the fourth quarter.

That is helpful. Maybe this is a little bit early. Are you seeing anything in the marketplace that suggests a meaningful pickup in compliance costs in 2014?

What I would say, David, is having a robust compliance program and a strong culture of compliance is very important to us. Broadly, as we think about the global landscape, the regulatory environment continues to move. As I think about 2014 in 2015, right now, I'd expect our compliance regulatory cost to increase. What is important about that is that it protects the brand. It protects the customer. It protects our agents. And the longer term, we believe that is going to be competitive advantage because of our scale and our scope and what we can do with compliance and regulatory.

I do see that as a competitive advantage. We have very good culture in our company. The most important thing is for the context of consumer, there has been some investment done here. I think it will continue to -- we're going to have this investment. But long-term, as Scott said, I just want to repeat that, given our skill, we have a competitive advantage. Don't forget we are in 200 countries, to comply with all regulations world and try to be the best in class, and leading our industry.

Just one last one, if I may. Are most of your larger agent renewals for 2013 finished at this point? Or are there more in the second half?

If you look at our agent network globally, we have always negotiated constantly. Being n 200 countries, we have a global agent network. As I said, we've recently added new agents negotiations, we added new agents. One of the best one was for the Riyadh Bank in Saudi Arabia or 10,000 locations in Mexico. It is constantly growing, and we activated the SunTrust Bank in the US. I think that seasonality year-by-year changes, but most of -- we have constant negotiations with the agents. Most of our contracts are five-year contracts on average. It comes every time.

What I would add is we enjoy high renewal rates. The example that I would give you is our top 40 agents have been with us for an average of 17 years. They very much value the brand, the customers that we bring to their locations and our network.

Okay. Thank you.

Glenn Fodor, Autonomous Research.

Thanks for taking my question. You had some large declines in yields in the online channels for several quarters now. How much longer do you think it'll take before your actions anniversary here? Can you give us your best estimate of the Delta between your online pricing and the competitors? And secondly, the differential between your online pricing versus your off-line pricing? As best, apples to apples you can?

Maybe you can give us some details on that. Let me start how we see that. We do see it quarter by quarter. Probably, you are asking the question, what is your online pricing and do you leverage it against the competition? I would say that our US originated transactions last quarter grew by 75%, the biggest advantage of Western Union is that online, we serve 200 countries. If you have our Germany online transfer, we serve from Germany 200 countries. That is the biggest advantage, and we adapt our pricing quarter by quarter. We pick up corridors and we do price promotions on that.

When, what I would add, is we will lap the WesternUnion.com pricing in November. We'll grow through that, if you will. With transactions being up 68% in the second quarter, I think that is a very strong statement from our customers that they very much value the consumer propositions. Whether it is the attribute of the price, the brand, the customer payout. Customers truly like the business. In the US, US we saw over 75% of transaction growth in the second quarter.

Okay. Just thinking about pricing actions outside of where you have been active over the last couple of quarters, what you were going through now, are there any rumblings of measures that you might have to take elsewhere? You have not mentioned it, but I just wanted see if there is any texture of things that we should be aware of or any rumblings, just to avoid any surprises over the coming quarters of new pricing, new large-scale pricing implementation.

So far so good. Our pricing on price quarter is growing by 4%, 75% of our business. So far so good. I feel comfortable with the progress. Pricing in our business, it is only a part of our actions. As Western Union, we deserve the premium pricing. Our brand is very valuable. Or compliance programs are very valuable. We have protected to customers. Customers trust us. A we really do choose corridor by corridor. Pricing is nothing new for us. We did the last 10 years, 15 years corridor by corridor different pricing. But I do not see from today points of view, big investments, corrective investment transformations investments as we did in last year, 2012.

Thank you so much.

Laura, we have time for one more question.

James Friedman, Susquehanna.

I also wanted to ask about the regulatory. Earlier in the year, you had described the regulatory as getting hotter, and you had outlined the mandatory call back obligations. I was wondering, are those obligation mandatory callbacks extending to other corridors, and how would you characterize regulatory at WU.com versus WU offline.

First, I think the important point is that we have a culture of compliance and want to have best in class compliance programs. That is very important to our brand. Protecting our customers, our agents, and so forth. As we think about compliance broadly, we're doing things such as high principal dollar callbacks to protect a customer. That is what we want to do. We have expanded that to other markets in other corridors. We will continue from time to time to implement things to protect the customers and to protect the agents.

Thanks, Scott.

For both WU.com and offline.

Thanks Mike. There are both channels.

Interesting. Thank you. With regard to WU.com, I was just wondering, and I had not heard you mention this before. If you have, I apologize. Being that WU.com is more of a one to many as opposed to a one to one model, are you seeing customers use it to remit to multiple countries, or is that behavior any different than the typical pattern of one sender to one country?

If you look at our customer base. Lets just say that a Filipino customer using online function to send money to the Philippines obviously used that channel. In the US, there are many ethnic groups, many migrants, many customers from different ethnic groups, and we do give them the ability to use different things. The US, for instance, I'm sending from my online account, from my iPhone, to my father in Turkey, money, and it works pretty well. My father in Turkey keeps the money out. What I wanted to say is that from one point, you can serve 200 countries. You can serve from a WesternUnion.fr 200 countries. I think that is the huge advantage of Western Union.

Thank you.

Thanks, everyone for joining us. I hope that you all have a good day.