西聯匯款 (WU) 2013 Q3 法說會逐字稿

Welcome to the Western Union third quarter 2013 earnings conference call.

(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 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 third quarter results. Then we'll take your questions. The slides that accompany 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.

Our comments include forward-looking statements. Please refer to the cautionary language in the earnings release and then Western Union's filings with the Securities and Exchange Commission, including the 2012 Form 10-K for additional information concerning factors that could cause actual results to differ materially from the forward-looking statements. During the call, we will discuss some items that do not conform to generally accepted accounting principles. We 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 any transcription of this call. I will now turn the call over to Hikmet Ersek.

Thank you, Mike. Good afternoon. As we enter 2013, we continue to implement our plans to make pricing and other investment and undertake efficiency initiative to better position our business for the future. Our focus this year has been on strengthening consumer money transfer, increasing customer end usage in business-to-business and generating and deploying strong cash flow for our shareholders. As we have now completed three quarters of the year, I remain pleased with the progress we are making. The third quarter results provided some very positive signs that our strategies are working.

In consumer money transfer, transaction growth accelerated to 9% or 10% for the Western Union brand, driven by our pricing actions and strong electronic channels growth. In business solutions, revenue increased 10% in constant currency terms, as we continue to execute well on expanded product offerings and increasing penetration. In consumer bill payments, revenue increased 9% constant currency, driven by South America and the US electronic bill pay business. The consumer money transfer pricing actions continue to produce strong results in transactions and usage.

In the corridors where pricing actions had been implemented prior the beginning of the third quarter, transactions increased 20% or 14% excluding digital. In comparison, Western Union brand transactions in the non-priced corridors increased 6%. Mexico in particular, demonstrated more progress in recapturing momentum. Overall transactions, including Vigo and Orlandi Valuta, increased 15% in the country, while Western Union branded transaction increased even 24%.

In the US, we are very pleased to increase our distribution through our new relationship with Walgreens. Walgreens is the largest drugstore chain in the country, with over 8,000 locations. We will be adding our consumer money transfer and bill payment services there beginning in 2014, providing more choice and convenience for consumers. In Europe, we renewed our agreement with our largest global agent, La Banque Postale, which has been offering our services in France for the last 17 years. We extended our services to over 3,000 additional locations.

Expanding electronic channels is also a major part of our strategy to increase choice and convenience. Electronic channels once again delivered strong growth in the third quarter. Electronic channels revenue increased 24% with C2C transaction through WesternUnion.com growing 68%. Electronic account -- money transfer transactions increasing 55%. In addition to online banking access and WesternUnion.com, our money transfer services available to approximately 115,000 ATMs around the world. Electronic channels remains our fastest-growing area and now represents 5% of total Company revenue. They are also bringing us new consumers, as we have consistently seen over 80% of our new WesternUnion.com customers being new to the franchise in the past 12 months.

We have recently added to our capabilities by expanding our direct-to-bank services to China from various markets and extending our relationship with US Bank to include mobile money transfer services. We also signed new mobile money transfer agreements in Nigeria, Tunisia and Nepal. We released an enhanced version of WesternUnion.com mobile app, which has been received a good response.

Turning to Western Union business solutions. Revenue increased 6% in the quarter or 10% in constant currency terms. I am pleased with our business and sales execution and our global expansion. We are well-positioned for long-term growth in business-to-business. Some of the recent initiatives in business solutions include the launch of options products in France and further global expansion of tuition payments for international students. We also continued to deliver on our third strategic initiative for 2013, which is to generate strong cash flow and deploy it for shareholders. Year-to-date through September, we generated $811 million of cash flow from operating activities and returned $543 million to shareholders. We expect to generate approximately $1 billion of operating cash flow for the year and returning nearly $700 million to shareholders, representing around 7% of the current market capitalization.

I also want to discuss the recent compliance and regulatory environment. As year-over-year regulatory requirements and expectations around financial service companies are escalating around the world. Some banks have recently faced large fines and some have announced billions of dollars of incremental investments in compliance areas. The environments continue to evolve. In the US, for example, we recently initiated agent procedures at our 50,000 agent locations to comply with the Dodd-Frank remittance transfer rule. I am pleased to report that the procedure was implemented in time for the October 28 deadline. As we mentioned earlier this year, we have previously implemented new anti-money laundering and fraud prevention enhancements in countries such as Spain and the UK.

In the US, we are now working with our third monitor on the Southwest border agreement. As noted, in our 8-K filed today, we have agreed to an additional short-term extension to this agreement to continue to discussing [advancements.] We could not conclude discussions on a normal expansion under the previous timeframe for reasons, including the recent passing of Arizona's primary attorney on the matter. Overall, we have increased our investment compliance significantly in recent years. A few months ago, we hired a new Chief Compliance Officer. He has brought on some highly experienced leaders to help us strengthen our compliance programs in the increasingly complex, demanding and very fast changing global regulatory environment.

Based on all these new and evolving requirements, our ongoing discussions and agreements with regulators around the world and our own reviews, we now anticipate significant initial investment in 2014, including adding more resources and new technology. We believe the compliance actions we are taking are the right ones for the long-term health of the Company. We are very well-positioned to adjust to this new environment.

Although it is too early to establish a full 2014 financial outlook, we are pleased with the momentum of the business. We continue to expect revenue growth next year. However, due to recent change in both the expected incremental compliance expenses, as well as the potential business impact from new compliance procedures, we do not expect growth in operating profit in 2014 at this time. But we will undertake additional efficiency initiatives to optimize our overall cost structure over time. We plan to continue to work through our budgeting process. We will give you further color early next year, when we report 2013 results. This brings me back to this year.

We have affirmed our financial outlook for 2013 including narrowing our earnings per share outlook to a higher end of the previous range and increasing our anticipated cash flow from operating activities to approximately $1 billion. Overall, our consumer money transfer strategies are delivering the desired results. In fact, in the third quarter, we produced the highest quarterly transaction growth rate in three years. business solutions is executing well and growing its business. Cash flow generation remains strong. I am pleased with the progress we are making. I remain confident in our business, positioning and long-term opportunities. 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 are making this year. We are affirming our full year financial outlook for 2013. Third quarter total consolidated revenue of $1.4 billion declined 1% compared to the prior-year period, primarily due to the previously implemented pricing investments in the C2C business. On a constant currency basis, revenue was flat in the quarter.

Key drivers in the quarter included strong growth in our electronic channels and from both business solutions and consumer bill payments. In the consumer-to-consumer segment, revenue declined 2% or 1% constant currency, as transaction growth was offset by the impact of previously implemented price reductions in certain corridors. Total transaction growth accelerated to 9% in the third quarter, compared to 3% in the second quarter. Western Union branded transactions increased 10%, compared to 7% last quarter. The third quarter growth rate improvement compared to the second quarter was driven by continued acceleration from the pricing investments and increased growth in corridors where pricing investments were not made. Total Company transaction growth is still being impacted by a previous implement on compliance enhancements in some countries, as we discussed earlier in the year.

C2C cross-border principal increased 8% in the quarter. Western Union branded cross-border principal increased 9% with no impact from currency. Principal per transaction declined 1%. The spread between the C2C transaction growth and the revenue decline in the quarter was 11 percentage points, including a negative 1% impact from currency. For C2C, the impact of net price decreases was approximately 8% in the quarter, while mix had a negative impact of approximately 2%.

Turning to the regions, all of the geographic regions delivered improved transaction growth rates relative to the second quarter. In the Europe and CIS region, C2C revenue decreased 2% year-over-year including a positive 2% impact from currency. Transactions in the region increased 7%, driven by success of the pricing actions and led by growth in key markets such as Germany, France and the UK. North America revenue declined 7% from the prior year, due primarily to price reductions, while transactions increased 5%.

As Hikmet mentioned, we're making significant progress in Mexico. We continue to grow faster than the market based on the latest Banco de Mexico data available through August, which show the market growing transactions at mid-single-digits in the first two months of the quarter. Our Mexico transactions increased 15% in the quarter. Western Union branded transaction increased 24%. Mexico revenue, including Vigo and Orlandi Valuta, declined 10%, while revenue declined 12% for the Western Union brand. In the middle of the quarter, we reach the anniversary of the Vigo and Orlandi Valuta compliance related changes implemented last year, which also aided our growth rate compared to previous quarters.

Turning to the US domestic money transfer, revenue was down 1% in the third quarter on transaction growth of 6%. Lower principal bans and domestic money transfer continued to perform well, but these were offset by declines in higher principal transactions. Revenue in the Middle East and African region increased 1% compared with the year ago quarter, with no impact from currency. Transactions grew 10% in the quarter. Transactions from the Gulf states are delivering strong growth. Our pricing actions from Europe to Africa continue to gain traction.

Asia-Pacific region revenue declined 3% in the quarter included a negative 2% from currency translation, while transaction growth in the region accelerated to 10%. Both the Philippines and India contributed to the strong growth, with India aided by both pricing initiatives and the depreciation of the Indian rupee. The Latin America and Caribbean region revenue was down 3% from the prior-year period, including a negative 8% impact from currency, while transactions increased 4%. Constant currency revenue in the region was positively impacted by a geographic and product mix.

Turning to our digital business, WesternUnion.com delivered strong results in the quarter, with money transfer transaction growth of 68% and a revenue increase of 24% in the quarter. US originated online transactions increased 70% in the quarter. As Hikmet mentioned earlier, we are pleased with our digital channel performance. Total electronic channels revenue, which includes WesternUnion.com, account based money transfer through banks and mobile increased 24% in the quarter. Electronic account based money transfer through banks revenue increased 29%. We now have over 75 banks launched with account based money transfer service.

Moving to the consumer to business segment. Revenue increased 3% in the quarter or 9% in constant currency terms. The US electronic and the South American businesses continue to grow, partially offset by declines in US cash walk-in business. Business solutions performed well, as revenue increased 10% on a constant currency basis or 6% reported. Strong performance in Asia-Pacific and the UK led the growth.

Turning to consolidated margins, the third quarter GAAP operating margin was 21.0% compared to 25.7% in the prior-year period. As expected, the margin decline was primarily the result of pricing driven revenue declines and other strategic investments, lower compensation expense in the third quarter last year and higher compliance costs. There were approximately $6 million of expenses related to the cost-savings initiatives in the quarter. EBITDA margin was 25.8% compared to 30.0% a year ago.

Reported earnings per share in the quarter was $0.39 compared to $0.45 in the prior year. The C2C operating segment margin was 24.0% compared to 29.4% in the prior-year period, with the decline primarily driven by the same factors as overall Company margins. The consumer-to-business operating margin was 19.2% compared to 25.3% in the prior-year period. The margin benefited from higher revenue compared to the prior year, which was offset by higher bank fees, the pass-through to billers of Durbin-related debit card savings and IT investments.

Business solutions reported an operating loss of $3 million for the quarter compared with a loss of $7 million during the same period last year. The reduction in operating loss was primarily due to revenue growth and lower travel ex integration expense partially offset by increased other operating expenses. The third quarter's $3 million loss included $16 million of depreciation and amortization and $4 million of travel ex integration expense. In the third quarter of last year, depreciation and amortization was $17 million while integration expense was $10 million.

Turning to our cash flow and balance sheet. Year-to-date cash flow from operations was $811 million. Capital expenditures were $59 million in the third quarter. At the end of the quarter, the Company had debt of $4 billion and cash of $1.7 billion. Approximately 50% of the cash was held by United States entities. During the third quarter, we repurchased just over 1 million shares at an average price of $17.89, totaling $20 million. In addition, we paid $69 million in dividends.

As of quarter end, we had 552 million shares outstanding and nearly $60 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, including approximately $400 million of share repurchases. At this time, we believe 2014 share repurchases may be minimal, as we want to maintain a solid investment grade credit ratings. We anticipate near-term limitations on available US cash. Like many US multinational companies, the majority of our cash flow is outside the country. Generally, we expect approximately 75% of our annual cash flow to be outside the US. As you know, dividends, share repurchases and domestic capital expenditures must be funded by US cash. There may be some additional debt capacity under our desired investment grade credit ratings. We are continuing to evaluate alternatives to make international cash available in the US.

Turning back to this year, we are affirming the 2013 full year financial outlook that we provided in July, with the EPS outlook narrowed to the high end of the previous range. We now expect, GAAP EPS in the range of $1.38 to $1.43 compared to $1.33 to $1.43 previously. The EBITDA margin outlook increased from 24.5% to 25.0%. We have also increased the operating cash flow outlook for 2013 to $1 billion to reflect the timing of certain tax payments to the IRS. The previous outlook was approximately $900 million, which included $100 million of final tax payments related to the agreement with the IRS announced in December of 2011. These payments are now expected to be paid in 2014 and beyond.

To recap the quarter, we are pleased with the progress we have made this year. Consumer money transaction trends are improving. Electronic channels are growing strong. Business solutions and consumer bill payments are delivering good growth. Laura, we're now ready for the first question.

(Operator Instructions)

Tien-Tsin Huang, JPMorgan.

Great. Thanks for all the details. I guess, I want to ask just on the compliance side, maybe the business impacts from some of these compliance procedures? I get the extra spend that you alluded to here. But I know that influenced some of the agent loss in Mexico, perhaps last time. Can you comment on that broadly?

Sure. If you look at -- it has a beauty doing business in 200 countries. But it has also it's price. The environment is changing very fast, very evolving. We upgrade some of the point-of-sale actions, we do it. We do have a real time -- risk assessment on the point-of-sale. We do have high principals call back, customer callbacks on the point-of-sale. We do also increasingly put in more measurements on the point-of-sale. So that may have some revenue impact and some customer behavior impact.

But generally, what happens is that -- we did that in the past in a few other countries, generally the customer behavior then changes back again. The customer uses us again. I believe that the revenue impact will be somehow, but not that much. I mean more on the investment side for the long-term. I believe you'll have benefit [receding] not on a short-term, maybe there will be some revenue impact but not long-term.

I think it's important to note. Even though there may be some impact to the revenue because of compliance, in 2014, we still expect to grow revenues.

Absolutely.

Understood. Hikmet, I know you are really close to the agents. You're always flying around meeting with them. What has been their feedback with some of these compliance changes as they are going on?

Tien-Tsin, as you know 75% of our network are banks and financial institutions. So they live that day to day. They know, it's how it works. They do implement that, which is good obviously. That is why they choose us because we have high standards on compliance, the banks. It's nothing new in the financial institution area on the compliance changing environment. We are not a long year, right?

The index, totally out investing a lot. Millions of billions of dollars. Our agents do that. So I think it's not something new to them. However, some independent agents could be having some new procedures that we have to implement. We have to take them to some compliance trainings. Some non-performing and non-compliant agents we do close them, like we did it a year ago with 7,000 locations in the Southwest border area. However, generally I would say that 75% of our agents are financial institutions, they live with that.

Yes. That's helpful. I totally appreciate the compliance stuff. Last one, I promise. Scott, you said US cash, did you give how much of that was at the end of the quarter?

Yes, there is about 50% of that is US cash and about 50% is international.

Got it. Thank you for the details.

Thanks, Tien-Tsin.

Ashwin Shirvaikar, Citibank.

I guess my question is with regards to the compliance cost. Is this a sort of a compliance cost surge, so to speak, for a year or is this a new normal?

If you look at the compliance costs, Ashwin, this year it is about 2.5% of our revenue. At this time, we are looking at that -- really our compliance end. It's so fast changing the environment, It's -- at this time, we are seeing about 3.5% to 4.5% of our revenue as an investment for 2014. That investment will upgrade our compliance procedures. The part of that is more resources, part of that is technology -- investing on the technology. Obviously, as we speak, my team and I are working very close to find -- the optimized the procedure, Look the best investment, top grade Arrow compliance environment. So you can take next year about 3.5% to 4.5% of our revenue as an investment for 2014. Right, Scott? That's the number.

Yes. We'll continue to look for a way to optimize those costs. But those are generally infrastructure type costs with people and technology and so forth. But over time, we'll look to optimize those costs to afford us to have very strong compliance programs. That's what we're striving for.

Over time also I believe that we will optimize them, Ashwin, because think about our span, our global reach. I think we do have quite good operational efficiency. Don't forget about 35% of our costs are fixed and 65% are variable. I believe that will be more optimized, but we have to do these investments now.

Then is the bulk of this compliance cost still focused in the US? Which countries are the primary focus here?

If you look at, that it is a global investment, it is not only US, right? As I mentioned earlier, we did some investment then new change in requirements in UK spend. We have some changes in Europe -- We work with a third monitor in this off this border area in the US. The US is also part of it. We just expanded on the short-term also our Southwest border agreement because of the passing of the Attorney General, which happened recently. So I think all of this changing environment globally, it is a global [tense] that is happening and very fast-growing. I said before, it is nice to be in 200 countries, it is very good. It helps you as it grows. But it has also it's price to be in 200 countries, in the very changed, fast-growing environment.

Right. My last question with regards to the buyback, which I don't fully understand the comment around minimal buyback. Because you are generating cash. You said 50% of the cash is in the US. So could you put a number on that when you say minimal? What is minimal? Is it a couple of hundred million dollars?

Yes, it is early in the planning process right now. So it is going to be much less than the $400 million that we're targeting for this year. Probably an important point is that 75% of our cash flows -- roughly our $1 billion cash flows are international cash flows. Then we also have a goal to keep our desired investment grade credit rating. So with all those things, it does provide some limitations for 2014 with buyback. But there could be some modest debt capacity there too.

One thing I just want to say also. Scott and I are constantly talking and looking at opportunities, how we optimize our cash flow for the shareholders and we are constantly talking to the Board about that.

Got it. Okay. See you guys next week. Thanks.

Thanks to you, Ashwin.

Darrin Peller, Barclays.

Listen, would you mind starting off with just the recent traction we've been seeing on the pricing? Then obviously flowing through over the next couple of quarters, should we continue to see an acceleration there? I know that the focus right now by investors is obviously on 2014 -- the cost for compliance. But just curious how much of a topline strength we can expect to see given the pricing changes you've already made? Then, what maybe we should be thinking about going forward in terms of additional price actions? If there is even any necessary?

Darrin, hi. I think generally, I'm very pleased with our C2C transaction growth. As I mentioned earlier, it was the strongest quarter we had in the last three years. The team and I are very proud of that. The pricing actions indeed are working on the field. We have -- our Western Union brand of transaction in Mexico just to give you an example are growing by 24%. With Vigo and Orlandi Valuta, together we are seeing in Mexico growing 14%. The transaction growth is on the price corridor totally, Scott?

20%.

20%. So it is really working. The good news is also pricing is not all about that, Darrin, we are growing by 6% in the non-price corridors. As you recall, we did about 25%, 75% of our business growing. So long-term I believe it is not all about price. We are very well-positioned. We have the good brands. The agents are motivated about that. I don't see any big corrections we did like due to some compliance Mexico issues last year. I believe that we are very well-positioned and it's all the package it's not only pricing, what we are offering at the market.

Okay. That's good. So with the growth -- you are seeing a lot of good traction on the price changes. Does that mean that some of the restructuring charges -- put aside -- again, put aside the compliance side, but the restructuring charges, you put into effect this year. We were wondering if you're going to see similar levels next year? Or is that going to lighten up?

Darrin, I would say it is too early to talk about specifics about 2014. We do expect to grow the revenue. We are looking hard at all of our costs to optimize them and so forth. So we are very focused on that. But the cost savings initiatives, winter took this year, we do expect to see those benefits in 2014.

Yes. I think if you, Darrin -- being very frank and open here. If you put the compliance costs investment aside, we would have grown those profit growth, right? I mean, we -- don't forget it is a very profitable Company we have, compared with the competition and everything we have a really good margins. But that investment is needed. We are going to do that. From today's point of view, we are looking for profit -- non-profit growth. But we are really focused to optimize that. We will give you more color when we talk about in February. Right?

Just last question for me, on the electronic channels. The transactions grid is still 68%. So in terms of investment dollars being made there, obviously, that was a big, big effort for you guys and it's obviously showing some big transaction numbers. Should we expect similar growth rate there? As some the pricing initiatives are starting to really kick in, as well as the strategic and marketing initiatives around that. Should that continue? Now 5% I think you said of your revenues in terms of electronic transactions now.

You talk about revenues, Darrin.

Yes. I was saying that the electronic channels now down to about 5%, which obviously is a pretty significant step up.

Right. No, I am very pleased with the electronic channel. One of the big bags we did, as you know, 18 months, 20 months ago. We opened our San Francisco office. WesternUnion.com is growing 68%. Even the US generated transactions are growing over 70%. So US is growing, the European transaction, I am very pleased. The other thing I'm very pleased also are the electronic comp based money transfers. Like, you go to your bank account and you send money electronically, that is growing by 55%. It's 5% of our revenue. As you know at WesternUnion.com, we have a roadmap for 2015, approximately being $500 million revenue. I think the team and I am pleased with that progress. I have to say that is complements to the San Francisco team.

Okay, great. Thanks, guys.

Thanks, Darrin.

Tim Willi, Wells Fargo.

Just a couple of questions. One of them is compliance then one on the 2014. So as you grow the business-to-business, is there any thing you are doing with compliance right now that is addressing that operation? Is it a very different compliance environment? I just want to make sure that as that grows, that the experience you are having right now with compliance around consumer isn't something that would necessarily be repeated by the business-to-business as that becomes a larger division in the years to come.

I think if you look at, Tim, on our business in general, the Western Union obviously every transaction cross-border and also intra money transfer, we are very compliant with the regulators. It's very changing and fast changing part. Business-to-business is a part of our business which are also on the compliance umbrella. However, the different business environment has different procedures. At the business-to-business, you open an account, you register on the both sides, so we have different know your customer environment on the business-to-business than on the retail money transfer. On the comp money transfer, like electronic money transfers on WesternUnion.com or account based money transfer, we have different procedures like we have on the retail money transfer business. It's different -- on the [oppression] side there's different procedures. But I would say overall, we are all under one umbrella, under Western Union compliance programs. That is why we all say invest in the compliance programs on the B2B.

Tim, that is part of the increase for 2014 so business solutions is listed in that. As we mentioned last time, business solutions is part of the southwest border agreement now as well.

It is not an extra investment there, needed.

Okay. Then, just two other real quick ones. Scott, regarding the comments about operating profit for 2014, I just wanted to make sure I understand the semantics of that, GAAP basis to GAAP basis. 2013 GAAP to 2014 GAAP, basically you're looking for flat.

Yes, the comment, it is a GAAP basis in our comments whereas that we don't expect operating profit to grow in 2014. Again, it is preliminary. We are working though the budgeting process. But with the increased compliance costs and some the impact that may have on the revenue, we don't see operating profits growing in 2014.

Okay. Then my last one and I will hop off. Just going back to WesternUnion.com, I know you guys have been working to enhance I think the ACH funding capability versus currently I think you're allowed a credit and debit card. Just curious if you give us an update where you are at around those efforts? What that might mean in terms of the profitability enhancements for our WesternUnion.com as a standalone.

As you know, at the WesternUnion.com we are in 23 countries now. I think we are expanding. I'm very -- we will expand in more countries even within the next few months. So I am very optimistic. It depends on the ACH, which country you are and where you are. In the US, we do have today on the credit cards and on ACH. Also we do ACH. For instance in India we do have ACH. It drops three or four days later on the account of the Indian accounts. We do have direct debit in Germany. We have direct debit in Austria. We have direct debit in France. We do have this -- the direct debit is a kind of an ACH. We have it in Europe, we use software and EPS payment in Europe. So it depends really on the customer choice. I see that the customers are using credit cards or a direct to bank, that is really their choice.

Okay. Thanks very much.

Thanks.

Sara Gubins, Merrill Lynch.

This is David Chu for Sara Gubins. Just wondering -- you noted that you closed non-compliance agents. The agent base was down 5,000 sequentially. Was that to account for this? Was there compliance issues at these agents?

I would say generally, I am very pleased with our agents, new acquisitions and expansion. Don't forget, we just signed Walgreens, La Banque Postale, at additional 3,000 locations in France. So additional -- we are -- I'm very pleased. We are very focused on the productive locations. The closures is, we do that every year. The closure of the non-productive locations are a part of our business. We do -- we go close the non-productive locations, right? We are very focused on the productive locations. Put we also, parts, some parts of them are not complying with our systems but I would not see that as a majority of our closure. It's more about non-productive locations that you close.

Most of the reductions we did in the quarter were really dormant locations in India and Europe. Some of those may have been related to compliance needs, But they were almost all dormant locations.

Yes, they were dormant.

Okay. That's helpful. Your trends have improved nicely. Competitors have seen a strong trend as well. Is there anything you can point to from a macro or secular perspective that possibly is increasing demand here?

I think I am very pleased on our general overall transaction growth. I'm not sure if everyone is so pleased that I am pleased overall in global if you're in 200 countries. Let me get Mexico, I believe that is the question. On Mexico, we did have better transaction growth than the Banco de Mexico did announced. I am pleased with our Mexico business here. But I would say that generally, there has been some in Europe some better environment global economic environment.

Our business in Europe, Italy has been improving, in southern Europe, Spain I see improvement. I see our Germany and France and UK business has always been good. Supporting our part, Asia has been performing well, it's about right. What else? Also Africa, Middle East are delivering good numbers. Generally there is a more positive environment two or three quarters ago. Now it -- I see a better economic environment. Also agents are telling us that.

I would just add that the team is executing well. So when you look at each of the regions third quarter compared to second quarter had better transaction growth. The things that we have done to improve the consumer value proposition, those transactions grew 20% in the Western Union price corridors. But even the corridors where we're not doing pricing were up 6%. Then we've talked a lot on this call about digital and account based money transfer, but it is all those things that we're putting together to give the consumer choice and convenience. The team is just executing well in the field.

Okay. Thank you.

Bryan Keane, Deutsche Bank.

Just more questions about the compliance cost. Do competitors have these additional compliance costs as well?

Well I can't make comment on the competitors, but we believe that's the industry standard, what we are setting here. We are really following the regulatory requirements. We are looking at our compliance environment. We are investing on that. As a market leader, I assume that will be the industry standard. We are not doing more than the -- I don't think -- that long-term. We will do additional -- we serve the customer, we serve the shareholder. I think that is all about protecting the customer, Bryan. I mean, I believe that setting the industry standards some others will also have the same standards.

Well I assume there's -- you're creating a moat around the business. Because it's going to cost a significant amount of money to transfer money internationally, if you have to put this kind of money into compliance? Or is this just specific to Western Union?

It is not specific to Western Union, Bryan, I think it's the general environment. As you know, we operate in 16,000 corridors. Every corridor, every country has their own dynamics. I believe that, we really look at -- it's about. It was 2.5% of world revenue. Now it's going to be about 3.5% to 4.5%. I'm really looking that we have the right investment, right environment to comply with the rules. I believe it is going to be a competitive advantage long-term for Western Union. We are doing the right thing here.

How much of the 3.5% to 4.5% of the revenue in 2014 is a one-time investment. Because there sounds like there is some one-time investments to upgrade the systems.

It is too early to say, Scott, right? As we speak -- the environment's changing so fast, Bryan, as we speak, those numbers, we are really looking at the numbers. It is too early to tell about that. But I believe a part of it is one-timer, right, Scott?

Bryan, that is what we're digging through right now. Some of that could be one-time. There could be some opportunities though automation. But a fair amount of it too is infrastructure. But as Hikmet mentioned, it's preliminary. We're working through that. But our goal is to really meet the regulatory requirements. We do believe as the market leader, these will and are becoming industry standards that we believe everybody's going to have to abide by.

We had calculated about $80 million of op income improvement from less integration and cost savings benefits into fiscal year 2014. Why doesn't that offset these incremental additional costs? Or they do, because then the question is, if you're going to get revenue growth, as you guys always say profit growth -- higher revenue growth will lead to higher profit growth?

Yes. First I'd say, Bryan, is it's early in the process. We are working through our budgeting. We'll give you more color in February. But just to add a few comments there that as we think about revenue, we do expect revenue to grow in 2014. We also believe the compliance initiatives will have some impact on our customers and work revenue from that standpoint. Then we've also talked throughout the year about increased age of commission. So we do believe our agent commissions will continue to increase on a near-term basis. That is improved our competitive position in certain markets for sure.

Longer-term, we see opportunities to optimize our distribution costs. Then clearly we are making some investments in dotcom and IT, especially dotcom, we think it's really the right thing. Because, as Hikmet mentioned earlier on the call, this -- we suspect and we believe will be a $0.5 billion business by 2015. We will give you more color in February as we move forward.

But Bryan, it is early to tell. We are looking at the -- I think the same calculation, we do also have it. We are looking at that to optimize our costs and investments here.

Yes, it just seems like you have some one-time integration costs plus cost saves benefits, which can offset this -- these additional costs. Then if you do get any revenue growth, it just feels like there should be some profit growth. All right. Thanks very much.

Thanks, Bryan.

James Friedman of SIG.

Also on the compliance costs, I was just wondering, are those compliance costs uniform across the organization? For example, do you notice better compliance aptitude for WU.com than for the physical point-of-sale?

I think the compliance costs are overall the same. With WesternUnion.com, we do have some advantages where you have registered -- if you register the customer, know your customer, the procedure is easier. If I understand your question right, in some retail money transfer, we need additional point-of-sale requirements at that moment, we ask for additional information. I think it's the know your customer and know your agent's requirements from the regulatory is getting more and more. That is why we are investing. But generally, I would say once the customer is registered, know your customer procedure is done. If you know the customer and the regulators are asking us different ways of questions than procedures than we are doing today.

Okay. There were some increased compliance requirements from the CFPB, the Consumer Finance Protection Bureau, announced this morning. Were those a subset of what it is that you're talking about relatively to your plans for next year?

No. I think -- I am not aware about that. I have to look at that, what you're mentioning now. But I would have to say that from CFPB announced remittance rules, our Dodd-Frank rules is more transparency of the consumers that on the forms we have put more information. We disclosed more foreign exchange rates and fees to the consumers. We do that. I have to say that I'm very proud of my team. We did that in 50,000 locations on time. I believe, that the thing -- I don't know if you're talking about that. But I am not aware about new rules announced this morning from CFPB I have to come back to you on that.

Yes, I think that was it, Hikmet. Last one for me and I apologize, I think you had addressed this earlier. It's more of a housekeeping question. But you did have a 5,000 estimate reduction. What was that due to in terms of franchisees sequentially in the quarter?

No. Year over year we do that -- look at our location count. We do have a closure and cleanup. We did close 5,000 locations which were dormant. Right? We are about 500,000 locations. We have about 550,000 locations, 150,000 ATMs. So almost 650,000 touch points. But these are the cleanup, we do it. But I don't see any big changes in our expansion on locations.

Got it. Thank you.

Thank you.

Tom McCrohan, Janney.

Sorry to beat a dead horse on compliance. How much of this is related to the remittance transfer rules? That just came out of Dodd-Frank. That's not part of the CFPB. Is that the majority of what the spending is all about?

Sure. I can tell you. The general spending is mainly in the US and on the upgrading the point-of-sale in the European union with the new rules, we have it in the European union which has -- it's part of it is also being announced earlier, which we are going to implement in 2014. Right? So I think is that the rules -- or if you are acting in 200 countries, you do have -- I speak to the regulators in Russia, I speak to the regulators in Morocco. I speak to the regulators in Brazil or in the US. So it is generally all over an upgrade of regulatory environments. There is fast changing regulatory environment actually and many regulators. We have to implement that.

Yes. The US remittance money transfer rules, they've been implemented. So we had a deadline of actually Monday of this week. So that's in place now. So in terms of the increment in costs next year, not a lot is necessarily coming from that. But as Hikmet said, it is really coming from a lot of different things we're doing around know your customer, know your agent around the world and in Europe and the US, part of the southwest border, Asia as well.

So there's not one particularly regulator that is driving you?

No. It's a variety of things.

-- a whole bunch of them.

It is the European, it's the US, it's the Latin American -- that's the -- as I said, there is a beauty to be in 200 countries, but there is also some investment to your price to do business in 200 countries. That is a part of it.

(inaudible) It's getting more difficult to compete in this business unless you have a real long-term commitment, that is good for you. But there is no profit growth next year. I guess people just want to know what the long-term earnings power is? When you come out of this, at the other end, what should people be thinking about in terms of long-term sustainable transaction growth and market share gains? If you could talk about that, that would be helpful.

Sure. First of all, I'm going to give more color in February about 2014. But the good news is we have our momentum, right? We have a momentum, the transaction growths are good. The revenue growth is coming. I think, I feel comfortable despite all of these investments and despite all this changing environment, we do generate revenue growth next year. Obviously also transaction growth. So, I believe that we have the right fundamentals. The other thing is that electronic channels are going very fast.

I think our retail money transfer business is doing well. I think the compliance thing is here, it is a part of doing business but it doesn't apply on us, it applies on others. The other thing also if you look at Mexico for instance. Our Mexico business is doing well. The part of it is that we capturing market share from some banks who are not doing this business anymore. We are capturing it. I think we have room to grow this business in an environment, which is complex. I see compliance as a competitive advantage and a competency for us to capture market share from financial institutions. They can't invest, they don't want to do this business anymore.

My last question, this is just -- it just doesn't feels intuitive that -- when it feels intuitive is that the (inaudible) going up and it's costing a lot more to be in this game to transfer money around. But it seems like every week, we've either got a new company that offering a P2P service, [square] just came out with that service as well. So how are you thinking about the threats from these emerging players. How are they -- just how are you thinking about these emerging players that just keep showing up in the press? I think all of us are getting questions on?

The last three years since I've been a CEO that was more press releases than real revenue generating. I would say there are always press releases but -- in the cross-border these are competency. I have not seen a big movement on that. This is a complex business. You have to build it. You have to invest in the regulatory environment. You have to build the customer trust. You have cross the currency. You have to settle in 123 currencies. You have to get this risk management with agents. You have to buy over 500,000 locations. It's a complex business, I did not see any movements from competition there. The announcements I have seen so far was more on the intra money transfer business. It was more of press releases than that real revenue generating activities.

I think you also see a lot of dollar limitations on some of these products as well. So, they are small dollars transfers in many cases. They put limitations around their own business.

Fair enough. Thank you guys.

Thank you.

David Togut, Evercore Partners.

This is Rayna Kumar for David Togut. Looking at your C2C revenue growth and transaction growth for the quarter. That implies pricing was down 10%. That was a larger cut than we were expecting for the third quarter, given that most of your pricing cuts had been taken by the second quarter. So can you just discuss your pricing actions for the third quarter? Then give us a preliminary view your 2014 pricing strategy?

Yes, for the third quarter, that was the first quarter that all of our pricing actions were put in place, if you will, for full quarter impact for that. What we did see was 10% transaction growth on the brand. Now mix had about a 2% impact as we move forward. As we think longer-term about pricing is that in 2013, we did some significant pricing investments in certain corridors. Some of these were one-time resets. We don't expect to see that in 2014 as we move forward.

I think it is also important to note, if you look at the third quarter, our cross-border principal for the Western Union brand grew 9%. So that is a nice growth rate. Again, you can't look at it on a quarter by quarter basis, but when you look at [i80] or the World Bank, they are projecting growth rate of 6% on a full year basis. But it speaks to -- that we are in a healthy industry. We're doing the right things to get ourselves very well-positioned in a healthy industry.

Thank you.

Thank you.

Laura, I think we have time for one more question.

Jason Kupferberg, Jefferies.

I think you disclosed you had $4 million in travel ex integration expenses in the quarter. But I might have missed how much restructuring on terms of the cost savings restructuring that you booked in the quarter. I wanted to see if the full-year totals of $20 million on the travel ex side and $45 million on the cost takeout side are still valid?

Yes, in simple terms, that we are projecting, we will be at about $20 million of travel ex integration. Then on the other cost savings initiative, for the quarter that was about $6 million. We think for the full year we'll be somewhere between spending $40 million to $45 million, which is broadly consistent with what we talked about in prior quarters, Jason.

Okay. So that is a pretty big step up in Q4, right?

Yes.

Okay. Then I guess if operating profit isn't going to increase next year, there is no reason to assume EPS will either? I suppose just, given that you indicated buybacks will be relatively minimal next year. Is there anything else in there that we'd be missing?

Yes. The only color I would give you is, it is early. Broadly, EPS will probably broadly track with not having -- likely, we don't expect to have operating profit growth. So the operating profit will probably move in tandem with EPS or EPS in tandem with operating profit, just from a big picture standpoint. But it is early.

Then, just lastly to finish the discussion on compliance. It sounds like what you guys are saying if you roll up all this commentary is that it is essentially going to cost you more than you previously thought to comply with regulations that you already knew about. Is that a fair way to summarize it, as opposed to new regulations having just popped up in the last couple of months since the last earnings call that you're all of a sudden reacting to? Is that fair?

Well, I would say that there is no question that this has been always in our target. We've recently hired the Chief Compliance Officer. He brought a very experienced team. We look at our programs and some parts of that are coming new. It's sudden changes. Some parts of that we have to implement the rules that we had in place.

So I think it is a mixture of all. That requires an initial investment about of 1% that we needed in 2013. So, it is still too early. We are looking at it, we are optimizing it and it is that we have to do it. It has been, we were thinking about 2.5%, 3.5%, now it's about looking at the programs and fast changing things, it's about 3.5% to 4.5% investment we are thinking about. It is something that we are looking at very carefully.

Yes. I'd just say, Jason, a lot of these things are not necessarily black and white or have not been historically. So, when we work with regulators around the world and around the states and you get clarifications on what needed and make agreement on what programs you'll do. These things are kind of fluid. Some these things are interpretations of older rules. Some of these are new things, some of these are just clarifications of the regulators, some of them are our own reviews. There's a lot of different things going in here.

Okay. Make sense. Thanks for the commentary.

Thank you. Thanks everyone for joining us. Have a good afternoon. Thank you. Goodbye.

The conference is now concluded.