西聯匯款 (WU) 2013 Q4 法說會逐字稿

Good afternoon, and welcome to the Western Union fourth quarter 2013 earnings conference call. All participants will be in listen only mode.

(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, Lauren, and good afternoon, everyone. On today's call, Hikmet Ersek, Western Union's President and Chief Executive Officer and Raj Agrawal, Executive Vice President and Interim Chief Financial Officer will discuss the Company's fourth quarter results and 2014 outlook and then we will take your questions.

The slides that accompany this call and webcast can be found on westernunion.com under the Investor Relations tab and will remain available after the call. Additional operational statistics have been provided in supplemental tables with our press release.

Today's call is being recorded, and our comments include forward-looking statements. Please refer to the cautionary language in the earnings release and in Western Union's filings with the Securities and Exchange Commission, including the 2012 Form 10K for additional information concerning factors that could cause actual results to differ materially from the forward-looking statements.

During the call, we will discuss some items that do not conform to generally accepted accounting principals. We have reconciled those items to the most comparable GAAP measures on our website, westernunion.com under the Investor Relations section. All statements made by Western Union officers on this call are the property of the Western Union Company and subject to copyright protection. Other than the replay noted in our press release, Western Union has not authorized and disclaims responsibility for any recording, replay, or distribution of any transcription of this call.

I would now like to turn the call over to Hikmet Ersek.

Thank you, Mike, and good afternoon, everyone. Overall, our 2013 results were consistent with our expectations entering the year, and we made good progress executing the key strategic initiatives we began in late 2012. As you recall, our plan included making pricing and other strategic investments and undertaking cost initiatives to better position our business for the future.

We also continued increasing our compliance investment, including hiring a new chief compliance officer and other senior compliance leaders last year to better navigate the evolving and complex global environment.

From a financial perspective, we were able to deliver earnings per share of $1.43 which was at the higher end of our outlook range entering the year. Our key strategies in 2013 were focus on strengthening our consumer money transfer business and our business-to-business foundation while at the same time continuing to generate and deploy strong cash flow for our shareholders. We believe we made good progress in each of these areas.

In consumer money transfer, the pricing investments delivered the transaction growth we expected and we further advanced our capabilities in electronic channels. The pricing and other strategic actions were initiated in consumer money transfer were intended to increase consumer usage driven by better value propositions and more choice of channel options. Our transaction growth trends at the end of 2013 represented strong improvements from the beginning of the year, and this gives us good momentum heading into 2014.

In the fourth quarter, consumer money transfer transactions grew 9%. Transactions increased 20% in the quarter in quarters where pricing had been implemented, or 15% excluding westernunion.com. The turn around in Mexico continued, as we benefited from pricing investment, bigger growth and capturing more of the business previously moving through banks. Mexico delivered 20% transaction growth in the quarter, far outperforming the market data as reported by Banco de Mexico.

Electronic channels revenue, which includes westernunion.com, account-based money transfer and mobile, increased 32% in the quarter. The westernunion.com C2C revenue growth rate accelerated to 34% on 64% transaction growth while the revenue from account-based money transfer through banks increased 33% on transaction growth of 63%.

During the year, we introduced improved platforms and more direct to bank capabilities for westernunion.com. We now have Western Union branded transaction sites in 24 countries from which consumers can send to 200 countries and territories around the world.

In business solutions, we achieved 8% revenue growth in the fourth quarter, or 12% constant currency. For the full year, revenue increased 7%, or 9% in constant exchange rates, with sequential improvement during the year. We feel we are exiting the year with good momentum in business solutions and a strong sales oriented team on the ground to drive growth going forward.

Our third key focus area in 2013 was to generate and deploy strong cash flow. Despite being an investment year, we generated over $1 billion of cash flow from operations and returned over $670 million to shareholders through the combination of dividends and share repurchases.

Now, turning to 2014. We plan to continue to focus on the same key strategic areas, strengthening consumer money transfer with an emphasis on digital, driving accelerated growth in business solutions, and generating and deploying strong cash flow for our shareholders. In consumer money transfer, we want to drive profitable growth through expanding electronic based channels, optimizing the performance of our distribution network and strengthening customer relationships while also continuing to enhance compliance capabilities.

We expect westernunion.com C2C revenue growth to accelerate from last year's 24% rate as we enhance our capabilities around products pay in and pay out choices and risk management to bring new customers and increased conversion rates.

We will also look to open new markets as well as add more online banking relationships for account-based money transfer. We continue to see primarily new customers online with over 80% of new westernunion.com customer having not used our brand in the previous 12 months. Our distribution network, digital offerings, global brands and compliance infrastructure position us well to connect the cash and digital roles of our consumers, and we will continue to leverage our capabilities in the fast growing digital segment of the money transfer markets.

We have an industry leading network with over 500,000 agent locations and over 100,000 ATMs that offer our money transfer services. We plan to add new retail locations and more account-based options in 2014 as there remains wide space opportunities, especially on the receive side, and attractive plans of trade around the world.

We are, however, also very focused on network productivity. We want to insure our network is well aligned with changes in consumer movements and preferences. Also, as increased compliance requirements raise the cost of maintaining and monitoring locations, we want to add locations more selectively and prune dormant and non-profitable ones where appropriate.

In business solutions, we have worked through the challenges associated with the Travelex integration, and now we have the right foundation in place to accelerate growth moving forward. We are focused on sales effectiveness and new product development with an emphasis on increasing penetration in existing large markets.

We will continue to differentiate ourselves by tailoring product solutions for specific customer markets and channels, including strong offerings for universities, financial institutions, and non-profit organizations. We expect business solutions revenue to increase in the low double-digits in 2014, and we continue to deliver great long-term growth opportunity driven by global trade and increased penetration.

We also plan to continue to generate and deploy strong cash flow for our shareholders. While also seeking to maintain our investment grade credit rating. I'm very pleased that we have a new $500 million share repurchase authorization, and we expect to have a strong return of funds to shareholders once again in 2014 through both our dividend, which is currently at $0.50 per share annually, and stock buyback.

Our financial outlook for 2014 is in line with what we communicated in October. We expect low mid single-digit constant revenue growth. Profits will be impacted by increases in compliance spending and changes procedures as we discussed last year. Our compliance and project management teams have been working diligently over the last few months to prioritize requirements, analyze technology solutions, assess execution plans and redefine budgets. After our assessment, we believe compliance costs will total approximately 3.5% to 4% of revenue in 2014.

We are taking other steps to optimize our overall cost structure. Therefore, we had additional expenses related to these initiatives in the fourth quarter of 2013. In 2013, our business trends improved throughout the year as we continued our journey to restore growth momentum. As we look forward, for the next few years, we believe we are in a strong position. Cross-border money transfer and business payments filled by global trade are growing markets, and Western Union has great assets to help drive good profitable growth over the long run.

With our omnichannel strategy, we are very well positioned to respond to the different needs of our global customers in 200 countries and territories. In 2014, we will remain focused on consumer money transfer with an emphasis on digital development and business-to-business cross-border payments while still targeting strong annual cash flow generation and deployment.

Before turning the call over to Raj Agrawal, our interim CFO, to give more detail on the fourth quarter results and 2014 outlook, I would like to take a moment and thank our outgoing CFO, Scott Scheirman. Scott has been a tremendous asset for me and the Company for many years and has left a strong financial foundation in place for us to build from. I know many of you, like me, appreciate Scott's leadership and integrity, we want to wish him all the best.

Raj Agrawal stepped into the interim CFO role on January 1 after serving most recently as president of Western Union business solutions based in London. Raj has a strong financial and business background. He originally joined Western Union in 2006 as a Treasurer and has helped a variety of other financial roles with the Company, including being my financial partner when I ran the Europe, Middle East, Africa and Asia regions. So Raj, welcome, and I give that call to you now.

Thank you, Hikmet, and I'm pleased to join you today. As I review the 2013 financial results, I will primarily focus on the fourth quarter. Similar information for the full year can be found in our press release and the attached financial schedules.

Fourth quarter consolidated revenue of $1.4 billion was flat compared to the prior year period. On a constant currency basis, revenue increased 1% in the quarter. Electronic channels and business solutions each delivered strong growth, but these increases were largely offset by the impact of the previously implemented pricing investments in C2C.

In the consumer to consumer segment, revenue declined 1% and was flat on a constant currency basis. Our pricing actions are yielding strong results. As total transactions grew 9% in the quarter, transactions increased 20% in the quarters where we implemented pricing actions, or 15% excluding westernunion.com.

In the non-price corridors, total transactions increased 5%. C2C cross-border principal increased 8% in the quarter with no impact in currency while principal per transaction declined 2%. The spread between the C2C transaction growth and the revenue decline in the quarter was 10 percentage points including a negative 1% impact from currency. For C2C, the impact of net price decreases was approximately 6% in the quarter while mix had a negative impact of approximately 3%.

Turning to the regions, all the regions delivered good transaction growth rates in the fourth quarter. In the Europe and CIS region, revenue decreased 2% year-over-year including a positive 1% impact from currency. Transactions in the region increased 7%, driven by continued growth in key markets such as Germany, Italy, France and the UK.

North America revenue declined 2% in the quarter while transactions increased 6%. As Hikmet mentioned, we delivered strong growth in Mexico where we continued to grow faster than the market. Our Mexico transactions increased 20% compared to 15% in the third quarter while Mexico revenue was flat in the quarter. In the US, domestic money transfer revenue was flat on transaction growth of 5% as growth in lower principal bands was offset by declines in higher principal transactions.

Revenue in the Middle East/Africa region was flat compared with the year ago quarter with no impact from currency, while transactions grew 8%. Asia Pacific region revenue declined 2% including a negative 2% impact from currency translation. Transaction growth in the region improved to 11%, driven by strong growth in the Philippines and India.

The Latin America and Caribbean region revenue was down 4% from the prior year period including a negative 8% impact from currency while transactions increased 6%. In our digital business, westernunion.com continued to report strong results in the quarter with money transfer transaction growth of 64% and a revenue increase of 34% in the quarter. US originated online transactions increased 61%. Total electronic channels revenue, which includes westernunion.com, account-based money transfer through banks and mobile increased 32% in the quarter and represented 5% of total Company revenue.

Revenues from account-based money transfer banks through banks increased 33%, and we now have over 75 banks active with account-based service. In the consumer to business segment, revenue declined 2% in the quarter, but increased 5% in constant currency terms.

The US electronic and the South America business continued to grow, partially offset by declines in the US cash walk-in business. Business solutions revenue accelerated 12% on a constant currency basis, or 8% reported. Strong performance in Canada and the UK and increased revenue from customer hedging activities contributed to the growth.

Turning to consolidated margins, the fourth quarter GAAP operating margin was 16.8% compared to 20.1% in the prior year period. The margin decline was primarily the result of the impact of pricing and other strategic investments, higher compliance expense, and lower compensation expense in the prior year period, partially offset by lower marketing expense.

In the fourth quarter, we incurred some addition cost savings expenses to drive future efficiencies. These initiatives included streamlining of our regional structures and integration of many of our new product initiatives into existing business units, as well as further optimization of our shared services support groups. Overall, for 2013, we incurred $57 million of expense on cost savings initiatives including $33 million in the fourth quarter. We expect these initiatives to drive an incremental $45 million of cost savings in 2014.

EBITDA margin was 21.3% in the quarter compared to 24.4% a year ago. Our fourth quarter tax rate of 10.1% benefited from non-recurring items, and we would expect a 15% level from the first nine months of the year to be more indicative of our ongoing rate.

Reported earnings per share in the quarter was $0.31 compared to $0.40 in the prior year period. The C2C operating segment margin was 20.5% compared to 25% 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 15.6% compared to 17% in the prior year period. The margin decline was primarily due to higher IT expense, bank fees driven by mix and the pass-through to billers of Durbin related debit card savings which were partially offset by costs in the prior year quarter related to the renegotiation of a third party distribution agreement.

Business solutions reported an operating loss of $11 million for the quarter compared with a loss of $18 million for the same period last year. The reduction in operating loss was driven by lower Travelex integration expenses and strong revenue growth, with partial offsets from expenses related to cost savings initiatives. The fourth quarter's $11 million loss includes $13 million of depreciation and amortization and $5 million of Travelex integration expense. In the fourth quarter of last year, depreciation and amortization was $18 million while integration expense was $12 million.

Turning to our cash flow and balance sheet, we generated cash flow from operations of $1.1 billion for the full year. Capital expenditures were $75 million in the fourth quarter. For the full year, capital spending was approximately 4% of revenues, which was in line with our outlook.

At the end of the year, the Company had debt of $4.2 billion and cash of $2.1 billion. Approximately 50% of the cash was held by United States entities. As a reminder, we have $500 million of maturing debt that we plan to pay off when due later this month. During the fourth quarter, we issued $250 million of 5.5 year notes at a coupon of 3.4%. In the quarter, we repurchased 3.5 million shares of our stock at an average price of $16.79, totaling $59 million. In addition, we paid $69 million in dividends. At year-end, we had 549 million shares outstanding.

Now, before discussing the 2014 outlook, I want to give you a brief update on our southwest border agreement with the State of Arizona regarding our anti-money laundering compliance programs. Last week we filed an 8-K announcing an extension of the agreement through the end of 2017. We've been negotiating with the State for this extension, which gives us additional time to implement the many recommendations from the monitor and defines remedies for non-compliance.

We believe we will be able to complete these requirements prior to the end of the extended term and are pleased to have a defined process and final timeline now agreed. The extension is not a driver of the increase in compliance costs in 2014 as we have already been spending on the southwest border projects the last several years, and we accrued many of the expenses related to the extension in 2013.

Turning to our outlook for 2014, our expectations are largely consistent with what we disclosed last October. Overall, we expect low to mid single-digit constant currency revenue growth driven by digital, business solutions and consumer bill payments, with some offsets in C2C from the effective compliance procedure changes in various markets. GAAP revenue is expected to be in the range of flat to low single-digit growth as we anticipate negative currency impacts from the emerging market devaluations.

Most of the emerging market economies are receive markets for Western Union, so there's not a significant currency exposure. However, markets like Argentina and Venezuela are primarily outbound end markets, so we are anticipating impact from devaluations. We have both consumer money transfer and bill payment businesses in Argentina, which together represent around 4% of our Company revenues. The currency has already devalued, and economists are projecting further declines throughout the year, which is factored into our outlook. We expect the Company's operating margins to be between 19% and 20%, which comprises -- which compares to 20% in 2013.

Profit margins should benefit in 2014 from lower integration and cost initiative expenses and higher related savings; however, we anticipate these benefits will largely be offset by higher compliance costs, higher commission rates in retail C2C and further investments in digital and business solutions. We expect compliance related expenses to total approximately 3.5% to 4% of revenue in 2014.

The compliance expense forecast is projected to be composed of approximately 50% people costs, with the remainder primarily split between technology and outside services. We anticipate our compliance related personnel to increase to approximately 2,000 people by early 2015.

Although it is still very early to project precise longer term compliance costs and the environment can always change, our objective is for compliance as a percent of revenue in 2015 to be in a similar range to 2014. The expected increase in retail C2C commission rates in 2014 is being driven primarily by the renewals of key strategic agents, as well as some new signings. We are still targeting lower distribution costs longer term through both bringing on new agents and increasing the westernunion.com and account receipt portions of our business.

We expect our tax rate in 2014 to be around 15%. Putting all this together, we project earnings per share for 2014 to be in the range of $1.40 to $1.50. The outlook for 2014 cash flow from operating activities is approximately $900 million, or $1 billion excluding anticipated final tax payments related to our agreement with the Internal Revenue Service from 2011. The final $100 million of payments related to this agreement was previously projected to be paid last year, but we now expect this to occur during late 2014 or in 2015.

The new $500 million repurchase authorization is in effect through mid 2015. We have identified working capital programs which we believe will give us access to additional available cash this year, and we look to execute a majority of the authorization in 2014, depending on market conditions and other factors.

So, to summarize, although growth rates and profits are projected to be tempered by compliance changes and some negative currency movement, we do expect to return to solid constant currency revenue growth in 2014. Cash flow should remain healthy, and we plan to continue with strong returns of funds to shareholders through dividends and buybacks. So, that is our current outlook for 2014, and operator, we are now ready for the first question.

(Operator Instructions)

Our first question today comes from Bryan Keane of Deutsche Bank.

Thanks. I wanted to ask about the new compliance procedures. What's been the impact so far in the fourth quarter? Did you see an impact on transaction growth?

And then secondly, in the guidance, it sounds like you're expecting some type of impact on transaction growth. Just trying to figure out if that's 2 points, 4 points, or how much of transaction growth are you expecting to be impacted by the increase in compliance costs?

Hi, Bryan.

We do see some impact on the compliance, especially in the higher banks, Bryan. It does impact our revenues.

And we did a forecast also for 2014, some impact here. And in that impact, we believe it's mainly the higher banks and also the transactions will be -- the transaction number will be okay, I believe, but the revenue number will have some impact on the higher bank.

And in our outlook, we did put that in and calculate it in our procedures.

Bryan, let me just add to what Hikmet said.

We do expect to see some negative impact on our revenue in 2014 from compliance procedures. And those are primarily impacts to our high-principal transactions, high-frequency centers and receivers, and sometimes high-risk quarters that we factored in into our outlook of a 1- to-2-point negative impact in revenue for the year.

Okay, now that's helpful. And then I might have missed it, but what are you guys expecting for pricing in 2014?

Well, it's again, this is also in our outlook.

Generally we don't assume that we're going to have a pricing, but we did at the end of 2012 and beginning of 2013. So, we believe that we are going to have -- we don't see big competitive reaction on our pricing.

Our price corridors are working very well. And I believe that we have good momentum, and gaining in main corridors some main-markets market share again.

Yes, Bryan, we're trying to get away from giving pricing guidance so we can react however we need to as we go through the year and really try to drive revenue growth. But the pricing assumption is certainly a lot lower than what we did last year.

Okay, so the pricing impact will be less and probably more to the typical range of where we were previously?

We still have to anniversary the first half of the year, the pricings that we did last year; so you'll see that in the numbers. But the pricing actions will be much lower than last year.

Okay, and then just last question for me. We've been hearing some banks have been getting out of the remittance business due to some of these higher compliance costs.

Just curious if you've seen any impact from that or if you've heard of that so far?

Yes, Bryan, we do see it. Some of the banks even are calling us and, given the compliance environment, want to partner with us.

One of the things we definitely see is that a part of our growth in the Mexico corridor is that some banks are getting out of this business. And obviously, enhancing our compliance activities does help getting this revenue for us because we do invest in the compliance and that helps.

But generally, don't forget that 75% of our network is international banks and financial institutions; and we do have a good relationship with them.

Okay, super, thanks guys.

Thanks, Bryan.

The next question will come from Tien-Tsin Huang of JPMorgan.

Hi, thanks. A lot of good detail here.

Just on the margin side, I just wanted to clarify. It sounds like the compliance expenses, you're trimming the investment by 50 BPS on the high end. Is that right?

And then also the $45 million in savings that you're talking about from some of the restructuring, how much of that is incremental savings versus 2013? Just trying to clear those two things up on margins first.

This is Raj.

Hi, Raj.

You're right. The compliance spend is 3.5% to 4%, so that is our expectation for the year. And then the $45 million of savings is incremental to what we achieved in 2013. So that's an incremental savings in 2014.

Yes, Tien-Tsin, you'll recall last year we were expecting an incremental $15 million of savings in 2014.

We took some additional actions in the fourth quarter and that impacted our fourth quarter margin. But we're driving additional savings on top of that $15 million, so the $45 million is incremental.

All right, great, so $45 million is purely incremental, so that's great. And then just, I guess glad to hear the step-up in the buyback through working capital.

Should we assume that you could also take on some additional debt to hit that $500 million bogey? Are there some other options that you might want to consider as well, or is it all coming from the working capital?

Tien-Tsin, it will primarily be coming from the working capital initiative.

That's really managing our intercompany payment flows more effectively and more efficiently. And I expect that we'll have more opportunities longer term in that area as well.

Certainly, as the business grows, it will create more debt capacity as well. And we have obviously a lot of different funding needs in the business, not just share repurchase. So, we'll look at all different options and use the best vehicle available to us.

All right, great, glad to hear it.

Last one, I promise. Just the growth in C2C transactions where you did not adjust price. Did I hear correctly, 5%? I think it was 6% in the prior quarter. Just trying to gauge how that came in versus your internal plan. Thank you.

It was 5%, yes, Tien-Tsin.

Okay, 5%. How did that compare versus plan, Hikmet?

I think we are very -- we have a good momentum. I feel comfortable with the transactions growth and especially, also, even the non-price corridors we are very well positioned.

As you know, this business, Tien-Tsin, is quarter by quarter. And we do see good growth quarter by quarter and in the major markets, so I'm -- that's why the growth rates.

Yes, Tien-Tsin, the growth was also 5% last quarter. And it accelerated throughout the course of the year. So we're happy with where that's at.

Perfect, that's great. Thanks so much.

The next question is from George Mihalos from Credit Suisse.

Hi, guys. Thanks for taking my question.

Just looking at the compliance cost for 2014, the 3.5% to 4.5%, is any portion of that one-time in nature?

And then I just want to confirm that I heard correctly that you're expecting similar percentage of revenue expense going into 2015. Is that correct?

Yes, you heard it except one part. We said 3.5% to 4%. As you recall, we were giving an assumption. In the last quarter, it was 3.5% to 4.5%.

But the team did a great job and looked at the procedure, looked at the technology, looked at the processes. We have a dedicated team that worked with our chief compliance officer.

And I think it's about -- we project from today's point of view about 3.5% to 4% on compliance expenses of the revenue for 2014 revenue.

And the second part of the question was?

Is there a portion of that that is one-time in nature versus it being in the run rate going forward permanently?

George, this is Raj.

Certainly we expect that we'll finish some activities this year. But we also expect that there will be new things that we need to do as we move forward into 2015 and into more geographies.

We believe that 3.5% to 4% is a good range for this year, and it's also a good range from where we stand today for next year.

Okay, great, thanks.

And then just on the transaction and revenue growth trends, overall nice acceleration across most of the business. Just the Middle East and Africa seem to slow a bit from the prior quarter. Anything to call out there?

Not really, George.

We're starting to anniversary some of the price decreases that we had. So we're starting to see the impact of that, but nothing in particular there.

Okay, and just last question, I don't think I saw the agent count as of the end of the year.

It's more than 500,000. We just -- we gave -- as I said before, we had more than 500,000 agent locations and 100,000 ATMs. I don't think we gave the agent comp.

Not in the quarter.

I think, as Hikmet said during the call, we are going through a process now where we're pruning some of the dormant locations. And there's more compliance costs around having dormant locations now, so we're looking at that.

So there's going to be some ups and downs, but -- so we're reporting more rounded figures, but we were over 500,000 at the end of the year.

Okay, thanks, guys.

Thank you, George.

The next question will come from Kevin McVeigh of Macquarie.

Great, thanks. It looks like, if I have it right, the incremental cost actions cost about $0.04 or $0.05 in Q4. Is that the right way to think about it?

Yes, that's --

Yes, we had about $33 million of non-recurring expenses related to the cost savings initiatives in Q4.

Great, and then just so I'm clear, is it $45 million incremental on top of the $15 million? Or the $15 million becomes $45 million for the cost savings in 2014?

Yes, the $15 million becomes $45 million.

Great, and then just real quick. As you think about the business impact, the compliance costs of 3.5% to 4%, longer term, Hikmet, as you think about more incremental capacity coming to market just as more competitors exit, you're starting to see it in Mexico.

Is that something you expect to accelerate as we work our way through the year?

It's hard to say. But I can generally say that some part on the Mexico, we saw some positive impact to our transactions. But generally, I would not, from today's point of view, I would not build a model on that and saying that our revenue will increase.

My expectation is that the competition will also invest here on the compliance environment. And the people who can't do that, maybe they exit. We will see some in some markets. They can't afford it. Maybe they can't get the revenue here.

But generally I would say that we are very much focused on our compliance activities. We are doing DiSC to Leader. We are focused on that. We are driving it, and we would like to set up, and I believe it's long term. Long term I believe, yes, it's a competitive advantage, Kevin.

Great, and then I apologize, last question. Is the buyback factored into the guidance, or would that be incremental upside as we think about the buyback we announced today?

Yes, Kevin, the buyback is factored into the $1.40 to $1.50 range that we gave.

Great. Thanks so much.

Thank you.

The next question is from Kartik Mehta of Northcoast Research.

Hi, good afternoon.

Hikmet, have you seen some of the regional and smaller companies having to deal with some of the compliance issues that you're dealing with? Or do you anticipate that this will become a little bit more prevalent throughout the industry?

I can't speak, as I said, in the name of the competition. But believe me, the regulatory environment is changing very fast, evolving.

And we are, I believe as an industry leader, we are setting best practices; we are driving it. We have a great compliance officer. He hired very great people.

We do invest. Our CIO, David Thompson, is very focused on the -- the technology -- how we can activate the technology to be more effective on the compliance making.

The most focus is on to know your agent and know your customer. and so there is some diligence activities. And I believe, we gave -- we were anticipating that in Q3, we told you and we looked at that and now we are investing. We signed an agreement with Southwest Border.

I am very pleased. We had to budget that cost for a longer time because we were working with them a longer time.

So, I would say generally, it's a tough environment. But we are the industry leader. I believe that we are on top of the things.

And then, Raj, I think you said anticipate higher commission rates.

Is that just a result of more competition trying to sign agents, or is that a result of maybe some of your other agents becoming more mature, so they're moving to different tiers? What's causing that?

Kartik, we do expect some increase in retail commissions this year; and that's from recent signings and renewals that we did. We have a long history of being very successful in signing agents, and I think we've been quite successful there.

The competitive environment is more difficult in some markets, but in other markets we've been quite successful. So, I don't see that being a long-term trend.

I do believe that we have opportunities to take our commissions down as we add more agents to the mix and as we especially change our business mix over time with the digital business.

Raj, just a reminder, Kartik maybe, sorry I interrupted you.

The top 40 site agents has been 18 years exclusive with us. And I don't see, Kartik, big changes. It happens year over year. But long term, as you recall, Kartik, the commission rates has been going down.

I believe that as we said in 2013, already 2014, will have some impact on the commission rates.

But also, the other thing that will help us is the strong growing electronic channels, dot com. You don't have the send site agent commission here.

I believe also that electronics, we're seeing dot com electronic channels. Long term, we'll have similar margins like the Company margins.

We are investing there now to grow that. We are very pleased with the growth. So I believe that that will help our commission rates also long term.

And then just one last one. Raj, is there any other opportunity to take additional costs out in 2014 to help offset some of the compliance costs that you'll incur in 2015?

Kartik, we're going to keep looking at our cost structure and look for opportunities to take more cost out. It's not something specific that we're going to call out because it will be part of our normal operations; but rest assured that we're continuing to evaluate our cost structure.

Thank you very much.

We have a team that is looking very hard at our cost structure. So, Kartik, we are very focused on that.

Thank you very much.

Thank you.

The next question will come from Darrin Peller of Barclays.

Thanks, guys. I just wanted to add one question in on the compliance cost.

As we look forward into further out years, how do we think about how you're really analyzing the growth of that number? In the sense that you're saying it should be relatively similar on a percentage of revenue basis, and yet revenues growing now. And we should expect it to grow again, I think, in 2015; and so the dollar number keeps getting bigger.

Maybe just give us a little more concrete examples of what's causing that dollar amount to increase. Is it that you have to move from US compliance to International or expecting other areas? Maybe just a little more specific examples I think would be great.

Yes, you're absolutely right, Darrin. We assume that it will be about 3.5% to 4%. But the expansion, international expansion, the global environment is changing.

It's mainly also know your agent and know your customer activities. We have to do more questions on your customers, ask the customer, research the customers, doing diligence on the customers.

But also on the agent side, with the front loan associates, we are doing more diligence, understanding who is serving our customers. They trust us, and they want to trust also from the associates, we do some diligences there.

And I think that's the main investment we are going to continue to happen in the future. Now, to today's point of view, I am pretty much confident that it will be about 3.5% to 4% from today's point of view; and that's what we see.

Darrin, we'll also keep looking for automation opportunities and look for efficiencies as we move through the next few years. But that's our current estimate; and clearly, we want to automate as much of the activity as we can over time.

Okay, that's great. I appreciate that, and then just one follow-up.

With regard to the opportunities for growth in the non-C2C businesses, it seems like those are still trending pretty well relative to what they were a couple years back.

Give us a little more color on any other strategies of change there. Is that just going to keep going, and should we expect this kind of growth going forward?

I just want to congratulate Raj that he did a good job on B2B (laughter).

Thanks for doing it on this call, I appreciate it.

On the B2B, I am very much -- we have a new leadership here, Carey comes from the business, he knows the business.

And this team is very focused on the sales activities. The existing customers are using us more. We see that volume of the existing customers using more.

It's also you could see that transaction improvement quarter by quarter, revenue improvement quarter by quarter. And we also start to expand to the new countries.

The other thing we expanded is the new categories, like universities and NGOs and financial institutions. They started to use us; that has been a strong growth on the B2B.

On the C2B business, especially in the US, we see a strong growth on the electronic channels. Our electronic channel is growing strong. A little bit slowdown on the walk-in where the people walk in on a location, want to pay their bills. They do use more money transfer than using the bills. So, generally I am satisfied.

The integration issues then are almost gone. We had some in the beginning as normal acquisition, and the team worked very hard.

Do you want to add something on the B2B?

Yes, the B2B business is well-positioned. It accelerated growth, as Hikmet said, every quarter of last year.

And we expect low double-digit growth this year throughout the year. It's well-positioned, whether it's taking more products to the existing markets or new vertical opportunities or even expanding its distribution as an online business that is relatively small right now.

But we want to be in a position there in that business to serve customers however they want -- so, low touch or high touch. An that business has good position to be able to do that, so I think it's well-positioned.

If I could just squeeze one last quick one in.

A lot of times we get questions about your domestic business. And I think that's now, what, about 7% or 8% of total revenues?

And I think the question is coming from the fact there's a lot more P2P models coming to market, whether it's square cash or others that you're seeing offering very low price for that. Is that something we need to watch for you guys, or do you think the customer base is just different enough that it's really not a concern?

I think, as you do, I'm watching also with every competition. But I'm satisfied with the domestic money transfer space, especially in the lower band transaction growth rates we see.

The customers do want (technical difficulty). But the higher band has an impact, and that's why also you saw a little bit slowdown on the domestic money transfer.

But where I'm very satisfied on the domestic money transfer and the team is doing a good job is the electronic part. People are using sending fast money from their PCs or from their mobile phones. And one of the strongest growth rates on the westernunion.com is the using of the mobile phones.

I don't know, I think it's growing very fast there. Ot's faster than the normal parts, right, Mike?

Yes. And I would just add, Darrin, that in the US, all of our domestic money transfer is paid out in cash, and about half of it is for emergency purposes.

So, there are different use cases there. But you're right; those kind of new entries is where they most would affect is domestic money transfer. That's something we keep an eye on.

All right, guys, thanks very much.

Thank you.

The next question will come from Andrew Jeffrey of SunTrust.

Hi guys. Thanks for taking the question.

I guess what I have is more of sort of a qualitative, high-level question. And it pertains to a long-term profile of the business because 2013 had its unique challenges. 2014 is a little bit of a transition year vis-a-vis the compliance spending and so forth.

It looks like there are lots of moving parts. On one hand, pricing to drive transaction growth, and that's -- the impact of that on revenue, the higher compliance costs, perhaps somewhat offset by the cost take outs. And as well as rising short-term commissions which you think can follow long-term.

Now, it feels to me like if all of the tailwinds break your way and some of the headwinds dissipate, we could see accelerating growth in 2015? And if it doesn't quite break that way, maybe 2014 is more the template?

I'm just wondering, as you long range plan, how do you handicap all the moving parts? Because if you don't get them all lined up, you can have a year like the 2013/2014 kind of transition.

So, I'm just thinking more strategically internally, how are you balancing the puts and takes in the business?

It's a very good question, actually, I think. So, what we do is that,we do look at the long-term opportunities on the business.

First of all, the good news is that the derivatives market, it's a growing market. The global trade market is a growing market.

And on derivatives market, we are definitely leading. But we have 16%-17% market share. So there's still room to grow, especially on the digital where our emphasis is that we can grow.

There's no company, from a strategic point of view that can -- in a hybrid economic can connect cash with digital; ATM with account; account with a business; business with a consumer in 200 countries.

I believe we are very well-positioned on the response to the global economic changes with our omni-channel ,multi-channel strategy. That's number one. It's a growing economy and that's doing that.

The regulatory environment has been an evolving environment the last two years and especially fast changing. And I believe also that the investments we do today will respond for the future environment, and it will be putting us in the long term in a competitive advantage.

You've been following us, Andrew, for so long. Uou know of our brand, our brand diverseness. It's high; it's very, very high. And the people like us, and they use us. I don't have to talk about that. I do see really quite good growth opportunities.

Lastly, our business model is a fantastic business model. Only 35% of our costs are fixed costs. 65% are variable costs.

And once you grow the revenue, I think that also it will help our profit growth and margin expansion over time.

Okay, that's helpful. You make me feel old, Hikmet, thanks.

One more just to follow on, if I may. You mentioned the macro.

Can you quantify how much in improving global remittance volume growth environment informs your 2014 revenue growth outlook? And I assume that from all indications, 2014 is going to be a better year than 2013, and 2013 was better than 2012.

We believe that the 2014, from global economy, I believe that things have not changed. There are always up and downs in the different parts of the world. ¶

But a world bank saves about 6% to 7% on principal, and the revenue will be a little bit lower, about 3% to 4% in revenue growth over 2014 and next few years, I guess.

Is that right, Mike? Mike is looking at me (laughter).

It's based on price declines and those kinds of things. You would expect revenue to be lower than that in the industry.

A little bit lower than the principal growth because of pricing.

In terms of our outlook for 2014, it basically assumes a similar economic situation in 2014 or 2013, a couple of exceptions.

Southern Europe has been doing better for us in the back half of last year. And then as Raj mentioned, we have accounted for some of the turbulence we are seeing om the currency changes in some of emerging markets, particularly in South America.

Great. Thank you very much.

Thanks, Andrew.

The next question is from Ashwin Shirvaikar of Citi.

Thank you, guys. Hi, Hikmet; and welcome, Raj.

My first question is on CapEx. So, 2013 was what -- 4.4% of revenues? You guys are talking about down the road 2% to 3%. How do you get there in terms of bringing it down to that lower level?

Ashwin, we would not expect to be at the 2% to 3% level. I expect that CapEx will be more in the 5% range for 2014.

And the increase is primarily driven by higher compliance-related activities that we're putting in place, as well as just continued investment in the faster growing areas of our business.

So, I think in any given year we might expect it to be between 4% to 5%; but that would be the expected range.

Oh, got it, okay.

And to what extent -- it wasn't clear to me -- to what extent is the buyback of $500 million dependent on making those working capital changes? What specifically are you doing that -- there?

Ashwin, as you can imagine, we have payment flows all over the world, billions and billions of dollars of payment flows.

So, what we're doing is taking advantage of those payment flows and just utilizing intercompany working capital in a more effective and efficient manner. And that will continue to give us opportunities down the road, I believe. So, that's primarily what we're doing.

That would be a one-time benefit to get that, and then it becomes part of doing business?

Yes, it becomes part of doing business. It's well within what we can do in terms of our payment flows, and so it's a strategy that we've been utilizing.

We plan to continue to utilize, but it's just looking for pockets of opportunity.

As you know, we added Travelex and Custom House and other entities as part of the business. So they have a lot of payment flows between them. And so it just allows us to look for more opportunities in that regard.

That makes sense. And then you'll all of that to do the $500 million buyback -- it wasn't clear -- all of that in the second half?

That will be the primary way of doing the buyback. And it depends on overall cash flows of the business during the course of the year and how the Company performs.

So it will be a combination of things, but primarily through the working capital strategy.

Got it. Last question, if I may.

From a pricing strategy perspective, as I look at your rev side over time and try to figure out what you're charging for people, it seems like over time, you've been shifting perhaps to a lower fee base. It's always zero fee, $1 fee kind of thing, with a greater focus on making money off of FX.

Could you say that that's sort of the direction you're going in more clearly than before? And what kind of difference does that make to your business down the road?

I'll take that one. Absolutely not. It's not the strategy.

I think the fees continue to be the main driver of our revenue, and it will stay as a main driver of our revenue.

It really depends. As you know our business very well, Ashwin, it really depends on the quarter, right?

In a competitive quarter, where the fees are lower, you could definitely also respond to the market environment and to also have on the foreign exchange.

It really depends on the market by market, quarter-to-quarter pricing actions. And I would say that our strategy on the pricing has not changed.

We feel comfortable, and we will continue to evolve our pricing quarter by quarter as business as usual.

Got it. Okay, we can take that offline. Okay, thanks.

Sure, thanks.

Next we have a question from David Togut of Evercore.

Thank you. Hello, Hikmet and Raj.

Hi, David.

Hikmet, when the 2014 Proxy is published in the next few weeks, what will be the primary drivers of management compensation for 2014? And then if you could look out longer term as well.

Well, let's wait until the Proxy has been published. Obviously, I have to talk with the Board and everything.

But overall, I would say that our compensation has been all this performance-based. My CEO compensation was very much in the past always, as you know, very much variable, long-term focus on the shareholder focus.

I don't think that's going to change, but let's wait until the Proxy comes out in a few weeks.

But I guess broadly speaking, what are the primary financial metrics that the Board wants management to be compensated based upon?

Revenue and profit.

And are there broad, long-term targets for that?

Yes, there are. Well, long-term targets -- we do have some targets, yes. We are very much on revenue growth and profit growth focus.

And what are the targets?

We don't give long-term guidance.

David, there are annual targets, and then there are long-term targets as well. The long-term ones we don't make public.

Got it. Okay, thank you very much.

Thank you.

Next we have Tom McCrohan of Janney.

Are there any insights you can give us on adding new customers from the recent pricing actions -- or maybe usage patterns, repeat customers from the investments you made on the pricing side?

Yes, I think most of the pricing actions we did was the main corridors. I could see that we did gain some market share.

In some corridors we were losing market share. Like in Mexico, the customers came back to us. And also in some corridors there are compliance issues as a customer joined us.

,I would say also in some corridors where we are entering new is we had very good response to the new pricing like in digital area. But in the digital especially, 80% of the customers did not use our service the last 12 months. We know that they are registered customers. We checked that every time, and they did not use it. So, it's a good response to the pricing actions.

And the importance of mobile seems critical long term. Is there any product developments soon to be launched in 2014, given mobile on the online side that is worthwhile calling out?

Absolutely, absolutely. We are very focused on the mobile. Mobile more using as on our digital send side.

We do have apps. I can only recommend that you download our app and use our app. It's really good moving, fast moving.

You have to register and then customers are very satisfied. We get also reviews about our apps.

And the apps will be expanded to the different countries and mobile is -- the people use mobile phones more often. They do send money in a spontaneous environment in different use cases.

And then could you disclose, like what percentage of the total C2C transactions are initiated on mobile and online?

We did not disclose that, but I can only say that 5% of our revenue is electronic.

Okay, last question. Just what share count assumption is baked into your 2014 EPS guidance?

We just assumed the buyback, and the majority of the stock will be bought back this year. I think I gave you the ending share count, so you just have to make some assumptions around that in terms of overall share count.

So, 5.9 end of year and then assume the $500 million is exhausted?

The majority of the program would be exhausted this year.

That was the basic share count was a little bit higher.

Okay, thanks.

Thanks, Tom.

Laura, we've got time for one more question.

Certainly, sir, and that question will be from Jason Kupferberg of Jefferies.

Thanks, guys.

Just want to make sure I have the math right on the electronic channels. I know you indicated it was 5% of revenue in 2013, so I think that comes out to about $275 million or so.

Are you still reinforcing the $500 million target for 2015? And if so, just talk about your confidence level in seeing the kind of growth acceleration that you would need to see in 2014 and 2015 to get there because I think you grew it at probably about 25% in 2013.

Yes, I'm getting day by day more confident on the -- to reach our goal approximately $500 million. The reason for that is our revenue growth is accelerating quarter by quarter.

The main reason for that, as you recall, as we disclosed our strategy, the first strategy was acquiring customers. And we are acquiring customers, and we know once you acquire customers they do use more often the digital westernunion.com.

And that plan really started to work out; the people are using it. The other factor where we have this target and we did not change the approximately $500 million target is we are expanding to more countries.

Now we are in 24 countries sending money to 200 countries. So, with that, that's going to continue the expansion of our westernunion.com site, send sites, to countries that you can connect the online with our 500,000 locations or 100,000 ATMs.

Okay, understood.

And any update on Walgreens as far as whether or not the rollout there has started across their 8,000 locations? Anything you can tell us about when that rollout might be done?

Yes, I think our technical teams and operational teams are working together to combine their host with our host.

Okay, any --

We did not launch it yet, but the teams are working hard on that to launch it.

Okay, but you still expect it to be launched, I guess relatively soon? Is that fair?

I don't have an update. Maybe Mike could take the call afterwards.

I don't have an update in front of me, but I assume that's the case. It's one of our major agents; we are very focused on that.

Okay, and then just last question. Obviously seems like Raj is doing a great job so far in the CFO seat, but I know the interim tag is still there. When do you think we'll get an update on the CFO search?

You want me to answer that (laughter)?

Absolutely. Hikmet can cover his ears.

The good thing is that Raj really knows the business. He's the interim CFO, but he's the internal candidate. He is one of our highest talents in the Company.

He has been in different functions, so he knows the business very well. Especially given the complex business -- evolving business, he's doing a great job.

But I also launched the CFO search. I'm looking at all of the options, and we believe that we will announce that soon -- the fixed CFO role.

Okay. Well, we're rooting for you, Raj. Thank you, guys.

Appreciate it. Thank you.

All right, thanks, Jason. Thanks, everyone, for joining us for the call today. We hope to talk to you soon, and have a good evening. Thanks.

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