西聯匯款 (WU) 2014 Q1 法說會逐字稿

Good afternoon and welcome to the Western Union first-quarter 2014 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, Laura. 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 first-quarter 2014 results, and then we will take your questions. The slides for the Company's call webcast can be found at westernunion.com under the Investor Relations tab, and will remain available after the call. Additional operational statistics have been provided in supplemental tables with our press release.

Today's call is being recorded and our comments include forward-looking statements. Please refer to the cautionary language in the earnings release and in Western Union's filings with the Securities and Exchange Commission, including the 2013 Form 10-K, for additional information concerning factors that could cause actual results to differ materially from the forward-looking statements.

During the call we will discuss some items that do not conform to Generally Accepted Accounting Principles. We have reconciled those items to the most comparable GAAP measures on our website, westernunion.com, under the Investor Relations section. All statements made by Western Union officers on 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'd now like to turn the call over to Hikmet Ersek.

Thank you, Mike. And good afternoon, everyone. We are pleased with how we started the year. Our core money transfer business continued to rebound. And key growth areas, such as westernunion.com online money transfer and Western Union Business Solutions delivered strong performance.

We also continued to generate and deploy strong cash flow for our shareholders. Overall, first-quarter revenues increased 2%, or 4% constant currency. These improvement trends reflect benefits from the previously implemented consumer money transfer pricing action, the investments in digital, and the investments in Business Solutions that we put in place over the last couple of years.

Consumer money transfer transactions increased a healthy 9% in the quarter. Both internationally and US generated transactions, including domestic money transfer delivered strong transaction growth.

As I mentioned earlier, we are pleased with the rebound in our retail-initiated consumer money transfer business, which represents approximately 95% of our C2C money transfer revenue. Total C2C revenue increased 3% in the quarter, or 4% constant currency, as the pricing actions and other promotions we undertook beginning in late 2012 are now translating into revenue growth.

Mexico, for example, delivered an 8% increase in revenues, which was the country's first positive quarterly revenue growth in two years. In addition to the pricing actions, Mexico had also benefited from the competitive market changes and strong growth from our Vigo brand.

Westernunion.com money transfer revenue growth accelerated to 45% in the quarter, driven by more consumer acquisitions, stronger retention and increased revenue per customer. Enhancements to our platforms, mobile services, pay-in and pay-out options and risk management in various markets all contributed to the strong results.

Mobile access continues to grow fast. In the first quarter, over 30% of our US westernunion.com transactions were initiated through mobile devices. Our total electronic channels revenue increased 36% in the quarter.

As I have mentioned in the past, we believe digitally-initiated money transfer is the fastest-growing segment of the market. And it is bringing new customer segments to Western Union. We have westernunion.com online money transfer sites in 24 countries, and pay-out capabilities in over 200 countries and territories.

As we combine this foundation with ongoing service additions and enhancements, we have a great opportunity to continue to expand our online business globally. In addition, providing consumer more choice by offering our services through other online and mobile relationships remains a key part of our strategy.

We are pleased with Business Solutions which delivered a third consecutive quarter of low double-digit constant currency revenue growth. Our focus on sales execution, customer retention, and more product and services is leading to good results in the growing B2B market.

I would also like to highlight our strong cash flow generation, which allowed us to again return significant funds to shareholders. In the quarter we returned nearly $250 million through dividends and share repurchases. Consistent with our past practices we seek to balance appropriate investment in the business with returning available funds to shareholders. Our dividend yield is around 3%. And, as we mentioned last quarter, we have a $500 million share repurchase authorization in place, which we currently expect to utilize most of this year.

Based on the good start of the year, we have formed our 2014 financial outlook. As we look to the future our organization is focused on serving our customers. Globally, many people have unmet financial needs for [cost for] the money movement. They may be migrants, small business owners, travelers, NGOs. There are many cases and we strive to provide solution to those needs.

Our vision is to be the recognized global leader in providing innovative solutions, high service levels, and omnichannel integration for cross-border and cross-currency money transfer. Over the past few years we invested in the business and in our foundation. We plan to continue to leverage our global network, compliance, and operational capabilities. And we believe we are well positioned to connect the digital and physical worlds for consumers and businesses alike.

In 2014 we continue to focus on three key areas -- strengthening consumer money transfer with an emphasis on digital expansion, growing Western Union Business Solutions, and generating and deploying strong cash flow for our shareholders. We believe our first-quarter results are tracking with our plan in these areas. And we look forward to continuing to drive the business and report our progress throughout the year.

Now to give you more detail on the first-quarter financial results I would like to turn the call over to Raj.

Thank you, Hikmet. As mentioned, the first-quarter results were in line with our expectations and consistent with our full-year outlook. Total revenue was approximately $1.4 billion, an increase of 2%, or 4% on a constant currency basis compared to the prior year.

Consumer money transfer, Business Solutions and consumer bill payments each delivered positive constant currency revenue growth in the quarter. In the consumer-to-consumer segment, revenue increased 3%, or 4% on a constant currency basis. The 3% growth compares to a 1% decline in reported revenue in the fourth quarter of last year. Revenue trends continued to improve from prior quarters as transaction growth remained strong, and we passed the anniversary of some of the key price actions.

Total transactions increased 9% in the quarter, driven by our previously implemented pricing actions in key corridors and strong growth in westernunion.com and other electronic channels. The World Bank and IT each recently issued updated market estimates for cross-border remittances. Both estimated 2013 cross-border principal growth at 4%, which is consistent with our results last year. And their 2014 projections for the market range from 5% to 7%.

Western Union's C2C cross-border principal increased 8% in the first quarter, or 9% on a constant currency basis. Principal per transaction declined 1% and was flat constant currency.

The spread between the C2C transaction and revenue growth in the quarter was 6 percentage points, including a negative 1% impact from currency. For C2C the impact of net price decreases was approximately 3% in the quarter, while mix had a negative impact of approximately 2%. The price impact primarily relates to actions taken in 2013, and we still anticipate 2014 pricing actions to be modest and back in line with historical standards.

Turning to the regions, in addition to strong transaction trends, each of the regions delivered improved constant currency revenue growth rates relative to last year's fourth quarter. In the Europe and CIS region, revenue increased 1% year over year, including a positive 1% impact from currency, with Germany continuing to deliver strong growth. Transactions in the region increased 10% aided by the pricing actions implemented in 2013.

North America revenue grew 1% in the quarter including a negative 1% impact from currency, and transactions increased 4%. The revenue increase was an improvement from the declines in the region each quarter in 2013. US to Mexico and US southbound both delivered good revenue growth in the quarter. Mexico revenue grew 8% and transactions increased 12%.

Domestic money transfer revenue increased 1% on transaction growth of 5% in the quarter. And we continued to see most of the growth coming from the lower principal band. US domestic money transfer represents approximately 8% of total Company revenue.

In the Middle East and Africa region, revenue increased 4% compared with the year-ago quarter, with a positive 1% impact from currency. And transactions increased 8%. Saudi Arabia and the UAE were key drivers of the region's revenue growth.

Asia Pacific revenue grew 1% including a negative 3% impact from currency translation, and benefited from growth in the Philippines and Japan. Transactions in Asia Pacific increased 8%.

The Latin America and Caribbean region revenue was down 4% from the prior-year period including a negative 9% impact from currency. The currency impact was primarily due to the weakening of the Argentine peso. Transactions increased 6% in the region.

Finally, westernunion.com delivered strong C2C revenue growth of 45% in the quarter, while transactions increased 55%. US-originated online transactions grew 56%. WU.com had strong revenue growth in many key quarters, including US and UK to India, US to the Philippines, US to Mexico, and US domestic money transfer.

In the consumer-to-business segment revenue declined 4% in the quarter but increased 7% on a constant currency basis. The differential between the reported and constant currency rates was primarily due to the devaluation of the Argentine peso.

In the US, growth in the electronic bill pay business was partially offset by a decline from cash walk-in, which is consistent with prior trends. Business Solutions revenue grew 7%, or 10% on a constant currency basis. Strong performance from Australia and Canada and good growth in customers' use of hedging products helped drive the constant currency revenue increase.

Turning to consolidated margins, the first-quarter GAAP operating margin was 20.1% compared to 22.4% in the prior-year period. The margin decline was primarily a result of higher average C2C retail commission rates, increased compliance expenses, and higher funding costs in consumer bill payment. These impacts were partially offset by benefits from cost savings initiatives and lower integration costs.

Average retail commission rates increased, as expected, primarily due to the renewal of some large agents. Compliance expense in the quarter was approximately 3% of revenue. We continue to expect compliance expense to be in the 3.5% to 4% range for the year as we hire people and implement more programs in the complex, evolving global environment.

Funding costs in consumer bill payment increased due to higher interchange costs, which were driven by more credit card usage from our customers and larger principal transactions. The benefits from cost savings initiatives relate primarily to comparisons with costs in the first quarter of last year when we incurred $8 million of expenses related to cost savings initiatives and Travelex Global Business Payments Integration.

We also began to realize some of the related cost savings in this year's first quarter, although we expect most of the incremental $45 million in anticipated savings for the year to be in the remaining three quarters. EBITDA margin was 25.1% in the quarter compared to 27.1% a year ago.

Our tax rate of 10.7% in the first quarter benefited from some discrete items, including the impact of some foreign currency fluctuations. We expect a rate of around 15% for the full year.

Reported earnings per share in the quarter was $0.37, which was the same as the prior-year period. The C2C operating segment margin was 22.9% compared to 25.4% in the prior-year period, with the decline driven primarily by higher average retail commission rates and increased compliance costs, partially offset by benefits from cost savings initiatives.

The consumer-to-business operating margin was 20.2% compared to 24.7% in the prior-year period. The margin decline was primarily due to the higher funding costs related to increased interchange expense.

Business Solutions reported an operating loss of $4 million for the quarter compared with a loss of $6 million for the same period last year. Both quarters included depreciation and amortization of approximately $15 million. The reduction in operating loss was driven mainly by strong revenue growth and lower integration costs, partially offset by timing of certain expenses.

Turning to our cash flow and balance sheet, cash flow from operations was $197 million for the quarter, while capital expenditures were $46 million. At the end of the quarter, the Company had debt of $3.8 billion and cash of $1.7 billion. Approximately 40% of the cash was held by United States entities.

In February, we paid off $500 million of maturing debt which had already been prefunded with issuances last year. We spent $180 million on share repurchases in the quarter, retiring 11 million shares, and paid $68 million in dividends. At quarter end, we had 539 million shares outstanding and $320 million remaining under our share repurchase authorization, which expires in June 2015.

So, we believe the year has started off on track. Our consumer money transfer business revenue trends have improved, wu.com and other electronic channels are strong, and Business Solutions is delivering good growth. We continue to both invest in the business and return funds to shareholders. Based on the first-quarter results and current business trends, we are affirming the full-year financial outlook that we provided in February, including our outlook for earnings per share in a range of $1.40 to $1.50.

Operator, we are now ready to take questions.

(Operator Instructions)

Darrin Peller of Barclays.

Hi guy. Thanks for taking the question. Good execution on the transaction growth, continuing to see momentum for the pricing changes. First of all, can you give us some color -- you may have said this on the call, maybe I missed it -- but the actual growth in transactions where you didn't change pricing in the corridor? What was that this quarter? And maybe a little more context as to the growth trends you're seeing online. I know the numbers look very good, continuing to be in the 50%-plus range. But what would we expect to see once some of the pricing changes there anniversary?

Darrin, this is Raj. Thanks for the question. We didn't break out the price corridors in terms of transaction growth this time, so you didn't miss that. As we've said before, price actions typically will allow transactions to peak within a 12-month period.

So, we've more than anniversaried most of the price actions. That's really part of our normal business. We're not going to break that out any more. But, clearly, those price actions are having a positive impact on our transaction growth.

And with respect to dot-com, we're very pleased with the results there. 55% transaction growth -- that's very much in line with expectations -- and 45% revenue growth which is a significant step up from last quarter. We would expect the transaction growth to moderate somewhat but the revenue growth continues to accelerate there.

All right, that's helpful. With respect to the, go ahead?

Yes, I was just going to add -- online we're always doing a lot of things in terms of promotion and looking at the right price points. But the major pricing actions we did there were in the fourth quarter of 2012, so we've anniversaried those already.

Okay. And just a quick follow-up. On the online business, with respect to margins on the domestic business or the business overall, you've said in the past those margins are in line with corporate average. Does that still hold true? And any other opportunities you see to improve margins in the US, whether it's ACH development or any other non-technological innovations that might help that along? And then, lastly, are you still on track for the $500 million target for the electronic business that you laid out awhile back?

Let me start and maybe, Hikmet, you can jump in afterwards. In terms of margins, again, we're really pleased with the growth in the business. Clearly we're in investment mode.

Right now we're below Company average margins. But we do believe that, as the business scales and grows that top line like it is, that we will be able to get closer to the Company margins on an average basis. As we rollout more funding options, paying in by bank or paying out to the bank account, clearly that will help the margin picture. But that business continues to deliver on our expectations and we're very pleased with the results there overall.

Yes, Darrin, just to add on that, don't forget that we are in 24 countries with our online money transfer, and we are connecting to 200 countries. That gives us a huge portfolio. We are very pleased with our US money transfer, we are very pleased with our transaction growth in the main corridors.

Besides that, that really attracts new customers to our network. We know that, from our data, 80% of our customers are new to westernunion online money transfer customers. And we are pleased with that.

By the way, it doesn't cannibalize our existing business. That question comes up every time. We know that our business, like US to Philippines, US to India, it's not going on the online very strong. It's also retail money transfer where we saw solid growth, good growth there. So, I am generally pleased with the business performance.

Just last one and I'll turn it back to the queue. The pricing changes you put into effect from 2012 onward, those really should start to see more and more inflection, I think as you mentioned earlier also. Which means, from a revenue per transaction standpoint, that should start to get better. With respect to pricing changes going forward, what should we expect? Are we really back to the 1% or 2% or 3% change now per year? Is that something we can use to model?

I feel comfortable with our historical pricing models, Darrin. We always do pricing actions corridor by corridor. We look at that, we always did that.

And, as you know, our business is quite complex. We are in 16,000 corridors. We went bank by bank, we look corridor by corridor. But I'm pleased with our current pricing structure also with our historical direction. I don't see any big changes coming in near term.

Okay, very helpful, guys. Thank you.

Jason Kupferberg of Jefferies.

Hi, thanks. Good afternoon, guys. Just wanted to get your general reaction to Wal-Mart's initiative that was announced a couple of weeks ago. Are you guys expecting any kind of share loss around that, or any competitive response? And do you guys expect that Wal-Mart will ultimately extend that service to include cross-border remittances to its stores in places like Mexico or elsewhere? And if so, is that a potential concern for you or is that something that you have a plan of attack against?

I can't talk about Wal-Mart's plans obviously. It's not our agent. It doesn't impact us so much because we have a very strong US domestic money transfer business. Just putting on the perspective, it's only 8% of our total Company revenues.

Putting things in perspective, we have many agents globally, which gives us 500,000 locations. We have thousands of contracts. And none of our countries are bigger than 5% of our total revenue. And, none of our biggest -- even the largest agent is not bigger than 4% of our total Company revenue. So the diversification of portfolio, that's the beauty of Western Union business. Being everywhere, having so many agents, distributing our revenue, it gives us in a very good position.

Basically on the US domestic money transfer business, our business had been growing very good in Q1. We grew by 1% by revenue and 5% by transaction. And these are the actions, don't forget, these are the actions we put in place in 2009. Still growing and we are gaining with $5 for $50 promotion, a lot of transaction lower band. We are pleased with our transaction.

We have 46,000 locations. I don't know how many Wal-Mart has -- about 4,000 locations or something like that. So our 46,000 locations do serve customers. The customers value the speed, the customers value our brand, the customers value our locations. We do also pricing actions if you need it corridor by corridor, bank by bank. But I just want to put things in perspective here.

Right. But it sounds like for now you guys aren't planning on having to take any material new pricing actions to the balance of this year.

I don't think -- no. If you look at our portfolio, as I said earlier to Darrin, we do always look at pricing corridor by corridor, bank by bank, product by product. But I don't think that we are going to have big material pricing actions this year.

Okay. Any impact on your business in Russia or the surrounding region just from the geopolitical tensions, anything that's been detectable?

Good that you asked that question. Being in 200 countries, we always have this tension.

Right, it was the Arab Spring a couple years ago.

You ask this question, I remember. But, no, we don't see. Just put again the prospect of -- Russia is a very important market for us but it's only 2% of our total Company revenue. Ukraine is about 1% of our total Company revenue. But we do have about 20,000 locations in Russia, and we do have about 15,000 locations in the Ukraine, which gives us a good presence here. And we don't see any customer changes, behavior changes from our current business. We don't see any impact from the environment there yet.

Okay, that's great to know. And just one housekeeping for Raj, on the tax side. Can you just review what the tax benefit in Q1 was? I know you said you're still going to be 15% for the full year. Is that a similar tax rate each of the last three quarters? Or are there any ins and outs that we should be thinking about from a modeling perspective to get us to the full year 15%?

Jason, there were just some discrete benefits that we saw in Q1. Some of it's related to currency benefits. We still expect the tax rate for the year to be around 15%. As we move through the year, we'll see what that means for us overall but there were just discrete benefits in Q1.

Just one-time stuff. Okay. Very good. Thank you guys.

Tien-Tsin Huang of JPMorgan.

Great, thanks. Good quarter here. Just to follow on to Jason's question with Wal-Mart, the private label store-to-store concept in general, do you see the potential for some of your larger agents to consider doing something similar? I know it's a big change in the model but from a foot traffic standpoint I can see why certain agents might want to try it. Thoughts there?

I don't know any plans, any white label plans from our constant retail agents that is going to do something like that. I can't talk for their plan. But don't forget our 46,000 locations. It is easy to go to the next corner and pick up the money from the next corner in the US. We have, alone in the US, 46,000 locations.

I believe we are very competitive here. The US domestic money transfer, Raj, was growing quarter by quarter over the past years, right? And we've been executing pretty well here. I don't know, I can't speak but I don't hear any rumors in the market and I can't speak to the rumors.

Okay, good. Just wanted to make sure. I appreciate that. I heard the Commission comment. I'm curious about just the renewal rate of large agents and specifically just exclusivity opening up. Is that changing the pace, is that changing at all, as you're going through the renewal process?

No, I think we do see sometimes competitive environments, sometimes not. But having a person negotiate hundreds of agent negotiations, and we have thousands of agents, there will be always some competitive. Sometimes a higher agent commission, sometimes lower. We do see some higher agent commission in current environment, competitive in environment, that also impacts a little bit our bottom line.

But generally, I would say that I do not see big changes from agent commissions. But we do, in some corridors -- you know how it works, Tien-Tsin, negotiation by negotiation, agent by agent, country by country, regulatory environment, all of that affects agent negotiations.

And Tien-Tsin, just to add, our goal longer term is to bring overall distribution costs down. And we believe that we can achieve that with the mix of the business as it changes to be a little bit more electronic. And then as we bring new agents into the mix, we also believe that we can bring them in at a generally lower overall commission rate. So, there are a lot of different dynamics in that business and we're working through all of those to get the right results.

That's great. And then, Raj, just housekeeping. No restructuring costs this quarter, did I hear that correctly? Thanks, that's all I have.

We had some minor costs but unless there's something more material we probably won't break that out. It's just part of our normal business. We're continuously looking for opportunities to take cost of the business. So, nothing material.

Excellent, thanks.

Bryan Keane of Deutsche Bank.

Yes, hi, guys. Just wanted to see if we can get an update on the impact of the higher compliance costs. What kind of impact that had on transaction volumes, do you guys figure?

Bryan, let me start with that. We did see some impact in the first quarter. As you know, we mentioned that for the full year we expect about a 1 to 2 point negative impact on our top line. That's still in our outlook, that's still what we expect, especially as we ramp up in the compliance spending. We spent about 3% in the first quarter and we expect that to ramp up the rest of the year in the 3.5% to 4% range. So, we do still expect some impact to the top line. And then just seeing this through, the common question we get is, does that continue into 2015? Will you still have an additional 1 to 2 points of headwind from compliance, or does it start to level out? Our goal is to not have much impact but that's something that we can't predict. What we do is when we put these compliance actions in place, initially we see a negative customer reaction. And we would like to learn from those customer experiences and improve upon those over time. And that's really our goal. So, I can't really predict about next year but the goal is to improve upon the interactions with customers and put the right systems and processes in place so that customer experience can be a better one.

Saying that, though, the 2014 investment, Bryan, 3.5% to 4%, was a significant step up from last year investment. So, we believe that we will have good programs in place. I can't speak, as Raj said, for the future, how the regulatory environment looks like. But from today's point of view I think the team is doing a great job putting the things right in place, that we have compliance programs, that it's a competitive -- even a competitive advantage.

And I can see that part of that competitive advantage already in some countries like Mexico. Part of our growth into Mexico is driven through the compliance end environment. And we do have programs. We are increasing our programs and we are investing here, and we are trying to build a competitive advantage like in Mexico, also in other countries.

Yes, I was going to ask that. On the higher compliance costs, which corridors are being impacted by that?

It's a global program, by the way. If you are in 200 countries, it's beautiful but it has also a price to be in 200 countries. The main corridor, you know that in the past we invested in Southwest border. Additional to that we have this investment, like in European Union.

We do have investments in some receiving countries, and in Africa. And we do have in Middle East. It's all over, actually, Bryan. And I think we have a good program that we cover the world with that investment.

We have various KYC programs that we're implementing. We're implementing know your agent programs. It's pretty broad based and it's in various parts of the world, as Hikmet said.

Last question for me. Europe and the CIS region, the transaction growth accelerated. I'm curious on the economic front, any signs of stability finally in that region that's causing that? Or I'd just be curious to know if we're getting any potential economic rebound.

My view didn't change from last quarter. Unfortunately, it didn't change. I would love to report that the economic environment is better. But it's also not worse. That's the fortunate part. So, I would say that it's the same.

We do see some strong transaction growth in Germany. We do see some improvement in Southern European part like Spain and Italy. Our business is quite stable there but I wouldn't say that it's now sunshine yet there.

We did a lot of the pricing actions in Europe in the first half of last year, as well, so we're getting some benefit from that now.

Okay, super. Thanks, guys.

David Togut of Evercore.

Good evening, this is Rayna Kumar for David. Do you expect to increase your dividend? And when will the Board be making a decision on the dividend? Thank you.

Sure. Rayna, this is Raj. The dividend is something that we evaluate on an ongoing basis with the Board. We're very happy with where the dividend is right now. It's at about a 35% payout, which is very much in line with S&P 500 paying companies. I expect that, as the business performs and improves, the Board will want to look at that again to see what the right level is. But our policy has been to return capital to shareholders, both buybacks and dividends, and I expect that we'll continue that, as well.

Thank you.

Sarah Gubbins of Bank of America.

Hi, thanks. I wanted to go back to Mexico for a minute. You signed an additional, I think it was 10,000 agents in Mexico last year. Are those now all up and running? And are you comfortable with the current footprint in Mexico or do you think you will continue to make a bigger push to expand in the region?

Sarah, first of all, we are very pleased with our quarter on Mexico. I have to say that 8% revenue growth is quite good. We did put compliance programs, agent programs into place that are working.

We did sign agents to expand our footprint in Mexico. We did not enroll all of them yet. They are in the pipeline. And we believe that we are going to significantly increase our presence in Mexico with new host-to-host connections, new IT systems, and new programs there.

And I'm quite excited. Actually, I was in Mexico about two weeks ago, I just came back from a meeting there with the new potential agent there. And I was quite excited to increase my footprint there.

Okay. So, it sounds like more to come. And, then, as we think about the balance of the year, your comparisons get significantly more difficult throughout the year in terms of transactions. Is it reasonable to think that the trends should slow in the back half of the year on a more difficult comp?

Sarah, we did do some pricing, as well, to Mexico. Typically we would expect the pricing actions to cause transactions to peak within a 12-month period. So, I expect that transaction growth is likely to level off but we can't really predict what's going to happen each quarter. But generally that would be the trend that we would see.

We also expect to see good revenue growth for the year. So, that's about where we are. Revenue growth would typically pick up in the 12 to 18 month period after pricing. So, that's what we're seeing.

Okay. Sorry -- was that comment about transactions overall or Mexico specific?

Overall. I think the transaction -- what we did, Sarah, we did thousands of pricing actions, and we do it constantly corridor by corridor. And if we do that, the revenue picks up about 12 to 18 months. And that generally has been not only Mexico, worldwide.

Got it, thank you.

Smitty Srethapramote of Morgan Stanley.

Yes, hi. Just another question on compliance. Can you give us an update on the subpoena that you disclosed in your 10-K from the Middle District of Pennsylvania? And has there been any updates in the 10-K on that issue?

Smitty, I would just refer you to our 10-Q that we are filing today. We don't really have more comments beyond that. It's early in the process and it's something that we are working through.

We have good monitoring systems in place. We have a multi-faceted program to provide consumer fraud and outreach program with consumers. That's about all we can say right now. And we're working through that.

Got it. And then maybe just on the digital channel where you continue to see very good growth. Can you talk about how you're investing in westernunion.com and some of the other new solutions?

That team is doing a great job. I've spent a fair amount of time with them and they are hitting on all cylinders. The three key areas they're spending on -- first is around the consumer experience. They have a new platform in place, and we're rolling that out to more markets. We're also adding more funding capabilities in different markets.

Secondly, we're also adding more customers to the mix. And as Hikmet mentioned earlier, 80% of the customers that are visiting wu.com are new to the Western Union franchise. So, we're adding significant new customers.

And, lastly, we're expanding distribution, either through ourselves or through other partners. So, those are where the primary investments are. And they're paying off, as you can see. And we're very pleased with the results.

Okay, great. Thank you.

Ashwin Shirvaikar of Citigroup.

Thank you. My first question was, I'm trying to understand the spread between wu.com transaction and revenues. And it seems to fluctuate a lot between 20% this quarter, it's been as high as 40%. Why does it bounce around so much? And why is it so different from the spread in your traditional business which is more like mid single digits?

Ashwin, this is Mike. We did some major pricing reactions, primarily in the fourth quarter of last year. There were some things we did prior to that, as well. But we did some major actions in the fourth quarter.

We just anniversaried those as we went through the fourth quarter of 2013. I should say we did those in the fourth quarter of 2012. So, now we've passed that anniversary and it's more just mix issues and other promotions in the business. And that's why the spread has narrowed.

Okay. Now, my second question is with regards to segment margins. I'm looking at C2B margins and also B2B ex-integration costs. They were both down. Is that currency in the C2B? I'm trying to understand why in each of those areas why margins were down. And what's the trend we should expect going through the year?

Ashwin, this is Raj. On the C2B business, as I mentioned in some of my comments, a couple things that impacted us there were higher credit card usage by our customers. We opened up some new funding options in certain parts of our business so consumers started to use more carded-type transactions.

Secondly, we had higher principal transactions, as well. And some of that higher PPT was related to the severe weather we had in the US, which caused utility payments to be higher. That business achieved about a 20% margin last year. And that's about where it was in the first quarter. An I would expect it to be in that range for the year, as well.

With respect to B2B, that business, last year we achieved a low teens EBITDA ex-integration. In the first quarter we had some timing of expenses that drove the margins down. But I would expect to see that improve as we move through the course of the year. Longer term we still expect that business to expand margins as it gains scale and leverages the infrastructure that it's put in in the last couple years. So, those are some of the reasons behind the margins you saw in the first quarter.

Okay. And also I'm trying to understand with regards to C2C transaction growth, obviously through the course of last year transaction growth rebounded pretty nicely. But it seems to have plateaued the last three quarters right around 9%. Is it fair to expect further acceleration? Or is it upper single digit is about what you can do without price concessions and more marketing dollars? How should we think of that?

Ashwin, we haven't really provided a transaction growth outlook, so I won't give you a specific number. But, generally, as we had said, the pricing actions are driving a lot of the transaction growth that you've seen in the last three quarters. And that continues to have a good effect. But we would normally see transaction growth leveling off within a 12-month period.

But then the thing that we are seeing is that, as expected, the revenue growth is picking up. In the 12 to 18 months after pricing, we typically expect to see revenue growth pick up, which is what's happening. Those are some of the parameters. I would expect transaction growth -- to your question -- though, to level off.

Okay, understood. One last housekeeping question. You did mention in the Q you have about $700 million in the US. I just wanted to clarify, is all of that really available for any actions you might want to take -- buybacks?

If it was all available I'd probably use it. But most of the cash on the balance sheet is not available. We had $1.7 billion at the end of the quarter, and, as you said, about $700 million in the US.

A lot of it is cash in transit. Another chunk we hold for regulatory purposes. And then we just need money for liquidity purposes. We move hundreds of billions of dollars around every year, and we need to keep some cash on hand for liquidity purposes. But, clearly, we do things as efficiently as we can and to the extent there's any excess cash we'll use it. But I would say most of it's not readily available.

Okay, got it. Thank you.

George Mihalos of Credit Suisse.

Hi, good afternoon. Just wanted to start off on the compliance side. Nice to see you reiterate the compliance amounting to about 3.5% to 4% of revenue this year. But will that be uniform throughout the course of the year, or should we see one quarter versus another maybe have a little bit more or a little bit less of that expense?

Hi, George, it's Raj. I can't give you a quarterly number on that. We expect about 3.5% to 4%, and it really depends on the pace at which we hire and the pace at which we put programs in place. Clearly we're going to try to do things as efficiently as we can. And if we don't need to spend the money we won't, but that's our current expectation for the full year.

Okay. And then just for the first quarter were you within that range, 3.5% or 4%? Can you share that?

That's our full-year expectation. For the first quarter we were at 3%.

Okay, 3%. And then just going back to your commentary around trying to add some leverage in the margin in terms of long-term bringing commissions down, obviously it's a competitive landscape. But some of the steps that we saw recently, or some of the announcements, as it relates to Wal-Mart, do you think that could potentially impede a competitor from maybe approaching some of your agent partners on the receive side? Just curious where your thoughts are there.

Competition was always here, George. We are always competing. I've been in the market 14 years and I've been always competing with the competition here. But I don't see any big changes.

Don't forget that our top 40 agents have been 17 years exclusive with us. They like us, they like our brand, they like that we bring customers to them, they like it's a win-win situation, and they like to serve our customers. I did not see any big changes here.

We do have definitely agent by agent some negotiations. And sometimes the negotiations are tough. Sometimes you have to fly around the world and do the negotiations.

But it's a win-win situation. And I'm very pleased with our current agent structure. And that gives us 500,000 locations, hundred thousand ATMs, and that's a huge number.

Okay, thank you.

Kartik Mehta of Northcoast Research.

Hi, good afternoon. Hikmet, I know you said you haven't heard any rumors about agents wanting to do private label. But I'm wondering, in your top 30 agents, do any of them have the option to do a private label if they wanted to?

Don't forget, we do have agents for years, they have their own money transfer business in some countries, internationally. Banks, for instance. We work with banks. They have been doing money transfer for years and they switch to us or they do both.

It's not like we don't do that. If you send the money transfer from one bank to other banks, it's kind of a private label. But they choose us, customers choose us, because they prefer to send money from US to Vietnam, or from Finland to Argentina in minutes. That's what we provide and that's our beauty -- and crossing the borders. Within environments we do have a pretty good business model, I guess.

And, then, I'm just wondering, have you seen the impact of compliance on other regional companies? It seems as though you've spent a lot of money on compliance because you're the largest. Are you starting to see that trickle down to some of your other competitors that might be a little bit smaller?

I can't speak name of them, but I know that we are investing a lot, and I believe it's going to be a competitive advantage. I only can tell in some countries, as I mentioned earlier, that we do see some people saying that we can't invest in this business. There's obviously companies like Western Union who has the right compliance program, or investing in the compliance, upgrade their compliance programs.

And that brings us, definitely, customers. My example was Mexico, we see there. But, generally, I would say that my hope is that -- it's good for the industry that everybody invests here, and invests significantly here, and do a good business here. And that's what we do. We believe that we are investing in the right way and to comply with the regulations and having a good compliance program.

And I know, Raj, this might be a little early but when you had indicated the increase in compliance, one of the things I think you said is you're hoping to automate some of the processes so that maybe you can control the compliance costs a little bit more. Have you looked at that? Is that an opportunity or is it just still too early to tell what you might be able to do in terms of automating and controlling that compliance cost as we go forward?

Kartik, it is early but we're always looking for opportunities to automate our processes. That's an ongoing initiative for us. Our goal in the short term is to get the programs and processes in place. But longer term, it is to automate. And that's where some of the technology spending comes into play, that our CapEx is expected to be about 5% of revenues this year, which is a little bit higher than the last couple of years. And that's part of the reason. So, we are trying to automate those things as much as we can, and we learn, as well.

I think compliance and compliance optimization is one of the highest programs we have in the Company. We have one executive who is only focused on that, to upgrade that, to do it in the best way. That's why we invest here, and we believe it's going to be a long-term competitive advantage. It will be automated, everything, and we believe that we will have -- we aim to have the best in class.

Thank you very much. I really appreciate it.

Andrew Jeffrey of SunTrust.

Hi, good afternoon. Thanks for taking the question. My question is around wu.com and the strategy there a little bit. Just with regard to a few different initiatives, at least rumors of which have been bandied about. One would be instant ACH, and your outlook for offering instant ACH and which markets you think that's the most attractive.

And then, second, I think, Hikmet, did I hear you say that about 30% of wu.com transactions are mobile? I'd like to hear a little bit about the mobile strategy, too, and how important you think that is, and thoughts around new mobile apps and so forth. So, just focusing in on how you view that business and those offerings evolving here over the next several years.

Raj, do you want to take the first part? I'll take the mobile part.

Let me just talk about instant ACH. First of all, we're very happy with the results in wu.com, and that business is doing some great things. We operate in 24 markets around the world where we send money from and into 200 countries and territories into cash or to retail location. And then we can also send money into a bank account in 50 markets around the world.

And you've already seen the success that business is having with the customer experience, adding more customers to the mix, as well as the distribution expansion. So, we're doing a lot of great things already in that business. And from our perspective, instant ACH is going to be another feature that our customers will want. And we'll add that later this year.

We have an ACH product in the US today. It's on a four-day basis. And we have similar bank funding mechanisms in a few other countries. And we're expanding that on an ongoing basis.

So, for us, instant ACH is important to add later this year but it's not the only thing that's going to drive this business. Clearly, we are already having a lot of success around that. And, then, Hikmet I'll give it to you.

Just to comment on the ACH program, as you said there are different ACH programs around the world. In Germany ACH runs different, like a debit from your account, than in France, and than in the US. That's the beauty of being in 24 countries and expanding our portfolio.

Long term I want to be with digital in 200 countries. And a big part of that -- that's the second part of your question -- is the mobile. I believe on the mobile, I think the future is the people sending money instantly from their mobile phone, and receiving on their mobile phone.

And we being with our Western Union apps in the US, very successful. 30% of the transactions are already on mobile. And the people do use money fast money spending from their mobile. And I think it's going to be a growing area.

I'm going to continue to look at that and we are going to continue to evolve to invest more on the mobile part to sending money. But don't forget at the end of the day you need the Western Union fundamentals. The operation. We pay out in 121 currencies. Not many companies can do that. In minutes -- not many companies do that.

We have operational excellence in the middle. We have the compliance programs. Not many companies can combine worldwide hybrid economies, sending money from your iPad in minutes to rural areas in India. We can do that, drop money in rupees in minutes.

And adding on that mobile function is, I think, a very important part of my strategy.

Okay. For how long do you see, not specifically but conceptually, would you see or be willing to do things like subsidize interchange and so forth to drive volume? As that business grows faster and gets bigger is there a sensitivity to the incremental costs in that versus the lower costs, but still somewhat slower and riskier, hence more expensive, ACH network?

Andrew, we're evaluating all different options. It's a balance of continuing the success that we've had and then looking at new funding options. We're doing that in many markets. And we'll do that in the US, as well.

But we want to manage the risk around the instant ACH product, which you really have to manage well. But if you can get the formula right it can be a nice growth driver. So, we're managing all that and we'll look at all of the options there.

Andrew, we typically have different prices in different corridors, as you can imagine. But where we can we often have higher fees for credit card funding as opposed to bank funding. So, more of the promotional is driving to the lower cost bank funding.

Okay. So it depends on which area you're talking about?

Yes.

Okay. And then last, Hikmet, it sounded like last quarter you were getting away from highlighting the agent count, perhaps trying to rationalize the agent base. Could you give us an update there? Should we be thinking about directionally more agent concentration rather than less over time?

You should think more that we going to get more agent locations and more distribution and more ATMs. I'm still driving my team to the more touch points. It could be agent locations, it could be ATMs, it could be a sales kiosk. And I think that's going to expand.

What we have done is also we leaned back a little bit, looked at the agent productivity over the few quarters. And from there saying that, okay, we want to have more revenue, more transaction on the send side from the agent transactions, and be focused on that.

The secret of that business is also that you have to be in every corner. And I would like to see Western Union brand in every corner of the world. Is it on an ATM, is it on a location. Because it's then easy to combine a mobile phone from Denver here to worldwide any location -- rural areas of Vietnam or rural areas of Ukraine or in Turkey, to a location.

And if you don't have the locations, or if you don't have the sales kiosk, or if you don't have the ATMs, you can't do that. So, my strategy will continue to push my team to expand our distribution channels.

Thank you very much.

Kevin McVeigh of Macquarie.

Great, thank you. It looks like your transactions actually increased for the first time in awhile. Any thoughts on that -- principal per transaction was up modestly -- just as we think about that over the course of 2014?

I think we had already the strong transaction growth.

Principal per transaction was flat on a constant currency basis. Is that what you're referring to Kevin?

Yes, as opposed to -- do you think we're at an inflection point? I think that actually a pretty big positive as opposed to the declines you've been seeing the last couple years.

I think it's really just related to mix and what might change in the business. It's hard to predict exactly where that's going to be. But we're pleased with that result. I think it's mostly just related to mix.

Got it. And then if you said this I apologize, but are we still on target for the $500 million by 2015?

Yes, we still have approximately $500 million as a target. The team and everybody is focused approximately $500 million. And I think we have very strong growth. 45% revenue growth convince me that we are on that direction.

Great, thank you.

Thanks. That was $500 million target for our digital business, just to clarify. Everybody, thanks for joining us for the call, and have a good afternoon.

Thank you.

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