西聯匯款 (WU) 2014 Q3 法說會逐字稿

Good afternoon and welcome to the Western Union third-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.

Thank you, Laura. Good afternoon, everyone. On today's call, Hikmet Ersek, Western Union's President and Chief Executive Officer; and Raj Agrawal, Executive Vice President and Chief Financial Officer, will discuss the Company's third-quarter 2014 results. Then, we will take your questions. We expect today's call to last about 45 minutes.

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

Today's call is being recorded and our comments include forward-looking statements. Please refer to the cautionary language in the earnings release and in Western Union's filings with 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 would now like to turn the call over to Hikmet Ersek.

Thank you, Mike. Good afternoon, everyone. I am pleased with the results we delivered in the third quarter. Our transformational strategy and innovation actions that we put in place a couple of years ago are delivering good results. In the quarter, we continue to make progress strengthening our consumer money transfer business. We returned to growth in business solutions and tight cost management across the Company helped us deliver a strong increasing profitability.

We also returned almost $190 million to shareholders through dividends and share repurchases in the quarter, bringing the total to nearly $650 million returned in the first nine months of the year. In the third quarter, our revenues increased 2%, or 5% in constant-currency terms. Our consumer money transfer business drove the growth with revenue increasing 2%, or 4% constant currently. Each of our geographic regions delivered constant-currency growth in the quarter, and US outbound continued to be a strong point. WesternUnion.com again provided good growth as money transfer revenues increased 21% on transaction growth of 34%, also led by strong growth from US outbound.

I just return from traveling through Europe and Asia, where I had great meetings regarding our global opportunities with business partners, customers and employees. We are all pleased with the current business performance and excited about the future.

While there are certainly many concerns about the global economy and potential impact of geopolitical tensions, our results in Europe and in the Middle East remain positive in the quarter, as our previous pricing and other strategic actions in Europe and in Russia have helped drive good results.

Strategically, we are continuing to develop our money transfer network and offer in an innovative way more choice and convenience to our customers. Money transfers via ATMs and other types of self-service terminals is one of our innovative methods of distribution. We have over 100,000 active ATMs and kiosks internationally, including large networks in Russia, Brazil and in Japan.

Another example is the new service we recently implemented with Walgreens in the US. With this model, a consumer can initiate a transaction with Western Union through the self-service kiosk and then go to the counter for payment and receipt. This provides convenience for consumers, simplicity for the agents and opportunity for Western Union to add new distribution to our global network. We have already had good success with a similar service utilizing ATMs in Japan, and we plan to introduce additional offerings such as through mobile or online.

In business solutions, after flat revenue in the second quarter, the business return to growth with a 4% increase, or 3% constant currency in the third quarter. FX volatility, foreign exchange volatility in our market remained low in the first couple of months of the quarter, but it increased in September helping drive more customer activity. Business solutions also continued to make progress getting more businesses to use its online applications, which should aid loyalty and retention over time.

Our overall Company profitability in the quarter was strong with operating margins improving to 21.8%. During some of the increases we have faced from compliance, retail agent commissions and certain other costs, we have been managing our discretionary expenses very tightly and plan to continue to drive operational efficiencies as we see opportunities.

Although we are cautious about the state of the global economy, we are encouraged with our business trends and profitability improvements. Our third-quarter profit results exceeded our expectations. We are adjusting our full-year earnings-per-share outlook to approximately $1.50, at the high end of our previous range of $1.45 to $1.50. This includes some investments that we plan to make in the fourth quarter in areas such as cost initiatives, digital and mobile innovation, compliance and cyber security to help drive future growth and productivity.

We are continuing to focus on strengthening consumer money transfer with emphasis on digital expansion, driving growth in business solutions and generating and deploying strong cash flow for our shareholders. We believe the third-quarter results demonstrated good progress in these areas. Now, to give you a more detailed review of the financial results for the quarter, I will turn the call to Raj.

Thank you, Hikmet. Total revenue in the third quarter was approximately $1.4 billion, an increase of 2% or 5% on a constant-currency basis compared to the prior year. Electronic channels revenue increased 21% in the quarter and represented 6% of total Company revenue. In the consumer-to-consumer segment revenue increased 2%, or 4% on a constant-currency basis while transactions increased 5%. Western Union C2C cross-border principal also increased 5% in the third quarter on both a reported and a constant-currency basis. Principal per transaction was flat compared to the prior-year period both as reported and in constant currency.

The spread between the C2C transaction and revenue growth in the quarter was 3 percentage points including a negative 2% impact from currency. The impact of net price decreases was 1%, while mix had minimal impact in the quarter overall. We believe the market is showing fairly stable pricing recently. We have made some price adjustments, both reductions and increases in various corridors around the world, but we continue to expect our pricing actions for the remainder of the year to be modest.

Turning to the regions. In the Europe and CIS region revenue increased 1% year-over-year, including a negative 2% impact from currency while transactions increased 10%. Revenue benefited from good performance in Germany and Turkey. The differential between transaction and revenue growth in the region was primarily driven by pricing and mix, including the impact of strong transaction growth from Russia, which typically generates lower revenue per transaction than the European average.

North America revenue grew 2% in the quarter while transactions increased 3%. US outbound delivered strong growth again in the quarter, and Mexico revenue increased 8% on transaction growth of 6%. Domestic money transfer revenue declined 2% while transactions grew 4% in the quarter. Declines in higher principal bans caused the differential between transactions and revenue growth.

In the Middle East Africa region revenue increased 3% with a negative 1% impact from currency while transactions increased 1%. Strong revenue growth from Saudi Arabia and the United Arab Emirates drove the increase, which was partially offset by declines in Libya due to political disruption.

In Asia-Pacific, revenue grew 1% including a negative 1% impact from currency while transactions were flat. Revenue benefit, primarily from continued growth in Japan and the Philippines. Revenue in the Latin America and Caribbean region was down 3% from the prior-year period, including a negative 7% impact from currency while transactions increased 2%.

Reported revenue was impacted by continued government imposed restrictions on the market in Venezuela and by the decline in the value of the Argentine peso compared to the prior-year quarter. WesternUnion.com C2C revenue grew 21% in the quarter while transactions increased 34%. US originated online transactions grew 32%. Several key corridors contributed strong increases to the online revenue growth, including the US and the UK to India; the US to the Philippines, Mexico and Jamaica; and European markets to several African countries.

In the consumer to business segment revenue declined 1% in the quarter but increased 11% 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 South America, we continued to grow on a constant-currency basis.

In the US electronic bill payments growth was partially offset by declines from cash walk-in. Business solutions reported a revenue increase of 4%, or 3% constant currency, with good growth in North America and Europe and from our education-based services.

Turning to consolidated margins, the third-quarter GAAP operating margin was 21.8% compared to 21% in the prior-year period. Operating margin benefited from cost savings initiatives and lower integration costs, which were partially offset by higher compliance and legal expenses. Compliance expense in the quarter was approximately 3% of revenue. We now expect compliance related expense to total approximately 3.5% of revenue for the full year.

We achieved $14 million of incremental cost savings in the current quarter, and we continue to expect approximately $45 million in incremental savings for the full year. The benefits from cost savings initiatives also reflect comparisons with costs in the third quarter of last year when we incurred $10 million of expenses related to the combination of cost savings initiatives and Travelex Global business payments integration.

EBITDA margin was 26.4% in the quarter, with an improvement from 25.8% a year ago. Our tax rate was 14.2% in the third quarter and we continue to expect a full-year rate of around 15%. Reported earnings per share of $0.44 increased 13% from $0.39 in the third quarter of last year.

The C2C segment operating margin was 24.9% compared to 24% in the prior-year period. The margin improvement was primarily due to cost savings initiatives partially offset by higher compliance expenses. Retail agent commission rates were also higher than the prior-year period.

The consumer to business operating margin was 15.4% in the third quarter compared to 19.2% in the prior-year period. Similar to previous quarters this year, the C2B margin declined primarily due to higher funding costs related to increased interchange expense driven by increased credit card usage and higher principal per transaction in the US electronic bill payments.

Business solutions operating income was at breakeven for the quarter, which compared with a loss of $3 million for the same period last year. Depreciation and amortization was approximately $14 million in the current quarter, compared to $16 million in the prior-year period. In addition to higher revenue and lower amortization expense, the reduction in operating loss was primarily due to lower integration costs and a value-added tax recovery, which were partially offset by higher bank fees.

Turning to our cash flow and balance sheet, year-to-date cash flow from operations was $775 million. Capital expenditures were $33 million in the third quarter, and we now expect capital spending to be in the range of 3% to 4% for the full year. At the end of the quarter, the Company had debt of $3.7 billion and cash of $1.7 billion, approximately 35% of the cash was held by United States entities.

During the quarter we repurchased approximately 7 million shares for a total of $122 million, and we paid $66 million in dividends. Year to date through September, we have returned $645 million to shareholders. At quarter end we had 524 million shares outstanding and $55 million remaining under our share repurchase authorization, which expires in June, 2015.

Finally, based on our third-quarter results and forecast for the fourth quarter, we have updated our full-year financial outlook. Our full-year revenue outlook remains at low to mid single-digit constant-currency growth, with GAAP revenue at flat to low single-digit growth due to some negative currency impact. This is consistent with the trends for the first nine months of the year in which GAAP revenue increased 2% and revenue increased 4% on a constant-currency basis.

Our operating profit margin outlook is now approximately 20%, which compares to the 19.5% to 20% range we previously provided. Through the first nine months, operating margins were 20.6%. Our full-year outlook of approximately 20% assumes compliance costs increase in the fourth quarter, bringing the full-year estimate to approximately 3.5% of revenue, and also includes some investment spending to help drive our business in future years. This includes spend on additional cost savings initiatives as we continue to identify ways to operate our business more efficiently.

As a result we now expect earnings per share to be approximately $1.50, at the high end of our previous range of $1.45 to $1.50. The outlook for cash flow from operating activities remains at approximately $1 billion for the year. That concludes our review of the third-quarter results. Operator, we are now ready to open the line for questions.

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

(Operator Instructions)

Darrin Peller, Barclays.

Thanks.

Look, good execution on the cost side, on the margin side in particular. I just wanted to hit on that for a moment but because the -- number one, it seems like you're taking the cost out as you promised, what extrapolation should we have for that going forward? Is this sustainable given that we would have thought the margin extrapolation into the fourth quarter would lead to potentially a higher EPS guide than you did, as much is it was nice to see the raise. Can you give us a little color on what really drove the margin improvement at specifically what cost and how sustainable that is for us?

Sure. Darrin, this is Raj. As we came into the year, we knew we had some cost pressures in various areas. The compliance costs, commission rates, and we also wanted to invest money back into the business, and given that we've been managing our costs pretty tightly, that's really what we saw here in the third quarter. As we've always said, we believe that as we get revenue growth, we'll and expansion on our profitability. That's what we saw the third quarter.

As we go into the fourth quarter, we really have planned for some additional investments. First, we expect compliance costs to be a little bit higher in the fourth quarter. Year to date we have run at about 3%. For the year we expect approximately 3.5%. It could be a little bit lower than that, but approximately 3.5%. That's one item.

The other item is focus on cost savings initiatives. As we've done in past years, we believe that there's more opportunity to optimize our cost structure, and so we are putting those plans together. To the extent that there's something material there, we'll talk to you more about it next year. Then lastly, we want to make some additional investments in certain areas of our business to drive future growth. and productivity overall. That's really why we've given outlook that we have, and where we're comfortable with that at this stage.

Okay. From a modeling standpoint is that something we can really base our outlook on in terms of the level of costs, the average of the third and fourth quarter would be a good way to look at it perhaps?

We believe that we'll be at about 20% for the year in terms of margins, so that's how you should model it.

Yes, okay. Alright, just a quick turning to the B2B business, it was definitely nice to see that show positive inflection. Can you give us a little more color on what drove that, and again, just how sustainable that is?

Sure. We're pleased with the return to growth there. We grew 4%, or 3% on a constant-currency basis. In the quarter itself, if I could just give you a little bit of color, in the first two months of the quarter we didn't see much volatility, but in the last month of the quarter we did see some volatility return.

As we have said before, in the very short-term the business is impacted by volatility, so that helped the result a little bit. Over the long term, we still believe that global trade growth will be a key driver of the business, along with all the other things that the business is doing, but we're pleased with the current results.

Also the payments --

Thanks, that's great.

The payments part is coming pretty good. Remember, we talked about that, about the university payments, student payments. These parts are all coming out also good, that helps.

Alright, just last question. That's great to hear. Last question and I'll turn it back to the queue. On the capital allocation strategy, you have done a lot for shareholders this year. I think, like you said, over $600 million returned.

When we think about the amount of generated cash internationally, can you just talk to us about the potential thoughts you and the Board have around how you manage cash going forward? Is it still going to end up being the same strategy of looking for international deals with international cash, or can we expect to see some changes towards more of a use for domestic purposes, and even if there is some tax changes that go with it, just any thoughts around that? I appreciate it.

Sure, Darrin, our capital allocation policies haven't changed. We've been strong returners of capital for many years, and that's, again, the case this year.

We pay a very high dividend now. It's very much in line with market, but it's been increased a lot in the last few years. I would expect us to continue to focus on paying out a good dividend level.

Stock buyback, we believe that we'll continue to have opportunities to do more stock buyback in the next few years as we unlock cash for domestic purposes. To the extent that there are other opportunities to look at, could be smaller, acquisitions. It could be technology plays that give us some other capabilities. We'll look at that, but that's not our top priority right now, so our capital allocation policies, I would say, really haven't changed.

Great. Alright, thanks.

Thanks, Darrin.

Tien-tsin Huang, JPMorgan.

Thanks. Good results. I wanted to ask, just to clarify on the compliance spend. The implied guidance in the fourth quarter would be up to 5% of revenue on compliance. So, I'm just curious is that a number we should assume, if that's the case, for 2015 as well? Or is there just a one-time bump up for year end, just trying to understand that a little better?

Tien-Tsin, I would say it's more of the latter. We have some programs that are completing in the fourth quarter and that's the final push there. We also have been hiring people during the course of the year, and we'll see more of a full impact from that in the fourth quarter. As we have seen some efficiencies this year, we're hopeful that some of those will carry into next year as well. We're just putting the detailed plans together, but we're happy with the overall results. We've been able to accomplish our key objectives on the compliance side, and we've also done it more efficiently.

I wouldn't read too much on Q4 on that, Tien-Tsin, because remember we start to hirer people in the beginning of the yea. You will see, that's why it's a little bit higher in the Q4.

Okay, no, just curious and hopefully the 3.5%, 4% is a better guide for 2015, is that fair?

Yes, I would just say that we're still doing some work to optimize that as much as we can. I wouldn't see it being higher than that range, but we're still working to get specific there.

I understand that caveat. Just two more, just on the pricing side, glad to hear that it's been pretty stable or unsurprising. Is it competitive landscape changing and driving that for the pricing being modest? What's driving that in your opinion?

Tien-Tsin, as you know, that has been stable for over the last few quarters. We are pleased with our business performance. As you recall, two years ago we did some strategic action on 25% of our business, and that's paying back. Our business, we are in 16,000 corridors, 200 countries. We do adapt our prices to the market environment, and that has not changed. I think the competitive environment -- we are competing very well with our existing values, existing brand, existing network, so I think I'm pleased with the environment currently.

Glad to hear. Last one, I promise. Just domestic business, how did that come in versus planned? I saw on the Q that looked like the high band stuff had some impact, I'm guessing maybe from Walmart? Can you elaborate on domestic? Thank you.

No, I don't see any competitive disadvantage here. Our transactions are -- we are pleased with our plan. Our transaction grow about 4% in Q3. Especially in the lower bands, the transaction is going good. The mobile money transfer is doing good. 50,000 locations in the US helps. People are sending money for us in good ways. We are pleased with our domestic money transfer business currently.

Thank you.

Tien-tsin, as you'll recall, our higher bands over the last several quarters out have been trending down and lower bands have been going up, so we haven't really seen a change in that pattern. We'll continue to monitor. Obviously, Walmart is doing a lot of advertising, and we'll continue to monitor that, but so far we haven't really seen an impact from it.

Got it. Thanks, Mike. Appreciate that.

Thanks.

Bryan Keane, Deutsche Bank.

Hello. With the 21.8% operating margin, was that ahead of your plan? If it was, what drove the surprise?

Yes, it was better than we had expected. Again, we've been managing our costs quite tightly. We've been managing -- obviously, you've seen in compliance come in lower than we had expected for the first nine months of the year, so that's helped a bit. That continued in the third quarter. On our discretionary expenses, we've also been just managing those as efficiently as possible and just --

The team is executing, Brian, really. The team is executing. We have a plan, the team is executing and the compliance costs came lower than we expected. We are executing in an efficient way that helped a lot.

So, fourth quarter though, the margin will come out less than most people expected? It feels like, though, maybe you're just pulling forward some expense, just to get it into the fourth quarter by maybe doing some extra things in the quarter and on expense side that you might not have planned originally? Is that fair?

Not necessarily. There is some timing of expenses. The compliance is something that we'll step up in the fourth quarter. We have various cost initiatives that we want to try to achieve in the fourth quarter, because we think there is more opportunity there. We want to invest in the business to drive growth. Whether it's digital, oriented innovation or other areas like cyber security, and just overall productivity for the business, that's really where we want to put the money. We're going to invest as smartly as we've always done. We believe there's opportunity there.

I think, also, digital is still a big investment. I believe on mobile, I believe on digital innovation, and we are going to continue to invest, also the cyber security is on always our focus area and compliance, obviously, and that's some investment will be done in Q4.

But, now fourth quarter will be materially different, or lower than the other three quarters, but there shouldn't be any seasonally anything going on in the third quarter the causes that impact?

No, not necessarily. We should see pretty stable revenue trends, and it's really about these areas that we want to spend more money on. It's really a proactive move on our part to go after these specific areas.

Just finally for me, commission rates. Can you talk about how they're looking compared to plan and as we go forward and into next year? Do we have a handle on that or are those continuing to escalate?

It's too early to say for next year, but the commission rates on the retail side are playing out as we had expected. We expected a little bit of a bump up in those costs, and that's what we're seeing. But they're pretty well under control, I would say. As the mix of our business changes, we'll be able to bring down overall distribution costs. I would say that they're not getting away from us, if I can set that way. They're pretty well under control.

Okay, thanks so much.

Thanks, Brian.

Smitty Srethapramote, Morgan Stanley.

Thank you. Looks like transaction and revenue growth in digital decelerated quite a bit sequentially in 3Q. Can you talk about what led to the slowdown in transactions, and also what kind of initiatives you have in place to try to re-accelerate at growth rates over next couple quarters?

Smitty, you're talking about the westernunion.com digital business?

Yes, westernUnion.com.

Sure, well, Smitty, I think we are pleased with our westernunion .com in our digital business. If you look at that 34% transaction growth, quite impressive, and 21% revenue growth, I think we are continuing to expand. We are in over 20 countries with our .com, but also our existing business where we have been longer in the US outbound is working very well. That had a 34% or -- 32% transaction growth from the US outbound, so I am pleased with the current environment. Next is that, can we expand this WesternUnion.com digital business to more corridors? Expand taking that to Asia, to other countries, it's our long-term initiative here.

Got it. Then, just maybe to follow up on a different issue. I think you have been testing instant ACH over the past couple of months. Just wondering if there has been any update in terms of when you potentially will plan to roll out the product more broadly?

Raj, you want to take that?

Yes. Smitty, I would just start off by saying that we are going to introduce it more formally in the fourth quarter, but we operate a global business. It's not just from the US. We operate, as Hikmet said, in more than 20 markets. We send money, or a lot of customers send money, globally around the world, into 200 countries and territories, and now also into 50 markets into a bank account. We have various bank-like funding capabilities throughout Europe and obviously in the US.

Today we have ACH on a delayed basis, and we have been heavily testing instant ACH with several thousand customers. We also have done tens of thousands of transactions there. We think that will be another feature that will help the growth in our Business, but we're doing many other things that are driving the growth in our Business.

As we get into the early part of next year, we'll also be more proactive in advertising that to consumers at the front of the transaction. We think it will be an additional feature of the many things that we're doing to improve the overall customer experience.

Got it, thank you.

Sara Gubins, Bank of America Merrill Lynch.

Hi, thanks. Good afternoon.

Hi, Sara.

On the compliance front, I'm wondering if you've seen any noticeable differences to how certain governments are approaching compliance requirements?

Well, it's a hot subject. It has been very dynamic the last two years, two to three years. Operating in 200 countries, every government has their own environment. That's why we're investing about 3.5% of our revenue into compliance, and I would say that it's a dynamic environment. I wouldn't say that it's changed the last six months than it was earlier before six months.

It's a dynamic environment and we are upgrading our compliance part there and investing, actually. I see that is invested because I really believe long term it's a competitive advantage. It puts us in a place, we have the regulatory license in 200 countries, we can operate and we do the compliance in 200 countries. We do the settlement and we pay out in 121 currencies, puts us really in a way that we can be very active in the cross-border and cross-currency money transfer.

Great. Then up with the online discussion, how are you thinking about pricing going forward for online? Do you see that as continuing to change much? Are you comfortable with the current structure?

I am quite comfortable in the current structure in the environments where we operate. We do operate in 20 countries and to 200 countries, so that gives us many, many corridors. We adapt our prices corridor by corridor, as you know, Sara, and band by band.

I'm quite comfortable with our current pricing structure. Still 80% of our customers are new to our network. They like our network. They like that we can tell to customers that you can send money from Canada, immediately and pay out in Vietnam or payout in Uganda or pay out in Morocco. That what we do and we are satisfied with our current product and pricing.

Great. Last question on Europe, volumes continue to improve in spite of pretty difficult comparisons. Could you give us some more detail about what you're seeing in the region?

Go ahead, Raj. I'm listening.

Sarah, in Europe we saw good contributions from various parts of Europe. Germany and Turkey, in particular, helped the growth there. We also saw very good transaction growth in Russia, and so that drove some of the higher transaction growth that we're seeing there. Overall, pretty stable trends. We have the negative FX impact that drove the revenue down a little bit further, but overall pretty good results.

Our customers are quite resilient, despite some uncertainty in the global economy. Sometimes they use lower RPT's, lower principal amounts, but I would say that we are very pleased with the our performance in Europe.

Thank you.

Jason Kupferberg, Jefferies.

Thanks. I wanted to pick up on the comment you made earlier, that in Q4 you're going to make some investments around some new cost savings initiatives. How should we think about the incremental OpEx savings that we should be considering on top of the $45 million you're expecting this year? In the context of 2015, how much incremental could we see?

Jason, there are three things that are happening in the fourth quarter. First, compliance costs are increasing, so that's just part of our plan to put the right processes in place. Then, we are also spending money to drive further growth in the business in some key areas, as we mentioned.

The last area, which is an area that we're still putting all the details together on, are our cost saving initiatives to drive further growth. I would just say, right now, we're at an early stage of that planning process, but to the extent that that's a material number, then we'll give you more color around that next year when we give our outlook.

Okay. If you're taking out some amount of costs next year and if revenue growth continues to trend positively next year, is there any reason, conceptually, that margins shouldn't be up year over year in 2015 versus 2014?

Jason, being fair, we don't give 2015 guidance, as you know, but I say that our business model is based on revenue growth. If revenue growths, our variable costs are higher than our fixed costs, 65% to 35% ratio. So it should help, of course, long term on the margins.

I will say that we are very much focused also in Q4 to have optimal productivity actions, optimize our business. There are some investments also required. As I said earlier, I'm excited about digital. I'm excited about mobile. I'm excited about compliance investments and that gives us long-term competitive advantage. That helps us, so we going to continue to invest there, and long term when the revenue picks up that should help with -- our goal was always profitable growth.

Right. Last question, can you give us a sense of where you think, in absolute dollars, where total digital channel revenue will come in for 2014?

In terms of total dollars, it should be in the mid $200 million range.

Okay, perfect. Thank you.

Thanks, Jason.

Ashwin Shirvaikar, Citi.

Thank you. Good job on the cost side. My first question, as I look at the C2C transactions growth. It's down now to the mid single-digit level as comps get tougher. I'm thinking is that the only reason that the C2C transactions is down to the mid single digits? Or is there any other reason that I might be missing?

Let me start, let me try to start Ashwin's question. Hi, Ashwin. If you recall, we did pricing actions, and coming to anniversary. We were planning that we have a lower transaction growth because pricing actions, they have -- and I think completed all of them last quarter.

Now, we're planning with the lower -- that's a big part of that. I would not -- I don't see the competition market share loss. I think we are pretty much growing with the market. Our principles are, we are gaining, in many corridors, market share and overall we are growing with the market.

Oh no, I meant year-on comps not competition. I meant your comps are getting tougher. Year-over-year comps, that is what I meant. What I was going for was, is a mid single-digit transaction growth sustainable going forward on the C2C side?

We don't give transaction growth forecast, Ashwin, but if you just take a look at the market growth that's happening, market growth this year, in principal at least, is expected to be around 6%. Our principal growth has been around 7%. We've grown our transactions year to date by about 6%, so we'll get a slightly higher transaction growth this year than we did last year. I think we're growing in line with market. Really, now, going forward it's all about how we execute on the very strategies that we have rather than the prices, which are almost a couple years old now.

Right. Okay. Understood. On the cost side, a few questions have been asked about compliance costs going up in Q4. I just wanted to step back and ask you, what is it that drives quarter-to-quarter variability fluctuations in this what should really be a long-term compliance spending type of a trajectory?

Good question, Ashwin. I think as you recall, Ashwin, we did the big investment this year, and it took some time to hire the people. We do have to invest there, and we have to hire these people. These are great people where they have call backs and they do avoid bad transactions. That gives us some cost into Q4, but going forward we should see some stability here. You could run your models, and we also are planning, that stability.

It's a evolving environment. If you operate in 200 countries, you have some costs.

Ashwin, we ramped up with some of the people hiring during the year, of course, as Hikmet said. There's also some variability in terms of outside contractors in services and technology investments, so there are some variations in quarters depending on what projects we're doing. We just expect an increase in some of that in Q4.

Understood. If I could squeeze one more in? When I look at WU.com and the pricing on that, there seems to be maybe -- and correct me if I'm wrong, but is there a greater dependence perhaps on FX than on transaction fees when I look at WU.com transactions?

Not necessarily. We do promotional pricing there. It can be geared towards the fee side of the equation, but it's really both fee and FX that are going to drive the business longer term. For us it's not about the initial transaction that a customer might do, it's really about the lifetime value of the transaction once they do some business with us.

Also, it depends in which quarter you operate. We have different pricing from Germany than we have different pricing from the US.

Just personally more focused on two corridors, so that's based on personal experience, I was just asking you. (laughter) Thank you for the answers, and, again good job on the cost side. Thanks.

Thanks, Ashwin.

Thanks, Ashwin.

Kevin McVeigh, Macquarie.

Great, thank you. I wonder if you get a sense -- it sounds like the pricing continues to improve. Is part of that just some competition coming out of the sector given the step up in compliance? Or is it just the overall environment? Just any thoughts on pricing?

Generally, I would say we have a very competitive environment, maybe it sometimes we have the rather screen in US, but we do also have competitors globally in every corridor and we do compete pretty good on that environment. I would say the competition has not disappeared.

There is some challenges for smaller competition to comply with the regulatory environment. We did not see the big changes on our revenue on our transaction yet, but we know that some of the smaller competitors are having more trouble and to compete in the market because they can't comply with the -- onto money regulatory requirements.

Got it. And I apologize for another question on the compliance, but across that 3% do we have a sense of how much of that is recurring versus one time as we think about 2015? As we think about the model should be a steady state 3% of revenue, or an absolute dollar amount that you will get leverage with over the course of time?

Kevin, I would just say that there are activities that we are completing this year. They will fall off the radar screen, but there are other activities that we have planned for that are going to be added back to the equation for next year. So, even though we may have some things that are potentially considered one time in nature, we're going to have additional activities and things to do next year.

This is a global compliance effort, so if we have finished a set of countries this year, we have another set of countries coming out at us next year. It really is -- we really look at it as a percent of revenue cost as we go forward.

Kevin, roughly half of our compliance costs relates to compensation, so that would kind of be steady-state the others can fluctuate.

Very helpful. Thank you.

Laura, we have got time for one more call to be done by quarter after.

George Mihalos, Credit Suisse.

Great. Thanks for squeezing me in. Just had a question. Looking at the COGS line, you performed very well there this quarter. It came in below the 59% that we've been out for the last several quarters. Did anything change with respect to mix on commissions, or was there anything that lowered commission as a percentage of overall revenue in the quarter?

Not specifically, as you know, commissions are we do long-term agreements with agents. It changes quarter by quarter, or year by year better, but not specifically, George. I think we've been quite consistent the last three quarters, I guess.

We had higher bank fees and some higher retail commission rates, but we had benefits from various cost savings initiatives and lower integration spend, so that some of that is showing up.

But was offset also by higher interchange fees at our C2B business. Our bill payments business in the US had a higher interchange fee, so it will look better, but the interchange fees increase also offset that part.

Okay. That's helpful. Just last question, as we think about the agreements you have now with some of your agents, the self-serve kiosks and the like, do those materially change your commission rates there? Meaning is that a strong lever down the road for lowering commission expense for Western Union?

Well, strategically long term I would say, yes, because as we diversify our channel portfolio, like only from retail to retail also retail to an account, account to account, mobile wallet to mobile, if you go and business growing very fast. Our multi-channel, alternative channels, they have, technically, lower commission rates. It's all about -- it's too small that you can see it currently impact our P&L, but long term it should help our commission rates and are diversification of our channels.

It's a great model for distribution, because it really matches the retail with a new way of distributing the product, particularly as a customer can walk in the store and complete the transaction on their own and then they walk up to the person at the counter. It's a quick transaction process, so it's more efficient nature.

Okay, great. Thank you, and congratulations on the quarter.

Thank you.

Thanks.

Thanks, everyone, for joining our call today, and hope you have a good afternoon.

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