西聯匯款 (WU) 2015 Q1 法說會逐字稿

Good afternoon and welcome to the Western Union First Quarter 2015 Earnings Conference Call. All participants will be in listen-only mode.

(Operator Instructions)

Please note this event is being recorded. I would now like to turn the conference over to Mike Salop, Senior Vice President of Investor Relations. Please go ahead.

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 Chief Financial Officer, will discuss the Company's first-quarter results, and then we will take your questions. The slides that accompany this call and webcast can be found at westernunion.com under the Investor Relations tab, and will remain available after the call. Additional operational statistics have been provided in supplemental tables with our press release.

Today's call is being recorded, 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 2014 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. Before I discuss the quarter, I want to mention the situation in Nepal following the tragic earthquake last weekend. Our thoughts and hopes are with the people of Nepal, and the Nepalese diaspora community around the world during this time of need. We are implementing a variety of measures to assist the recovery efforts. Western Union is committed to helping the communities we serve around the world, and we plan to continue to support relief programs in Nepal during the rebuilding process.

Turning to the first-quarter results, we delivered a good start to the year, as each of our business segments produced constant-currency revenue growth. Operating margins improved, and earnings per share increased 5%. These good results were achieved despite operating in a challenging global economic and geopolitical environment, including the impact of the stronger US dollar. In the first quarter, Western Union consumer money transfer revenues increased 2% in constant-currency terms, which was consistent with the growth in the fourth quarter of last year.

Westernunion.com produced strong growth, with transactions increasing 25%, and principal growth even stronger. Westernunion.com growth was led by the US market, where almost half of the transactions were initiated on a mobile device. We also further developed our account pay-out business, which represented over 25% of the cross-border principal going to westernunion.com in the quarter.

The retail money transfer business remained resilient, with good cross-border growth from [aught] one markets such as the US, Germany, the UK, United Arab Emirates, and Saudi Arabia offsetting aught one weakness in Russia and some parts of Africa. We continue to see fairly stable cross-border pricing environment. Our net pricing investment in the first quarter was minimal.

As we discussed last quarter, we have implemented some price reductions in the US domestic money transfer business, which were rolled out in April. However, even with these actions, I am comfortable with our pricing strategy, and expect full-year pricing to remain in the low single-digit range as a percent of revenue.

As we mentioned when we provided our outlook at the beginning of the year, we expected market growth to be challenging in 2015. Some of you may have seen that the World Bank published its revised remittance outlook earlier this month. The bank is projecting very slight cross-border principal growth for 2015, with a positive outlook for the US, offset by weakness in Europe and Russia, and the negative impact of the strengthening US dollar.

The revision is not surprising, and is consistent with the business trends we saw at the end of last year, as well as the translation impact of the stronger dollar. The World Bank does project remittance principal to return to 4% growth levels in 2016 and 2017.

Turning to Western Union business solutions, constant currency revenue growth improved to 7% in the quarter. We continue to believe that B2B business will provide strong growth over the next several years, and as the revenue increases, the profitability should accelerate. Business solutions also brings special capabilities to Western Union, as we look to expand our cross-border engine, and offer multiple service to new types of partners in the future. Current examples include offering account-to-account branded and white-label cross-border services to financial institutions, and offering cross-border tuition payment products to universities.

Returning to the first-quarter results, consumer bill payments produced 11% constant-currency growth, which was driven by the Argentina walk-in and US electronic bill pay business. Finally, we continue to invest in compliance programs across our businesses, as we execute our multi-year plan to roll out key enhancements. Over time, I believe our compliance investments will give us a strong point of differentiation with partners around the world.

2015 has started off generally as we expected. There are external challenges around the world, but our business is performing. Cost initiatives and foreign exchange hedging programs are helping to sustain the bottom line, while we continue to invest in our global cross-border platform to reach new customers and client segments. Cash-flow generation remains strong, and we again provided substantial pay-out to shareholders, with $231 million returned in the quarter through share repurchases and dividends. Based on our business performance to date, we are on track to deliver the 2015 full-year financial outlook we provided at the beginning of the year.

Now I will turn the call over to Raj to give you a more detailed review of the financial results for the first quarter. Raj?

Thank you, Hikmet. Overall, we are pleased with the first-quarter results, as they were largely in line with our expectations. First-quarter revenue of $1.3 billion was down 2% compared to the prior-year period due to the strength of the US dollar, but revenue on a constant-currency basis increased 4%. The impact of currency translation net of our hedge benefit reduced first-quarter revenue by approximately $79 million compared to the prior-year period.

In the consumer-to-consumer segment, revenue decreased 4% reported, or increased 2% constant currency, while transactions grew 3%. C2C cross-border principal declined 4% in the quarter, or increased 2% constant currency. First-quarter principal per transaction was down 7% compared to the prior-year period, primarily due to foreign exchange, as the decline was 1% in constant-currency terms. The spread between the C2C transaction growth and the revenue decline in the quarter was approximately 7 percentage points. The differential was caused by a 6% negative impact in currency, as net pricing in the quarter was zero, and mix impacts were small.

Turning to the regions, in the Europe and CIS region, revenue declined 9%, or increased 2% constant currency, compared to the first quarter a year ago, while transactions increased 4%. Due to the significant fluctuations in foreign exchange rates, as I discuss individual country contributions to the regional results, I will be referring to constant-currency movements.

In Europe and CIS, Germany delivered good revenue growth in the quarter, but Russia declined as the economy continued to weaken. Although the Russia outbound business fell significantly, we did see good growth from inbound, which now represents over half our Russia revenue. North America revenue declined 2%, and was flat on a constant-currency basis, while transactions increased 3%. US outbound delivered good growth again in the quarter, with strong increases on sends to Latin America and Mexico.

Our Mexico business continued to grow faster than the market, based on the latest Banco de Mexico data covering the first two months of the year. Trends in our US domestic money transfer business were similar to the fourth quarter, with growth in the lower-principal bands and declines in higher-principal bands. Total domestic money transfer revenue declined 3%, on transaction growth of 2%.

As we mentioned last quarter, we are implementing price reductions in our higher domestic money transfer principal bands to address the evolving market pricing. In portions of the country, we are adjusting our domestic money transfer prices to $12.50 for transfers between $50 and $1,000. We are making these adjustments at retail locations in areas where we are seeing the most competitive impact, and they are being accompanied by marketing and communication programs. The actions were just initiated this month, so we expect to report early results next quarter.

The westernunion.com portion of the domestic money transfer business continued to post very strong growth in all principal bands. This business sends electronically, but pays out primarily in cash at our agent locations across the country, with most transactions sent for Money in Minutes delivery. As a reminder, domestic money transfer represents about 8% of our total revenues, with about half of that in principal bands above $200. As Hikmet mentioned, even with the price reductions in the domestic business, we expect our full-year pricing investment for all of C2C to still be in the low single-digit range.

In the Middle East and Africa region, revenue declined 6%, or 1% constant currency, while transactions decreased 3%. Weakness in parts of Africa was driven by oil-related challenges in Angola, and continued market disruption in Libya, but these impacts were partially offset by growth in Nigeria outbound, the United Arab Emirates, and Saudi Arabia. In Asia-Pacific revenue was down 6%, or 2% constant currency. Transactions in the region declined 4%. Strong revenue growth in Japan was offset by weakness in the Philippines and some other Asian inbound markets.

Revenue in Latin America and Caribbean region increased 4% from their prior-year quarter, or 10% constant currency, while transactions increased 6%. Results benefited from strong inbound business from the US, as well as outbound strength from Argentina, Brazil, and several other countries across the region.

Westernunion.com C2C revenue grew 17% in the quarter, 23% constant currency. WU.com transactions increased 25%, while US-originated transactions grew 28%. Electronic channels revenue in total increased 17% in the quarter, and now represents 7% of total Company revenue. In the consumer-to-business segment, revenue increased 7% in the quarter, or 11% on a constant-currency basis. Similar to prior quarters, strong growth in the US electronic and Argentina walk-in businesses was partially offset by declines in US cash walk-in.

Business solutions reported a revenue decline of 1%, or an increase of 7% constant currency. Strong growth in Europe, including from sales of our hedging products, helped drive the constant-currency increase. We also posted strong increases in specialized products such as education and NGO payment services.

Turning to consolidated margins, the operating profit margin was 20.6% in the first quarter, compared to 20.1% in the prior-year period. The operating margin improvement was primarily due to cost savings initiatives, partially offset by the expected increase in compliance expense. As you will recall, we expect approximately $15 million to $20 million of savings this year from the programs implemented in the fourth quarter of 2014, and another $10 million to $15 million of incremental savings from the 2013 programs. Approximately $12 million of total savings were achieved in the first quarter.

Compliance expense was approximately 3.8% of revenue in the first quarter, compared to the 3% in the prior-year period. This percentage may vary from quarter to quarter depending on timing of certain expenses and spending, and we continue to expect a range of 3.5% to 4% for the full year. The overall impact of currency translation relative to last year was negative to revenue and profitability, but hedge gains helped to mitigate some of the impact, which is the intent of our hedging programs. In the quarter, we recorded approximately $16 million of hedge gains on our revenue line, and these also flowed through to operating profit. From a margin percentage standpoint, the positive impact of the hedge gains was largely offset by negative impact from lower revenue and profits due to currency translation.

EBITDA margin was 25.5% in the quarter, compared to 25.1% in the prior-year period. Reported earnings per share of $0.39 increased 5% from the $0.37 in the prior-year period. The C2C segment operating margin was 23.1%, compared to 22.9% in the prior-year period. The C2C margin benefited from cost-savings initiatives, which were largely offset by increased compliance expense, as expected.

The consumer-to-business operating margin was 18.7% in the quarter, compared to 20.2% in the prior-year period. The decrease was primarily due to increased legal costs and additional compliance spending, although the C2B margin did improve significantly compared to the second half of last year.

Business solutions reported an operating profit of $2 million for the quarter, compared to a loss of $4 million for the same period last year. The improvement in operating profit for business solutions in the quarter was primarily due to the impact of productivity and cost savings initiatives, and lower amortization expense. Depreciation and amortization was approximately $12 million in the quarter, compared to $15 million in the prior-year period.

Turning to our cash flow and balance sheet, cash flow from operating activities was $212 million for the quarter, while capital expenditures were $44 million. At the end of the quarter, the Company had debt of $3.7 billion and cash of $1.8 billion. Approximately half of the cash was held by United States entities.

During the quarter we repurchased approximately 8 million shares for a total of $150 million. Our remaining authorization of $1.06 billion expires in December of 2017. We also paid $81 million in dividends in the quarter. As you recall, earlier this year we announced a 24% increase in our quarterly dividend to $0.155 per share, and a new $1.2-billion authorization -- share repurchase authorization. At quarter end, we had 517 million shares outstanding.

We believe 2015 is off to a good start, given the challenges from a stronger US dollar and softness in many global economies. Based on the first-quarter results and our recent business trends, we are affirming the full-year financial outlook we provided in February.

Operator, we are now ready to open the line for questions.

(Operator Instructions)

Our first question will come from Sara Gubins, Bank of America Merrill Lynch.

Thank you. I wanted to clarify your comment about full-year pricing investment would be in the low single-digit range. Does that mean that it's closer to having a negative 1% impact? I know you typically talk about the 1% to 3% range.

I think it will be in the lower part of that, so we don't think that we're going to have big price investments. I'm very comfortable with our strategy. We did not -- our prices are comfortable. We are competing in the market. We did some price investment, local price investment, in our domestic money transfer business; but overall total pricing actions will -- I'm comfortable where our current pricing strategies are at.

Sara, last year the pricing was about 1% of revenue. In the first quarter we were at 0% pricing. That should give you a sense of the low single-digit range.

Great, thanks. On commission expense, it was up for the last two years after renewals of some large agents. How are you thinking about commission expense for 2015?

I feel generally comfortable about that. I don't think of big increases here. Raj?

Yes, the commission expense for this year we see as being flat to last year. We did have some larger renewals that impacted commission rates last year, but they're more stable this year. In fact, in the first quarter we saw commission rates were down a little bit from last year, but for the full year we expect commission rates to be about flat.

I would just add that longer term, our focus is really on lowering overall distribution cost for the business as the mix of the business changes and evolves, to be more (inaudible - multiple speakers) --

Let me give you an example, Raj. Sara, as you know, one of the fastest-growing portal is Account Biz Money transfer. We dropped money also besides the retail, which is huge. We drop also money on an account-based money transfer. When it comes as this, commission rates are total different than with retail commission rates. That makes which Raj is talking about.

Thank you.

Thanks, Sara.

Darrin Peller, Barclays.

Thanks, guys. I want to start off quickly back to pricing. This year, other than the domestic side of things, which obviously saw some pressure from competitors, it actually seems like it's been a more stable year. I was curious what you see happening in the market? For a number of years there's been tough competition coming, and different types of competition coming. But again, this year it seems like it's leveled off. Do you think that we're in for a more stable, protracted environment for a while? Is there something about maybe the regulatory? Is that what's doing it, or -- just a little more color on longer-term stability on pricing versus anything else?

Well, first of all the pricing has been stable the last few quarters, right? Not only this year, this quarter. I think this pricing environment, last year we invested 1% there and that was normal pricing on the corridor base pricing. We're going to continue to do that. We're going to continue to have price promotion under certain corridors, and we are doing it. But as a Company, if you operate in 16,000 corridors in 200 countries, you have the flexibility to adjust your prices to the customer needs. I think we're going to be stable this year on the pricing.

Maybe a better way to ask, back in 2012 when there was a substantial price decrease, what was the environmental conditions that led to that? Is something different now? Maybe we are. Is seems like a more appropriate run rate that's different now about then, versus then.

I feel much comfortable. Raj, you want to add something? On 2012, as you recalled that, our prices were quite high there. In some corridors we were far above the market environment. As I said in 2012, I said I'm going to do this price and I will come back and that happened; because we adjusted our prices to market environment 2012. After 18 months we had the first success. After 24 months there was positive revenue growth. I think most of the corridors are now quite stable.

Darrin, I'll add that we haven't seen a big reaction to those more significant prices we did. There are just more costs in the industry, as well, that people to manage through, which may be impacting other players.

Yes, compliance cost, technologies cost. There are costs (inaudible - multiple speakers) --

All right. That make sense. All right, thanks. One last one and then I'll turn it back to the queue. On the B2B business, the FX -- the more volatile environment from an FX standpoint we're in now obviously should help, and I think it did help this quarter around hedging being used by some of your customers. Going forward, is that something we can count on now, just given the more -- assuming we have a higher-volatile environment, I know year over year it looks like it will be that way for the next two calendar quarters also?

Well, if you're able to predict volatility let us know. (laughter) We're pleased with the performances of B2B business. Yes, volatility helps in the short term and it did help us in the first quarter. But if you look at the progress that's been made the last three quarters in a row, since the middle of last year we have accelerated revenue performance. The business continues to execute on its strategies. Given our market position, we believe we can fill in throw in that multiple-digit range. Volatility is going to help in the short term, but we still believe strongly in that business and the outlook there. We also were able to improve profitability this quarter, which is a positive. I think it's headed in the right direction.

One thing, Darrin, on the Western Union business solution also helps on our growth is the payments part, payment business. As I mentioned earlier, our university payments and our NGO products are going very fast. It's not only foreign exchange trading. It's really also students, for instance Indian or Chinese students, paying their tuition in England or in the US when they come and pay their tuition. That environment's growing pretty fast.

Okay, very good. Thanks, guys.

Tien-tsin Huang, JPMorgan.

Great, thanks. Good results here. On the -- I was surprised on the Europe CIS side -- held up pretty well. Transactions slowed sequentially, but revenue got a little bit better. Is that just a mix pricing issue? Given what the World Bank commented on in that area, do you expect any sort of down-tick in that region in your outlook?

Hi, Tien-tsin. I think mix is the right code there, right answer -- not only on the pricing side, also on the corridor side. It's also on the country side. Russia is definitely -- (indiscernible - accent) was very strong market for us, but they're going to begin environment, all prices and so on. Political issues did impact our business there. South Europe is still challenging, southern Europe is still challenging. However, UK, Germany countries are doing pretty well. That's good actually for our business. It shows again, being in so many countries, that shows the strength of portfolio here.

Thank you.

On the World Bank, the World Bank adjustment has been not only global adjustment -- growth down, it's not only on Europe. I think they adjusted it there. They adjusted their numbers also recently.

Right. It sounded like it wasn't much of a surprise to you. Just as my follow-up, I hate to ask it, but just this Iran OFAC disclosure in the queue, what should we be watching for? Could this trigger some fines? Just trying to understand what the implications might be?

Tien-tsin, this is Raj. We don't know much more than what's been disclosed in the 10-Q. We did identify one of our sub-agents as being on the OFAC list. We reported that to the authorities as we needed to. Really, that's all we know at this stage.

It's a rule that we have to disclose this, and what we did it's really what it says on the disclosure.

Okay, understood. It looks -- obviously it looks like a dated issue, but figured I would ask. Thank you.

Thank you, Tien-tsin.

Bryan Keane, Deutsche Bank.

Hi, guys. I wanted to ask about principal growth. It looks like total principal, or at least principal per tran is down about 1%. I think World Bank is talking about overall principal being slightly up. When you guys think about share gains or losses, how do you guys think you're faring in the market place right now versus the World Bank numbers in total?

Brian, this is Raj. I think we're doing just fine. Last year our principal growth was 5%, and that was also the growth in the market. The World Bank data we certainly look at, but it's more directional at this stage than firm. As all the data comes in from the various parts of the world, those data sets continue to get refined. We're comfortable with where we are. Our principal constant-currency growth was around 2% for the quarter. I think we are in good shape there.

Okay. Does it make sense to get more aggressive to try to take more share? I know price is one lever, but you can also increase the amount of marketing. How do you think about gaining more share than the market place?

Well, first it will be our focus on the profitable market share gain, right? I think both we have to grow, and profitable growth is always our focus. Just examples, we are putting a lot of resources against electronic channels or electronic money growth. Since 2012, 3% of our revenue, then 4%, 5%, and now 7% already of our total revenue is electronic. We do gain market share. We are very pleased with our dot com transaction growth, 25% transaction growth. Even our principal amount was there stronger. We are very pleased with our account-based money transfer growth.

I think we are focused. These are new customer segments. Still we see that they're a new customer segment. What we also look at the demographic last time was that in more younger customers, they use us. They stick in also longer with us, so I think we're going to continue to do that.

Okay, last question for me. On the LACA, obviously constant-currency revenues spiked at 10%. That's up from four last quarter. Transactions went up to 6% from 2%. Is that just all the strength in the US dollar, so therefore saw a spike there? The follow-on question to that would be, do you think that's sustainable as we go on through, throughout the rest of this year?

US outbound business continues to do well, particularly to the LACA region, so that's what drove some of the growth in LACA. We also had good growth in our Argentina business, as well as in Brazil, and several other markets actually in that region. Even on a reported basis, the business still had decent growth and good transaction growth.

Is that sustainable, Raj?

I would hope so. We would like to continue the --

Yes, we confirmed just the year end, right?

We'll see how the US outbound -- our perspective is that the US outbound business will continue to show good growth this year, so that should bode well for the business.

Okay, super. Thanks so much.

Jamie Friedman, SIG.

Hi, thanks. Raj, I know you gave a lot of detail about the constant currency on the revenue side. Did you see any benefit on the expense side from the rise in the dollar?

Yes, we have a fair amount of our expenses in the various foreign currencies. That's why we -- otherwise, we would have seen a larger negative impact on the operating profit line. From a total currency standpoint, if I give you the currency impact and total, it was about neutral on our margins. Because we had the benefit of the hedges, which flows through both of our revenue and our profit line, but it also -- the negative currency translation just more broadly for the business largely offsets that margin benefit from the hedges. The currency impact on the margins was about neutral, and what you're seeing come through the actual margin improvement are all the cost-savings initiatives that we have in place.

Yes, clearly a lot of good work there. Hikmet, I was hoping to ask about the mobile side. You said in your opening comments about 50% of your transactions at WU.com are now mobile. How does that alter the behavior? Is that a younger demographic? Is that are more frequent user? Is the fraud less? Maybe some comments about how the mobile user might be different than the rest of WU.com?

It's right. It's almost 50% of the US WesternUnion.com users are mobile. We see younger demographics, that's true. But it's also lower principal bands. People are using more mobile to send $50, $70, $100, $150 in a very fast environment. I'd say examples like while you are taking an underground, you get a phone call, emergency phone call and you use your phone and send money. Somebody -- our 50,000 locations all over the US can pick up the money immediately. The strength of retail being present in 50,000 locations, every corner. Mobility combining that has been seeing at a huge use case. It's the strongest growing part on the mobile. We do promote it, also.

Got it, thank you.

Jason Kupferberg, Jefferies. Mr. Kupferberg, your line is open.

This is Ryan Carey for Jason. Quick question. It looks like Asia-Pac continues to be under a little bit of pressure. I know you cited a slow-down in the Philippines and it looks like there's some challenging comps, as well. But is there anything more there? Is this something that can recover over say the next few quarters?

We're seeing -- APAC is largely an inbound market, so we are seeing -- because many of the markets are receiving the transactions, some of the key send markets have slowed down. APAC is really just the beneficiary or that's why they're getting the transaction and revenue growth that they are.

That's really the result of many of the markets in APAC are just receiving transactions from some of the markets that have slowed down. In the Philippines, we've also put some higher -- more compliance rules and programs in place, which has impacted the business in the short term.

Okay, great. While it's still clearly very early, it looks like you repurchased $150 million in shares in the quarter. Should we still expect to see the $1.2-billion authorization used rateably -- say $400 million or so over the year?

Yes, that's what I would still plan for, Ryan. That's still our plan. In any given quarter or in any given year over these three years we may be different from that amount, but generally that's our plan.

Great. Thanks so much.

Smitti Srethapramote, Morgan Stanley

Hi, thank you. I wanted to follow up on WU.com. We've notice that the gap between transaction growth and revenue growth for WU.com has continued to narrow. Historically, you've ran a lot of free promotions that led to a larger gap between these two metrics. Wondering if you can give us an update on your strategy here in terms of pricing promotions for WU.com?

Yes, on WU.com, we are very pleased with the growth. First of all, we had 23% revenue growth on a constant-currency basis. That was on transaction growth of 25%. We have historically put some promotional pricing in place and done some other things to drive the various channels and products that we're offering in that channel.

You're just seeing some of that narrow as some of the pricing -- we do continue to price that business separately from our retail business, particularly as we talked about DMT. The same issues do not exist in the digital business. It's just being priced differently. Some of that pricing that we were doing has just gone away, and it's narrowed the spread, if you will.

Just to make it clear, we are very pleased. Really, the dot com numbers has been performing very well. It's just the beginning of the game, actually. We are on in 25 countries, we are expanding. Like our retail money transfer business, we will be in 200 countries one day. We are going to expend here.

It started to be integrated in San Francisco about three years ago, we had as I said earlier electronic channels were only 2% to 3% of our revenue. Already 7% of our total revenue, and major contribution of that is the WesternUnion.com growth. I'm pleased.

It's only a part. We do promotions. The differentiation is that to get customers, new customers. Then once we get the new customers we grow the revenues also. Always you open a new corridor, go to the new areas, you do promotions, and that's what we see in dot com. But generally, with constant currency 23% revenue growth was a good quarter.

Got it. Earlier this week there was some news out about you guys exploring a pilot program with Ripple Apps. Can you talk about how far along you guys may be in exploring, utilizing bitcoin-like protocols? Maybe talk about some of the opportunities and risks that these technologies create for you guys?

Sure, Smitti. Let me start. With Ripple we're evaluating the possibility of a pilot with them through their infrastructure that they have created, but there is really nothing more to say about that right now. We're certainly aware of these other protocols. We are evaluating whether or not they apply to anything that we're working on.

I think David Thompson and the team, our CIO and the team, is constantly looking at different platforms to upgrade our platform. As I mentioned earlier, our goal is to find new customer segments, new way of doing this business. But we are very -- besides running the business, we are very pleased with our core business. We are always looking for other opportunities to upgrade our platform.

Okay, thank you.

Ashwin Shirvaikar, Citi

Thank you. Hi Raj.

Hi, Ashwin. How are you?

Good, thanks. Hope you're well, too. The first question is, in your C2C business, there's this long-term trend that transaction fee growth is shrinking as a percent of total, while FX and commission, other revenue -- that portion is increasing. I wanted to figure out -- first of all, what's going on there? How sustainable is it for you to increase the FX and commission part of the C2C revenue contribution?

Let me start, Ashwin. You may be referring to the growth in the FX line in the quarter. We did do some rebalancing this past quarter between fees and foreign exchange. It was really just shifting between fees and foreign exchange. There was no impact, really, to the consumer pricing, and no impact net to our revenue.

It was just a rebalancing of those two items. That was to better align with certain parts of our business in the market pricing. There was really no impact to consumer pricing or to our revenues.

I think we did that in the past, although this quarter was a little bit higher. But we do that always, adjusting our FX rates and pricing to the American environment. That's the portfolio.

Okay, got it. Then on margins, obviously good job margins there. If you could break out the impact from cost initiatives versus the offset from compliance? It seems to have stabilized now, in terms of spending and then the hedge benefits that we have. Thank you.

Sure. Let me start, and see if this answers your question. The hedges that we had this quarter, we had a gain of $16 million on our hedges. That helped our revenue line. That also helped our profit line. That helped margins by about 100 basis points, margin percentage.

However, the currency translation on our revenue and profits, the impact of margins from that translation largely offset the margin benefit that we had from the hedges. Currency impact in total was net neutral on the margins in the first quarter. What you're actually seeing come through in the margin improvement is the net benefit of the cost savings initiatives, offset slightly by the higher compliance costs in the quarter.

In other words, going forward it's sustainable then?

Well, the cost savings are things that we already have under way. The compliance costs will vary from quarter to quarter. But those are the two impacts that are showing up in the first quarter. Obviously the currency impacts will be potentially different each quarter, and it's based on where currency rates are ultimately, on how that equation will play out.

Okay, got it. Thank you, guys.

Kartik Mehta, Northcoast Research.

Good evening. Raj, I wanted to ask you about the domestic pricing. You're obviously going to lower that pricing, yet as Hikmet said, you still anticipate being on the lower end of the pricing decline that you've communicated in the past. Was it something you anticipated, or is there some offset that is helping you stay at the lower end?

No, it's -- we did anticipate it. We had planned on making price changes in our DMT business. Even during the course of last year, you recall, Kartik, that we've been telling you that the cross-border environment has been quite stable.

Having said that, we always look at our 16,000 corridors. We do price increases in some parts. We do price decreases. There's a balance of both of those things that are going on in the world.

But generally, we haven't seen a big need for large pricing in the cross-border business. We knew and have in our outlook the planned pricing in our DMT business.

Also, putting in perspective Kartik, the DMT prices -- as you know, it's only for certain bents, and it's only for certain parts of the country where we feel competitive pressure. It's like a street corp in our pricing, which we were doing earlier. We always choose pricing actions, if we do that, except the 2012 one, one-time correction. We always do in a very intelligent way looking at the corridors and where the competition is, where to do it.

On compliance cost, I think Raj you've said in the past it might be possible to automate some of those processes, and that might help you lower compliance cost. Are you at a point where you can start thinking about that? Is that something you could see doing in 2016, or is this just a manual process that's very difficult to automate, and the expenses are going to stay where they are?

Kartik, we are very focused on optimizing our compliance programs. In the short term, and it's still the short term, we have had to hire a significant number of people in the compliance organization, now over 2,000 people. That was more than 60% of the cost in the first quarter on the compliance number.

But we also are continuing to invest in technology and automation of our processes. Over the long term, I do believe that we'll be able to optimize our compliance spend. I don't see it really stepping down from where we are in the near future, because the regulatory environment continues to evolve, and it is complex, and it's a global effort.

I see us --I think we are at a more stable place in the current range that we have for this year. But our goal is always to optimize (inaudible, multiple speaker) --

I really believe that it will differentiate us to be partnered with different parts of the world. I think it's an investment that makes it Western Union special, that makes it Western Union to apply in different parts of the world with the regulations. I believe it's a competitive advantage long term.

Thank you very much. Appreciate it.

Bob Napoli, William Blair. It appears that he has put his line on hold. Mr. Napoli? Okay, we'll go on to our next question from Tulu Yunus.

Hi, guys. Thanks for taking my question. You guys talked about price decline in the DMT business, but overall obviously kept it flat for the overall franchise. Just wondering, are you guys actually raising prices in certain select corridors? Anything that would be noteworthy?

We always raise prices or decrease prices different parts of the world. We even change bands within the price within the 16,000 corridors. That's a part of the business. We have been doing it for many years. That's about -- it's nothing that big price actions that we're going to change our pricing strategy for a certain time for near term.

Got you.

Just to clarify, Tulu. In the first quarter the domestic money transfer pricing wasn't in place yet, so we didn't have that impact on pricing.

Oh, I see. Okay, thanks for clarifying. Then secondly, just Raj on the FX hedge benefit, $16 million in the quarter. Are you still expecting $70 million for the full year? Should it -- do you think it will come ratably through the year, or any call-outs by quarter? Thanks.

Not by quarter, but we are still expecting about $70-million benefit on the hedges for the full year. That can vary a little bit depending on where rates, currency rates, are. But yes, still expecting about $70 million. We've assumed -- just so you know -- we've assumed about $1.10 euro rate. Obviously that continues to fluctuate around.

Right. Okay, great. Thank you very much.

Okay. Laura, I understand that's the end of the queue. We want to thank everybody for joining the call today, and wish you a good afternoon. Thanks.

Thank you.

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