西聯匯款 (WU) 2015 Q2 法說會逐字稿

Good afternoon, and welcome to the Western Union second-quarter 2015 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. 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 second-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 reconciled those items to most comparable GAAP measures on our website, WesternUnion.com, under the Investor Relations section. All statements made by Western Union officers on this call are the property of The Western Union Company and subject to copyright protection. Other than the replay noted in our press release, Western Union has not authorized and disclaims responsibility for any recording, replay or distribution of any transcription of this call. I would now like to turn the call over to Hikmet Ersek.

Thank you, Mike, and good afternoon, everyone. I am pleased with our operating performance, as we posted another quarter of solid results. We improved constant currency trends across all of our business segments. Excluding the one-time charge, corporate margins expanded 90 basis points compared to the prior year, and we continued to return significant funds to shareholders through both share repurchases and dividends.

While economic currency and geopolitical challenges remain in many parts of the world, we are pleased with our performance and business trends. As a result, we have raised our full-year outlook for adjusted earnings per share and constant currency revenue growth. In the quarter, consumer money transfer was led by a healthy US outbound business and good transactions growth in markets such as Germany and the UK, which offset continued challenges in Russia and some African countries.

WesternUnion.com again delivered strong growth in the quarter, not only in the US, but across most of the countries where we have transaction sites. Customers using online or mobile to send money to bank accounts are providing incremental business. Improvements in mobile access, such as with our new UK app, are also producing good results. Our consumer money transfer pricing has been stable, as the net pricing investment for both the second quarter and the first half of the year was minimal.

Western Union Business Solutions delivered its fourth consecutive quarter of accelerating revenue growth, as we continued to focus on our strategy of providing specialized products and services. Consumer bill payments also provided strong growth, with good performance from both our Argentina walk-in business and US electronic bill pay.

Now, before I turn the call over to Raj for the financial results, I would like to take a few minutes to discuss the industry landscape, and our strategic focus. As I have stated in the past, our vision is to be recognized leader in cross-border, cross-currency money transfer for consumers and businesses. For the consumer money transfer market, we expect digital-initiated transactions will be fast growing over the next several years, and we also believe retail-initiated transactions will continue to provide a steady business and remain a very sizable portion of the market.

As you know, cross-border money transfer has different dynamics within the different countries and customer segments. On the receive side, we believe cash will remain critical in much of the world for the foreseeable future. At the same time, the account side of the receive market represents incremental opportunity.

Western Union has great global assets to leverage. We have a strong brand which stands for trust and reliability with our customers. We already have regulatory and compliance programs that allow us to operate in more than 200 countries and territories. We have an extensive funds-in and funds-out network that connects over 0.5 million diverse retail agent locations, ATMs and kiosks, our own and third-party digital sites and mobile wallets. We are aiding direct access to millions of bank accounts, and our network also gives us the ability to offer tailored cross-border B2B, B2C, C2B solutions.

We have a cross-border platform that provides the technology, foreign exchange conversion, and settlements, regulatory and compliance infrastructure, and data management that brings our network together. This platform allows an effective and timely money movement for multiple use cases almost anywhere in the world. We are building on these strengths to expand our network even further, and open it to new types of players.

Today, we are very well positioned, as we have been heavily investing in our digital, compliance, and IP capabilities for the last few years, and we continue to enhance our platform.

Just in the first half of the year, we announced new agreements with MTN for mobile money transfer in Rwanda and in the Ivory Coast, new connections to the ATMs in Poland, new service kiosks with WHSmith in the UK, and new card and ATM-based services through MasterCard and Bank of Transylvania in Romania. We have seen new business solutions formed by mass payment alliance with Hyperwallet and signed agreements with Towers Watson for cross-border payroll and with Northwestern University for education payments.

We also entered other new agent relationships, such as with the Bank of China and Sainsbury's Bank, the UK's first supermarket bank, and we renewed several other agents around the world, including the expansion of our long-standing relationship with Kroger here in the US earlier this month.

Our digital business is already strong, with approximately $250 million in revenues last year, and strong growth again this year. We now have online sites in 29 markets to send money around the world, and we plan to leverage our brand, global presence, and regulatory relationships to add even more markets over the next couple of years.

We are opening a digital hub in Asia that will help us move faster to establish and develop online and mobile business across the Middle East, Africa, Asia, the CIS, and other international markets. While we have already an established retail [pairing out], we will continue to add to the more than 50 countries where we can now deposit funds into banks and mobile accounts.

From this foundation, we believe we are very competitive, and we offer a strong proposition that is difficult for others to replicate on a global scale. The payment space is clearly seeing some exciting developments. At Western Union, we are focused on the innovation and new technology, and we are fortunate to already have a strong core asset that supports global money movement.

So I hope I was able to give you some brief insight into Western Union's resilient global business moves, our competitive strength, and our future strategy.

Now, coming back to the second-quarter results, once again, we are pleased with the performance and improved revenue trends, and with the raised outlook for the year. Now, I will turn the call over to Raj to provide you a more detailed review of the quarter.

Thank you, Hikmet. Second-quarter revenue of $1.4 billion was down 2% compared to the prior year period, due to strength of the US dollar, but revenue on a constant currency basis increased 4%. The impact of currency translation, net of hedge benefits, reduced second-quarter revenue by approximately $85 million compared to the prior-year period.

In the Consumer-to-Consumer segment, reported revenue decreased 3%, but increased 3% constant currency. Transactions also grew 3% in the quarter. C2C cross-border principal declined 5%, or increased 2% constant currency. Principal per transaction was down 7% compared to the prior-year period, primarily due to foreign exchange translation, as the decline was only 1% in constant currency terms.

The spread between the C2C transaction growth and the revenue decline in the quarter was approximately 6 percentage points. The differential was due to a negative 6% impact in currency. Both net pricing and mix impacts were minimal in the quarter.

We did implement some price reductions in the high principal bands of our US domestic money transfer business in early April. These were implemented in certain parts of the country, where we were seeing competitive impact. While it will take several quarters to fully judge the results, we are seeing improved transaction trends in the price bands, which contributed to a 4% increase in B and C transactions in the quarter.

Turning to the regions, due to the significant fluctuations in foreign exchange rates compared to last year, as I discuss individual country contributions to the regional results, I will be referring to constant currency movements. In the Europe and CIS region, revenue declined 9% or increased 2% constant currency, while transactions increased 1%. Germany and the UK delivered good revenue growth in the quarter, which is partially offset by continued declines in Russia.

I also want to give you a quick update on Greece. The money transfer industry was affected by the government-mandated bank holiday implemented in late June, and money transfer transactions were not allowed. Midway through July, some inbound business was reopened, with limitations on withdrawals. We are very pleased that starting this week, we have been able to reopen our services in many agent locations, without limitations on inbound transfers, so our valued customers in Greece are now able to receive much-needed funds.

For reference, Greece represents just under 1% of Company revenues last year, and prior to the current crisis, the business was split 50/50 between inbound and outbound.

North America revenue declined 2%, or 1% on a constant currency basis, while transactions increased 3%. US outbound growth was strong in the quarter, driven primarily by sends to Latin America and Mexico. Our Mexico business continued to grow faster than the market, based on the latest Banco de Mexico data for the first two months of the quarter. Total domestic money transfer revenue declined 4%, while transactions increased 4%, an improvement from the first quarter's 2% transaction growth.

In the Middle East and Africa region, revenue declined 4% or increased 1% constant currency, and transactions were flat. The region benefited from growth in the United Arab Emirates, Saudi Arabia, and the Nigeria outbound business, which was partially offset by continued geopolitical-driven weakness in Angola and Libya. In Asia-Pacific, revenue was down 5% or flat constant currency. Transactions in the region declined 3%.

Revenue in the Latin American and Caribbean region increased 6% from the prior-year quarter, or 13% constant currency, while transactions increased 7%. Strong inbound business from the US, as well as outbound strength from Argentina, drove the growth in the region. WesternUnion.com C2C revenue grew 22% in the quarter, or 28% constant currency. WesternUnion.com transactions increased 27%. US-originated online transactions grew 33%, and the US outbound corridors were even stronger.

Electronic channels revenue, which includes WU.com, account-based money transfer through banks and mobile money transfer increased 19% in the quarter, and represented 7% of total Company revenue.

In the consumer-to-business segment, revenue increased 8% or 12% on a constant currency basis, driven by strong growth in the Argentina walk-in and US electronic businesses, which was partially offset by declines in US cash walk-in. Business solutions reported a revenue decline of 1%, or an increase of 9% constant currency. The revenue growth was driven by Europe, and led by strong sales of hedging products.

As we discuss margins and earnings per share, unless otherwise noted, my comments will exclude the impact of a settlement agreement reached between our Paymap business, which is part of the consumer-to-business segment, and the Consumer Financial Protection Bureau. Due to this agreement, we have accrued $35.3 million in the quarter to resolve claims regarding the marketing of Paymap's Equity Accelerator service. After tax, the impact was $24.2 million or $0.05 per share.

The consolidated operating profit margin excluding the charge was 20.7% in the second quarter, compared to 19.8% in the prior year period. The operating margin improvement was primarily due to cost saving initiatives and the net impact of foreign currency movements, which were partially offset by increases in incentive compensation, compliance and technology expense. While the overall impact of currency translation negatively impacted revenue and profitability in the quarter, the operating margin percentage benefited from hedge gains, as profit was proportionately less impacted by currency than revenues.

In the quarter, we recorded approximately $20 million of hedge gains on our revenue line, and these also flowed through to the operating costs. Excluding all impacts of currency, operating margins still improved compared to the year-ago period. Approximately $9 million of incremental savings were identified in the second quarter from cost savings initiatives. We continued to expect approximately $15 million to $20 million of savings this year from programs implemented in the fourth quarter of 2014, and another $10 million to $15 million of incremental savings from the 2013 programs.

Compliance expense was approximately 3.7% of revenue in the quarter, compared to 3.2% in the prior-year period, and we still expect a range of 3.5% to 4% for the full year. Adjusted EBITDA margin was 25.2% in the quarter compared to 24.7% in the prior-year period, while our tax rate of 11.8% was down from 16.5% in the prior year. Including the impact of the settlement charges, the reported tax rate was 8.5%. Adjusted earnings per share of $0.41 increased 14% from $0.36 in the prior-year period, driven by the operating margin expansion, a lower effective tax rate, and fewer shares outstanding. GAAP earnings per share, which includes the settlement, was $0.36.

The C2C operating margin was 23.3% compared to 22.7% in the prior-year period. The C2C margin benefited from cost savings initiatives, and the net impact of foreign exchange, partially offset by increased compliance and incentive compensation costs. The consumer-to-business operating margin was 18.3% in the quarter, excluding the settlement charge, compared to 16.2% in the prior-year period. The margin increase was driven by higher revenue and cost savings initiatives.

Business solutions reported breakeven profit for the quarter, compared to a loss of $3 million for the same period last year. Improvement in operating profit for business solutions in the quarter was primarily due to 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 $466 million year-to-date through June. Capital expenditures were $78 million for the second quarter. At the end of the quarter, the Company had debt of $3.7 billion, and cash of $1.6 billion. Approximately 40% of the cash was held by United States entities.

During the quarter, we repurchased approximately 7 million shares, for a total of $156 million. Our remaining authorization of $906 million expires in December 2017. We also paid $79 million in dividends in the quarter, and at quarter end, we had 512 million shares outstanding. Based on the results for the first half, and our forecast for the remainder of the year, we are raising our full-year outlooks for adjusted earnings per share and constant currency revenue growth. We now expect low to mid single-digit constant currency revenue growth for the year compared to low single-digit growth in our previous outlook.

Our operating margin outlook remains at approximately 21%, excluding the Paymap settlement, or approximately 20% including the charge. We continue to expect the adjusted tax rate to be approximately 13%, although the GAAP rate is now projected at approximately 12%. We have raised the adjusted earnings per share outlook by $0.02 to a range of $1.60 to $1.67. On a GAAP basis, the range would be $0.05 lower.

We are pleased with the second-quarter results, including good revenue trends and cost management, and are confident in the outlook for the remainder of the year. Operator, we are now ready to open the line for questions.

(Operator Instructions)

And our first question will come from Bryan Keane of Deutsche Bank.

Just want to ask a big picture question, Hikmet. Lots of M&A activity in this space, in the remittance space. It seems like Western Union wants to stay away from making any acquisitions of any size, or of any material size. Could you maybe just give some thoughts on acquisition strategy, and your thoughts on Western Union doing this on a stand-alone basis?

Great question, Bryan. First of all, we are very pleased with our performance, obviously. We are really executing on the market, and again, another quarter, solid quarter, and I believe also our digital strategy and our portfolio expansion is working. Our core business are delivering and that's great. Build on that strength. We are always looking for acquisition opportunities to enhance our cross-border money movement capabilities, our platform, and also expanding our portfolio, we're always looking at that.

We are pleased, we are very focused on our performance. We are pleased with our performance. If you look at acquisition, it would need to have a strong cash-on-cash return and we believe also the acquisition candidates should be, really has to fit in with our strategy, has to really help us to execute good in the market, and long-term, has to be benefit for us. So we are always looking at the acquisition possibilities, but it has to fit and we are going to continue to execute well with our business.

But it doesn't seem like anything's imminent, or there are a bunch of big deals that you're close to looking at?

We are looking always at all possibilities, but we are very much focused, and as you know, we don't make any comments on acquisitions, and so I think we are much focused on our execution.

Okay, and then just, Raj, obviously volatility in FX is playing a role. Can you just maybe help us understand how that's influencing the model, the puts and takes for both revenue and margin?

Sure, Bryan. The volatility itself has more of a direct impact in our B2B business. We see that impact the business in the short-term. Long-term results in the B2B business are really driven by overall market growth, and the things that we're executing upon. From a volatility standpoint, for the consumer business, there's not much of an impact. We have seen some additional movement there in certain markets like the US and the UK to India, or the US to Mexico, as those currencies have moved. But nothing dramatic on the consumer side of the equation.

Just generally, our trends have been improving. We've seen good US outbound trends. We've seen good performance in parts of Europe, although with challenges in Russia, obviously. But even in the Middle East, we've seen good performance with the UAE and Saudi Arabia, and even Nigeria, our outbound business there. So pockets of strength around the world, not necessarily driven by currency volatility, really just by good performance in those particular geographies.

Okay. Helpful. Thanks so much.

The next question comes from Tien-tsin Huang of JPMorgan.

Great quarter here. Building on Bryan's question, just on hedge gains then, $36 million year to date, what's the second half outlook on the hedge gain front if rates hold there?

Tien-tsin, this is Raj. We still expect to achieve about $70 million in hedge gains for the year. $16 million in the first quarter, as you know, and then $20 million in the second quarter, and then still $70 million. That's assuming rates stay roughly where they are today. We had assumed about $1.10 coming into year for the euro, and that's roughly where the rate has been.

Terrific. Just wanted to check there. I guess, back to the business, on the pricing front, good to hear everything's holding stable. What's the outlook for the year, specifically I guess, for the second half? Do you have some price actions embedded in the outlook? Do you have that lever ready to pull, or does it feel like we're in a stable environment here?

Well, generally, as you know, Tien-tsin, our business, we do pricing actions as we did it also on the US corridor. We do it corridor by corridor, selective pricing actions. I believe that the business is quite stable. We are winning, we are quite competitive. The people really trust our brand, trust our network, trust our capabilities on the multi-settlement and everything. Our platform is working pretty well.

Within that environment, we feel currently quite stable on the pricing investment. So I think we're going to continue to do on corridor by corridor and area by area pricing investment, as we did in the past always. But I don't feel that we, for this year, we are going to do a big pricing investments.

All right. That's great. Great quarter. Thanks.

And the next question comes from Smitti Srethapramote of Morgan Stanley.

Great, thank you. So this was the first quarter where I think I've noticed that constant currency revenue growth in WU.com was higher than transaction growth. Can you just talk about this development? Are you pulling back on promotions, and what growth rates should we be expecting in WU.com going forward, if there is less promotions?

Smitti, this is Raj. We are very pleased with the growth that we've gotten in the WU.com business, and the strategies that we've put in place there are really starting to work for us. The business has really been focused on expanding geographically, and you see that in 29 markets now. We're also improving upon the customer experience by adding more features and functionality to our platforms, and ultimately, getting more conversion of customers. And we're also expanding channel capabilities. So more bank funding, more bank payout. We also have mobile capability in the US, UK, and Australia. So all of those things put together are really helping to drive good revenue growth.

Having said that, we continue to look at opportunities to do price promotions. That's an ongoing activity that we have, but you're seeing those two things tighten a little bit, and we're pleased with the 27% transaction growth. That just gives you an indicator of how healthy the business is. And I would say our principal growth has been even far above our revenue growth. So we're gaining share in that part of the market, and we feel really good about where that business is headed.

I think also, to add onto that, our mobile strategy is working pretty well there. We're going to expand that mobile strategy also to the other countries. And one thing also you heard that, Smitti, saying we are going to open a digital hub in Asia. We want to go to new countries also with that one.

And basically, we are going to use our existing business model, which we create in San Francisco, which has been so very successful and really taking that and opening in new countries to expand our digital. And the trick is obviously combining digital and with retail payout, different dynamics. Our omnichannel strategy is working, so I'm pleased with that, also.

Great. Thank you for that. Maybe just a follow-up question, just wondering what reactions you have to the proposed PayPal Xoom combination.

Well, I can't make a comment on PayPal nor Xoom, obviously. But I think that we are pretty much, our business, our digital business is really pretty good, as I mentioned earlier, right? I think we are going to concentrate and expand our digital business, which has very strong growth. We are also, with our platform we are also looking also at different customer segments, different players, which are joining.

An example, one of the examples which is growing very well is our financial institutions web pages, like Scotiabank or like Swiss Post Bank. They are using our platform to send money worldwide, so it's bank-funded on their web page using Western Union, dropping money to 200 countries.

That's the platform strength. We have it. I think we're going to concentrate on that.

This platform is, it didn't happen to us yesterday, right? We built it over years. It's very strong and it is -- you have -- it's a really competitive advantage. And the cash payout is extremely important in different parts of the world, as you know, and that's definitely, we feel, we feel quite competitive to be successful in the market.

Okay. Thank you.

And our next question is from Jim Schneider of Goldman Sachs.

Thanks for taking my question. I was wondering if I could follow up on the previous one, if in fact PayPal does expand the Xoom offering into more markets than just US outbound, can you maybe talk about what's required in your online business to drive more marketing dollars? And what the historic relationship you've seen is between marketing dollars spent in a given geography for online channels, versus transactions?

Jim, you will understand that I'll keep that in a general comment. I won't give my secrets away, competitive secrets away. But to build an online business is not that easy, and dropping money there is not easy. You need in some countries bank licenses, you need the compliance requirements, you need to register customers, know your customer, know your agent on the receive side. It's a quite complex part which we have been doing that for many years, and very successful.

What happens is that it's not only in the send side, you also have to understand the dynamics on the receive side of the customer behavior, customer segmentation on the receive side. And what we do with our platform, as you saw in one of my charts, I explained it. Western Union has the diverse payout options. And it's the choice of the consumers how they want to pick up the money, and how we want to send that. So that's the biggest advantage we built over the years, and we're going to concentrate on them.

On the send side, maybe particularly answering that question, you're going to concentrate on the loyalty programs, on the corridor by corridor actions. Is it a promotion, Mother's Day promotions or is it a Christmas promotion, or ethnic marketing, we'll continue to be very focused. So I believe that we are very well positioned here.

That's helpful. Thanks. Then maybe a follow-up for Raj. On the compliance spending, 3.7% in the quarter, what's the visibility outlook into the back half of the year? Do you think there's an opportunity to bring that down, or do you think that stays at the same or even higher level, and can you maybe talk about some of the programs that are, that are ongoing there?

Sure, Jim. We still believe that our spending this year will be in that 3.5% to 4% range. I don't have a tighter range to give you than that. In any given quarter, the level of spending is going to vary, depending on what activities we actually have going on. I do believe that we're in a more stable place this year than we have been historically, in terms of the level of compliance spending. What you're really seeing coming through in the higher spend this year is all the people that we have hired.

We have over 2,000 employees in the compliance organization, which is helping to strengthen our compliance capabilities, but that is adding costs to the equation this year, and that's really the step-up that you're seeing. At the same time, we're also trying to optimize our spend. We're spending money in technology. We're trying to automate processes, automate activities wherever we can, and that's something that will make us more efficient over time. But we still are in the right range for the 3.5% to 4%.

Raj, I think we're going to continue to roll out compliance programs worldwide. There will be continued investments. I see that as an investment, because it's really starting to be a competitive advantage in some countries. And the know your customer, know your agent programs will be expanded in several countries over the coming years, to protect our customers, to protect the Company, to work with the regulators. And it's a complex business, money transfer business, and we've invested in that, and we're going to continue to do it.

Thank you.

The next question is from Darrin Peller of Barclays.

Just first question on pricing again, it came up before, but good to see stability there. Just Hikmet, big picture, not necessarily this year, but it used to be something that you would guide towards being maybe a 1 to 3-point pressure per year in terms of just expected headwinds on the revenue side. We have, obviously, haven't seen that for the last couple of quarters. Do you think that continues or comes back in a couple of years? Is the environment competitively going to cause that? Is it a better competitive landscape now?

Well, Darrin, as you know, I'm not going to give guidance for longer guidance. But I see where we are today, and you could look also at the last quarters, we've been very competitive within that environment with our pricing. Darrin, as you know, that doesn't mean that we're not going to do pricing, right? We're going to really focus corridor by corridor. As you recall, in 2012, we had one correction about our product reposition and pricing reposition and a bigger one.

But since then, as we said, that will come back, transactions and revenue will come back, and that happened. If you do also corridor-based pricings, or area pricings, it takes about 18 months or something like that, the revenues also come back. You see suddenly the transactions are coming back on the corridor by corridor. But we've been doing that for many years and I believe that given our global reach, we can really do that corridor by corridor pricing investment. I feel comfortable about where we are today.

Okay. All right. Then just a quick question for Raj. On the tax rate, I think it came in at 11.8% adjusted for the settlement, and so I think you had guided initially to a 13% tax rate for the year, was it? First half is coming in, I think about 100 basis points better than that. I guess first question is just, should we still expect that for the year? And then, why would it increase in the second half? Then going forward, is your normal tax rate still 15%?

Yes. You should still plan for about 13% adjusted for the year. There's just some geographic and business mix assumptions that we have in the full-year outlook for the tax rate. So that's approximately what we expect for the year, and on a longer-term basis, assuming no other tax law changes, which is something you can't really predict, then we would expect in a normal year to be in the midteens range.

Okay, guys. All right. Nice job. Thanks.

And next we have a question from Sara Gubins of Bank of America Merrill Lynch.

On pricing, you did lower pricing to some extent in the high principal bands in the US. I know it was on a selective basis. Was the impact of that just so small that it doesn't show up when we look at the overall pricing impact, or are there some regions where pricing is coming up?

Yes, Sara, this is Raj. We did do some price increases and decreases around the world. That's why you see the net impact being 0% pricing for the quarter. And actually for the first half of the year. As we've always said, we look at pricing opportunities all over the world, and what it takes to be competitive in certain geographies, and so that can go in the up or down direction. So that's really why you have 0% pricing.

I'd just add on that, Sara, you're right, we did some pricing investment in the higher bands, in selected locations where we feel that we did that. I think all along, [Nakarta] and the team did a good job to selecting the locations to very minimal pricing investment. We feel quite competitive in the lower bands, and also in general in the US, domestic money transfer and US outbound, and US-origin digital money transfer is doing fantastic actually. The team is doing a good job to respond to the market needs, so I feel generally that our pricings are stable and good for this year.

Great. And then a question on Europe. Transaction growth came down. When we look at year-over-year transaction growth, it came down about 300 basis points versus last quarter. You mentioned strength in Germany and the UK, and of course, weakness in Russia offsetting that. But did anything change sequentially from the first quarter that might explain the weaker transaction growth?

Sara, the transaction growth was largely impacted by declines in Russia, but if you look at the revenue growth, that stayed very consistent with the first quarter. We still had 2% constant currency revenue growth in both the first and second quarter, and the transaction growth, because of the declines in the Russian business, which is at a relatively lower revenue per transaction than the rest of Europe, that's why you see the mix change happening there. So that's more of an impact on transaction growth, and really not much impact on the revenue growth.

Great. Thank you.

Next, we have a question from Tim Willi of Wells Fargo.

Just had a question on the consumer to business and B2B. That consumer to business growth rate of 12% constant currency is pretty strong. I guess I just want to make sure there's nothing with US transitory in the quarter that is not indicative of their underlying business, or should we think about that's really the trajectory the growth rate is for the consumer-to-business right now?

Tim, that's slightly more than the first quarter, but it's pretty consistent. In the first quarter, the business grew at 11%, so nothing unusual there. We've had good performance in our Argentina business, and also in our electronic payments business here in the US, and those are the two key growth drivers. And then cash walk-in business here in the US declined, as it has in the last few quarters. So nothing really has changed in terms of overall trends there.

Okay. Then my second question ties into the whole enterprise. But obviously the transaction growth rates in the revenue in the consumer-to-consumer are what they are, in that low single-digit, give or take. A lot of people talking about pricing, but you've got these two other businesses of the B2B and the C2B that are growing faster than the consumer.

I guess my question with that as a backdrop is, if you can maintain transaction growth in the consumer-to-consumer where it's at, and there's not any real degradation. Does that alleviate your concern or your willingness to cut prices, but actually focus more on the other two businesses to pick up the slack? Or do you feel like if you can't reaccelerate the transaction growth in the consumer, that somewhere pricing would have to occur again, like we did a couple years ago?

I think I got your question. Let me try to answer it. So first of all, if you compare our retail, retail money transfer business is the big part of that. That's a different base than on our digital business and the business solutions, right?

The growth rates are different bases. One is huge billions dollars of business. The others are last year, our digital business was $250 million. But it's very strong growth and it helps to grow the Company. So as I said in my opening comments also, we believe that retail money transfer business continues to, retail industry continues to be stable and we have had a lower growth rates than the digital business, which is going to be very strong growth rate. But that will -- it's a different base, and it's a different customer segment.

One good thing is also that the digital business consumers are new to Western Union. These are new customers we are adding. We wouldn't be so successful if we, in digital business, if we wouldn't have the retail payout network worldwide. The connection between digital and cash payout, it's really one of the strongest growth rates we have globally than the combination of omnichannel mix is successful seeing that on the digital to digital, that's a different customer segment.

We do that, also we do have a good growth rate, digital to bank accounts payout. But generally I would say it's a different customer segment. We have a good price positioning to go after them.

So I don't see the big pricing investment to catch up there, or to change the environment. I think I feel comfortable with our omnichannel strategy with customer segment base pricing, promotions, works pretty well to go through the market.

Okay. Thanks. That's very helpful. Thank you.

Our next question comes from Ashwin Shirvaikar with Citi.

I have a question on the FX line in the C2C segment. Last quarter you had mentioned some rebalancing between fees and FX. But when I look at it in FX as a percent of C2C revenues is now up to over 24% of revenues, 18 months ago it was less than 22%. I'm wondering how sustainable is this? Do you pay commission on FX? And the pricing calculation, does that include this, or not?

Ashwin, if you recall, in the first quarter we began some -- and we completed some rebalancing between fees and foreign exchange. So we shifted some pricing in certain parts of our business from fees to foreign exchange. No overall impact to consumer pricing, and no real impact on our revenue line. So you're going to see that impact throughout the course of this year, until it anniversaries, into next year. But that was just to realign with market pricing on why we did the rebalancing.

But on the FX component, do you pay commission to your agents? What's the contribution margin of FX versus transaction? Just curious.

Hi, Ashwin. This is Mike. To answer your first question, it is included in our pricing number, so changes in the FX spreads is part of the pricing calculation, as well. It depends on the country. In some countries, we pay commissions on the FX. In other countries, we don't. It just depends on which corridors we're talking about.

Okay, and a broader question, you have had very stable, let's call it 3% transaction growth in North America now, many quarters. Is this -- looking at a late cycle, is this the right level of transaction growth for forward-modeling purposes, or can you accelerate it? Or is it stable?

In the US market it has been pretty consistent transaction growth. This year, it's really about the economic conditions that we see. We have seen continued good growth in the US market. US Outbound to [Lakka] has continued to stay strong. US to Mexico has also been very strong for us. And then we have our DMT business that we just saw some acceleration in transaction growth, so that's a component of it as well. It's hard to predict exactly where the transaction growth will be for that business, but we're pleased with the direction it's had in the last few quarters.

I think also, all the promotion actions and all the online business is doing well. Especially the mobile is a big step in the US. I'm very pleased with the mobile penetration in the lower bands. People are really using it and it's very convenient. It's -- you have the mobile app, you send money and somebody anywhere in the 50,000 locations in the US can pick up the money immediately. So that's something that we wield that, it's also Outbound business is very strong and I think it's a good market.

All right. Sounds like you can keep it stable going forward. Okay. Great. Thank you.

Next we have Jason Kupferberg of Jefferies.

So on WU.com, I was curious to get a sense of what percent of the volume going through there is now paid out in cash versus being paid to an account, and where might you like to see that metric get over the next year or two? Obviously it would be advantageous if you can avoid some of the agent costs there.

The vast majority of the business is still paid out to an agent location. However, the bank payout and the bank funding of those transactions is one of the faster-growing areas. It's still a small portion of the business, but still the largest use case is to pay out in cash.

And again we're trying to create this omnichannel capability where consumers have an opportunity to use us however they want. Whether it's cash at a retail location, or mobile, or bank or online business. So however they want to transact with us, that's really what we're driving towards. So cash is still obviously a very important component of the equation, but bank payout and bank funding are going to become more a part of the mix as we move forward.

Especially in the sense -- it really depends on the country, depends on the corridors, right? In countries where you send money where the people need to pay out in cash, the corridor, it's extremely high growth rates. But on the send side, there is a different use case. The people want to use online. Maybe sometimes credit card funded, sometimes ACH, sometimes, especially in Europe, debit cards and debit accounts funded.

On the receive side, we see a huge -- the agent locations advantage is huge to cash payout. But as Raj said, it's small, but we see also very fast growth rate on the bank account and mobile wallet payout. So that's something that we are also focused.

It's largely an incremental opportunity for us, the bank payout. We typically don't see a shift of preference there. It's really an incremental opportunity for us.

That's the way it sounds. And then just a follow-up question generally on costs. I know you're still working your way through some of the cost savings from prior actions. Should we think of your overall cost base as being pretty well optimized at this point? Obviously you've made the investments in compliance, for example, and you've done a good amount of cost takeout in prior years, or do you still think that you can ferret out some additional opportunities that might even be significant enough for you to be able to call out at some point?

I mean, Jason, we're always looking for opportunities to take some cost out and optimize, and we continue to evaluate opportunities. As you said, we've done quite a bit already. We still are looking at ways of optimizing our overall distribution costs, so we really look at the mix of that business and how that's going to drive distribution costs down over time. And that is our single biggest cost item in our cost structure, as you know.

Then compliance has certainly become more stable, I would say, this year, than we've seen in the last few years. We have a better handle on it.

And then in our fixed and variable cost structure, other variable costs, we're also looking at opportunities. So certainly if there's something of significance, we would definitely call it out to you at some point in the future.

Okay. That makes sense. Thanks, guys.

The next question comes from Kevin McVeigh of Macquarie.

Great, thanks. I wonder if you could give us a sense from a pricing perspective, is some of that being helped by capacity coming out as a result of just the cost of the compliance being too onerous at this point for certain markets?

Kevin, on the compliance we -- if I understand your question correctly, we have compliance activities that are ongoing in nature. So we have many markets and geographies where we're implementing programs. Even if we complete those activities, we know that we have more regions and more markets in which to go to, and so that's why we continue to see some higher level of spending on the compliance side. That's where we are today, but things don't necessarily just drop off. Mike?

I think if you're referring to the industry in general, Kevin, we do think costs are going up for competitors, and that's probably playing into pricing in the industry.

Yes, it was more along those lines, Mike. Any thoughts on Hyperwallet, the JV. How has that been going?

It's early in the relationship. It's within our B2B business that we've entered into this relationship, and it allows us to deliver mass payments around the world in an easier way. Hyperwallet has a receive-oriented portal that ultimately requires the beneficiary to input their own information, so it makes it easier.

The center doesn't have to know every single beneficiary detail. And so, instead of having to put thousands of data points into a system, you can rely on the beneficiary to actually pull the payment to wherever they want to. It's easier for mass payments and it's applicable in the B2C space mostly, and pension payments or payroll.

I think it fits into our strategy, also. It's not only what we do, it's not only sender decision, it's also should be a receiver decision, how to pull out the money, where to direct the money, and these kind of relationships help us as we expand our receiver-driven products also to different countries.

One thing we realized that receiver wants also to have the choice, sending money as cash or account or even sometimes dividing the money, half of the money to an account, half of it paying out in cash, so something like that. The relationships like Hyperwallet helps on our future strategy.

Great. Thank you.

Our next question comes from Alex Veytsman of Monness, Crespi.

Just wanted to ask about the C2B growth. There was some acceleration this quarter from the prior quarter. What were the main drivers in C2B, and where do you see it for the rest of the year?

The business grew 11% in the first quarter and 12% this quarter on a constant currency basis. The drivers have been the same that we've seen for the last few quarters. We had good growth in our Argentina business, and we also had good growth in our electronic payments business here in the US. And we had a little bit of offset from the declines in our cash walk-in business in the US. But pretty similar components of growth, as we've seen in the last few quarters.

And then on the B2B side, also some acceleration I think from 7% to 9%. Is it pretty much the same landscape as before?

Yes, the business continues to execute. That's the fourth quarter in a row that we've had good constant currency growth acceleration. They are focusing on driving continued expansion of our hedging and risk management capabilities, as well as driving growth in our integrated payments vertical. So university payments, financial institutions, NGOs, these are typically more sticky relationships. They require a little bit more of an integrated solution. We've been quite successful and we continue to expand that into more markets.

Great. Thank you.

Laura, I think we have one more person in the queue, so we'll take the final question.

Sure. And that question will come from Matthew O'Neill of Autonomous.

Most of my questions have been answered. I was wondering if you could give an update on the [$12.50] pricing that you discussed taking in some geographies in the US, and any important insights there another three months into that?

So our pricing actions that we put in place in 2015 are working and we've been seeing good response to our pricing actions. But really corridor and corridor specific, the pricing actions we put in the US is in the higher band. And we see the early transaction growth, it will take some time, and you need some quarters to understand really the response on the pricing actions. But we see early signs of good transaction growth on the higher bands.

Other than that, we did the usual pricing actions corridor by corridor and country by country, but it's not that big, and the current business model is pretty much working, and we are satisfied with that.

We didn't price very much of the higher bands. If you recall, it was 25% of the above $200 principal band, which half of the business roughly is below $200 and half is above. And we only priced 25% of the above, above $200 principal band. So a relatively small amount of the business that was priced and we've seen good results, as Hikmet said.

Great. Thank you very much.

Thanks, everyone. Have a good day.

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