西聯匯款 (WU) 2016 Q3 法說會逐字稿

Good afternoon and welcome to the Western Union third-quarter 2016 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 2016 third-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 2015 (sic - see Form 10-K "2016") 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 visit 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 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.

Thanks, Mike and good afternoon, everyone. Overall, we are pleased that our diversified global business and strategic initiatives enabled us to deliver another solid earnings performance in the third quarter. And we accomplished this while navigating current headwinds and micro challenges in some international markets.

Our US business remains strong, and westernunion.com money transfer accelerated nicely, increasing 28% in constant currency. This growth helped us balance all related softness in many of the Middle East and African countries.

We delivered good margins, coming in at over 20%, despite negative impacts from currency and the legal matter accrual, and we continued to generate strong cash flow and returned significant funds to our shareholders. We are on track to deliver on our full-year earnings outlook and are affirming our earnings-per-share range of $1.60 to $1.70. Total revenue in the quarter increased 2% on a constant currency basis with the consumer money transfer business increasing 1%.

Within money transfer, the US business was strong across the board, with good growth from both outbound and domestic money transfer. Our US-to-Mexico business continues to shine, and has now outpaced market growth for principal and transactions in each quarter for the past three years.

In addition, we recently greatly expanded distribution in Mexico, nearly doubling our network. This was driven by the activation of our transfers services at OXXO, which is Mexico's largest convenience store geographically, with 14,000 locations. With this new service, customers can stage transactions on the phone in advance, or through dedicated phones and digital kiosks in the stores and then receive their funds at the counter.

Turning to westernunion.com, this quarter's revenue increase is impressive, given the larger size of our digital business relative to competitors. We continued to see tremendous growth from the mobile app, and the westernunion.com business was particularly strong in the US markets. We also continued to expand our digital assets, rolling out mobile apps in Canada and additional countries in Europe, giving us 16 transactional mobile apps in the market among our 37 westernunion.com countries.

In addition, in the US and the UK, we have added a new omni-channel feature to our mobile apps. The customers can now fund send transactions from mobile apps via cards, accounts, and also cash. This new feature allows consumers to start transactions on their smartphones and then pay with cash at agent locations, adding convenience and reduced time for in-store transactions.

As I mentioned earlier, [evidence flows] from the oil-producing countries have been affected by the low oil price environment. While this is not a new factor, we did see softening in Saudi Arabia and the United Arab Emirates, key markets in the Gulf that had largely maintained growth trends until the middle of the year.

Overall, the C2C pricing and competitive environment remains quite stable, as we had not seen significant changes in the marketplace. While there were some announcement recently concerning price changes for competitive services in limited areas, we don't anticipate this having significant impact on our business.

We are very well-positioned in the US-to-Mexico corridor, with our 50,000 agent locations in the US and 26,000 in Mexico, and the very competitive fee of $8 on sends up to $1,000.

In the US, domestic money transfer market, all the certain competitors are lowering fees on very high principal transfer; this is a small piece of our business today. To put this in perspective, US domestic money transfers over $1,000 represent less than 1% of Company revenue. So overall, we are competitive with our current C2C product and pricing strategy, and for the near future, we do not anticipate major Companywide pricing adjustments.

Turning to the other segments. The consumer bill payment business again delivered double-digit constant currency growth in the quarter, while Business Solutions was flat. Although Business Solutions had good growth from its payment products, especially verticals, such as serving clients in the education sector, reductions in customers' hedging activities negatively impacted results.

Strategically, we will continue to advance our EDGE digital platform for importers and exporters. We have enabled thousands of business clients for use of the platform, which recently won Payment Innovation Award in London.

Overall, we remain on track to deliver our earnings outlook, even with the many challenges we have faced this year. Our strong financial position has allowed us to continue investing in our platforms, including advancements in our digital technology and compliance assets and programs.

And we are intent on further expanding our capabilities and network of digital and physical touch points. These include agent locations, mobile, online accounts, and kiosks, both direct and throughout agent partners, as we leverage our platforms to offer consumers and businesses freedom of choice in how and when they want to move money across border. We will talk more about our long-term strategies in the coming months, but right now I want to turn the call over to Raj to discuss the third-quarter results in more detail.

Thank you, Hikmet. Third-quarter reported revenues of $1.4 billion declined 2%, or an increased 2% on a constant currency basis compared to the prior-year period. The impact of currency translation, net of hedge benefits, reduced third-quarter revenue by approximately $52 million compared to the prior year.

In the consumer-to-consumer segment, revenues declined 1% in the quarter, or increased 1% constant currency, while transactions grew 2%. C2C constant currency revenue benefited from strong growth in westernunion.com, while regional growth was led by North America and Latin America. However, softness from the oil-producing countries continued to negatively impact the Middle East and Africa, and part of the Asia-Pacific region.

Total C2C cross-border principal declined 3%, or 2% on a constant currency basis, while principal per transaction declined 5%, or 4% in constant currency terms. The spread between the C2C transaction growth and the revenue decline in the quarter was approximately 3 percentage points, including a negative 2% impact in currency. Mix had a negative impact of approximately 2% in the quarter and was affected by the principal-per-transaction declined, while pricing had a positive impact of 1%.

Turning to the regions, consistent with prior quarters, I will be referring to constant currency movements as I discuss individual country contributions to the regional results. North America continued to deliver strong results in the third quarter. Revenue grew 6%, or 7% on a constant currency basis, while transactions increased 7%. US outbound sends to Mexico and Latin America drove the region's revenue growth.

In Mexico, our business continued to grow faster than the market, based on the latest Banco de Mexico principal and transaction data for the third quarter. Our US domestic money transfer business also posted good results, as revenue increased 4% and transaction growth improved to 5%.

In the Europe and CIS region, revenue declined 2%, or increased 1% on a constant currency basis, while transactions increased 2%. Revenue growth was driven by Greece and the UK, partially offset by declines in Turkey. As a reminder, Greece was impacted in third quarter of last year by government-imposed market restrictions on money transfers during the country's financial crisis.

In the Middle East and Africa region, revenue declined 10%, or 8% constant currency, and transactions were 9%. Low oil prices continued to affect the region's results in the quarter, with trends weakening since last quarter in Saudi Arabia, Angola, and the UAE.

In the Asia-Pacific region, revenue was down 4%, or 3% constant currency, while transactions decreased 5%. Receive markets in the region, including India, continued to be negative impact by lower remittances from the oil-producing countries.

Revenue in the Latin America and Caribbean region grew 3% and increased 8% constant currency, while transactions grew 12%. Revenue growth in the region was largely driven by the strong inbound business from the US.

Included in the regional numbers discussed, westernunion.com's C2C revenue growth accelerated to 26% in the quarter, or 28% constant currency, and represented 8% of total C2C revenue. Westernunion.com transactions increased 29%, while US-originated online transactions grew 33%.

In the consumer-to-business segment, revenue declined 3%, or increased 11% on a constant currency basis. Constant currency revenue was driven by the Argentina walk-in and US electronic businesses, which was partially offset by declines in US cash walk-ins. A depreciation of the Argentine peso continued to cause the decline in the reported revenues.

Business Solutions revenue declined 4%. On a constant currency basis, revenues were flat, as good growth in Europe was offset by reduced customer hedging activities, particularly in Australia and Canada.

Turning to margins and profitability, the consolidated operating margin was 20.2% in the quarter compared to 21.8% in the prior-year period. This quarter's operating margin was negatively impacted by 110 basis points from a $15-million accrual related to the previously disclosed FTC legal matter. This is in addition to the $15 million we accrued for this in the second quarter, as we have not reached an appropriate resolution with the FTC at this time.

Other negative impacts to the margin included foreign exchange, customer and funding mix in the electronic bill payments business, and incremental technology expense, which were partially offset by lower compensation, and depreciation and amortization expenses.

Foreign exchange hedge gains in the quarter were $12 million compared to $21 million of gains in the third quarter of last year. We continue to expect approximately $45 million in hedge gains for the year. Based on recent rates in our current hedge position, we currently project about $15 million of gains for 2017. In total, currency negatively impacted operating profit by approximately $22 million in the quarter compared to the same period last year.

Compliance expense has been steady and came in at 3.5% of revenue in the quarter. EBITDA margin was 25%, down from 27.1% in the prior-year period, as a result of the same negative factors that affected operating margin.

The tax rate of 9.6% benefited from a 160-basis-point impact from the FTC accrual and compared to 12.5% in the third quarter of last year. We still expect a full-year rate of approximately 12%. Earnings per share was $0.44 in the quarter, including a negative $0.02 impact for the additional FTC accrual and compared to $0.45 in the third quarter of last year.

For the C2C segment, the operating margin of 23.4% was down from 25.5% in the prior-year period and was negatively affected by 140 basis points from the accrual. The C2C margin was also negatively impacted by foreign exchange and higher technology expense, which were partially offset by lower compensation-related costs.

The consumer-to-business operating margin was 9.1% in the quarter compared to 16.4% in the prior year. And margin decline was primarily due to customer and funding mix in the US electronic business. The mix impacts related to the addition of a large new biller at lower margins and general increases in credit card usage of the funding options by consumers.

Business Solutions operating profit was $3 million, or a 3.5% margin, compared to a loss of $3 million in the prior-year period. The operating profit improvement was driven by lower depreciation and amortization expense, which relates to the write down for a contract termination in third quarter of last year.

Depreciation and amortization for Business Solutions was approximately $13 million in the quarter compared to $20 million in the prior year. The Business Solutions EBITDA margin was 17.1%, which compared to 17.4% in the third quarter of last year.

Turning to our cash flow and balance sheet, cash flow from operating activities was $822 million year to date through September. Capital expenditures were $68 million in the quarter. At the end of the quarter, we had debt of $3.2 billion and cash of $1.3 billion, with approximately 50% of the cash held by United States entities.

After the quarter in October, we retired $1 billion of maturing notes, which had a coupon of 5.93%. We funded this maturity by drawing down on a $575 million term loan facility which carries interest rates of LIBOR plus 150, and through a combination of cash usage and commercial paper issuance.

During the third quarter, we paid $78 million in dividends and repurchased approximately 4 million shares for total $84 million. Our remaining authorization which expires in December 2017, was $310 million at quarter end, and the outstanding share count at the end of September was 485 million shares.

Turning to our outlook for the full year, we are narrowing the revenue growth outlook while affirming operating profit margin, the EPS range, and operating cash flow. The updated revenue outlook for the year is an increase of approximately 3% constant currency, which should translate to a decrease of approximately 1% on a GAAP basis.

Operating profit margin for the full year remains approximately 20%, while EPS remains in a range of $1.60 to $1.70. We have been able to maintain the margin outlook, despite the unanticipated $30 million of legal matter accruals during the year, due to favorability and other expenses. We continue to expect to generate $1 billion in cash flow from operating activities, and we now expect $100 million of anticipated final tax payments related to the previously announced IRS agreements we paid in 2017.

To summarize, we delivered solid results for the quarter and remain on track with our full-year earnings outlook. Our cash flow and balance sheet are strong and we continued to return significant funds to shareholders.

Operator, we are now ready to take questions.

(Operator Instructions)

Our first question will come from Jason Kupferburg of Jefferies.

Hi, guys. This is Ryan Cary for Jason. Clearly, low oil prices continue to be a headwind to results. Should we expect negative growth as the new normal for the time being in the petrol-producing regions? Or is the impact less structural and these regions could recover relatively quickly with a rebound in energy prices?

Yes, I think we did see some impact which, especially from the Middle East and Middle East-related oil-producing countries. That's a fact. But I will say overall, being in 200 countries, having that portfolio, that balance is the strong US growth, the strong westernunion.com digital growth, accelerating [actually]. The transactions and revenues is really a great result.

It has, I would say -- it takes time, right? If all these prices are higher, the jobs have to be created, the investments have to be done in Saudi Arabia or UAE and Middle East countries. That creates jobs, and the people have jobs, they send money. But as you know putting things in perspective, it's a good part of business, but not that big part of business. And being in 200 countries helps us to have good results.

Great, and just a follow up. How should we be thinking about the tax rate going forward? I believe you called out expectations for a mid-teens tax rate over the next couple of years, but it seems like over the last three to four, that's often been the initial assumption before coming in 200 basis points lighter. So is this a trend that we shouldn't expect to continue going forward? Or I'm trying to get a sense of how we should think about the tax rate, particularly after the lighter than expected this quarter.

Yes, Ryan, this is Raj. We still target a mid-teens tax rate, and that's still what we expect for the next couple of years based on what we know today about the tax laws and the current environment with our business.

We've continued to benefit from some discrete items that have helped us during the course of the year. In this quarter, for example, we obviously, we have a benefit from the larger accrual in the US, which helps to -- helps the mix on the overall tax rate. We also have had some favorable resolutions to various outstanding tax matters with various governments around the world. And so that continues to help us, and we're going to continue to try to do that as much as we can.

Putting aside the discrete items, we're probably in that mid-teens rate, which is what we fully expected when we came into this year. But we're doing a good job in trying to manage things as best as we can on the tax side, and that continues to be our goal.

Great. Thanks for taking my questions.

Sure.

And the next question will come from Jim Schneider of Goldman Sachs.

Good afternoon, thanks for taking my question. I was wondering if you could maybe talk a little bit about the acceleration in the westernunion.com business, the -- some of the geographies that might have been underlying that. And if you can look forward, talk about some of the factors that might help you close the gap between transaction growth and revenue growth.

Jim, this is good news, right? This is fantastic news, our acceleration of dot-com, especially given the size, how big our westernunion.com business already is, 8% of our total revenue, and accelerating about 28% and transaction by 29%.

The growth comes from both sides, expansion geographically, and -- but also very strong US business, which been for many, many years. So customers are returning, using us, they love the app, the westernunion.com app. Our transactions in the US are growing by [33%] and that's amazing, and we are really gaining their market share and getting new customers.

Still the customers are new, 80% of the customers using westernunion.com digital environment are new to Western Union. They didn't use the last 12 months or -- Raj, right? Or they did not use us last 12 months, and it's a great story. And then now, we are in 16 countries.

37 countries.

In westernunion.com, 16 countries on mobile app, and we recently also launched new features in Canada and UK where you can really stage transaction. If somebody doesn't want to use bank account or credit card, they can go to a location and stage a transaction, pay at the location. So these things are definitely the multi-product on multi-channel environments helping.

The other thing is also, what the competitors don't have, and that's why they are not growing that fast is that we are in 200 countries. We can drop money in 16,000 corridors from with one app. From Canada, you can send money to 200 countries. From UK, you can send money to 200 countries. From 37 countries, electronically digital, you can send money. That's the growth part.

So we are very pleased with our digital growth, and that's going to continue, our investment is going to continue. And my expectations will be, I'm very motivated with that.

That's good to hear, thanks. And then maybe just as a quick follow-up. There's been a lot of headlines around the Walmart US to Mexico pricing structures that they recently published. Can you maybe talk about whether you expect any potential knock-on effect relative to the rest of the market? And I know Walmart is pretty small, but still there's a speculation about whether that could have a broader market effect? Or whether you think it's just going to be confined to simply Walmart.

Well, I wouldn't say Walmart is small, in particular, but in this business it's small. We have 50,000 locations in the US and 26,000 locations in Mexico. And our pricing has been very competitive also, $8 for up to $1,000. And the facts speaks its language: we've been gaining market share for three years every quarter, and this facts are from Banco de Mexico facts.

So the distribution, the product positioning, the pricing, the brand, the compliance programs, all this platforms help us to be gaining market share. So we will always do pricing actions quarter by quarter. We will look at that, but I feel quite competitive with our pricing, and I see the pricings we are stable and we're going to continue, hopefully, gaining market share in this very important corridor for us.

Thank you very much.

And our next question comes from Tien-tsin Huang of JPMorgan.

Good afternoon, thanks for taking my questions. Just on the pricing front, I think I heard plus 1%. So where are you being more opportunistic? Has this changed more on the FX side or transaction-based side? Just any more color there would be great.

Well, Tien-tsin, you know our business so well. We are in, as you know, we are in so many countries, so many bands, so many different things. I would say that, generally, we still have 15% to 20% premium, on average, globally. Our price has been not affected and we will -- the increases comes on FX most of the time, FX increases, but in some corridors also in the fee. In some corridors, we decrease actually, [or the] prices.

And as you know, being in so many corridors, being in so many countries, it's a portfolio management, we feel comfortable by gaining market share also in some corridors, increasing the FX rate that helps also. And it's mix, basically, it's the mix. It's not a big increase. Obviously, it's really the mix that impacts our 1%. Raj, is that true?

Yes. Or I think you answered it well, and there was some volatility as the Brexit activity took place at this end of the second quarter. And we put some different spreads in place, so that helped, Tien-tsin, overall in the business from a pricing standpoint. But we do increases and decreases on an ongoing basis throughout our business.

Okay, that's good to know. Just on the Business Solutions side, any change in how we should look at that in the fourth quarter and maybe into 2017? I know that FX is all over the place and macro trade is all over the place. I don't know if this has been a share change as well, but any updated insight on Business Solutions?

Sure. On Business Solutions, if you look at the Business Solutions, we are very pleased with our payment sector. The verticals where the students pay as a payment. On the hedging side, volatility always helps, right. The global trade has been slow, Tien-tsin. That's been mainly affected, especially in the countries that we are operating, has been slow.

Saying that, we will -- we are still very strategic, very important for us. That's why invest in the EDGE digital platform. We have thousands of exporters, importers registered there. They are trading in this platform, and that will be definitely helping on long term on our numbers. But short term, volatility will help us and global trade will help us.

Okay. Thanks, as always. Appreciate it.

Thanks, Tien-tsin.

Thanks, Tien-tsin.

And exit question from Bryan Keane of Deutsche Bank.

Hi, guys. How are you doing?

Hello, Bryan.

Good, how are you?

Good, good. Just wanted to ask about the guidance. It looks like you guys narrowed the revenue guidance range to 3% constant currency. And if -- I believe the first half of the year was 3% constant currency, third quarter was 2% constant currency. So I'm just try to figure, are you guys expecting a little bit of a pickup in constant currency revenue growth in 4Q to round out the 3%?

Well we just, we said approximately 3%, Bryan, so it obviously can be a range of outcomes for the fourth quarter to still give us 3% for the full year. But that's approximately 3% for the full year. That's about where we've been running throughout the first three quarters of the year, and that's about where we expect for the full year.

Okay. And then, you narrowed the revenue range, but you didn't narrow the earnings per share. And obviously, there's still a $0.10 range there, which is a wide variety of outcomes for the fourth quarter. Can you just talk a little bit about what would get you to the low end of the range and to the high end of the rate and maybe where you guys feel more comfortable?

I would say we feel comfortable with the range as it is. We didn't really change the range, primarily because we've also taken into account the $30 million of additional legal accruals that we've had now through the first -- through the last couple of quarters.

For us, the outlook really hasn't changed a lot. We continue to see the business trending the way it has been. We reiterated margins at 20%. We also have the same cash flow outlook. And our EPS range, we just didn't change it because of the -- what we've -- because of legal items. But you can see that through the first three quarters and even in the third quarter, we got an EPS of $0.44, which is very much in line with our expectations. And we feel good about the full-year outlook.

I think, Raj, we talked about we would -- if we wouldn't have the $30 million, that outlook would be different. It would be on the higher --

Yes, we would've probably updated the outlook had we not had the $30 million that we'd taken into account.

Okay. But no real one-time items to think about on a comparable basis from 4Q last year?

No, no, not really. If we have any one-time-type items or things that we might do to address the cost structure, we will certainly tell you about those once we finish out the year, but nothing that we can discuss at this stage. We're always looking for cost efficiencies and opportunities for the business, but nothing to call out at this stage.

Great. Thanks for taking my questions.

And the question from Darrin Peller of Barclays.

Hey, guys just a quick follow-up around the margin. It does seem like there was some items in there, and obviously, you've been able to maintain it relatively stable despite that. So can you just maybe rewind and give us a sense of what you see as the operating leverage opportunity? In other words, if we were to show 3% growth once again in 2017, is there any reason to see, to expect -- to not be able to expect some margin expansion on that?

Yes, Darren, I can't talk about 2017 margins, but the reason we've been able to maintain the margin this year at around 20% is we have managed our expenses quite tightly. Even though we've taken into account an additional $30 million of legal costs, we've been able to do that.

For us, obviously, we need to get good revenue growth to drive better profitability. But then you have to look at our other cost items that will have an impact obviously, like our commissions, which have been flat the last couple of years. Our compliance costs have also been relatively stable at that 3.5% to 4% range. And then as I mentioned just earlier, we're continuing to look for cost optimization opportunities. So all those things will have an impact and we'll have more color for you on those things as we finish out the year.

But the margin this year, we are pleased with the 20% operating margin outlook, even in the face of some of these other things that we've had to deal with.

And prices are stable from top line. That helps also. And also, just generally, I would say that the Company's really operating in a much better way, more efficient way. Despite all the challenges, global challenges, I think we found a way to operate very effectively.

Okay. Thanks. And just a quick follow-up on the guidance question. I understand you're saying it's just 3% and there's a lot of outcome that can get there. But I'm just I'm just trying to figure out what may have been in your expectations beforehand to be low to mid-single digit top line versus now 3%. What changed? And again, we understand it's not a massive move from one to the other, but anything would be helpful.

Well, we had been running at 3% for the first half of the year on a constant currency basis, and we still had six months left in the year when we maintained our outlook last quarter of low to mid single digits. But as we've seen it tick down in the business, given the oil-related markets, we're more comfortable with the 3% revenue growth outlook because of the performance that we had in the third quarter.

And it's really the Middle East, the oil-related markets that have shown a tick down, because we're continuing to get very strong growth in the other markets like the US, up onto Mexico, to Latin America, the domestic business, the digital business obviously. And so those trends haven't really changed. We've seen just a tick down in the Middle East and Africa business, which is impacting APAC as well.

All right, that's helpful. Just last quick one. On the mobile side, last quarter I know you guys had a bit of a spread between the revenue growth rate and the transaction growth. It actually looked like, to the point mentioned earlier by someone, it definitely improved. Not only -- I know you commented on mobile being a driver of the acceleration on WU.com, but can you help us understand why the revenue per transaction would've improved so much given how much is mobile?

Yes, we're continuing to see very strong growth in the mobile channel for WU.com and we're pleased with that, so that hasn't changed from before. We, as we mentioned before, we do pricing optimization throughout our business, including our various channels. And we did increase some spreads in the dot-com business. But our overall pricing in the dot-com business is very market competitive when you look at the rest of the competition.

So we're just really aligning and maximizing the opportunity there. And we're getting very consistent growth with transaction growth now, 29% transaction growth and 28% constant currency revenue growth. So it's a pretty consistent picture, and it's very consistent with what we had expected coming into the second half of this year.

Yes, all right. Sounds good. Thanks, guys.

The next question comes from Ashwin Shirvaikar of Citi.

Hi, Raj. How are you? So I have a question about the legal accrual. I think the presentation did mention that there was an offset compensation in D&A. If you could size that, that would be helpful.

And then as we all start thinking about next year's model, what are the headwinds and tailwinds? Is it fair to assume that on the headwinds side, there's probably about $0.05 of tax rate, but on the tailwind side, you probably have the hedge roll off that you don't have any more? Can you help with the timing of that?

Yes, Ashwin, let me try to answer your questions. In the SG&A line, as you mentioned, we had the FTC legal accrual for $15 million. That's the size of it. There were some offsets with lower compensation and lower D&A, and SG&A as a percent of revenues was up just a little bit from the last year. So I'll just let you do the math, but there was a slight --

Yes, the D&A, as we mentioned the Business solutions, that was a one-time charge we took a year ago in D&A, so there was about a $7 million difference in the Business Solutions D&A.

Yes, and the rest of it is just the comp. And as you look at next year, I can't really go into specifics, but there are a number of different factors to consider. All of the things that I mentioned in the previous question around revenue growth, as well as the various cost items. But tax will certainly be a consideration.

Putting aside any discrete items, as I mentioned earlier, for the next couple of years we would probably be in the mid-teens area for tax rate. But as I also mentioned, we're always trying to look for opportunities to optimize our tax rate. We will have some interest savings as we go into next year because of the refinancing that we just did.

Yes.

And the ultimate amount of interest savings will depend on our debt level. And then we also have a refinancing next year that we have to do, so there may be some negative carry related to that. And then we also have the hedge gains that will, if rates stay exactly where they are today, then we'll have less in hedge gains. So all of those things will have to come together in how we ultimately look from a profit standpoint.

Got it. So the follow-up question, just a clarification, the -- in your presentation, again, in that C2C chart where you provide transaction to revenue bridge, there is other mix. And I might have missed what the explanation for the other mix was.

Yes, it's very simply we had lower growth or softness in higher RPT markets. Our principal per transaction was down by about 4% on a constant currency basis, and that's largely being driven by Europe and certain parts of the Middle East. So it's really the mix impact that's showing up in that negative 2%.

Oh, okay. Got it. Thanks.

And the next question will come from Kartik Mehta of Northcoast Research.

Good evening. The WU.com, as you talked about the transactions and revenue are coming in closer, and it seems as though you've been able to manage the spread there. Is that a result of you pricing differently or is that the result of the competition being less aggressive and allowing you to manage pricing better?

Well, I can't speak the name of competition what's their issues is that their issues is mostly they can't expand through globally, and they don't have the power to expand globally. And they don't have the -- they can't drop money to the 2 billion accounts we have and they can't drop money to 500,000 locations and everything, right.

I think the strong growth is two things, Kartik. First one is the customers are coming back who use once mobile, they love it, they stay there, they coming back. We see that very good, and that's the US growth besides getting more customers, we are really having returning customers. And the team is doing good job on that communicating with them online with via mobile, really having a loyalty programs which is great getting that back.

The second thing is the geographical expansion. Expansion in Canada, expansion in the UK with new devices, but also in Europe, and now we are starting to expand that also. You'll see recent announcement, coming announcement in other countries, in Asia, and other parts of Europe, Middle East, we're going to expand our online and our dot-com activities and mobile activities. And it's a good business to expand. Raj?

I would add, Kartik, that one unique feature that we have that most of the competition does not have is cash payout. We initiate transactions online, but we have a vast retail network that really sets us apart from other competitors.

[That link] is definitely the compliance programs, and you have to have a license to operate in a country and that's not easy to get it. And we've been there for many, many years. And we are really building our digital transformation. The digital transformation is happening built on our fundamentals, and the other, the competition has to probably get there first.

And then just on overall pricing, obviously had a positive impact. Anything that you see on the horizon that changes that? Or do you think this environment, you'll be able to sustain the pricing levels that there are right now?

Well, for -- I, if you look at the market, it's quite stable, right? I don't see any big noise out there. There has been some announcements done by the competition, but we feel we are pretty well positioned overall. We still have 15% to 20% premium globally, and we did -- we will continue the pricing actions but it won't have a -- we were going to stay in our historical norm. And that will have been -- we feel comfortable on that. For the near future, I don't see big changes.

And then just last question, Raj, I just want to make sure I heard you correctly. You said -- I know you don't want to give 2017 guidance, I understand that. But you were talking about some of the things that we should consider. On interest expense, did you say you thought that would be headwind or did you not say that?

I did not say that. I said that interest expense would likely be lower next year given the refinancing we've done. Part of the refinancing was with a term loan, as I mentioned in our comments, which is a LIBOR plus150 basis points, which is lower, obviously, than the note that we just retired at 5.93%. And then we used some commercial paper.

So we'll get some interest savings there, but it might be offset with some other components that I also mentioned. And then we also have another refinancing to do next year of $500 million, which is at the end of the year. But we may refinance that earlier in the year. So there could be some negative carry as well associated with that.

Perfect. Thank you very much. Appreciate it.

Lori, I understand there's one more question in the queue.

Yes, that question is from Matt O'Neill of Autonomous.

Yes, hi. It's Craig Maurer for Matt O'Neill. Just a broad-based question. You had stated in the prepared comments that you're comfortable with pricing where it is now. But should the oil economies not recover and the global economy remain suspect, do you have any other pricing levers other than risk that you could use to reverse the decline in transaction growth?

Well, if you look at our business, there's a global challenge [it's for all], right? It's not a competitive challenge, it's for -- affects everyone. I think that in the markets where we are -- we feel very competitive with pricing. As I said earlier, we will always do pricing, that's the beauty of having this portfolio, and we didn't do 16,000 corridors, we have different customer use cases, we have different bands receiving sender [effects] and fees. So we can do that, we're going to continue to do that and I feel comfortable where it is.

I think it was more noise out there with the announcements. And currently, near future what I hear from my market leaders, they feel comfortable. What I hear from our digital leaders, they feel very comfortable. That's -- and we are growing with our numbers, 28% digital growth is impressive. Very stable, very resilient retail business. And for the near future I don't see, I can't predict the future, long-term future, but I feel comfortable where the business is.

Okay. All right. So just thinking ahead, I know you don't want to comment on 2017, but your positive comments seem to be slanted toward some level of recovery in those markets. So I suppose as we think out to the guide, should you not get any improvement in the oil economies, we should probably expect a continuation of trends seen in the quarter.

Well, I can't predict the economy, the oil prices, right? I can't predict the global economy and that's something I'm always cautious. And I said beginning of the year, 2016 is cautious and today's (inaudible) why I'm still saying cautious, right?

But the beauty of our business, if you look at our total business, not only US, total worldwide, we've been always up and downs. And currently in the US, we are doing a good job. Outbound and interbusiness doing very well, digital doing very well. Parts of like UK, all their Brexit talk and everything, UK business is doing very well. Our Australia business is doing well. We do have impacted in Saudi Arabia and UAE, where they send money to -- mostly to South Asia. This corridor has been impacted, and that's why some parts of the, like India corridors, has been a slower growth, because Saudi Arabia send and UAE send has been slower.

Okay. Thank you.

Okay, thanks, Craig. I think that's all the questions we have in the queue, so I want to thank everyone for joining us and wish you have a good evening.

Thank you.

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