西聯匯款 (WU) 2018 Q1 法說會逐字稿

Good afternoon, and welcome to the Western Union First Quarter 2018 Earnings Conference Call. (Operator Instructions)

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

Thank you, Laura. On today's call, we will discuss the company's 2018 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 the 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 2017 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've 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, and good afternoon, everyone. We are very pleased that we continued the momentum from the end of last year into the first quarter 2018. We delivered a healthy 7% revenue growth or 5% in constant currency for both the overall company and our consumer money transfer business, and we also generated solid profitability. Our digital business continued its impressive run with 23% revenue growth for westernunion.com money transfer in the quarter or 20% constant currency. And westernunion.com is becoming an increasingly important part of our business, representing 11% of total money transfer revenues in the quarter up from 6% just 3 years ago.

Regionally, outbound business from Latin America led our money transfer growth with U.S. outbound also strong, and Europe accelerated nicely from the trends at the end of last year. Overall, our cross-border principal grew an impressive 9% in the quarter due to our good execution in retail and continued strong growth from digital.

Among our business -- payments businesses, Speedpay U.S. electronic bill payment delivered a solid revenue increase in the quarter, and Pago Facil Argentina bill payments again posted strong double-digit revenue growth. Business Solutions revenue increased 3% reported or declined 2% in constant currency terms, an improvement compared to the fourth quarter but still below our long-term expectations as we continue to implement turnaround actions. So overall, we are very pleased with our strong first quarter top line growth especially in cross-border money transfer.

But also, our profit margins and cash flow were solid with margins just over 19% and cash flows from operations of $133 million. Based on our first quarter results and our expectations going forward, we are affirming the full year revenue and operating margin outlooks we provided in February. We have had a nice start to the year from a growth perspective although there is still some softness in the Middle East and with U.S. domestic money transfer.

The pricing environment globally has been stable for the last few years, and we had slight net price increases in consumer money transfer in the first quarter of 2018. As always, we will continue to monitor globally the competition and competitive pricing actions like the recent one in the U.S. from Walmart. We adjust if needed in certain corridors, but we do not expect significant changes in our pricing actions at this time.

Now turning to our long-term strategy. We remain focused on our vision of being the leader in cross-border, cross-currency money movement. Our goal is to accelerate revenue growth by leveraging our strong cross-border capabilities to serve additional customer segment on our platform. Regional expansion is a priority, and we expect to open multiple new westernunion.com countries this year with a focus on mobile. We have just begun digital expansion in Latin America and Caribbean region, adding transactional capabilities to a new app in Panama and a website in Jamaica.

In retail money transfer, we continue to work on enhancing retention to better customer experience and relationship management, including initiatives such as stage-and-pay that introduce mobile and digital elements to retail transactions, with our payments businesses' efforts focused on expanding with new payment-based services and new geographies in B2B, providing digital solutions to clients and migrating our services to next-generation platforms. We also remain committed to driving continuous improvements in our operations with plans to create further efficiencies and productivity improvements to fuel investment in our growth initiatives.

So to summarize, we delivered a very good first quarter. There are some soft spots, but we have good momentum in key parts of the world and feel confident about the business. And we are continuing to execute our long-term strategies including driving operating efficiencies and a continuous improvement mindset with our WU Way programs.

I look forward to updating you on our progress throughout the year, but right now, I want to turn the call over to Raj to give you more detail on the first quarter results.

Thank you, Hikmet. First quarter reported revenues of $1.4 billion increased 7% compared to the prior year period or 5% on a constant currency basis. Currency translation net of the impact from hedges benefited first quarter revenue by approximately $19 million compared to the prior year. In the consumer-to-consumer segment, which represented 79% of company revenues in the quarter, revenues also increased 7% on a reported basis or 5% constant currency, and transactions grew 4%. Total C2C cross-border principal increased 9% or 5% on a constant currency basis, while principal per transaction increased 5% or 2% constant currency. The spread between C2C transaction and revenue growth in the quarter was 3% with a positive 2% impact from currency. Pricing had a positive impact of 1% compared to the prior year period, while mix was neutral again in the quarter.

Turning to the regional results. I will be referring to constant currency movement as I discuss individual country contributions. North America revenue increased 4% on both a reported and constant currency basis, while transactions grew 1%. Growth was driven by U.S. outbound business to Latin American and the Caribbean, Africa and India, partially offset by softness in the U.S. domestic and US-to-Mexico businesses. In the Europe and CIS region, revenue increased 14% or 5% on a constant currency basis, driven by France, Turkey and Spain. Transactions in the region increased 8%.

Trends in the Middle East and Africa and South Asia region were similar to the fourth quarter although slightly softer in the oil-producing countries. Revenue in the region was flat on a reported basis or declined 1% constant currency, while transactions were down 2% in the quarter. The Latin American and Caribbean regions continued to deliver strong revenue growth with an increase of 20% in the quarter or 25% constant currency, driven primarily by Argentina and Brazil. Transactions in the region grew 17%.

In the APAC region, revenue increased 2% or was flat on a constant currency basis, while transactions grew 1%. westernunion.com delivered strong performance again. As reported, revenue grew 23% or 20% constant currency on transaction growth of 24%. westernunion.com represented 11% of total C2C revenue in the first quarter.

Business Solutions revenue increased 3% or declined 2% on a constant currency basis and represented 7% of company revenues in the quarter. Revenues were negatively impacted by declines in Europe, particularly in the U.K., which were partially offset by strength in North America.

The education vertical continued to be a bright spot in B2B, again delivering good growth in the first quarter. Other revenues, which consist primarily of our bill payments businesses, increased 4% in the quarter or 10% on a constant currency basis and represented 14% of total company revenues. Other revenue growth was once again driven by the Pago Facil walk-in business in Argentina and the Speedpay electronic bill payments in the U.S.

Turning to margins and profitability. The consolidated operating margin was 19.1% in the first quarter compared to 18.4% in the prior year period or 19.5% in the prior year on an adjusted basis. The decrease compared to last year's adjusted margin was primarily due to higher marketing spending and the negative impact of foreign exchange partially offset by lower average commission rate and operating leverage from revenue growth.

Foreign exchange hedges in the quarter had a negative impact of $9 million compared to a benefit of $7 million in the year-ago quarter. Overall, currency negatively impacted operating profit in the quarter by approximately $3 million compared to the prior year period. We achieved approximately $13 million of savings from WU Way initiatives in the quarter compared to minimal savings in the prior year period. So we are firmly on track to generate approximately $25 million of incremental savings this year.

EBITDA margin was 23.9% in the quarter compared to 23.5% in the prior year period or 24.6% on an adjusted basis. The GAAP effective tax rate was 8.9% in the first quarter compared to 24.1% in the prior year period. On an adjusted basis, the tax rate was 11.4% compared to 24.8% in the prior year period. As we previously stated, due to the complexities and uncertain interpretations of many aspects of the U.S. Tax Act enacted in December of last year, certain of the 2017 impacts were provisionally estimated and additional effects would likely be recorded this year.

In the first quarter, changes in our estimates related to the Tax Act resulted in a $6 million benefit to our GAAP tax expense. Due to the Tax Act provisional accounting changes, we are now providing both GAAP and adjusted tax rate and earnings per share calculations for 2018.

The decrease in the adjusted tax rate for the first quarter was primarily due to the prior year rate being unusually high and, to a lesser extent, some discrete benefits in this year's quarter. As you may recall, in the first quarter of 2017, our rate was negatively impacted by changes in the internal ownership structure of certain of the company's international subsidiaries.

Earnings per share in the current year quarter was $0.46 which compared to $0.33 in the prior year period. On an adjusted basis, earnings per share was $0.45 compared to $0.35 in the prior year period. This increase in adjusted earnings per share was primarily due to revenue growth, the lower effective tax rate and fewer shares outstanding.

The C2C margin was 22.2% which compared to 22.5% in the prior year period. The margin decrease was due to the same factors impacting total company adjusted margin.

Business Solutions operating margin was 2.9% in the quarter which compared to 2.6% in the prior year period, while the unit's EBITDA margin was 13.8% in both the current quarter and the prior year period. Operating margin for the businesses included in other revenues was 10.1% in the quarter which compared to 12.4% in the prior year period. The year-over-year margin decline was primarily due to the higher bank fees in our U.S. electronic business partially offset by revenue growth.

Turning to our cash flow and balance sheet. Cash flow from operating activities was $133 million in the first quarter, which is net of a $60 million payment from previously announced NYDFS settlement and approximately $20 million of spending in prior year WU Way expenses.

Capital expenditures were approximately $37 million in the quarter. At the end of the quarter, we had debt of $3.1 billion and cash of $934 million. We returned $88 million in dividends to shareholders in the quarter. We did not have any share repurchases in the first quarter due to some timing factors, but we have not changed our full year expectations for buyback and expect to resume buyback in the second quarter. The outstanding share count at quarter-end was 461 million shares, and we had 943 million share -- $943 million under our share repurchase authorization, which expires in December of 2019.

Based on our first quarter results and our recent business trends, we are affirming our revenue, operating margin and cash flow outlooks for the year. We continue to expect revenue growth to be in a range of a low to mid-single digits this year on both a reported and constant currency basis and operating profit margins of approximately 20%.

The GAAP earnings per share outlook was increased to reflect the more favorable first quarter tax rate, including the impact of the adjustment related to provisional accounting for the Tax Act. We now expect our GAAP tax rate in 2018 to be approximately 14% and the adjusted tax rate to be approximately 15%. Our previous outlook reflected a range between 15% and 16%.

Consequently, we have increased the GAAP earnings per share outlook to a range of $1.81 to $1.91 for the full year with adjusted earnings per share in a range of $1.80 to $1.90.

Cash flow from operating activities is still projected to be approximately $800 million in 2018, which is net of approximately $200 million of outflows from the combination of anticipated final tax payments related to the IRS agreement from 2011, the New York Department of Financial Services settlement payment and WU Way payments related to 2017 expenses.

So we have started off the year well with good growth momentum and solid profitability and cash flow and have adjusted our full year earnings outlook modestly to reflect the tax benefits realized in the first quarter. Operator, we are now ready to take questions.

(Operator Instructions) And our first question will come from Bryan Keane of Deutsche Bank.

Want to ask about the -- a little bit of the higher marketing expense and then the negative impact that FX had on the operating margin, the adjusted operating margin. Maybe you could break that out. And then, just trying to figure out that marketing expense is just timing, and it'll even out throughout the year, or is there something specific going on in the numbers that we should be -- we need to know about?

Yes. Hi, Bryan. This is Raj. On the marketing expense, we were just under 4% of revenues, our marketing expense for the quarter, which is closer to what expect the full year average to be, and that was higher than last year's first quarter just because we were -- we sort of underspent in the first quarter of last year. And the FX piece of it, we had a negative 50 basis point impact to margins in the first quarter, and that was largely driven by the negative impact of our hedges and then there were some offsets to that. So we would expect the FX impact in the first quarter to actually reverse assuming rates stay where they are during the course of the rest of the year and then just some timing of other expenses. So that's really what the makeup is in the margin in the first quarter.

Okay. And then so in the second quarter then, will we still have a negative FX impact, or it will reverse starting in the second?

Well, if you think about, it really depends on where the euro rate was and other foreign currencies last year and a few other factors. So the euro strengthened quite a bit during the course of the year, particularly in the second half of the year last year. So you'll see less of an impact in the second half, maybe less of an impact in the second quarter as well. And then we have some other offsets like the Argentine peso. Devaluation continues as well as some impact from our hedges. But you'll have less impact the next 3 quarters than you had in the first quarter.

Okay, helpful. And then Hikmet, just thinking about the competitive landscape, obviously, the news of Walmart getting more involved in money transfers globally. It sounds like there's no plans for you to make any adjustments to pricing changes at this time. Maybe could you just talk a little bit about what that competitive environment now means with Walmart entering and what you'll be looking at to see if you need to adjust price or not.

Yes. Look, Walmart is one of the competitors for many, many years. We ask tough questions several times as we operate at more than 20,000 corridors globally for us to readjust prices if needed. Just to put in -- we have 50,000 locations in the U.S. Walmart has 4,700 locations in the U.S. We are sending to 550,000 locations globally from the U.S. We are operating in 200 countries and many corridors. So I believe that we are competitive, and environment has been very good. We will definitely look at the prices. We may have to do some pricing just around the competitive locations. But that's -- we've been doing with street corner pricing, weekend pricing, different band pricing, next-day pricing. We have been doing that for many years, and we will continue to do that. On the pricing environment, I don't see big competition. It has been stable for the last years. We even had price increases like price increases in Q1. And I think that the environment has been stable and I don't -- from today's point of view, I don't expect big price changes from our outlook.

With our -- Bryan, our pricing is quite competitive also. When you look at our U.S. outbound business, U.S. to Mexico is the #1 corridor, and we already have $8 up to $1,000. Jamaica, Philippines, we're also very competitively priced. So that positions us well even with the changes that have been made recently.

The next question comes from Jason Kupferberg of Bank of America Merrill Lynch.

I just wanted to start with a top line question. Obviously, a good start to the year here, the 5% constant currency revenue growth here in Q1. I know you're leaving the guidance for the year unchanged at the low to mid-levels. Is that just because you've got a tougher comparison in Q4, I believe it is? Or you're just being a little bit cautious at this early juncture of the fiscal year in terms of some of the soft spots in the market that you alluded to in your prepared remarks?

Well, generally, we are pleased with the start. As you said, Jason, I think we had a very good start, 7%, respective, 5% constant currency. I think the team is doing very good. Retail money transfer has been executing very good. U.S. outbound business to several corridors has been very strong. Europe, nicely, and Latin America outbound has been very good. So I think that's going to continue. I would say that it's too early to look at giving a -- changing the guidance here. But we like this good start, and we like how we started the year, and we'd want to continue to execute.

Okay. And just on wu.com, the constant currency growth there did slip a couple of points, I think. I think you were 22% last quarter, if I'm not mistaken, 20% this quarter. Do you expect that to reaccelerate? I think you did have a meaningfully tougher year-over-year comparison here in Q1. So just wondering if we can get back into the low 20s or low to mid-20s. Or are you thinking 20% is kind of the barometer for the year?

So we are also here very pleased with our 20-plus growth rates, obviously. And one thing what we do is that 2 -- we have followed 2 strategies in the markets where we have been for several years. We do the customer experience, the customer using us, coming more often. And like in the U.S. outbound online transactions, they are really loyal customers. They like our service to send money to 200 countries. And the other thing is, also, we are expanding. It's -- now have more than 40 countries. We recently announced Jamaica and...

Panama.

Panama. And we're going to -- you're going to hear more announcements opening new countries very soon. And we're going to expand especially in mobile. The people like mobile. Most usage on the online is the mobile apps, and they stay loyal. So I am confident about the 20-plus. That has been our track record. Is it 21%, 22%, 25%? It depends, really, on the quarter and depends on the seasonality of pricing -- sorry, seasonality of actions we do, promotions we do, and it depends on the corridor. So we're going to continue to execute that.

Okay. And just the last one I wanted to ask was on U.S. to Mexico. I know you mentioned having the competitive pricing there. I think maybe in the prepared remarks you said something about some potential or some ongoing softness there. I just wanted to dive into that a little bit. Just kind of volume and transaction trends in that corridor just compared to what we've seen in the last couple of quarters, like have we stabilized? Or have things gotten any better or worse in the corridor?

Yes. I think U.S. outbound to Mexico is only one corridor for many corridors. We have been seeing a little bit softness compared with other corridors but none of our corridors are bigger than 5.

None of our countries are bigger than 6%.

6% of the revenue. So I think if you put in perspective, it's more seasonality. Just to put things in perspective, in Mexico, we have about 30,000 locations. And in the U.S., we have about 50,000 locations plus our very strong growth on the dot-com, connecting to 30,000 locations, to Mexico, has been a very good growth. And we also pay out in accounts, and that has been definitely something that we've been very -- it's going to -- it's a good business. We like it, and we're going to focus. But our U.S. outbound, generally, has been a good run, Raj, right?

Yes. And Jason, we have not seen Mexico get worse. U.S. to Mexico, it got a little bit better in the first quarter compared to fourth quarter, but it's not -- at least at this stage, it's not getting worse. And we're positioned well, competitively, as Hikmet said, when that market turns around.

And our next question comes from Jason (sic) [James] Faucette of Morgan Stanley.

Yes. Just a quick question for me. So I understand that you're not seeing a lot of pricing pressure right now. But when you look at the longer term and where you need to be dedicating investment and development on R&D, what are -- how do we think about your prioritization there, first of all? And secondly, when you look at other things like foot traffic, et cetera, has there been any noticeable change of that even if you haven't seen pricing pressure over the last while?

Yes. I think on the expansion -- or digital expansion, we are really seeing a good growth. Remember, about a few years ago, it was only 5% to 6% of our revenue was online. Now it's already 11%. It's a significant part of our sent channel is the westernunion.com for many countries, to 40 countries -- to more than 40 countries to 200 countries. I think that's going to expand. So we're going to spend money there. We're going to invest there. We're going to promote our online business. We're going to promote our apps globally in many, many countries. On the -- second part of the question was?

Foot traffic, any change in foot traffic?

Not really. What we see is that repeat customers are -- we invested also in the customer service, especially on the retail side. We started up initiatives there, and we see more and more repeat customers coming, and that makes also -- we are satisfied with that result.

I mean, the key part of that growth in consumer money transfer was an acceleration of our retail business. So we saw 6% revenue growth in retail and 3% constant currency, and transaction growth was 2%. So we're seeing good retail business as well.

The next question will come from Tien-tsin Huang of JPMorgan.

Good acceleration in revenue and principal sent. So I wanted to ask, are you seeing early benefits of WU Way or maybe any opportunistic activity in transaction given some of the FX moves? Just trying to better understand the acceleration you saw in both revenue and principal sent.

Yes. I mean that we -- Tien-tsin, this is Raj, and I'll let Hikmet speak after I do. But the -- we saw acceleration in many aspects of our consumer business. Some of it was related to pricing, obviously, but that was about a 1-point lift in the consumer business. We had transaction growth acceleration. The market overall seems quite healthy. Principal growth for -- as you mentioned, we had 9% principal growth and 5% constant currency. That was driven by many different parts of our business. U.S. outbound was a key driver. Parts of Europe were also a key driver there. And so we're seeing good traffic and good acceleration. We'll see how the rest of the year plays out, but Q1 was quite good for us.

Also, on the WU Way, you asked a question on WU Way. The WU Way actions, the companies, how we operate -- the way we operate this has changed. Obviously, we not only look at our operating efficiencies. We also look at how we can really invest in our growth initiatives, how we can accelerate to open new countries faster with our dot-com business, how we can have more efficient marketing initiatives, how we can have repeat customers more. And we always use our lean management WU Way initiatives there, and that's really kind of a new mindset within the company. And the lean management initiatives, the WU Way initiatives are not only working on the productivity actions but also on the growth actions.

Okay. Good to know. Just on the Europe acceleration, just to dig into that, is regulation driving some of that? And I'm not sure if there's some new regulation being proposed around DCC, and I don't know if that impacts you directly but anything we need to consider there for Western Union?

Really not, Tien-tsin. I think it's really the execution on the markets, and the dot-com part is working very well. I did not hear anything that regulatory environment has changed in Europe. Obviously, we are very much focused on the privacy side. That's the new area that we're going to -- we're going to focus on that, but that we are not alone here. There's many companies doing that. And -- but besides that, the usual things: We are active there. We have our compliance programs. We have our anti-money laundering programs. And we saw a nice acceleration in France. We saw a nice acceleration in Turkey through different corridors, and so that has been the driver. So nothing unusual.

Okay. Good to know. Just last one, I promise, just on the share repurchases. No repurchases in the quarter. Raj, did you mention any restrictions? I may have missed it. Just wanted to clarify that.

I didn't mention anything specifically, Tien-tsin. We just have some timing factors and considerations where we were out of the market but -- and we would expect to be back in the market in the second quarter. And we have timing things from time to time that prevent us from buying, but we should be back in the market in Q2.

The next question comes from Andrew Jeffrey of SunTrust.

This is Jenny Dugan on for Andrew. As volumes pick up and agent exclusivity breaks down a bit, is there going to be any change in your physical branch growth strategy?

No. I mean, we continue to see a lot of whitespace opportunity for continued retail expansion, and you've seen that over the last couple of years in various parts of the world. So competitively speaking, we continue to get new agents. We're adding more to our portfolio, and we -- that's why you're seeing some of the results that you're seeing.

I think the ] successes, we are really competitive in the market. I don't see any big -- the team is doing very well on the market. So I don't think see any big issues on the market.

Okay. And then is there any change to your strategy in India just given some of the change in cash usage in electronification over the last year or so?

I think, in India, we are very pleased with our India strategy, actually. We have more than 100,000 locations all around in India, and we really have also the -- we are very active in major corridors, is it from Saudi Arabia, UAE or Qatar to India; or is it from Middle East, generally, from India; or Canada, from U.S., from Germany, from England to India. These -- Australia to India -- this has been the corridors we've been very active in putting real good promotions that drives our growth there. Compared with the other competitors, we have -- I think, we have a good size there, and we are -- our competitive environment has been very well, and I think that's it, right?

Yes, yes.

And the next question comes from Lara Fourman of Goldman Sachs.

Just in terms of the pricing increases you mentioned, is there any color you can give us on -- if there's any -- where they're coming from or if they're in a certain transaction size, is there anything? I know you have 20,000 corridors, but any color there? And the also, just more positive commentary into the commission trends. Is that more from mix changing more digital? Or are you actually having better negotiating power when you renew some of the merchants and some of the partners you have?

Lara, on the pricing side, I would not -- there's nothing special. Absolutely, the pricing as you know, over the years, the pricing environment has been very stable. And if you compare us with competition, we still have 15% to 20%, 15% higher premium than the competitors. Obviously, customers like our brand, like our customer experience, like the westernunion.com. They use -- like our reach, the global reach in being in 550,000 locations, our anti-money laundering programs, our multicurrency settlement in 131 currency hubs, and that's really the premium that the customers are paying. And to be on the market, this business has to generate some revenues, and we've been doing a pretty well job there, I guess. And the increases, I would say that has been more than [weak side]. We do invest in some corridors. We decrease in some corridors, and it has not been a significant increase. It has been a slight increase. On the commission side, Raj, do you want to say something?

Yes. On the commission side, we're getting benefits in several different ways, Lara. We've been able to do a good job of bringing our overall retail commissions down over the last several years and that trend has continued into this year. We also are getting the mix benefit from a faster-growing digital business because that business is digitally initiated, either credit card, debit card or bank account, but then one side of it pays out at a retail location. So that mix is benefiting us. We really want to look at overall distribution cost in the company. And our goal is to bring total distribution cost down so as the business mix changes over time when we have more bank funding and bank payout in other ways of distributing the product, that's going to help us as well. So we're pleased with the overall commission returns as well.

Got it. And then just one more for me, more for Raj. You gave some color on the tax hurt in 2018. Any guidance you can give on 2019? I know last time you were talking about the BEAT tax could have a more impact in 2019. Do you have any more clarity there?

Yes. Not at this time, Lara. We're still working through the BEAT provisions, the base erosion provisions, which effectively double tax a portion of our profits. So there's still a couple of angles there. One is to push for a legislative change or, potentially, guidance from treasury, which we're trying to influence, or the other one is, really, to try to take things into our own hands and try to impact our structure or change our structure internally to alleviate the issue that causes the BEAT, base erosion, or the double taxation, if you will. So we're still working on it. It's complex, as you can imagine, and it's going to take us the balance of the year to really come to a view on what that means for us later into next year.

And our next question will come from Ashwin Shirvaikar of Citi.

I guess, can we start with a 2-part question related to expenses? One is just to verify, other than FX erosion, are there other factors that drive the 10% of the margins? It's given that we started the year a little softer with 19 on. And the basic question is, have you already made all the GDPR-specific investment that you need to make? I remember (inaudible)

Ashwin, it's so hard to understand you. I don't know about...

Let me try to give it a shot, Ashwin, if I understood you correct -- your question correctly. On the margins, I think you're asking the negative FX impact in first quarter. That will certainly reverse the rest of this year. We also would expect to get some leverage from our revenues. They will be higher in the latter part of the year, and that will give us some margin lift. And then just timing of our overall expenses will also help us. So that will help to get us to the margins of approximately 20%. It could be a little bit above, a little bit below, depends on where things trend. And then I believe your second question was around GDPR. We're in the process of making those investments. That's a regulation that goes into effect in Europe this month. And we've made a lot of different technology, upgrades and changes. We've also invested in various operational changes in the company and are in the process of putting that in place right now.

We hired also good talents reporting to our General Counsel, Caroline Tsai, recently, here in the U.S. and in Europe. So that will help us also a lot.

Got it. And then on wu.com, I just wanted to understand sort of the breakdown of what contributes to wu.com growth in any given quarter between new countries that you add, same-store transaction sales versus pricing. Any kind of help you can give to break that down.

Yes. But we don't really give a breakdown like that, but clearly, the existing markets are going to be the biggest contributor. The newer markets, it takes time for them to develop and for us to create awareness, and they will add more customers over time, and that's the growth model here is keep adding more countries, more channels. Those things will contribute over the long term, while the current business keeps driving the short term.

And the current business is all about customer relationship, customer management. And we know that customer, once they use our apps and they use our online, they register, they use our -- more often than retail, so that helps. Once we open that new country, it takes some time, and then they start to use us, and that goes also really well. The model is really investing in the customer relationship with the existing customers, existing countries and opening new countries.

And next we have a question from James Friedman of Susquehanna.

It's Jamie of Susquehanna. Hikmet, I believe in your prior comments, you had mentioned some of the use cases for WU Way as a growth driver. We often think of it as an expense initiative. I was wondering, have we seen -- or can you share us some of the use cases like have we seen any materialization? I think there was a WeChat and maybe a Facebook. I apologize -- I really apologize if I got these cases wrong. But how do we see WU Way in the marketplace?

Yes. I think what we do is that we have agile. What we -- we are not really focused on the end-to-end processes and from sending and receivers, and we look how to optimize the go-to-market environment faster, how we do transaction in a faster way and a more agile way. The WU Way, next step is going market more agile, really investing in our innovation, and that's started. And opening new countries and also building the customer relationship in a better way, that's all built on WU Way. Just to give you an indication about half our employees, more than 10,000 of our employees have been trained on WU Way, and they have the WU Way awareness training, and we have daily huddles. The people start to work with getting together, what are the ways, where they can analyze the processes, where they can be more faster, how they increase the customer satisfaction rate, that's how we do it, and that has start to pay. It's a long journey but it has to start to show first good results.

Got it. And then if I could just follow up on the expense side. I thought you said, Raj, you did $13 million, I may have gotten that wrong, in the Q1, $25 million for the year. Is that just because the comps get harder? Or is there another reason why that wouldn't run rate longer into the year.

Well, the run rate for this year will be $50 million. So that's what we'll achieve for the full year, which is $25 million more than last year. We achieved quite a bit in the second half of last year. So yes, when we go over, there's not as much incremental benefit in the third and fourth quarter. And so that's why you'll see most of the increment in the first half of the year compared to last year.

And our next question comes from Ramsey El-Assal of Jefferies.

This is Ben Budish on for Ramsey. Just wanted to follow up on a question from earlier. You mentioned that with wu.com, sometimes there's promotional activity. I'm just curious is that sort of what drove the divergence between the transaction growth and the constant currency revenue growth in this quarter? Or was there anything with mix or principal transaction -- per transaction or anything like that?

Mix. It's the mix. The answer is the mix.

Yes. Just mix of where the growth came from in the business.

And then just one other for me on the B2B segment. You kind of mentioned earlier there was some improvement but below kind of a long-term plan. Can you maybe parse out like what drove the improvement quarter-over-quarter and then what you expect over the next couple of quarters or years in the longer term?

As we said earlier, I think our current business is below expectations. We have improvement. We have a refocus on the business. We really go to market differently now. We do use also WU Way activities here, how to go to market, acquire new customers, how we serve the customers. Our long-term objective is definitely gaining market share here and growing stronger. Today's growth rates are good turnaround, good start to the year but below our expectations.

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

Sure, and that question will come from Rayna Kumar of Evercore ISI.

This is Nick Cremo on behalf of Rayna Kumar. I just wanted to ask how your partnership with Ripple is progressing and if you guys are seeing any other additional use cases for blockchain functionality besides the back office.

Yes. One of the things is that, obviously, we look currently, given our business performance, a lot on innovation, and different way of looking at our process is blockchain. It's definitely something interesting. We are looking at it. We are testing also with Ripple. Our test is still a test. We are understanding where we can use the efficiency with Ripple, efficiency with blockchain. And we also have different investments, smaller investments in different startup companies, different innovative companies. So that's going to continue to happen. We don't see a big change in our business model yet, but we will continue to be investing in -- we are going to continue to invest in innovation.

Okay. Laura, I understand 2 more people joined the queue. So we'll take a -- we still have time for a couple more questions.

Okay. We have a question now from Bob Napoli from William Blair.

Just on the strategic question on pricing. I think, Hikmet, last quarter you suggested that the Western Union's pricing broadly is about 15% above the competition. I mean, I think that's come down somewhat over the years, but it does still seem like there are other players in the industry that are growing at a much faster pace. Do you think that your price premium at this point is at the right level? Or does it need to continue to narrow over time?

I think, first of all, I'm confident with our price premium. As I mentioned earlier, why the customers are choosing us, there are several reasons. Obviously, our brand. Many people like our brand, like our services, like our global reach, being in 200 countries. We adapt prices constantly, Nick (sic) [Bob]. We do constantly change our prices corridor by corridor. We even have weekend prices. We have corridor prices, street corner prices and different to different. But overall, our business intelligence -- our competitive intelligence shows us that we are still 15% higher, and that has been stable for a long time, 15%. It's not been decreasing a lot. And we've been feeling very stable on that. And from today's point of view, I feel comfortable with our pricing, comfortable with our services. And if one corridor goes down with the pricing, competition is stronger, we will adapt to that. We will look at that. But in other quarters, we may increase prices. That's what we do. It's like an airliner, right, where you fly weekends, you pay different prices. You fly different destination, different classes. I think that's what we do with 20,000 corridors. And within the 20,000 corridors, we do use artificial intelligence to adapt our bands. We do use our different customer behavior, and that's one of our biggest competitive advantage, to be in 200 countries.

And then was there -- and I'm sorry I missed part of the call -- a benefit from the volatility in currency? And foreign currency volatility picked up quite a bit in the first quarter. Did that have much of an effect in the quarter's earnings?

Yes. Just from the first part of it before I give it to Raj. One thing, also, I want to mention is our principal grew impressive 9% this quarter, and our transactions also grew. So the people are using our services more and more. I think our pricing environment has been well received by the customers. Sorry, Raj.

Yes. No problem. So Bob, yes, volatility, I would say there was a lot of market volatility. I'm not so sure that we saw a lot of foreign exchange volatility. So it was not a big driver in our B2B business or, more broadly, in the company. I don't think that was really a factor for us to call out.

Okay. I think we have one final question.

Yes, we do, and that question will come from Matt O'Neill with Autonomous Research.

This is Craig for Matt. Two questions, and apologize for getting on late. Curious why the top end of guidance wasn't raised considering the strong revenue performance. Should we be worrying about anything in the back half of the year that could mute performance? And secondly, any thoughts on pricing, considering the Walmart2World offering that MoneyGram and Walmart just launched?

Thanks, Craig, joining the call. As I said earlier in the call, I think that we are very pleased with our start, and we have a strong quarter, and we are continuing with our performance from 2017 and are -- all our programs we put in place are really, especially in the C2C businesses, doing well. And that's the outcome of that in Q1. Our customer relationship, our customer experience in retail has been doing very well, and our dot-com business has been growing and adding new customers, by the way, additional customers to our network with our dot-com business doing very well. So I think we are -- from growth perspective, we are pleased with that. It's too early to give -- we believe, it's too early to the -- a new guidance here, but we are confident with our business, and we are pleased with our outcome. And the second part of the question was the Walmart part. I answered that question earlier. Look, Walmart is one of the many competitors worldwide. If you -- especially if you operate in 200 countries like we do and 20,000 corridors like we do, there are many competitors. Just to put things in perspective, Walmart has 4,000 -- 5,000 locations, 4,700 locations in the U.S. We have about 50,000 locations in the U.S. to -- sending to 550,000 locations worldwide and more than 3 billion bank accounts worldwide. So I think the connection that we do from U.S. outbound is very competitive. If we have to adjust prices, we will adjust. It's one of the corridors. We may do pricing promotions around the Walmart locations. That's what we do daily. It's nothing new for us to compete in the market. That's what we do daily, and the team is doing a good job.

Okay. Thanks, everyone, for joining us today. We wish you a good evening.

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