The Western Union Company (WU) Q2 2010 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Second Quarter 2010 Western Union Earnings Conference Call. My name is Carissa, and I will be your operator for today. [Operator Instructions] I would now like to turn the conference over to your host for today's call, Mr. Mike Salop, Senior VP of Investor Relations. Please proceed.

Thank you, and good morning, everyone. On today's call, we will have comments from Christina Gold, Western Union's President and Chief Executive Officer; Hikmet Ersek, our Chief Operating Officer and CEO select; and Scott Scheirman, Executive Vice President and Chief Financial Officer. After the comments, we will have time for your questions. As we indicated in our press release, we have prepared slides to accompany this call and webcast. These slides can be found at westernunion.com under the Investor Relations tab and will remain available after the call. Consistent with the first quarter, additional operational statistics have been provided in a supplemental table with our press release. As a reminder, 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 2009 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 also discuss some items that do not conform to Generally Accepted Accounting Principles. We have reconciled those items to the most comparable GAAP measures on our website, westernunion.com, under the Investor Relations section. All statements made by Western Union officers on this call are the property of the Western Union Company and subject to copyright protection. Other than the replay, Western Union has not authorized and disclaims responsibility for any recording, replay or distribution of any transcription of this call. Before I turn the call over to Christina, I'd like to mention that Western Union will be hosting an Investor Day in New York on the morning of September 30. You can now register for the event on our Investor Relations section of our website and the meeting will also be webcast. Now I'd like turn the call over to Christina Gold.

Thank you, Mike, and welcome to everyone on the call. We are pleased with the quarter's results as the positive momentum we experienced in our C2C business at the beginning of the year has continued in the second quarter. Thanks to the diversified nature of our portfolio, global transaction growth increased to 9% led by improvement in the Americas region. Our operating margin, excluding restructuring expenses, was 27%, 150 basis point improvement from the first quarter, and earnings per share, excluding restructuring, increased 16% from the second quarter of last year. We grew our agent locations to almost 430,000 in the quarter and we purchased $217 million of stock and paid $40 million of dividends. So on many fronts, it was a good quarter and our business is on track as we enter the second half of the year. Longer-term, we continue to have global opportunities to increase our market share in money transfer through network growth, focus marketing and consumer segment expansion. We can enhance our growth by offering new products like Prepaid to existing consumers and building our position in new consumer segments such as small and medium enterprise business-to-business payments. As most of you are aware, I will be retiring on September 1, so this is my last earnings call with you. Although there have been challenges, I believe the foundation is strong and the company is well positioned for future growth. Today, Western Union has a strong global brand, an unmatched network, the right strategies of solid financial position and an energized management team under Hikmet Ersek's leadership ready to move forward. At this time, I would like to turn the rest of the call over to Hikmet and Scott who will give you more perspective on the quarter, as well as take your questions. Hikmet?

Thank you, Christina, and good morning, everyone. I would like to take a moment to once again thank Christina for her leadership and contributions to Western Union over the years and wish her the best. I agree with her that the foundation of the company is strong and the opportunities are big and Mike's team is excited about leading Western Union into its next stage. This morning, I would like to give you some more color on the second quarter results. Many markets contributed to the performance in the quarter. The Americas delivered further improvements with double-digit transaction gain and its first revenue increase since the second quarter of 2008. Our international markets also had solid growth even with economic challenges in some parts of the world. Although our U.S. bill payment business declined as expected in the quarter on the other side, customers deliver good results with $28 million in revenues, up from $26 million in the first quarter. We continue to make advances and retro [ph] (11:26) accomplish money transfer and various mobile initiatives as we leverage our network brand and compliance capabilities. This stinient [ph] (11:35) of comp transaction in international markets increased over 60% in the quarter. The comp-based money transfer transaction, which includes both account-to-cash and cash-to-account, with banks grew more than 70%. In mobile, we have now enabled over 60,000 agent locations in 17 countries to provide cash-to-mobile service and we have begun a pilot program in Malaysia offering mobile-to-cash. We are moving forward with our Prepaid strategy as we now have over 500,000 Prepaid Cards in force and over 8,000 retail locations offering the cards. Let's now take a more detailed look at our results. Our Europe, Middle East, Africa and South Asia region group transactions 5%. Revenue declined 1% as currency translation of the euro negatively impacted results, but revenue increased on a constant currency basis. The transaction increased by slightly below the first quarter, 6% increase as we saw some further slowdown in the Gulf. In Europe, as you are all well aware, there were some other challenges in some countries brought on by the sovereign debt crisis. Our diversified portfolio however, delivers overall transaction growth in the European. A large markets such U.K. and Germany performed well. We continue to expect our network in Europe. We recently announced the addition of Yapi Kredi Bank, a competitive takeaway and one of the largest banks in Turkey with more than 800 locations. We have a strong agent network in Europe today, primarily two banks and post offices and we are continuing to diversify our agent edition of retail accounts. We are making very good progress signing new retailers although the activation of services taking slightly longer than expected. We previously anticipated having 10,000 new retail agent locations activated by year-end and we now project we will reach this level mid-2011. We expect a new retail account in Europe built at closer to 1% of revenue for Western Union in 2011. Two recent additions to retail distribution signings are the OMV oil and gas group and Telecorp. The OMV agreement will allow us to provide money transfer services in over 1,800 gas stations across eight European countries, tele-query [ph] (13:57) the Telecorp division of the large Spanish retail group, El Corte Ingles. These are two more examples of how we are expanding our European distribution to new classes of trade and reaching new consumers. Recently the retail opportunity in Europe is large and we are laying a solid foundation for future success. Continuing on with our review on the region's quarterly results. Russia again performed well. We have also increased our strategic operations in the country, including launching electronic account-based money transfer with Moscrum PrivatBank [ph] (14:31), our second partner bank in Russia to offer this service. Transactions in the Gulf States were down moderately in the quarter compared to a year ago at challenges in the UE and Saudi Arabia offset growth in some other Gulf countries. Now our outlook for the year, we are projecting continued softness for the Gulf in the second half. We believe, however, the long-term prospects are healthy and infrastructure projects in the Gulf are expected to resume. They're also continuing to inventify [ph] (15:02) new corridors and develop partners for alternative channels such as mobile and account-based money transfer to help to drive our business in the Gulf States. India reported revenue growth of 4% on transaction growth of 3% in the quarter. We recently added a new agent in India, Bandhan Financial Services, a major microfinance services company with over 800 locations across the country. We also made an important advance in our electronic challenge initiatives as we signed an agreement with our agent, State Bank of India, that will allow now for cash day comp [ph] (15:38) transactions. Beginning in 2011, Indians working and living overseas will be able to send international cash transfers progress the entire tint of the earth [ph] (15:46) State Bank of India online banking linked accounts. The State Bank of India agreement represents another step for Western Union to provide additional online services to consumers and follow the cash-to-account service implemented at guaranteed by in Turkey last year. Turning now to Americas region. The improvement continues with 12% transaction growth and the 1% revenue increase in the quarter. U.S. domestic money transfer was a major contributor to the transaction increase and results were stronger than expected across the region. Americas represented 32% of total company revenues in the quarter. The Mexico business turned positive with transaction growth of 5% and the revenue increase of 4%. Although U.S. employment has not improved dramatically, stabilized economic trends are helping Mexico revidend [ph] (16:39). We also had a strong response to our Mother's Day promotion and we believe our Mexico business benefited from the success of our U.S. domestic group positioning. Also the U.S. outbound business continued its positive performance with most corridors delivering strong transaction growth and improving revenue trends. In U.S., domestic money transfer are repositioning plan that is working. The new pricing and promotions help drive an increase in domestic money transfer transactions of 28%, up from 18% in the first quarter, while revenue declined 10%. For the second quarter in a row, we saw transaction increase across all our domestic principal banks with the $50 and under bank delivering the highest growth. We are on track to deliver domestic revenue growth later in the year and we continue to see operating margins over 30% from this business. Finally, the U.S. the roll-out of our Prepaid Card continues. We began retail distribution at the end of the first quarter and now, we have over 8,000 locations carrying our cards. Through our direct mailing and retail network, we have more than 500,000 cards-in-force as we approach our targets over 750,000 cards by year-end. Moving forward, we are focused on increasing distribution, driving usage and able aid [ph] (17:58) possibilities for Prepaid in selected international markets. It is still early but we believe in long-term opportunities for the Prepaid business. In the U.S., we will also be rolling out the Western Union goCASH service in the second half of the year. goCASH is an inland prepaid money transfer service that allows us to enter new face of [ph] (18:20) trade, such as convenient stores that do not have guest service concerts [ph] (18:24). We just completed that an agreement with Family Dollar deduced to with [ph] (18:29) goCASH at over 6,500 stores across 44 states and it will be in more than 1,000 Murphy Oil gas stations and convenience stores over the next several months. Now turning to Asia Pacific. The region once again delivered strong growth in the quarter with increases of 11% in revenues and 14% in transaction. The Philippines continues to perform well, and to celebrate our 20th year in the country. We are prone to building our network strength with a recent addition of the Philippine National Bank, which has the largest offshore bank network in the country. We plan to offer our money transfer services at over 300 of its branches in the Philippines beginning in the third quarter and over the time almost 90 overseas offices in 12 other countries. Our interest [ph] (19:14) in the Philippines is growing fast as well and now represents almost 25% of our total country transactions. Intra also aids our cross-border business by increasing brand internet [ph] (19:25) and agent engagement. In China, transactions grew 6% and revenues increased 11% in the quarter. We are activating region decide [ph] (19:34) regional bank locations, which are important as they hold unique positions locally and provide specialization on special corridors. We also continue to drive business to China by placing bidagid [ph] (19:45) resources in key end markets to promote our business. In Asia, we made further progress with electronic accomplished money transfer through our launch with the Industrial Bank of Korea. Bank customers can now send receiving money transfer tally to fund their online banking account, which is important because Korea is a highly bank country and similar payments are often paid directly into bank accounts. Finally, in the region, we are very pleased to be building our business in Japan, one of the top 20 global sent markets. We have received authorization to provide international money transfer service under countries act consider settlement [ph] (20:19) of funds. The new goal allows non-banks to contact money transfer service in the country. We have enlarge our service in Japan this month with our agent travel aid, where compliments [ph] (20:31) will be able to transact seven days a week with ours beyond the traditional business day and we have other potential agent agreements in the pipeline. It will take some time for us to develop our business in Japan, but we are excited about the opportunity to actively building our network in this large market. Now turning to the Global Business Payments segments. Revenue increased 9% or declined 8%, excluding customers consistent with our expectations. Ahka pursuit [ph] (20:57) in South America, recorded another good quarter but the years continues to be challenged. As part of our recent organizational changes, we have moved the bill payment business under the direction of Stewart Stockdale in the Americas region. Stewart and his team are currently working on an integration plan seeking both for revenue and cost efficiency opportunities. By moving bill paid Americas, our sales people are now able to better books on selling multiple products on the same retailers, including money transfer, Prepaid services, bill payments and money orders. We have also continued to expect our approximately 4,000 strong dealer base into new categories. Customers' revenues increased to $28 million, up from $26 million in the first quarter, primarily given by Canada and Australia. We are on track for double-digit revenue growth this year and we continue to invest for the future, creating as capable platform and standardized system and processes. In the U.S., we now have opened two new sell offices and the third one plant to be the second half of the year. We are actively recruiting people across regions, obtaining licenses and building a pipeline of potential partnerships to drive growth of this business across the globe. And finally, I would like to take two minutes to discuss the organization's changes we announced on May 27. When I became Chief Operating Officer at the beginning of the year, I assembled a team to examine our structure. My goals were to seek ways to improve our execution and speed which will help drive growth as well as find cost efficiencies in the business. The new structure we are putting in place is designed to accomplish those objectives. Creating an executive position to meet our alternative channels is only one example. This position will help us to drive our electronic channels to a digit [ph] (22:45) and as we recently hired David to fill this role. David has extensive international IT banking and payment system experience and he will be officially joining the company next week. In other changes, moving considerable walk-in pay into Americas region under assumes softer [ph] (23:02) leadership. The business is local with similar consumers and distribution to money transfer so there are many benefits to these integrated offerings. Our realignments were also designed to reduce layers in our organization, which will contribute to speed to market and move decision-making closer to the consumers and agents. And finally, leverage of our existing global centers of excellence and establishing a new center lead being able to help us gain efficiencies in our cost structure and standardized and improved services. Our management team's focus is to execute on our priorities results, growing retail money transfer, expanding electronic channels, developing business payment and other new services and improving processes and productivity. The organizational changes we are undertaking will better position to company to deliver against these objectives. Although the global economy remains uncertain in many countries and regions, we are very fortunate that we are seeing these in a position of strength in a solid financial position and improving business trends. However, we must ensure we stay ahead of the market and in position to take advantage of the many opportunities in front of us. Improvement is a continuous process and we will consistently challenge ourselves to find new and better ways to drive our business. The ability discussing our business changes in more detail in the months to come. But now I'm going to turn the call over to Scott to review the financial results for the quarter.

Thank you, Hikmet. Consolidated GAAP revenue increased 2% or 3%, excluding the impact of unfavorable currency translation. On a constant currency basis, revenue growth rates have increased 200 basis points sequentially over each of the past two quarters. C2C transactions grew 9%, which translated to 1% revenue growth in the segment, or 2% constant currency growth. In Global Business Payments, 9% reported revenue growth resulted from the addition of Custom House partially offset by the anticipated decline in the U.S. bill payment business. Total Western Union transaction fee revenue represented 78% of company revenue and was flat from the prior year. Foreign exchange revenue represented 20% of total company revenue and increased 15% in the quarter benefiting from the acquisition of Custom House. C2C transaction growth further accelerated our third straight quarter of increased growth and up 600 basis points from the 3% levels experienced in the second and third quarters of 2009. Revenue in the international C2C business grew 2% in the quarter or 4% constant currency on transaction growth of 7%. Performance was driven by continued strong trends in the U.S. outbound business, as well as growth in Europe and Asia Pacific, partially offset by modest transaction declines in the Gulf States. The company's C2C cross-border principle volume increased 6% in the quarter or 7% constant currency, and we believe we continue to gain global market share. C2C principal per transaction decreased 2% compared to the same period a year ago. The constant currency principle per transaction decline has moderated over each of the past two quarters. The spread between C2C transaction and revenue growth in the quarter was eight percentage points or seven points excluding the impact of currency. Similar to the first quarter, the factors affecting the currency-adjusted spread included the domestic money transfer repositioning, international pricing and mix. The success of the U.S. domestic repositioning and specifically strong growth in the 50 and under principle band continued in the quarter. Domestic money transfer contributed four points of the transaction-to-revenue spread as a result of both pricing and mix. Excluding currency and the impact from domestic money transfer, the other factors impacting the transaction in revenue spread were generally consistent with prior quarters. Second quarter operating margin of 24% was impacted by $35 million of pre-tax restructuring expenses. Excluding these charges, the consolidated operating margin was 27%, consistent with the second quarter of last year, and up 150 basis points compared to the first quarter of 2010. To provide an understanding of the factors driving profitability, I will focus the remainder of my margin commentary to exclude the impact of restructuring expenses, but I will provide additional color on these charges in a moment. Compared to the second quarter of 2009, margins benefited primarily from lower marketing expense, offset by Custom House investment spending and amortization. The negative impact from the assumption of the retail money order portfolio was 40 basis points. Marketing expense was slightly below 4% of revenue in the first half of the year. We expect the second half to be slightly above this level, resulting in a full year expense of approximately 4%. Earnings per share for the quarter were $0.33 or $0.36, excluding restructuring expenses. On a constant currency basis, EPS was $0.01 higher or $0.37, excluding restructuring expenses. This compares to GAAP EPS of $0.31 in the second quarter last year. The 2010 second quarter EPS benefited by approximately $0.01 from the favorable resolution of some tax matters with the IRS that relate to the 2002 to 2004 tax years. As Hikmet mentioned, we're undertaking some restructuring actions as described in our May 27 press release, designed to better align the organization for long-term growth and operating efficiencies. These actions are expected to result in charge of approximately $80 million through 2011 with the majority to occur in 2010. In the second quarter, the company recorded $35 million of restructuring expenses or $22 million after tax. Of the pre-tax expenses, approximately $10 million is reflected in cost of services and $25 million in SG&A. Restructuring charges are not included in segment operating results. We expect to achieve an annualized pre-tax savings of $50 million when the plan is full implemented beginning in 2012. Interim savings are estimated at $10 million in 2010 and between $30 million and $40 million in 2011. Turning to segment operating margins. Our C2C segment operating margin was 29%, an increase of 150 basis points over the same period last year, primarily due to lower marketing expenses and operational efficiencies. Segment margin increased 170 basis points compared to the first quarter of 2010. For the full year, we continue to expect 2010 C2C margins to be higher than last year. Global Business Payment operating margin of 19% included the Custom House intangible amortization expense and investment spending for future growth. Excluding Custom House, segment margin of 25% was down 130 basis points of last year. Reduced volumes in the U.S. bill payment business were responsible for the declines. As we integrate this business into the Americas region, we're exploring opportunities to drive growth, as well as leverage existing infrastructure to run the business more efficiently. The Custom House core business remains profitable but as previous discussed, overall contributions to earnings is expected to be slightly diluted this year due to incremental investments stand [ph] (30:48) and intangible amortization. We do not anticipate dilution from Custom House beyond 2010. Turning to our cash flow and balance sheet. Our solid financial position again give us the ability to invest in the business, while also returning significant capital to shareholders. In the second quarter, we generated cash flow from operations of $252 million, while capital expenditures were $29 million. In the quarter, we repurchased 13.3 million shares at an average price of $16.32 for a total of $217 million. We also paid $40 million in quarterly dividends. As of June 30, we had $583 million remaining on our share repurchase authorization as we completed $417 million of repurchases in the first half of 2010. At quarter end, the company had total debt of $3.3 billion and cash of $1.7 billion, of which approximately $900 million was outside the U.S. In June, we completed a debt offering issuing $250 million at 6.2% notes due in 2040. Our next debt maturity is approximately $700 million due in November of 2011. On a year-to-date basis, cash flow from operations was $326 million and includes the impact of the $250 million refundable tax deposit that we made with the IRS in the first quarter. I will now review our outlook for the remainder of the year. Based on our first half performance and current business trends, we are raising our constant currency revenue and earnings per share outlook for 2010, excluding restructuring charges. Our constant currency revenue outlook is increasing 1% compared to the prior outlook and is benefiting from better than expected performance from the Americas region. From a GAAP perspective, our revenue outlook is decreasing 1% compared to the prior outlook. GAAP revenue is being impacted by approximately 2% of negative currency translation due to the strengthening of the U.S. dollar against other major currencies. We have increased our constant currency earnings per share outlook by $0.04, excluding restructuring charges. This increase is being driven by higher constant currency revenues, a lower tax rate and restructuring savings. These benefits are being partially offset by increased interest expense due to our $250 million long-term debt offering. On a GAAP basis, the EPS outlook is negatively impacted by $0.07 related to the restructuring charge and approximately $0.02 from currency translation. Although our hedging strategy has largely minimized the near-term foreign exchange impact, we're not completely hedged so large swings in currencies do have some effect. We expect operating margins, excluding restructuring charges, to be between 26% and 26.5% for the year, which includes higher marketing spend in the second half of the year relative to the first. From a GAAP perspective, including the restructuring charges, operating margins are projected between 24.5% and 25%. Due to the strong success of the $5 for $50 U.S. domestic money transfer business, our calculated pricing investment for the year is anticipated to be closer to 4%. As a reminder, our pricing calculation includes all transactions in a newly priced band so a large increase in transactions will impact what we report. Domestic money transfer is responsible for approximately 2/3 of the 2010 pricing reduction. In reality, many of these transactions are incremental so some portion of this investment could be considered more mix than pricing. Beyond 2010, we would expect strategic pricing reductions to be in our historical 2% to 3% range. We constantly evaluate pricing across our corridors and try to set the prices that will drive the most long-term revenue. Since our cost of services is largely variable, this strategy can be beneficial to margins over time as revenues increase. Returning to our 2010 outlook, we expect other expenses to be approximately $170 million for the year. This is up from our previous outlook of $160 million due to the added interest expense from the $250 million 30-year debt issuance. We expect a full year tax rate, excluding the restructuring charge impact, to be between 23% and 24%. The 2010 tax rate is benefiting primarily from the settlement of certain matters with the IRS relating to prior years. Including the impact of restructuring charges, our GAAP tax rate outlook would be between 22.5% and 23.5%. As a result of all these factors, our updated outlook for the full year 2010 is GAAP revenue in a range of minus 2% to plus 1%, constant currency revenue growth 2% higher in GAAP, which would be a range of flat to plus 3%; GAAP EPS of $1.24 to $1.29, including $0.07 of restructuring charges; EPS, excluding restructuring charges of $1.31 to $1.36; and constant currency EPS, $0.02 higher. We expect GAAP cash flow provided by operating activities of $800 million to $900 million, including the $250 million reduction from the first quarter refundable tax deposit. Capital expenditures are projected at 2% to 3% of revenue. Our outlook assumes no significant shifts in the global economy. Although there are continued challenges in some parts of the world and global employment has not yet rebounded, we are pleased with the performance of our diversified portfolio in the improved outlook. That concludes our prepared comments on the quarter. Hikmet and I will be answering your questions this morning. And operator, we're now ready for the first question.

[Operator Instructions] And your first question comes from the line of James Kissane of Bank of America Merrill Lynch.

Scott, just a quick clarification in terms of the resolution of the tax matters. Is that all resolved now? Or do you still have some issues to resolve?

Jim, we still have some issues to resolve. The items that we did resolve this quarter were, I would say, smaller items. The item that we're still working through is the international restructuring we did back in 2003 that relates to that $250 million refundable tax deposit. But we were able to favor resolve several items that had some help to the tax rate this quarter and for the full year.

And Hikmet, can you maybe quantify or give us a sense of the halo effect, the U.S. pricing actions and the impact on the U.S. to Mexico business? And related to that, maybe your sense of share gains in domestic U.S. and U.S. to Mexico?

Sure. I think this U.S. domestic pricing action is one of our most successful actions, I mean we have 28% transaction growth this quarter compared to 18% transaction growth in first quarter. This obviously attracts customer to our retailers and this retail attracting customer have also halo effect to our South American customer, Mexican customer. We saw transactions grow in Mexico to 5% transaction growth and 4% revenue growth, which is a big thing here, right? And we are very attractive [ph] (38:57) so it had to have that effect and also videos [ph] (48:01) on the U.S. outbound business improvement. So totally, these are promotion pricing action has a halo effect to the other corridor. And also in all bands within the domestic money transfer.

Hikmet, maybe a little bit more insight into Custom House's solid performance, 8% sequential revenue growth. What are the factors driving that? Is there any seasonality there?

Well, I think customers business as you know, in Q1 we had $26 million and now Q2 is $28 million. I think customers, the core business remains profitable. We do see good progress in our international, especially Canada and Australia business. And we also started to put our sales efforts in the U.S. We believe U.S. market is a big market here. We opened sales offices where our people are getting new customers and we opened one in New Jersey and one, I believe, in Atlanta. And we are also underway to opening one more in Chicago area. So I think we are targeting customers and expanding our business. So that has an impact and we really believe it's a huge business. And also we are, the use of PSD license, the European union, our PSD license in European union allows also to expand customers.

Your next question comes from the line of Darrin Peller of Barclays Capital.

Can you just touch on a little more detail around what's actually driving the revenue guidance increase on a constant currency basis? And what assumptions you're including in your growth around the bill pay business for the rest of the year?

Sure, Darrin. On the constant currency guidance, we did increase at 1% compared to the prior outlook and now we're at a range of 0% to 3%. Broadly, we've seen a strong performance, and the Americas business would be the primary factor. If you look at domestic money transfer, we saw a 28% transaction growth, although revenue was down somewhat, we expect revenue to be positive as we get to the fourth quarter and have got 30% margin. But also within the Americas, Mexico was solid and U.S. outbound business continues to perform nicely given the backdrop of the global economy. If you go around the globe, there are some, if you will, puts and takes. Europe, we saw growth there, but we are keeping our eye on the Gulf. Our outlook for the Gulf is continued softness. Regarding the bill payment business and our outlook there, comments real similar to what we talked about in January is that we think 2010 will look a fair amount like 2009. Our opportunities with bill payments are continuing to consolidate that with the Americas region to look for revenue and expense synergies. And then look at product and geographic diversification. Clearly Custom House is a nice opportunity for us. It's a small business but just as we globalize the C2C business, our longer-term we want to globalize the B2B business.

Then just a follow-up on the -- some of the newer initiatives. I mean the trends are pretty impressive, I think, across the board. I mean the payment services direct of you have mentioned. Can you just repeat some of the data points? You had mentioned growing at some substantial rate and adding about 1% of revenue there. And then also on the Prepaid business, the growth there -- I mean up to $500,000. I think you had previously guided towards ending the year at 750,000 cards. It seems like you're trending better than that already. Is that fair?

Yes, I think we do have a focus, obviously, on the new initiatives and the team is working very hard to launch the new initiative. On the PSD side, I think we recently signed new retailers and in Europe, you have the banking and postal preserve very strong agent relationship. The retailers we are signing new like OMV or Telecorp from Corte Ingles are new big retailers and I'm very excited, for instance, about the OMV signing, it's a gas station which offers 24 hour service, which we didn't have in the past in Europe. We had banking or limited banking opening hours, so we're going to serve new customers. We believe that activation takes a bit more longer time to activate these locations because for the retailers, financial services also new in Europe. However, we believe we're going to get 10,000 locations by mid-2011 and that reflects about 1% additional incremental revenue from total receiving revenue this new initiative will bring. On the Prepaid side, I'm also very excited this could be new big initiative for Western Union. I think we started -- not in the U.S., it's in early stages, but our first indications are quite impressive. We have 500,000 cards-in-force and we are well underway to reach our 750,000 cards by year-end. And I believe that could be also -- especially given our global retails international expansion rate, that could be a huge opportunity for the future.

And, Darrin, a lot of the 500,000 Prepaid Cards came from direct mailing campaigns. And now as we switch to more retail distribution, we ramp up that distribution and it'll be a little bit of a different pace for the next couple of quarters.

Okay. And you're at about 8,000 locations now?

Yes.

Okay, and there's obviously more if it's about 50,000 in the U.S. overall?

Yes. We think there's tremendous opportunity in the U.S. not only in our existing network but other networks in the U.S. And then there's global opportunities, too -- we don't want to get too far ahead of our selves -- but we think globally, there's opportunities with Prepaid.

We're going to share more information on that in our September investors meeting. So we're going to give more color on that.

Your next question comes from the line of Bryan Keane of Credit Suisse. Bryan Keane - Crédit Suisse AG: I just wanted to clarify, the recovery in Mexico, is that mostly just due to the U.S. domestic pricing initiative? Or is that share gains that you're taking? I just want to be clear there.

I think we see some stabilized economic trends in the U.S. I think it is, although the unemployment rate has not improved in U.S., we do see some stabilizing. The other thing we also see is that our reasons of defeat could around [ph] (45:39) the domestic money transfer and the other one is also the Mother's Day went pretty well. We had good feedback on the Mother's Day so the response was very well. So I think overall market condition has a halo effect and Mother's Day had an impact on our Mexico business. Bryan Keane - Crédit Suisse AG: Okay, and just looking at the bigger picture, in the history of Western Union, is it typical that the Americas would recover first before Europe and the Middle East coming out of a recession?

I mean if you look at our business, we are really a global company in 200 countries, right? We do see improvements in parts of the world, we do see still challenges like in the Gulf States or in Spain. The unemployment rate in Spain is not a new story for you, but it's still challenging. However, that helps our portfolio, our diversified portfolio helps to respond to the trends but also to the opportunities globally and we are very fortunate to have that. Bryan Keane - Crédit Suisse AG: But historically, do we usually see stronger U.S. markets, domestic markets, and then the Europe and Middle East will lag? Because that's kind of -- it looks like that's what we're seeing here.

Well, first of all I would say that in the U.S., we've been much more longer, right? And in the other countries, we been 15 to 20 years in Europe, right? So historically, and the recession we have two years ago never happened in the past, right? So it is a different situation, I would say. I wouldn't draw any trends out of this but I think we are very happy with the quarterly results in Q2. Bryan Keane - Crédit Suisse AG: Okay. And then just finally, what are the expectations for Europe and the Gulf for the rest of 2010? Do you expect similar trends that you saw in Q2? Do you expect kind of a decrease in transaction volumes in those areas?

Bryan, this is Scott. The Gulf, our outlook considers continued softness, if you will, as we think about the next two quarters. And then with Europe, we saw a growth there. So we're still anticipating some growth there as we move through Europe. But I think what's good about our business is we're in 200 countries. Outside of the U.S., no one country's more than 6% of our top line. So it gives us some balance as we go around the globe and as economies enter different stages of stabilization or recovery.

Your next question comes from the line of Adam Frisch of Morgan Stanley.

Given some of the changes in the agent contracting practices, specifically with regard to either exclusivity or pricing, what can we expect with the delta between transaction and revenue growth in the next few quarters?

I think generally, or obviously, depending really on the countries and depending on the regions, depending on the corridor, our agent contracts. I think we are in most of our countries we have exclusive long-term agent agreements and it's been positioned that the agents are very happy with our contract and we are very happy with our agent contracts, right? In countries where we the regulatory environment doesn't allow to have exclusivity, we don't have -- it depends on the agent relationship -- but most of them are exclusive to us and have a long-term relationship. And I think our commissions are favorable to the agent. So in this situation, if agents are happy, our consumers are happy and we are happy. So we are really have a pretty well agent relationship. On that, maybe Scott, do you...

Just two points I would add, Adam, is that on agent commissions, if you will, specifically there that we continue to sign agents at lower commission rates, as we can renegotiate existing agents to lower commission rates strategically, not one-size-fits-all. And then as you're asking about transaction and revenue spread, as you saw from Q1 to Q2, that spread did come down specifically, we'll begin lapping the domestic money transfer price actions in the fourth quarter. So that should help some narrowing of that spread when we believe domestic revenue will grow in the fourth quarter.

Just following up on the domestic side, I think Jim has some of the stuff but, obviously, when you lap it, we're now going to see a transaction growth. We've seen it's going to go lower, but we're also now going to see the negative revenue growth, if that's going to turn positive. Can you give us an idea of what we can expect in the domestic corridor going forward after we kind of get rid, or after we have or lap these four quarters, of some pretty nuance kind of trends?

I think -- I'm just very proud of my team and Stewart, I think we did an excellent job here. It's more than a pricing action. It's really a promotion using all four Ps [ph](50:56), and we turned around on debt seized [ph](50:57) also. It's really over our expectations, we were planning that one. And the revenue turn back will come at Q4. So I think we built a real foundation that attracts customers. I believe it's a long-term opportunity here to domestic money transfer. Also, we are attracting new customers, right? It's not only turning around exiting customers also with $5 for $50 lower band [ph](51:23), newer customers are coming to our locations. So I believe that has a longer response, longer way to go.

Okay. Obviously, you mentioned the Analyst Day's coming up at the end of September. Not to steal your thunder, but what kind of information or agenda can we expect at that event? Just trying to gauge what kind of catalyst that may be.

I think, first of all, we will definitely talk about our Global core business, core money transfer business, retail money transfer, global expansion, and we will also have a focus on the new initiatives like electronic channels, but also Prepaid Card, mobile, you will hear more color around that. Also we're going to talk about processes, our processes, speak to the market and productivity, give you a little bit strategy about Western Union going to looking forward.

Your next question comes from the line of Tien-Tsin Huang of JP Morgan. Tien-Tsin Huang - JP Morgan Chase & Co: First, I want to ask about C2C margins; that was up quite nicely. It looks like it broke through 29%. Can you give us some detail on what's driving that, if it's sustainable? Because it sounds like aside from marketing, I would think that the mix towards domestic should help, as well as your restructuring, so I'm curious if that level is sustainable.

Well, we do believe that, Tien-Tsin. This is Scott. We do believe that the 2010 margins for C2C will be greater than the 2009 margins. So clearly, we think we've got a business model that can drive margin expansion on a long-term basis. 65% of the costs are variable, 35% are fixed. So as the market improves, as revenue re-accelerates, we believe there's opportunities to, if you will, push more dollars to the bottom line. Clearly balancing that with, what are the investment needs of the business to continue growing the top line. But we like what we saw there in the second quarter. And as I mentioned earlier, we do expect our C2C margins in 2010 to be a little bit higher than they were in 2009. Tien-Tsin Huang - JP Morgan Chase & Co: Right. I mean, Scott, any beyond marketing in the FX? Are there any major drags that we should consider for the second half, maybe if I'd ask it that way?

For the second half, it's be, I'd say, just timing of expense spending. You mentioned marketing. Marketing was a little bit less than 4% first half. It'll be a little bit more than 4% second half. FX, hard to call for sure, but with this new outlook, we did increase, excluding restructuring expenses, Tien-Tsin, increase our outlook for our margins from say 26% to least a range of 26% to 26.5%. Tien-Tsin Huang - JP Morgan Chase & Co: Right. Okay, good. The domestic transactions, I wanted to ask about that too. That was a large sequential increase and it seems to imply a pretty big uptick in the lower band products, the $5 for $50 that you've been talking about. Can you give us more statistics on that? And to what extent it's driving new revenues? How do you measure that?

Yes, it did have a nice effect. Transaction growth in the first quarter was 18% and, to your point, moved to 28% in the second quarter. And we're seeing some really nice success in the $5 for $50 and believe a number of those transactions are new customers or customers that we haven't seen for a while. And it seems the team's done a good job of almost creating a new category where you might give a $50 gift or one in your friends might be having few challenges and you wire him $50. I also think on a longer-term basis, as we talk about goCASH, I think that'll be another helpful product for our domestic and for our Global business where between Family Dollar and Murphy Oil, we'll have over 7,500 locations offering that product by the time we exit 2010.

That's an exciting product, is goCASH. Tien-Tsin Huang - JP Morgan Chase & Co: Okay. Just PSD, what's driving the push out in the PSD retails? I think you said now it's mid-'11 as opposed to year-end for the 10,000 locations?

I think our strategy in Europe is working with PSD expanding tangent to retail. We have a huge pipeline, signing pipeline, as you know, recently announced also the OMV and TeleCorp is one of the examples of huge retailers. But it takes some time to activate them because it's also retail -- financial service for retailers in Europe is something new. And their system, all this activation takes some time to do that and that's why it's 2011, takes a little bit. But we are very, very optimistic and I believe that 1% driven incremental revenue for 2011. We are on track on that. So I think we are quite optimistic on that. Tien-Tsin Huang - JP Morgan Chase & Co: All right. Just a regulatory question if I could. I guess anything in the financial reform bill that could have a direct or indirect impact on you or your agents that we should consider?

Well, I think first of all, the law just passed, right? It's really new and I believe maybe the disclosure part for the agent location will be impacted. But I think we are very well prepared to respond to that. But we are looking at it as just passed and we are watching it.

And Tien-Tsin, the other probably two things I would add that we're closely working with, and to Hikmet's point, it's early days now and there's a lot of rule maintenance probably going to have to happen, but in addition to see in FX disclosure requirements a point-of-sale, which we do. We print a receipt, we give disclosure today. There may have to be some pre-transaction disclosure that we'll have to look through, but we've got the systems, the automation to do that. But in the Prepaid area, it does look like general-purpose reloadable cards are exempt, so that's good news, if you will. And then finally, in the derivative area, Western Union, like many global companies, uses forwards for hedging. Within that, if you get some forwards that are underwater, you may have to post collateral. We've got ample cash to do that. And then specifically as relates to Custom House in the U.S., it looks like a majority of the Custom House business in the U.S. would be exempt from that. But we're closely monitoring that. And some of this is going to take some time with rule making over the next nine, 15, 18 months as we move forward.

Your next question comes from the line of David Parker of Lazard Capital Markets.

Just a close follow-up to Tsin-Tien's question: Can you just give us any general thoughts on the recent actions in Arizona? And around potential for immigration reform in the U.S.?

Sure. Just broadly, we think comprehensive immigration reform would be good. It would provide certainty to a lot of, I'll use the word stakeholders, in all this consumers, everybody. So far, we have not seen any impact on our business in Arizona. And as a reminder, Arizona's one of 50 states; the U.S. is one of 200 countries. So it's relatively small; important, but small in the scheme of things.

Okay. And then just can you provide us an update on the strategy with the Vigo brand? We continue to see just lower advertising and marketing around that brand and understand that some of the restructuring impact did to that business, but are you continuing to invest in that brand going forward?

I think Vigo is for us a very important brand. It's really a competitive -- we have a second brand especially for our Mexico and Latin America corridors, we do have the brand and I believe that it really helps to drive our transactions and to our growth.

Your next question comes from the line of Glenn Greene of Oppenheimer. Glenn Greene - Oppenheimer & Co. Inc.: Just want to get an update on sort of the bank distribution progress and strategy in the U.S. and just a little bit of color on the pipeline of potential future banks for distribution.

Sure. In the U.S., we have the U.S. Bank and Fifth Third Bank as active banks, and we have a pipeline. We are looking at it in the U.S. and people are working on the pipeline. I think it's important strategy to expand our network on the U.S. banking strategy because, as you know, in Europe, we have the banks and post offices, other financial services in our networks and where we start in Europe getting retail, we started to get it also in the U.S. Banks in the USA. So it is important strategy for us and we think -- it's also helping us for the future for our account-based money transfer will help us to reaching to our new customers, account holders. That will also help us to expand our transactions. Glenn Greene - Oppenheimer & Co. Inc.: Okay. And then I want to go back to the U.S. repositioning for a second. It looked like the transaction growth, obviously, the 28% was great, but the spread between the revenue decline and the transactions kind of widened. And I guess it's really due to the mix, which Tien-Tsin was getting at. But is there any way to sort of think about the average price decline per transaction? And I'm also trying to think about what revenue growth could look like in the fourth quarter as we anniversary sort of the repositioning initiatives.

Yes, it's hard to give you one simple answer on what is the revenue transaction decline because one of our challenges with the market, historically, is our pricing was a little bit all over the board. So one of our key strategies was to get to consistent price points, which allows you to do national advertising and marketing and clearer communication with customers. We do believe that as we get to the fourth quarter, we will have positive revenue growth, and that spread between transactions and revenue should narrow. Glenn Greene - Oppenheimer & Co. Inc.: And then finally, I know a lot of people are sort of worried about the European trends sort of inter-quarter. Is there any way you could sort of give us some help on what you saw monthly throughout the quarter, April, May, June? What the trends might have been in Europe?

I won't get into real specifics month-by-month, but let me give you some color on a couple of countries within Europe. I mean, the good news within the EU is we have a balanced portfolio. If you take countries such as the U.K. and Germany were solid. Countries such as Spain continues to be challenged. No surprises there, 20% employment in construction. But it speaks to the beauty of our business model that we have 200 countries around the globe and 25 to 27 countries in the EU, which provides that balance.

The portfolio effect, I can't see that the EU -- is it [ph](1:02:13) worldwide. We're in 200 countries or we're into European and we've entered 27 countries. You see the portfolio effect. That's the meat of our business.

Your final question will come from the line of Ashwin Shirvaikar of Citigroup.

My question is on the Global Payments side of things. Do you look at Custom House as having a set level of revenue in the future? So that you can get adjusted margins in that segment to stabilize and perhaps even rise? And partly it would help if you gave sort of a split out for the restructuring between C2C and Global Payments.

Let me start with the general Custom House. I think with the acquisition of Custom House, we really added something very interesting, and we are entering some new customer-based B2B transactions here. And this is especially international strategy are very mutually important for us. I mean if you look at the customers, currently, they're in several countries, most of them are Anglo-Saxon countries. And given our 200 global -- being present in 200 countries on our global reach, if you combine with that, that could be an opportunity. And with the existing market, we elevated sales from $26 million to $28 million quarter-over-quarter increase. So I think we are very much, we believe in Custom House, that could be an opportunity for the future. But we have to think bigger of that -- I believe also that B2B generally could be besides the customers and opportunities where we are looking. The small business entities who have globally needs to transfer from country to country money, we believe we could be playing in a niche market there.

The only thing I would add is on the restructuring, that part of your question, if you will. What we did, we did or we will take about an $80 million charge, but it has a $50 million annual fit [ph](1:04:38) benefit in savings. And what I would add there is that was a comprehensive review of the global organization, both C2C, Global Business Payments, really with an aim in mind to improve speed and improve execution and drive long-term growth.

Okay. With regards to Hikmet's comments then on the B2B side, should we look for more M&A in the space? Following customers?

I think what we are looking at is that we have now customers, we are in an integration phase of the customers. I think next year, it won't be diluted anymore. I believe that we have a good base here to expand our business. We start to hire sales people in the U.S., and I think our Australia and or Canada business playing pretty well. We are looking at that part and the customers currently.

Thank you very much for being on the call today. And, again, it's been a pleasure working with all of you but I also wanted to take this opportunity to congratulate our agents and our employees for a great quarter, again showing the strength of our company, our brand and our ability to really service our customers. So thank you, and I know that Hikmet's looking forward to great things in the future, and thank you again.

Thank you, Christina. Thank you.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.