Good day, ladies and gentlemen, and welcome to the Second Quarter 2011 Western Union Co. Earnings Conference Call. My name is Chantilly, and I will be your facilitator for today's call. [Operator Instructions] I would now like to turn the presentation over to your host for today's call, Mr. Mike Salop, Senior Vice President of Investor -- Investment Relations. Please proceed, sir.

Thank you, and good morning, everyone. On today's call, we'll have comments from Hikmet Ersek, our President and Chief Executive Officer; and Scott Scheirman, Executive Vice President and Chief Financial Officer. 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 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 2010 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 the 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. I would now like to turn the call over to Hikmet Ersek.

Thank you, Mike, and welcome to everybody on the call. We continue to see solid trend across our business in the quarter. We reported revenue increasing 7%, and constant currency revenue up 5%. And we are pleased to be able to raise our full year outlook for both revenue and earnings per share. The consumer-to-consumer segment, constant currency revenue increased 5% for the third consecutive quarter. Reported revenue in C2C increased 8% and was aided by the stronger euro. Each of our regions provided good revenue growth. Asia Pacific increased 16%, which included double-digit growth from China. Revenue in the Europe, Middle East, Africa and South Asia region grew 8%. Most of the large European markets continue to perform well, and we also saw good growth from the Gulf States and a double-digit revenue increase in India. There was still some negative impact from the Ivory Coast as agent locations were closed in April and then gradually reopened through May, but business is largely returning back to normal by end of the quarter. The Americas region delivered 5% revenue growth, with continued growth in the U.S. outbound, still challenging business in Mexico and further strong performance from U.S. domestic money transfer. Domestic money transfer revenue increased 9% on 19% transaction growth, and we continue to be very pleased with the results of the repositioning we undertook in late 2009. We were also able to make further strides with our North American banking strategy in the quarter as we signed Regions Bank and its 1,700 U.S. locations, as an agent for both money transfer and expedited bill payment, with plans to have account-based money transfer over time. Globally, we added another 15,000 Asian locations in the quarter, bringing our total to 470,000 locations. Turning to Global Business Payments. Revenue increased 4%,…

Thank you, Hikmet. Overall, for the quarter, we delivered consolidated revenue growth of 7% on a reported basis or 5% on a constant currency basis. Currency translation added approximately $32 million to GAAP revenues in the quarter, primarily due to the strength of the European currencies. Transaction fee revenue increased 6%, while foreign exchange revenue grew 12%. Within C2C, revenue increased 8%, with transaction fee revenue up 7% and foreign exchange revenue up 12%. Foreign exchange revenue was primarily driven by growth in cross-border principal, which increased 10% in the quarter. The consolidated revenue increase reflected continued solid growth in each of our consumer-to-consumer regions, the translation effect of stronger European currencies and growth in Western Union Business Solutions. In addition, our Bill Payments business turned to positive revenue growth in the quarter. In the consumer-to-consumer segment, revenue increased 8%. Constant currency revenue growth in C2C was 5%, which was consistent with the first quarter, while transaction growth was 6%, down just slightly from the first quarter. The company's C2C cross-border principal increased 10% or 6% on a constant currency basis. C2C principal per transaction increased 4% year-over-year and was flat on a constant currency basis. In the international C2C business, revenue grew 8% on a reported basis and 5% on a constant currency basis. International transaction growth was 5%, consistent with the first quarter. International constant currency principal per transaction increased 1% compared to the prior year, which was the third consecutive quarterly increase. This is a positive trend, as consumers sending more money generally indicates they have more confidence in our economic outlook or have a better employment situation. Including the impact of currency, international principal per transaction increased 6% in the quarter. The market research from Aite just published its revised estimate of the cross-border remittance market…

[Operator Instructions] Your first question comes from the line of Tien-Tsin Huang of JPMorgan. Tien-Tsin Huang - JP Morgan Chase & Co: Just on the guidance range and the raise there, I'm happy to see that, obviously, there's a lot of words out there about Europe. I'm just curious, Hikmet or Scott, what gives you the confidence that Europe is not going to get worse and potentially impact the guidance here? I'm wondering if PSD alone is enough to carry through any negative surprises in the region.

Tien-Tsin, if you look at Europe, I think we are very pleased with the numbers. I mean Germany is doing very well. Russia and France are also doing very well. Being in all countries in Europe, being in -- and actually being in 200 countries worldwide give us the comfort that every country has their own dynamics. And generally, we are pretty well positioned in Europe. There are always some issues in some countries. But I would say, our position is very well in Europe and we are growing the business. There will be different -- in different countries, different dynamics, but I would say that we are very well positioned in Europe. And regarding PSD, it's not only PSD -- I mean, as you know, we have PSD locations and we are comfortable with our outlook, 1% additional incremental revenue coming from PSD. We have about 3,500 locations active there and their productivity is quite high. They do good revenue. But we have also, post offices and the banks and we are expanding our presence. We recently signed also Banca Intesa Sanpaolo with ATM transactions where customers can go to an ATM and send money from the ATM or from their accounts. So I think Europe is pretty well. Tien-Tsin Huang - JP Morgan Chase & Co: Very good. This is my quick follow-up, the Bill Payment business that did turn up. I think, as you suggested last quarter -- the question that I have is, is this fix permanent, meaning is the growth sustainable here going forward?

Well I think, as I mentioned previously, the team is doing good, signing new billers. We do have the right marketing activities on place. Definitely, economic environment always helps us, right? But we started to diversify our billers and we see the first impact here. Now it's early to say, how -- I will be cautiously optimistic here, Tien-Tsin. I think we see early signs the team is doing great job, and so it's good.

Your next question comes from the line of Kartik Mehta of Northcoast Research.

Hikmet, I wanted to get your thoughts on the prepaid market. Obviously, it continues to evolve and the new rules that are in place will obviously have banks make different decisions. And I'm wondering how Western Union will evolve its prepaid business in this changing environment?

I think if you look at our prepaid business cards, as I said before, we are in the U.S. only, a little bit of, what, a year active, right? We have about 1.1 million cards, and we have 12,000 locations. Now our sales could be better. We were estimating about -- doubling our card numbers than last year, but the activities on the cards are pretty good. So we are assuming 1% of our revenue will come from prepaid cards. Now our activities in the U.S. will continue. We will be having -- getting new retail sales here, but I also see opportunity in international. Next one is definitely the U.K., the team is focused to expand our prepaid activities in the U.K., our stored value, and other countries to come. But it's a market and market initiative and it takes some time to put your interest in the market, to understand the market and grow into market. And it has to be a good profitable business and we are focused where we do good revenue growth and similar profit margins that we have in our core business.

And Kartik, the only thing I would add is that from a consumer value proposition, we're very focused on being fee-friendly and with the strength of the brand in the distribution, not only U.S., but globally. We believe on a long-term basis that, that's a winning combination for us.

And then, just as a follow-up, on the C2C side, Scott, you said higher spending initiative. Does that mean just price reduction? And what could those initiatives means to C2C margins for 2011?

Overall, for -- on a consolidated basis, we're calling for margins to be up in 2011 compared to 2010, excluding the restructuring charges. Specifically, in the third quarter, we're going to spend some more money on not marketing. So the margins in the third quarter will be a little bit lower, but margins will be higher in the fourth quarter. But really making investments to drive the top line growth as we move forward. Keep in mind, on a full year basis, Kartik, the marketing spend will be about 4% of our top line, which is generally consistent with 2010. But overall, we're on pace to expand our margins on a consolidated basis in 2011.

And Kartik, we had higher spending in our initiatives factored into our original outlook. So it's really when you're looking at change right now, it's only just currency that's negatively impacting the margins.

And so -- it sounds like higher spending initiatives means more marketing, not price reductions, is that the right conclusion?

Yes, I would say it would be around marketing, other investments we make. As you may recall on pricing, the original outlook had pricing in that 2% to 3% range and now we're closer to a 1% to 2% range. So it's not more pricing.

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

First question on the margin front, again, just the business segment, the Global Payments segment, obviously, had a very nice pickup on the margin. Is that, first of all, associated with the bill pay strength and the mix from that? And it sounds like -- you're at least cautiously optimistic that would be sustainable. So obviously, that should be impactful to the margin as well?

Yes, things that are helpful to that margin. We're pleased with it being at 20%, if you will. It's up from the prior year and up from the first quarter, too. Clearly, having 4% top line growth on Global Business Payments and then purely, the bill pay business had 2% top line growth. So that is helpful from that standpoint. We did have some restructuring savings and then some of the integration and investment spending in the Western Union Business Solutions has come in a little bit lower, if you will, as we anniversary some things there. So overall, we're pleased with a 20% margin. And clearly, that's up from where we were at a low point in the fourth quarter.

Right. And so if you think about that margin going forward, and that being somewhat sustainable ideally -- I mean, the C2C margin was obviously, impacted a lot by currency. First of all, what was the actual currency? I don't know if you said already, the currency impact specifically on this quarter's margin?

We didn't provide a specific number but how I'd have you think about it is, we recorded a $32 million in, I'll call it, additional revenue because of currency translation. But the profit impact on that was significantly less. The full year metric, I would give you, Darrin, is back to the 5% movement in European currency is $55 million of revenue, $7 million of profit. So the margin on that analogy is about only 13%.

Right. Now just because, I mean, all-in, Scott, I mean, you have 26.5% to 27% constant currency margin guidance for the year, which is pretty similar to what the guidance you had before. Obviously, the impact, I would think, is mostly the 30 basis points or so from Travelex deal costs. And so theoretically, if you added back Travelex, you'd have about a 26.8% to over 20% -- 27% margin guidance for the year and I would imagine some of that's just benefit from the strength you're seeing again, finally, in the bill pay segment being a positive.

The bill payment has definitely been helpful. And then I agree with your math, if you will, that what's impacting the full year margin is the -- roughly the 30 basis points or $15 million from the Travelex deal costs.

I think, Darrin, the math you put together is right on.

Great. And then just one more follow-up, if you don't mind. The spread between the transaction growth and revenue growth looks pretty good. I mean, international transaction growth was 5% at constant currency revenue growth, 5%. It looks like the spread between the 2 is tightened than -- versus prior quarters. I think you alluded to pricing being about a 1% to 2% adverse impact. I mean, is this less of a better environment from a pricing standpoint than, I think, you've seen in the past?

Ladies and gentlemen, please standby. [Technical Difficulty]

Look, I was just trying to get some color on the pricing environment. Obviously, it looks like it's turning in the right direction based on the spread, and I think you alluded to about a 1% to 2% adverse impact on pricing. Is that -- is it a better environment now than it's been in the past? I mean, is it fair to say that? I mean, you said, 1% to 3% going forward. Can you just comment there real quickly?

Sure, Darrin. I mean, we stated 1% to 3% going forward. We do have a -- the pricing is a little bit seasonality, competition, geographical mix, and we currently see that we will -- for the full year, 1% to 2%, where we feel comfortable. We continue to gain market share with that, and we're going to continue to pricing investments, 1% to 3%, where we gain long-term revenue growth. So that will continue.

Okay, all right. And just if you don't mind, last question on the buyback front, you had a nice first quarter with 500-plus million share -- dollars worth of buy back. Second quarter, I guess, had an adverse impact -- or you couldn't do as much because of the Travelex deal, still that over $100 million, should we expect a nice sort of aggressive buyback to continue now that the Travelex announcement came? And I'll leave you with that.

No, Darrin, this is Scott. We believe investing in our stock, if you will, is a good investment and you're familiar with our capital allocation policies of investing in our business and returning cash to our shareholders. So we will continue to be active in doing that. Through December of '12, we have roughly $750 million authorized, so we'll continue to look forward to both investing in the business and returning cash to our shareholders.

Your next question comes from the line of David Togut of Evercore Partners.

Two quick questions. First, Scott, in your upgraded guidance for this year, are you including the $0.03 second quarter gain in other income?

Yes. Half of that is included in that. At the beginning of February when we originally gave the outlook, David, we felt Costa would have a net $0.01 positive impact to the full year. Now we believe it's a net $0.02 positive impact. So it's really about a $0.03 gain offset by about $0.01 of integration and other costs related to that deal.

And that's just from the mark-up of your stake from -- your initial stake from buying out the rest of it?

Correct. Under the GAAP accounting rules, when we went from a 30% ownership to 100% ownership, the GAAP rules requires a revaluation of that 30% interest, which generated approximately a $29 million gain in the second quarter on a pretax basis.

I see. And just a quick follow-up on capital allocation. Following the Travelex deal, can you give us a sense of what your dividend policy will be for 2012?

We continue to want to be balanced in returning our cash to shareholders. I think over the last 12 months, you've seen us do a couple of dividend increases so periodically, the management team will review that. We'll spend time with our board, but our aim would be continue to return capital to our shareholders through buyback, but also -- and it aims towards as the business performs, ideally, increasing the dividend, but we'll have to wait and see as we move through that. But we clearly, want to balance the payback to the shareholders.

Your next question comes from the line of Ashwin Shirvaikar of Citi.

My first question is, Scott, you mentioned, obviously, operating cash flow at the lower end of the prior range. Can you talk about the -- and that's primarily due to -- or a big factor there is the higher cash restructuring, can you talk about the forward-looking benefit from the 2 sets of restructuring? What should we expect for that on margins?

Was the question on the margins, Ashwin?

Yes, with regards to the -- specifically forward-looking benefit of the restructuring.

Sure. Absolutely. Just to recap, the P&L benefit from the restructuring will be about $50 million of savings in 2011, and that, that will annualize a run rate into about $70 million into 2012. Our objective, as a management team, is to expand our margins as we move forward. We believe we've got a business model that we can drive leverage with growth in revenue, 65% of our costs are fixed, 35% are variable, so the revenue leverage, if you will, the restructuring savings or productivity savings will be helpful. And then, probably a little bit of offset there with investing in the business to grow it. But clearly, as a management team, our objective is to grow our margins.

Right. And speaking of those investments and the impact that can have on market share gain, the market share gain of 50 basis points in 2010, obviously, a good number, the historical number has been more closer, I guess, to 100 basis points, if I'm not mistaken. Can you reaccelerate that with all the investments you're making, and specifically, what areas?

That would be our objective, is to continue to gain market share and gain market share at an accelerated pace and where we've been making investments is both in the core business, but also investing behind electronic channels where we think there's a little bit of a different customer segment there with westernunion.com, account-based money transfer and mobile phone money transfer. So we believe there's opportunities, not only to grow the retail channels, but we're adding PSD locations in Europe, banks in the U.S. but then moving forward with the initiatives in the electronic channels, too. So hopefully, all those things with the objective, is to gain share at an increased pace.

Yes. I think -- just to add on that. With all these new channels and with all our initiatives, we are not growing and gaining market share only on our core money transfer and core customer segment, but we are gaining new customer segments with electronic channels. And also, with our B2B activities now, combining business solutions with Travelex, we are really entering some new customer segment. There's a need, and I think there will be a growth here also, so I'm very excited about the future.

Your next question comes from the line of Jim Kissane of Bank of America Merrill Lynch.

Scott, I thought your pricing comments were very positive. Can you point to some of the regions where pricing is more favorable that's offsetting some of the pressure in Mexico?

Well, if you look at our business being 16,000 corridors and none of the countries are bigger out of the U.S., bigger than 6%. It's really differentiates from country to country and from bank to bank, actually within the thing. The beauty of our business, the beauty of our management is that we are really managing 16,000 pricing actions actually within the different banks. So I think it differentiates from country to country, from corridor to corridor. The good stable growth in the European business, we do increase. In the Gulf States, Gulf States start coming back are also in the receiving center are China and India business are growing double digit. So I think we are doing -- we really react to the market needs and the environment -- on the competitive environment.

And any comment on trends in C2C commissions? And if you look back, has integrating FEXCO helped C2C margins and as you look forward, the impact that Angelo Costa and Finint will have you integrate those?

I think, yes. I think we are very focused on the margin side, on the commission side, both we have now direct access with the PSD, direct to the sub-agents and I think that will help out also our long-term or our commission rates. And as you look at our agent negotiations, it has -- end of date has to be a win-win situation though, right? Agents have to win and we have to win. But we look at our position being in so many countries and having so many agents. I think we are in a very good position that having favorable commissions for Western Union.

Your next question comes from the line of Andrew Jeffrey of SunTrust.

So it's nice to see some of the global economic trends creating a bit of a tailwind for your business, namely the principal per transaction, whereas transaction volume growth is held kind of steady. Should we think about this as kind of a cyclical or macroeconomic kind of evolution whereby you see the principal increase first and then the transaction volume follows? Or how are you thinking about the sustainability of transaction growth over the -- or the potential for acceleration over the next several quarters?

I wouldn't say that -- it's hard to make a global formula out of it. It really differentiates from region to region, from country to country, right? We do see in some regions higher revenue per transaction activities, that the consumer confidence increase some sent countries. But on other sent countries, I think to say the transactions are stable and revenue of our transaction is still the same. If you want to put it in a global formula, we do see revenue per transaction increase, which makes us -- we are very pleased on that, right? And also, as I mentioned earlier, on the pricing investment, we are probably going to have 1% to 2% pricing investment this year instead of 2% to 3%. So these are good signs. Though the economic state is challenging, I'm not seeing a big change on the economic environment globally. I think the management is very focused despite the economic -- continued economic challenges. The marketing activities on the market is pretty well to respond to the customer needs.

Okay. And then as a follow-up, I thought the Regions deal was a particularly important one on 2 fronts, both the expedited bill pay piece. I'm wondering if you can just comment on the competitive environment there. And then also, in terms of potentially turning on account-to-cash, can you just give us a sense of where you are in that product in the U.S.? Should we start to see more banks kind of initiate account-to-cash solutions powered by Western Union in the back half of '11 as we look out into '12?

I would say, long term, yes, definitely, Andrew. You will see that not only powered by Western Union, I think it's branded by Western Union that we are growing. But we did -- we have these activities now globally. We have about 60 banks, 30 of them we activated to make account-based transaction and each win is definitely -- the Regions Bank, and I believe with the our banking, U.S. banking strategy, we will get more banks. We have more banks in line to get them, starting with the retail money transfer and working on allocation and doing transaction, adding also account-based money transfer to give convenience to the consumers. It's definitely something we did with the U.S. Bank, and now the Regions Bank is online and other banks is to follow.

Your next question comes from the line of Tim Willi of Wells Fargo.

Two questions. The first one, just going back to the pricing commentary. Is there, in your opinion, just sort of tie that into the competitive dynamic and the 16,000 corridors that you manage? Are you seeing anything on the competitive front that maybe gives you more confidence in terms of managing pricing and maybe not having to discount as much as you would have thought when the year started, the competitive position has improved to that degree or competitors have weakened more than you have thought?

I would say, competition is still on the market and that has got to keep us fit. Probably, our reaction are being more intelligent, more closer to the market to give us the capability to adapt our pricing and being active in the market and that's why we are gaining market share. As I mentioned before, Aite just came out with the recent statistics and it looks like we, again, gained about 0.5% market share versus 2009. So these are good news. Generally, competition is here, continuous, especially the corridors, especially start active also brand is one. But in different corridors, we have very strong competition. However, people start to understand, being in 200 countries, as you mentioned, and having 470,000 locations, you can send from one point to 16,000 corridors immediately money. I think nobody can match that, delivering in 470,000 locations. So this gives us definitely an advantage, competitive advantage, and we are going to grow this brand, network, electronic channel. I think we have a good position to be more active and being competitive price.

And I would add, it's always been a competitive environment out there, Tim. We continue to gain share, as Hikmet mentioned, and pricing, as we do pricing, it's one of the drivers we look at to gain share, promoting the brand, adding locations or distribution and differentiating the product. And then, as we do pricing, what we think about is pricing elasticity, what's the best thing to do to maximize long-term revenue growth and customers coming back to the franchise.

Okay. And then my follow-up was just around the tax rate. As we think about the slightly lower tax rate this year, is it something structurally and sort of your profit mix in your tax strategy that we should think about that flowing through in the out years? Or would this be just sort of an '11 type tax rate when we consider our models for '12 and '13?

Two comments on that, Tim. One is, I would say, this one item is more of an '11 item, if you will. We resolved certain international tax items, so we were -- have somewhat of a small favorable benefit, expect a small favorable benefit in '11. Although, as we think about the tax rate on the longer-term basis, that as the international business, which I believe will grow faster than the U.S. business, the international profits are generally taxed at a lower rate, so that will be somewhat helpful to our tax rate on a long-term basis.

Your next question comes from the line of Meghna Ladha of Susquehanna. [Technical Difficulty]

So in general, Hikmet, what do you see as the 2 or 3 key levers to manage your margins? And how should we balance these initiatives versus growth post 2011?

I think, I'm definitely looking for a long-term margin increase. And I think our business model is built for that. The revenue growth, obviously, helps to increase the margin. The top line is the best indicator for that, and we are very much focused for the growth. Given our core money transfer business is growing, given also our initiatives on the SME business with the growth opportunities for the future, I believe that's the one thing. The other thing is, we are also focused on our commission rates, right? Agent commission rates, which are very low costs and we do look at long term, long relationships with the agents and having a favorable commission rates for both -- [indiscernible] for both but favorable for Western Union given our global presence. And the third one is, Scott can give you a little bit more color on that, is our fixed cost structure. I think we are also pretty much focused on this -- our processes, our initiatives, we have corporate initiatives to focus on our fixed costs. We have operating centers globally, we have people, very effective people in a very cost friendly environment. So these are the major initiatives. Anything, Scott?

No, just to add, it's really growing the top line revenue as Hikmet mentioned. 65% of the costs are variable, 35% are fixed, so we have a natural way to move margins up there. And then, one of our key strategies is improving our processes and productivity. And over the long term, we believe there's additional opportunities to create efficiencies, even further improve customer satisfaction and get to highly efficient and effective processes that we believe will be helpful on a go-forward basis.

Your final question comes from the line of Julio Quinteros of Goldman Sachs.

This is actually Roman Leal sitting in for Julio. The first question on -- which is kind of on pricing, what specifically motivates you to introduce that pricing initiative in Mexico versus other corridors? Does it make sense to introduce that elsewhere around the globe? And how much of that is kind of baked into your 1% to 3% pricing kind of guidance for the next few years?

On the pricing initiative, generally, we really look market by market. I wouldn't draw a global rollout of it at 5 -- introducing $5 for $50 in one market, implements also by other markets. Don't forget also is that the $5 for $50 in some currencies, some different than dollar currencies. So I believe there are certain customer segment, which we do look corridor by corridor and understand the environment. So I would say that, the pricing initiative, 1% to 2% is for 2011, and we do keep the flexibility on an investment, 1% to 3% long term to understand the environment.

Okay. And on prepaid, I know you mentioned you're kind of progressing nicely here with some potential partnerships. Are you looking more for -- to expand your current locations? Or is this perhaps something where you could -- you can push more aggressively to open your reload network to third-party prepaid for managers?

In the U.S., we currently have about 12,000 locations and some of the locations are -- have exclusivity with the competition, that's why we are kind of locked to expand our distribution. But when time comes we're going to get some also on our distribution channels to sell more cards. Generally, I would say, that I'm very open to reload the cards. Our network is ideal. Also, international, I believe, given the 470,000 locations. We are in a very well position to sell more cards than -- load more cards and be active with more cards. Okay. I just wanted to say thank you for all questions, and I would like to summarize the quarter. And seeing -- if we summarize the quarter, you'll see that our business is solid and we are very comfortable to raise our revenue and earnings per share outlook at this time for 2011. Longer term, we have continue -- have opportunities to grow our core money transfer business, both in cash, retail money transfer and electronic channels. And also, the pending acquisition of Travelex Global Business Payments, combining with Western Union Business Solutions, will give us a very strong second leg to expand to new customer segments. And we will continue to be active returning funds back to the shareholders through share repurchase and through dividends. So thank you very much. Thanks for joining the call, and I wish you all a great day. Thanks.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a wonderful day.