The Western Union Company (WU) Q1 2015 Earnings Report, Transcript and Summary

Good afternoon, and welcome to The Western Union First Quarter 2015 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mike Salop, Senior Vice President of Investor Relations. Please go ahead.

Thank you, Lauren, and good afternoon, everyone. On today's call, Hikmet Ersek, Western Union's President and Chief Executive Officer; and Raj Agrawal, Executive Vice President and Chief Financial Officer, will discuss the company's first quarter 2015 results, and then we will take your questions. The slides that accompany this call and webcast can be found at westernunion.com under the Investor Relations tab, and will remain available after the call. Additional operational statistics have been provided in supplemental tables with our press release. Today's call is being recorded and our comments include forward-looking statements. Please refer to the cautionary language in the earnings release and in Western Union's filings with the Securities and Exchange Commission, including the 2014 Form 10-K, for additional information concerning factors that could cause actual results to differ materially from the forward-looking statements. During the call, we will discuss some items that do not conform to generally accepted accounting principles. We 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 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. Before I discuss the quarter, I want to mention the situation in Nepal following the tragic earthquake last weekend. Our thoughts and hopes are with the people of Nepal, and the Nepalese diaspora community around the world during this time of need, and we are implementing a variety of measures to assist the recovery efforts. Western Union is committed to helping the communities we serve around the world and we plan to continue to support relief programs in Nepal during the rebuilding process. Turning to the first quarter results. We delivered a good start to the year as each of our business segments produced constant currency revenue growth. Operating margins improved and earnings per share increased 5%. These good results were achieved despite operating in a challenging global economic and geopolitical environment, including the impact of the stronger U.S. dollar. In the first quarter, Western Union consumer money transfer revenues increased 2% in constant currency terms, which was consistent with the growth in the fourth quarter of last year. Westernunion.com produced strong growth with transactions increasing 25% and principle growth even stronger. Westernunion.com growth was led by the U.S. market, where almost half of the transactions were initiated on a mobile device. We also further developed our account payout business, which represented over 25% of the cross border principle going to westernunion.com in the quarter. The retail money transfer business remained resilient, with good cross-border growth from outbound markets, such as the U.S., Germany, The U.K., United Arab Emirates and Saudi Arabia, offsetting outbound weakness in Russia and some parts of Africa. We continue to see fairly stable cross-border pricing environment and our net pricing investment in the first quarter was minimal. As we discussed last quarter, we have implemented some price reductions in the U.S. domestic money transfer business, which were rolled out in April. However, even with these actions, I am comfortable with our pricing strategies and expect full year pricing to remain in the low single-digit range as a percent of revenue. As we mentioned, when we provided our outlook at the beginning of the year, we expected market growth to be challenging in 2015, some of you may have seen that the World Bank published its revised remittance outlook earlier this month. The bank is projecting very slight cross-border principal growth for 2015 with a positive outlook for the U.S., offset by weakness in Europe and Russia and the negative impact of the strengthening U.S. dollar. The revision is not surprising and it's consistent with the business trends we saw at the end of the last year as well as the translation impact of the stronger dollar. The World Bank does project remittance principal to return to 4% growth level in 2016 and '17. Turning to Western Union Business Solutions. Constant currency revenue growth improved to 7% in the quarter. We continue to believe the B2B business will provide strong growth over the next several years, and as the revenue increases, the profitability should accelerate. Business Solutions also brings special capabilities to Western Union, as we look to expand our cross-border engine and offer multiple services to new types of partners in the future. Current examples include offering account-to-account branded and white label cross-border services to financial institutions, and offering cross-border tuition payment products to universities. Returning to the first quarter results, consumer bill payments produced 11% constant currency growth, which was driven by the Argentina walk-in and the U.S. electronic bill pay business. Finally, we continue to invest in compliance programs across our businesses as we execute our multiyear plan to rollout key enhancements. Over time, I believe our compliance investments will give us a strong point of differentiation with partners around the world. So 2015 has started out generally as we expected. There are external challenges around the world, but our business is performing. Cost initiatives and foreign exchange hedging programs are helping to sustain the bottom line, while we continue to invest in our global cross-border platform to reach new customers and client segments. Cash flow generation remained strong and we again provided substantial payout to shareholders with $231 million returned in the quarter through share repurchases and dividends. Based on our business performance to date, we are on track to deliver the 2015 full-year financial outlook we provided at the beginning of the year. Now I will turn the call over to Raj to give you a more detailed review of the financial results for the first quarter. Raj?

Thank you, Hikmet. Overall, we are pleased with the first quarter results as they were largely in line with our expectations. First quarter revenue of $1.3 billion was down 2% compared to the prior year period due to the strength of the U.S. dollar, but revenue on a constant currency basis increased 4%. The impact of currency translation, net of our hedge benefit, reduced first quarter revenue by approximately $79 million compared to the prior year period. In the Consumer-to-Consumer segment, revenue decreased 4% reported or increased 2% constant currency, while transactions grew 3%. C2C cross-border principal declined 4% in the quarter or increased 2% constant currency. First quarter principal per transaction was down 7% compared to the prior year period, primarily due to foreign exchange, as the decline was 1% in constant currency terms. The spread between the C2C transaction growth and the revenue decline in the quarter was approximately 7 percentage points. The differential was caused by a 6% negative impact from currency as net pricing in the quarter was 0 and mix impacts were small. Turning to the regions. In the Europe and CIS regions, revenue declined 9% or increased 2% constant currency compared to the first quarter a year ago, while transactions increased 4%. Due to the significant fluctuations in foreign exchange rates, as I discuss individual country contributions to the regional results, I will be referring to constant currency movements. In Europe and CIS, Germany delivered good revenue growth in the quarter, but Russia declined as the economy continued to weaken. Although the Russia outbound business fell significantly, we did see good growth from inbound, which now represents over half our Russia revenue. North America revenue declined 2% and was flat on a constant currency basis, while transactions increased 3%. U.S. outbound delivered good growth again in the quarter with strong increases to cents -- on cents [ph] to Latin America and Mexico. Our Mexico business continued to grow faster than the market, based on the latest Banco de México data covering the first 2 months of the year. Trends in our U.S. domestic money transfer business were similar to the fourth quarter, with growth in the lower principal bands and declines in higher principal bands. Total domestic money transfer revenue declined 3% on transaction growth of 2%. As we mentioned last quarter, we are implementing price reductions in our higher domestic money transfer principal bands to address the evolving market pricing. In portions of the country, we are adjusting our domestic money transfer prices to $12.50 for transfers between $50 and $1,000. We are making these adjustments at retail locations in areas where we are seeing the most competitive impact and they are being accompanied by marketing and communication programs. The actions were just initiated this month, so we expect to report early results next quarter. The westernunion.com portion of the domestic money transfer business continued to post very strong growth in all principal bands. This business sends electronically, but pays out primarily in cash at our agent locations across the country, with most transactions sent for Money in Minutes delivery. As a reminder, domestic money transfer represents about 8% of our total revenues with about half of that in principal bands above $200. As Hikmet mentioned, even with the price reductions in the domestic business, we expect our full year pricing investment for all of C2C to still be in the low single-digit range. In the Middle East and Africa region, revenue declined 6% or 1% constant currency, while transactions decreased 3%. Weakness in parts of Africa was driven by oil-related challenges in Angola and continued market disruption in Libya, but these impacts were partially offset by growth in Nigeria outbound, the United Arab Emirates and Saudi Arabia. In Asia Pacific, revenue was down 6% or 2% constant currency. Transactions in the region declined 4%. Strong revenue growth in Japan was offset by weakness in the Philippines and some other Asian inbound markets. Revenue in Latin America and Caribbean region increased 4% from their prior year quarter or 10% constant currency, while transactions increased 6%. Results benefited from strong inbound business from the U.S. as well as outbound strength from Argentina, Brazil and several other countries across the region. Westernunion.com C2C revenue grew 17% in the quarter or 23% constant currency. Wu.com transactions increased 25%, while U.S.-originated transactions grew 28%. Electronic channels revenue in total increased 17% in the quarter and now represented -- represents 7% of total company revenue. In the Consumer-to-Business segment, revenue increased 7% in the quarter or 11% on a constant currency basis. Similar to prior quarters, strong growth in the U.S. electronic and Argentina walk-in businesses was partially offset by declines in U.S. cash walk-in. Business Solutions reported a revenue decline of 1% or an increase of 7% constant currency. Strong growth in Europe, including from sales of our hedging products, helped drive the constant currency increase. We also posted strong increases in specialized products, such as education and NGO payment services. Turning to consolidated margins. The operating profit margin was 20.6% in the first quarter compared to 20.1% in the prior year period. The operating margin improvement was primarily due to cost initiatives, partially offset by the expected increase in compliance expense. As you will recall, we expect approximately $15 million to $20 million of savings this year from the programs implemented in the fourth quarter of 2014 and another $10 million to $15 million of incremental savings from the 2013 programs. Approximately $12 million of total savings were achieved in the first quarter. Compliance expense was approximately 3.8% of revenue in the first quarter compared to 3.0% in the prior year period. This percentage may vary from quarter-to-quarter depending on timing of certain expenses and spending, and we continue to expect a range of 3.5% to 4% for the full year. The overall impact of currency translation relative to last year was negative to revenue and profitability, but hedge gains helped to mitigate some of the impact, which is the intent of our hedging programs. In the quarter, we recorded approximately $16 million of hedge gains on our revenue line and these also flowed through to operating profit. From a margin percentage standpoint, the positive impact of the hedge gains was largely offset by negative impact from lower revenue and profits due to currency translation. EBITDA margin was 25.5% in the quarter compared to 25.1% in the prior year period. Reported earnings per share of $0.39 increased 5% from the $0.37 in the prior year period. The C2C segment operating margin was 23.1% compared to 22.9% in the prior year period. The C2C margin benefited from cost savings initiatives, which were largely offset by increased compliance expense as expected. The Consumer-to-Business operating margin was 18.7% in the quarter compared to 20.2% in the prior year period. The decrease was primarily due to increased legal costs and additional compliance spending, although the C2B margin did improve significantly compared to the second half of last year. Business Solutions reported an operating profit of $2 million for the quarter compared to a loss of $4 million for the same period last year. The improvement in operating profit for Business Solutions in the quarter was primarily due to the impact of productivity and cost savings initiatives and lower amortization expense. Depreciation and amortization was approximately $12 million in the quarter compared to $15 million in the prior year period. Turning to our cash flow and balance sheet. Cash flow from operating activities was $212 million for the quarter, while capital expenditures were $44 million. At the end of the quarter, the company had debt of $3.7 billion and cash of $1.8 billion. Approximately half of the cash was held by United States entities. During the quarter, we repurchased approximately 8 million shares for a total of $150 million. Our remaining authorization of $1.06 billion expires in December of 2017. We also paid $81 million in dividends in the quarter. As you recall, earlier this year, we announced a 24% increase in our quarterly dividend to $0.155 per share, and a new $1.2 billion authorization, share repurchase authorization. At quarter end, we had 517 million shares outstanding. So we believe 2015 is off to a good start, given the challenges from a stronger U.S. dollar and softness in many global economies. Based on the first quarter results and our recent business trends, we are affirming the full year financial outlook we provided in February. Operator, we are now ready to open the line for questions.

[Operator Instructions] And our first question will come from Sara Gubins of Bank of America Merrill Lynch.

I wanted to just clarify your comment about full year pricing investment would be in the low single-digit range. Does that mean that it's closer to having kind of a negative 1% impact? I know you typically talk about the 1% to 3% range.

I think it will be in the lower part of that. So we are -- we don't think that we're going to have big price investments. I'm very comfortable with our strategy. We did not -- our prices are comfortable. We are competing in the market. We did some price investment, local price investment in our domestic money transfer business. But overall, total pricing actions will -- I'm comfortable with our current pricing strategies, Sara.

Yes. Sara, last year the pricing was about 1% of revenue. In the first quarter, we were at 0% pricing. So I mean, that should just give you a sense of in the low single-digit range.

Great. And then just on commission expense. It was up for the last 2 years after renewals of some large agents. How are you thinking about commission expense for 2015?

I feel generally comfortable about that. I don't think big increases here. Raj?

Yes. I mean, the commission expense for this year we see as being flat to last year. We did have some larger renewals that impacted commission rates last year, but they are more stable this year. In fact, in the first quarter, we saw commission rates were down a little bit from last year, but for the full year, we expect commission rates to be about flat. And I would just add that longer-term our focus is really on lowering overall distribution costs for the business, as the mix of the business changes and evolves to be more of [indiscernible]

Let me give you an example, Raj. Sara, as you know, one of the biggest -- fastest growing part is account-based money transfer to be dropped money also besides retail, which is huge to drop also money and account-based money transfer to an account and these commission rates are totally different than with retail commission rates. So that mix, which Raj is talking about.

And the next question comes from Darrin Peller of Barclays.

Just want to start off -- I mean, just quickly back to pricing. I mean, this year, other than the domestic side of things, which obviously saw some pressure from competitors, it actually seems like it's been a more stable year, and I'm just curious what you see happening in the market. I mean, for a number of years, there has been tough competition coming and different types of competition coming, but again, this year it seems like it's leveled off. Do you think that we're in for a more stable protracted environment for a while? I mean, is there something about maybe the regulatories? Is that what's doing it? Or just a little more color on longer terms, stability on pricing versus anything else?

Well, first of all, the pricing has been stable the last few quarters, right? Not only this year, this quarter, I think, the pricing environment. Last year, we invested 1%, Darrin, on the -- but normal pricing, on the corridor-based pricing, and we're going to continue to do that. We're going to continue to do price promotion on certain corridors and we are doing it, but as a company, if we operate in 16,000 corridors in 200 countries, you have the flexibility to adjust your prices to the customer needs. So I think we're going to be stable this year on the pricing.

I guess, maybe just a better way to ask -- I mean, back in like 2012 when there was a substantial price decrease, what were the environmental conditions that led to that? I mean, it's something different now, maybe we are. It seems like maybe just a more appropriate run rate that's different now about then -- versus then?

Yes, I feel much comfortable, Raj, you want to add something, but just on 2012 -- I mean, as you recall, that -- our prices were quite high there. In some corridors, we were far above the market environment. And as I said, in 2012, I said, I'm going to do this pricing, they will come back and that happened because we were -- we adjusted our prices to market environment in 2012. And after 18 months, we had the first success after 24 months, there was positive revenue growth. I think most of the corridors are now quite stable.

Yes, Darrin, I'll just add that we haven't seen a big reaction to those significant prices we did and there are just more costs in the industry as well that people have to manage through, which may be impacting other players.

Yes, compliance costs, technology costs, so there are costs in the [indiscernible], yes.

That makes sense. All right. Just one last one and then I'll turn it back to the queue. On the B2B business, the FX -- the more volatile environment from an FX standpoint we're in now obviously should help, and then I think it did help this quarter around hedging being used by some of your customers. Going forward, I mean, is that something we can count on now, just given the more -- assuming we have a higher volatile environment, I know year-over-year it looks like it will be that way for the next 2 calendar quarters also?

Well, if you're able to predict volatility, just let us know. I think the -- we're pleased with the performance of the B2B business. Yes, volatility helps in the short-term and it did help us in the first quarter. But if you look at the progress that's been made the last 3 quarters in a row since the middle of last year, we have accelerated revenue performance and the business continues to execute on its strategies. And given our market position, we believe we can fill in that low double-digit range. So volatility is going to help in the short-term, but we still believe strongly in that business and the outlook there. And we also -- we're able to improve profitability this quarter, which is a positive, and I think it's heading in the right direction.

Yes, one thing, Darrin, on the Western Union Business Solution, also helps on our growth is the payments part, payment business. As I mentioned earlier, our university payments and our NGO products are growing very fast. So it's not only foreign exchange trading, it's really also students, for instance, Indian or Chinese students paying their tuition in England or in the U.S. when they come and pay their tuition. That environment is growing pretty fast.

And the next question comes from Tien-tsin Huang of JPMorgan. Tien-tsin Huang - JP Morgan Chase & Co, Research Division: I think just on the -- I was surprised on the Europe CIS side, held up pretty well. Transactions slowed. It looks like sequentially the revenue got a little bit better. Is that just a mix pricing issue? And then given what the World Bank commented on in that area, do you expect any sort of downtick in that region in your outlook?

I think mix is the right quote there, right answer, not only on the pricing side, also on the corridor side. It's also on the countryside. Russia is definitely -- outbound was very strong market for us, but the economic environment, oil price and so on did -- geopolitical issues, did impact our business there. Southern Europe is still challenging, however, U.K., Germany countries are doing pretty well, and that's good actually for our business. It shows again, being in so many countries that shows the strength of portfolio here. On the World Bank, the World Bank adjustment has been not only global adjustment, but brought down. It's not only on Europe. So I think they adjusted their numbers also recently. Tien-tsin Huang - JP Morgan Chase & Co, Research Division: All right. So it sounds like it wasn't much of a surprise to you. And just as my follow-up, I hate to ask it, but just this Iran OFAC disclosure in the Q, what should we be watching for -- I mean, could this trigger some fines? Just trying to understand what the implications might be?

Tien-tsin, this is Raj. We don't know much more than what's been disclosed in the 10-Q. We did identify one of our subagents was being on the OFAC list and we reported that to the authorities as we needed to, and really that's all we know at this stage.

And it's kind of a rule that we have to disclose this and what we did. It's really on what it says on the disclosure.

The next question is from Bryan Keane of Deutsche Bank.

Just wanted to ask about principal growth. It looks like total principal or at least principal per tran is down about 1%. I think World Bank is talking about overall principal being slightly up. So when you guys think about share gains or losses, how do you guys think you're fairing in the marketplace right now versus kind of The World Bank numbers in total?

Bryan, this is Raj. I think we're just doing just fine. Last year, our principal growth was 5% and that was also the growth in the market. The World Bank data, we certainly look at, but it's more directional at this stage than firm as all the data comes in from the various parts of the world, those datasets continue to get refined. So we're comfortable with where we are.

I think we're doing fine.

Our principal constant currency growth is around 2% for the quarter. So I think we're in good shape there.

Okay. And does it make sense to get more aggressive to try to take more share? And I know price is one lever, but you can also increase the amount of marketing. Just how do you think about gaining more share than the marketplace?

Well, first of all, we are focused on the profitable market share gain, right? I think both we have to grow and profitable growth is always our focus. I mean, just an example, we are putting a lot of resources against electronic channels or electronic money growth [ph], as you know, since 2012, about 3% of our revenue, down [ph] 4%, 5% and now 7% already of our total revenue is electronic. So we do gain market share. We are very pleased with our Dot.com transaction growth, 25% transaction growth, even our principal amount was there stronger. We are very pleased with our account-based money transfer growth. So I think we are focused. These are new customer segments. Still we see that there are new customer segment and we also look at the demographic, last time was that -- in more younger customers. They used us and they stick in also longer with us, so I think we're going to continue to do that.

Okay. Just last question for me. On the LACA, obviously, constant currency revenue spiked to 10%, that's up from 4% last quarter. Transactions went up to 6% from 2%. Is that just all the strength in U.S. dollar, so therefore, you saw a spike there? And then, I guess, the follow-on question on that would be, do you think that's sustainable as we go into throughout the rest of this year?

U.S. outbound business continues to do well, particularly to the LACA region. So that's what drove some of the growth in LACA. We also had good growth in our Argentina business as well as in Brazil and several other markets, actually, in that region. So even on a reported basis, the business still had decent growth and good transaction growth.

And is it sustainable, Raj?

I would hope so. We'd like to continue, Bryan.

[indiscernible]

But we'll see how the -- the U.S. outbound -- our perspective is that the U.S. outbound business will continue to show good growth this year, so that should bode well for the business.

And next, we have a question from Jamie Friedman of SIG.

Raj, I know you gave a lot of detail about the constant currency on the revenue side. Did you see any benefit on the expense side from the rise in the dollar?

Yes. I mean, we have a fair amount of our expenses in the various foreign currencies and that's why we -- otherwise, we would've seen a larger negative impact on the operating profit line. So from a total currency standpoint, if I just give you the currency impact in total, it was about neutral in our margins because we had the benefit of the hedges, which flows through both of our revenue and our profit line, but it also -- the negative currency translation, just more broadly, for the business, largely offsets that margin benefit from the hedges. So the currency impact, the margins was about neutral. And what you're seeing come through the actual margin improvement are all the cost savings initiatives that we have in place.

Yes. And clearly, a lot of good work there. And then, Hikmet, I was hoping to ask you about the mobile side. I think you said in your opening comments, about 50% of your transactions at wu.com and now mobile. I guess, what -- so what -- how does that alter the behavior? Is that a younger demographic? Is that a more frequent user? Is the fraud less? Maybe some comments about how the mobile user might be different than the rest of wu.com?

Yes, it's right, almost 50% of the U.S. westernunion.com users are mobile. We see younger demographics, that's true, but it's also lower principal bands. So people are using more mobile percent, $50, $70, $100, $150 in a very fast environment, while -- it's examples like while you are taking an underground, you get a phone call, emergency phone call, and you use your phone and send money and somebody in our 50,000 locations, all over the U.S., can pick up the money immediately. So the strength of retail being present in 50,000 locations in every corner and mobility, combining that has been seeing as a huge use case, and it's stronger growing part on the mobile and we do promote it also.

The next question comes from Jason Kupferberg of Jefferies.

This is Ryan Cary for Jason. Just quick question. it looks like Asia-Pac continues to be under a little bit of pressure. I know you cited a slowdown in the Philippines and it looks like there's some challenging comps as well, but is there anything more there? And is this something that can recover over, say, the next few quarters?

We're seeing -- APAC is largely an inbound market. So we're seeing -- because many of the markets are receiving the transactions, some of the key send markets have slowed down, so APAC is really just a beneficiary. The -- that's why they're getting the transaction and revenue growth that they are. So that's really the result because many of the markets in APAC are just receiving transactions from some of the markets that have slowed down. And in the Philippines, we've also put some higher -- more compliance rules and programs in place, which has impacted the business in the short-term.

Okay, great. And while it's still clearly very early, it looks like you purchased $150 million in shares in the quarter. Should we still expect to see the $1.2 billion authorization used ratably, so, say, $400 million or so over the year?

Yes, that's what I would still plan for, Ryan. That's still our plan. In any given quarter or in any given year, over these 3 years, we may be different from that amount. But generally, that's our plan.

The next question comes from Smitti Srethapramote of Morgan Stanley.

Just wanted to follow-up on wu.com. We've noticed that the gap between transaction growth and revenue growth for wu.com has continued to narrow. Historically, you've done a lot of free promotions that led to a larger gap between these 2 metrics. Just wondering if you can give us an update on your strategy here in terms of pricing promotions for wu.com.

Yes, on wu.com, we're very pleased with the growth. First of all, we had 23% revenue growth on a constant currency basis and that was on transaction growth to 25%. We have, historically, put some promotional pricing in place and done some other things to drive the various channels and products that we're offering in that channel. So you're just seeing some of that narrow in some of the pricing. We do continue to price that business separately from our retail business, particularly as we talked about DMT. The same issues do not exist in the digital business. So it's just being priced differently and some of that -- pricing that we were doing has just gone away that's narrowed the spread, if you will.

Yes, just to make it clear, we are very pleased with -- really with -- Dot.com numbers has been performing very well. And it's just the beginning of the game actually. We are only in 25 countries, we are expanding. Like our retail money transfer business, we will be in 200 countries one day. And we are going to expand here and -- we started to initiate in San Francisco about 3 years ago. We had -- as I said earlier, electronic channels, we're only 3% -- 2% to 3% of our revenue, already 7% of our total revenue and major contribution of that is westernunion.com growth, and I am pleased. And it's only the parts. So we do promotions. The differentiation is that to get customers, new customers. And then once we get the new customers, we grow the revenues also. And always, we open a new corridor, go to the new areas, you do promotions and that's the westernunion.com, but generally with constant currency of 23% revenue growth was a good quarter.

Got it. And then earlier this week, there were some news out about you guys exploring a pilot program with Ripple Labs. Can you just talk about how far along you guys may be exploring utilizing Bitcoin like protocols? And maybe talk about some of the opportunities and risks that this -- these technologies create for you guys?

Sure, Smitti, let me start. With Ripple, we're evaluating the possibility of a pilot with them through their infrastructure that they've created, but there's really nothing more to say about that right now. We're certainly aware of these other protocols and we are evaluating whether or not they apply to anything that we're working on, but...

I think David Thompson and the team -- our CIO and the team is constantly looking at different platforms to upgrade our platform. As I mentioned earlier that, our goal is to find new customer segments, new way of doing this business, but we are very pleased -- besides running the business, we are very pleased with our core business and we are always looking for other opportunities to upgrade our platform.

The next question is from Ashwin Shirvaikar of Citi.

So I guess, the first question is in your C2C business, there is this long term trend that transaction fee growth is shrinking as a percent of total, while FX and commission and other revenue, that portion is increasing. And I just wanted to figure out -- first of all, I guess, what's going on there? How sustainable is it for you to sort of increase the FX and commission part of the C2C revenue contribution?

Yes.

Will you do that?

Let me start, Ashwin. The -- you may be referring to the growth in the FX line in the quarter. We redid these and rebalancing this past quarter between fees and foreign exchange, and it was really just shifting between fees and foreign exchange. There was no impact really to the consumer pricing and no impact net to our revenues. So it was just rebalancing of those 2 items and that was to better align with certain parts of our business in the market pricing. So there was really no impact to consumer pricing or to our revenues.

I think we did that in the past, although this quarter was a little bit higher, but we do that always, adjusting our FX rates and pricing the market environment. So that's portfolio.

Okay. Got it. And then on margins, obviously, good job on margins there. If you could break out the impact from cost initiatives versus the offset from compliance, which seems to have stabilized now in terms of expanding, and then the hedge benefits that would be helpful?

Sure. Let me just start and see if this answers your question. The hedges that we had this quarter -- we had a gain of $16 million on our hedges. So that helped our revenue line, that also helped our profit line and that helped margins by about 100 basis points, margin percentage. However, the currency translation on our revenue and profits, the impact in margins from that translation largely offset the margin benefit that we had from the hedges. So currency impact and total was net neutral on the margins in the first quarter. And so what you're actually seeing come through in the margin improvement is the net benefit of the cost savings initiatives, offset slightly by the higher compliance costs in the quarter.

In other words, going forward is sustainable then?

Well, the cost savings are things that we already have underway. The compliance costs will vary from quarter-to-quarter, but those are the 2 impacts that are showing up in the first quarter. Obviously, the currency impacts will be potentially different each quarter and it's based on where currency rates are, ultimately, on how that equation will play out.

The next question comes from Kartik Mehta of Northcoast Research.

Raj, I wanted to ask you about the domestic pricing. You're obviously going to lower that pricing yet. As Hikmet said, you still anticipate being on the lower end of the pricing decline that you've communicated in the past. So was this something you anticipated? Or is there some offset that is helping you stay at the lower end?

No, it's -- we did anticipate it. And we had planned on making price changes in our DMT business. Even during the course of last year, as you recall, Kartik, we've been telling you that the cross-border environment has been quite stable. Having said that, we always look at our 16,000 corridors. We do price increases in some parts, we do price decreases. There is a balance of both of those things that are going on in the world. But generally, we haven't seen a big need for large pricing in the cross-border business and we knew and have, in our outlook, the planned pricing in our DMT business.

Yes, also putting into perspective, Kartik, the DMT price is, as you know, it's only for certain events, and it's only for certain parts of the country where we feel competitive pressure. It's like a Street Corp. [indiscernible] pricing, which we've -- which we were doing earlier and we always choose pricing actions. So if you do that -- except the 2012 one-time correction, we always do on a very intelligent way looking at the corridors and where the competition is -- where to do it.

And then on compliance costs, I think Raj you've said in the past that it might be possible to automate some of those processes and that might help you lower compliance costs. Are you at a point where you can start thinking about that? Is that something you could see doing in 2016? Or is this just a manual process that's very difficult to automate and the expenses are going to stay kind of where they are?

Kartik, we are very focused on optimizing our compliance programs. And in the short-term, and it's still the short-term, we've had to hire a significant number of people in the compliance organization, now over 2,000 people. And that was more than 60% of the costs in the first quarter on the compliance number, but we also are continuing to invest in technology, in automation of our processes. And over the long term, I do believe that we'll be able to optimize our compliance spend. I don't see it really stepping down from where we are in the near future because we -- the regulatory environment continues to evolve and it is complex, and it's a global effort. So I think we are at a more stable place in the current range that we have for this year, but our goal is always to optimize [indiscernible].

But I really believe that it will differentiate us to be partnered with different parts of the world. I think it's an investment that makes it special, that makes it [indiscernible] and to apply in different parts of the world with regulations. And I believe that it's competitive advantage long time -- long term.

We'll go on to our next question from [indiscernible].

You guys talked about price decline in -- just in the DMT business, but overall, obviously, kept it flat for the overall franchise. Just wondering are you guys actually raising prices in certain select corridors? And anything that would be noteworthy?

We always raise prices or decrease prices in different parts of the world. We even change bands within the price -- within the 16,000 corridors. That's a part of the business we have been doing it for many years. And that's -- but it's nothing that big price actions that we're going to change our pricing strategy for certain time for near term.

Yes. Just to clarify, [indiscernible], in the first quarter, the domestic money transfer pricing wasn't in place yet, so we didn't have that impact on the pricing.

Yes.

Okay, thanks for clarifying. And then secondly, just, Raj, on the FX hedge benefit, $16 million in the quarter, are you still expecting $70 million for the full year? Should it -- do you think it will come ratably through the year? Or any call outs by quarter?

Yes, not by quarter, but we are still expecting about $70 million benefit on the hedges for the full year and that can vary a little bit depending on where exact -- where rates, currency rates are, but yes, still expecting about $70 million. We've assumed, just -- you know, we've assumed about EUR 1.10 rate, and obviously that continues to fluctuate around.

Okay. Lauren, I understand that's the end of the queue. So we want to thank everybody for joining the call today and wish you a good afternoon. Thanks.

Thank you.

Thanks.

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