The Western Union Management Discusses Q2 2012 Results - Earnings Call Transcript

The Western Union (WU)

Q2 2012 Earnings Call

July 24, 2012 8:30 am ET

Executives

Michael A. Salop - Senior Vice President of Investor Relations

Hikmet Ersek - Chief Executive Officer, President and Director

Scott T. Scheirman - Chief Financial Officer & Global Operations and Executive Vice President

Analysts

Tien-Tsin T. Huang - JP Morgan Chase & Co, Research Division

Glenn Fodor - Morgan Stanley, Research Division

Robert P. Napoli - William Blair & Company L.L.C., Research Division

Kartik Mehta - Northcoast Research

Thomas C. McCrohan - Janney Montgomery Scott LLC, Research Division

Darrin D. Peller - Barclays Capital, Research Division

Bryan Keane - Deutsche Bank AG, Research Division

Ashwin Shirvaikar - Citigroup Inc, Research Division

James F. Kissane - Crédit Suisse AG, Research Division

Sara Gubins - BofA Merrill Lynch, Research Division

Andrew W. Jeffrey - SunTrust Robinson Humphrey, Inc., Research Division

David Togut - Evercore Partners Inc., Research Division

Presentation

Operator

Good morning, and welcome to the Western Union Second Quarter 2012 Earnings 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, Investor Relations. Please go ahead.

Michael A. Salop

Thank you, and good morning, everyone. On today's call, Hikmet Ersek, Western Union's President and Chief Executive Officer; and Scott Scheirman, EVP, Chief Financial Officer and Global Operation, will discuss 2012 second quarter results. Following their remarks, we will open the call for questions.

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.

This 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 2011 Form 10-K, for additional information concerning factors that could cause actual results to differ materially from the forward-looking statements.

During the call, we will discuss some items that do not conform to generally accepted accounting principles. We've reconciled those items to the most comparable GAAP measures on our website, westernunion.com, under the Investor Relations section.

All statements made by Western Union officers on this call are the property of The Western Union Company and subject to copyright protection. Other than the replay noted in our press release, Western Union has not authorized and disclaims responsibility for any recording, replay or distribution of any transcription of this call.

I'd now like to turn the call over to Hikmet Ersek.

Hikmet Ersek

Thank you, Mike, and welcome, everyone. We remain focused on delivering on our vision to become the premier financial service provider for the underserved under the globe -- around the globe, as we outlined at our recent investors day in May. Our foundation is strong, with a solid core business in consumer money transfer and significant competitive strength, such as our agent network, our high brand awareness with the underserved around the world, our global compliance capabilities and our global organization and resources.

We have the right strategies in place to capitalize on these strengths and drive accelerated growth over the long term by focusing on expanding our network and increasing consumer retention in Global Consumer Financial Services; expanding penetration and adding new services in Business Solutions; and developing and growing new services for the underserved in Ventures.

Investments we have made in Business Solutions and Ventures are providing us diversified revenue streams. And as we accelerate growth over the long term, we expect to drive margin expansion. We also continue to focus on generating strong cash flow and deploying it for our shareholders.

In 2012, we remain on track for the revenue, earnings per share and cash flow outlook we provided at the beginning of the year despite economic challenges.

In the second quarter, our consumer money transfer business, which represented over 80% of revenues, continued to deliver solid results, which is a constant currency revenue increase of 3%, with consistent year-over-year operating margins. There were some very strong large markets, such as Germany, Saudi Arabia and India, that helped offset economic softness in southern Europe and expected challenges in Mexico and Russia.

westernunion.com online money transfer also continued to deliver strong growth. Interestingly, we are seeing some changes in consumer movements developing from the economic situation is southern Europe. Portugal, which was historically being primarily a send market, is now almost even split between inbound and outbound. Although Greece is still primarily an outbound market, the inbound business increased significantly and represented almost 30% of the country's mix through the first half of the year.

Through our global network and local market expertise, we are very well positioned to react quickly to these changes in patterns. We are also making more progress ramping up our agent location expansion, including some key retailers in Europe, such as Lottomatica, in terms of locations, one of the largest retailers in Italy.

We now have approximately 510,000 agent locations globally, but there are also an additional 50,000 money transfer touch points through our ATMs and other transaction-capable spots. It is a great base to achieve our long-term goal of 1 million touch points. Our access to consumers is even higher when you consider the millions of account holders that can utilize our services through our online banking and mobile phones.

We have agreed to add account-based money transfers with large banks in India and China, and we will continue to expand our services to offer even more convenience and choice to our consumers. Our account-based money transfer momentum remained strong, with revenue growth of 34% in the quarter.

Turning to Business Solutions. Pro forma constant currency revenue growth was the same as the first quarter at 4%. Although we have tempered our 2012 expectation for this business, primarily due to the impact of slowdowns in global trade, we have not changed our long-term outlook.

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