Michael Alan Salop - Senior Vice President-Investor Relations Hikmet Ersek - President, Chief Executive Officer & Director Rajesh K. Agrawal - Chief Financial Officer & Executive Vice President.

Bryan C. Keane - Deutsche Bank Securities, Inc. Darrin Peller - Barclays Capital, Inc. David J. Chu - Merrill Lynch, Pierce, Fenner & Smith, Inc. Tien-tsin Huang - JPMorgan Securities LLC Jason Alan Kupferberg - Jefferies LLC Ashwin Shirvaikar - Citigroup Global Markets, Inc. (Broker) Danyal Hussain - Morgan Stanley & Co.

LLC Kartik Mehta - Northcoast Research Partners LLC Andrew Jeffrey - SunTrust Robinson Humphrey, Inc. Matt C. O'Neill - Autonomous Research US LP Rayna Kumar - Evercore ISI David M. Scharf - JMP Securities LLC Alexander Veytsman - Monness, Crespi, Hardt & Co., Inc..

Good afternoon and welcome to The Western Union First Quarter 2016 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded.

I would now like to turn the conference over to Mike Salop, Senior Vice President of Investor Relations. Please go ahead, sir..

Thank you, Laura. On today's call, 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 2016 first quarter results and then we will take your questions.

The slides that accompany this call and webcast can be found at westernunion.com, under the Investor Relations tab and will remain available after the call. Additional operational statistics have been provided in 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 2015 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. Overall, we delivered another solid quarter to start the year as our business continued to show resilience in the face of uneven global economic conditions. First quarter trends were generally similar to the fourth quarter. Our consumer money transfer business posted steady results.

The consumer bill payments business provided good constant currency revenue growth and Business Solutions increased as well. Although the stronger dollar continued to impact reported results, total revenue increased 3% for the quarter in constant currency terms. In consumer money transfer, westernunion.com, U.S.

outbound, and Germany continued to provide good growth, although we did see some softer business in the oil-dependent markets. Business Solutions constant currency revenue increased 6% in the quarter and consumer bill payments increased 12%.

Operating margins were a healthy 19.9% despite increases in technology investments and negative impacts from currency. We also continue to generate strong cash flow and return over $300 million to shareholders in the quarter through dividends and share repurchases. So, the year is starting as expected.

As we think about the next several years, as we highlighted at our Investor Day in March, our focus is on maintaining leadership in the traditional retail money transfer business, extending leadership in digital money transfer, and leveraging our cross-border platform to serve new use cases and customer segments.

Our traditional retail business continues to deliver steady results and we are making progress on our global digital initiatives.

A few digital examples this year include the launch of our mobile app for westernunion.com in Italy, which will allow Android and Apple users to access our money transfer services, a refresh mobile app in the U.K., a new mobile remittance receiving service in Bangladesh which was launched with MasterCard, bKash, and BRAC Bank, two new westernunion.com transaction sites in Europe, raising our total to 36 countries globally with online money transfer sending services.

In Western Union Business Solutions, we introduced WU EDGE; a new service brings buyers and sellers together on one digital B2B platform where they can easily arrange and complete cross-border invoicing and payments. The platform also provides added foreign exchange and cash management tools for users.

In addition, as we previously announced, we added the Viber social messaging app to our WU Connect platform this year. Viber has been in beta mode until last week, but we now added account payout capabilities and are excited to begin a full launch to build awareness and drive usage.

We also remain focused on expanding our pay-in options and account payout network and initiating more corridor connections to bank accounts. I have spent a lot of time over the last several weeks travelling throughout Europe and Asia, including attending the European Money20/20 Conference in Copenhagen.

These trips reinforced my belief in the importance of the end-to-end capabilities that Western Union provides in cross-border money movement and in our ability to leverage our assets for more funds-in and funds-out use cases.

I saw an example of this in China where we work with ChinaPay to offer a fast cross-border payment for business customers in the country. We also provide many other digital services in China with Western Union money transfer available on several online and mobile banking platforms.

Our collaborations in China, and all other examples I have mentioned, further convince me that our services can provide very valuable connections to partners whether they are financial institutions, social media or messaging companies, mobile operators or more traditional retailers.

So, we see many opportunities, and I believe we have the right strategies to address them. Thus far in 2016, our business performance has been solid, and we are on track with our full year expectations while we continue to make progress on our long-term strategies.

Now to discuss the first quarter results in more detail, I would like to turn the call over to Raj..

Thank you, Hikmet. Overall, we are pleased with the first quarter results. First quarter revenues of $1.3 billion increased 3% on a constant currency basis compared to the prior year period, while reported revenues declined 2% due to the impact of a stronger U.S. dollar.

The impact of currency translation net of hedge benefits reduced first quarter revenue by approximately $57 million compared to the prior-year period. In the Consumer-to-Consumer segment, constant currency revenues increased 1% in the quarter, and reported revenues declined 2%, while transactions grew 3%.

C2C constant currency revenue growth was driven by westernunion.com and continued strength in U.S. outbound particularly to Mexico and Latin America. Total C2C cross-border principal declined 2% compared to the prior year period or increased 1% constant currency.

Principal per transaction was down 5% or down 3% in constant currency terms with the decline driven by several oil-related markets. The spread between the C2C transaction growth and the revenue decline in the quarter was approximately 5 percentage points, including a negative 3% impact from currency.

We continue to view the global pricing environment as very stable. The impact of net price decreases was 2% in the quarter, but this was primarily related to Argentina, where we took significant reductions on our outbound pricing in response to the economic and currency deterioration in the country and from the actions we took in our U.S.

domestic money transfer business in April of last year. Outside of these two actions, our pricing impact would have been neutral in the quarter and mix was also neutral.

Turning to the regions, as we did last year, due to the significant fluctuations in foreign exchange rates, I will be referring to constant currency movements as I discuss individual country contributions to the regional results. Also, as previously mentioned, we have made a change to our C2C regional reporting effective in the first quarter.

We are now including the westernunion.com business within the regional numbers, splitting the revenue 50-50 between the send and receive regions, which is consistent with how we treat the retail business.

The comparable quarterly numbers for 2015 can be found in our earnings release attachments, and we will also continue to report westernunion.com revenue and transaction growth rates in our supplemental information. In the quarter, North America revenue grew 3% or 5% on a constant currency basis, while transactions increased 7%.

The region benefited from strong growth in U.S. outbound to Mexico and Latin America with our Mexico business again outpacing the market based on the latest Banco de México data for the first quarter. Total domestic money transfer revenue was flat in the quarter on transaction growth of 5%.

In the Europe and CIS region, revenue declined 3% and was flat on a constant currency basis while transactions increased 3%. Similar to previous quarters, Germany delivered strong growth but the positive impact was offset by continued weakness in Russia.

In the Middle East and Africa region, revenue declined 4% or 1% constant currency, and transactions were down 3%. Low oil prices are affecting the region's result as many Gulf States have experienced slowdowns in investment and hiring.

Main declines were from Nigeria, where the inbound business has been affected by wide divergence between market exchange rates and official rates, resulting from oil's impact on the economy. Saudi Arabia revenues increased, but trends were not as strong as previous quarters.

In the Asia Pacific region, revenue was down 4% or down 1% constant currency, while transactions decreased 4%, primarily due to continued weakness in the Philippines. In addition, some received markets in Asia have been negatively impacted by lower remittances from the oil-producing countries.

Revenue in the Latin America and Caribbean region was down 5%, but increased 1% constant currency. Transactions increased 11% in the quarter. Revenue growth was driven by strong inbound business from the U.S., but this was largely offset by the pricing reductions in Argentina.

Westernunion.com C2C revenue, which is included in the regional numbers just discussed, grew 16% in the quarter or 18% constant currency and represented 7% of total C2C revenue. Westernunion.com transactions increased 25% with U.S. originated online transactions growing 28%.

Mobile trend – mobile continues to be a fast-growing area for wu.com with over 55% of U.S. transactions being initiated on a mobile device in the quarter. The online business is also gaining good traction on sends to accounts through our expanding account payout network.

The spread between transaction revenue growth for wu.com in the quarter was primarily due to lower principal per transaction and other mix. This was driven by the high growth in mobile transactions, which tend to have a smaller principal amount.

As Hikmet mentioned, we now have online transactions sites in 36 countries which allow us to send to over 200 countries and territories. And we expect strong growth from wu.com as the year progresses as we expand our presence and further enhance our service offerings.

In the Consumer-to-Business segment, revenue declined 1%, but increased 12% on a constant currency basis, driven by growth in Argentina walk-in and U.S. electronic businesses, which was partially offset by declines in U.S. cash walk in. The depreciation of the Argentine peso drove the differential between reported and constant currency revenues.

Business Solutions reported revenues increased 1% or 6% on a constant currency basis, aided by strong sales of hedging products in Europe. The consolidated operating profit margin was 19.9% in the quarter compared to 20.6% in the prior year period.

As expected, the operating margin was negatively impacted by incremental technology expense and the impact of foreign exchange, which were partially offset by benefits from cost savings and operational efficiencies and the timing of certain expenses.

Hedge gains in the quarter were similar to the prior year, with $15 million of gains in the current quarter compared to $16 million of gains in the first quarter of 2015. In total, currency negatively impacted operating profit by approximately $17 million in the quarter compared to prior year.

Compliance expense was approximately 3.6% of revenue compared to 3.8% in the prior-year period, EBITDA margin of 25% in the quarter compared to 25.5% in the prior-year period, and as expected, our tax rate of 14.6% increased from 12.3% in the first quarter of last year.

In combination with share repurchases, these results generated earnings per share of $0.37, down slightly from $0.39 a year ago. The C2C segment operating margin was 22.7% compared to 23.1% in the prior-year period.

The C2C operating margin was negatively impacted by higher technology expense and the impact of foreign exchange, which were partially offset by benefits from cost savings and operational efficiencies and the timing of certain expenses.

The Consumer-to-Business operating margin was 14.6% in the quarter compared to 18.7% in the prior-year period, with the decrease primarily due to increased technology expense. Business Solutions operating profit of $2 million was consistent with the prior-year period, while EBITDA margins improved from 14.6% to 15.1%.

Depreciation and amortization for Business Solutions was approximately $13 million in the quarter compared to $12 million in the prior year. Turning to our cash flow and balance sheet, cash flow from operating activities was $213 million for the quarter, while capital expenditures were $48 million.

At the end of the quarter, the company had debt of $3.2 billion and cash of $1.2 billion. Approximately 35% of the cash was held by United States entities. In the first quarter, we paid $79 million in dividends and repurchased approximately 13 million shares for a total of $240 million.

Our remaining authorization, which expires in December of 2017, was $472 million at quarter end and the outstanding share count at the end of March was 492 million shares.

Based on the first quarter results and our recent business trends, we are affirming our full-year financial outlooks for constant currency revenue growth, operating profit margin, earnings per share, and operating cash flow.

We have maintained our constant currency revenue outlook at a low to mid-single digit increase, operating margin at approximately 20%, and earnings per share in a range of $1.58 to $1.70.

The GAAP revenue is now expected to be approximately $50 million higher than our initial outlook based on the recent strengthening of several currencies against the U.S. dollar. Compared to 2015 rates, we now expect currency to have a negative impact on revenues of approximately $200 million for the full year.

This equates to a GAAP revenue change of 300 basis points lower than the constant currency increase, rather than the 400 basis points in the prior outlook.

The impact on operating profit from the increased revenue is expected to be partially offset by a reduction in hedge benefits, with hedge gains now projected at approximately $40 million compared to $50 million in the prior outlook.

The new projection for total negative impact on operating profit from currency net of hedges is now approximately $90 million, a slight improvement from the approximately $100 million negative impact anticipated in our prior outlook. Since the impact on EPS was relatively small and we are still early in the year, we did not change our EPS outlook.

As exchange rates stabilize or move during the year, we will update our outlook accordingly. So, to summarize, the first quarter results were solid, and we are on track for the year. Cash flow and the balance sheet remains strong, and we continue to return significant funds to shareholders. Operator, we are now ready to take questions..

Thank you. We will now begin the question-and-answer session. And our first question comes from Bryan Keane of Deutsche Bank..

Yeah. Hi, guys. I just saw that pricing was down 2%. It sounds like that's U.S. domestic pricing actions and also Argentina.

Just thinking about going forward, what can we expect to going into quarter two and then throughout the year on the pricing actions?.

Hi, Bryan. As you said, it was Argentina and we had last year, as you know, some U.S. domestic pricing; that's a little bit impact on that. But I see the pricing environment very stable. I don't see big changes here. Looking around the world, I think we have – our pricings are stable and I don't see big changes.

And I'm quite confident that we're going to keep the pricing as we guided in the beginning of the year..

Yeah. I mean, if you exclude those two items, the pricing was flat in the quarter which is consistent with prior trends..

But going forward, the Argentina pricing will impact another three quarters. U.S. domestic pricing will anniversary this upcoming quarter. Just trying to (18:17)..

Yes..

Yes..

Yeah. Argentina will continue to be in the pricing numbers. It's just – it's related to the devaluation that took place in December. And then, DMT pricing actions that we took last year were in April. So, that will start to anniversary..

Okay. Got it. And, Raj, just incremental technology expense that weighed on the margins, is there a way to think about that how much that was in total versus the year-ago period? And kind of thinking about that going forward versus some of the offsets from some of the restructuring and cost saves.

Just to think about the operating margin and some of the puts and takes there..

Yeah. Yeah. The operating margin was impacted by a few things. Technology was one of them and then we had some negative foreign exchange impact, and then we have some benefits from cost savings and timing of expenses as well.

The technology expense, we said, when we came into the year that we expected to spend well over $50 million incrementally on technology. And that's on a base of a few hundred million dollars. So, if you just take that in each quarter, that's roughly the impact – some of the later quarters will start to go over, if you will.

But in total, for the year, we see over $50 million of incremental spend on technology. And then some of the cost savings, if you recall, we had – we took about $11 million of costs in the fourth quarter, and that's going to translate to a few million dollars of savings this year.

And then we also are just managing the business very tightly and efficiently on the expense side, and we've also had some timing specific (19:49) expenses as well that helped us in the first quarter.

And so, the primary negative impact was around technology, which again for the year will be well over $50 million incrementally and then some of the negative foreign exchange impact..

Okay. And then just last question for me, Hikmet, just looking at the C2C line, it was at 1% constant currency revenue growth.

Is there anything you can do to stimulate that line to get stronger growth going forward this year, or are you going to be – it's going to be dependent upon economies and what's going on in oil that is just going to keep that languishing as a growth rate? Thanks so much..

Bryan, I think our forecast didn't change as we gave it in the beginning of the year. I see – the answer is digital, digital, digital. Westernunion.com expansion, the answer is it's growing very strong. Actually, we had 25% transaction growth. And within that, within the digital is the mobile. 55% of our transactions in the U.S.

are initiated by mobile phones. It's a little bit lower principal amount, with respect to a little bit – revenue per transaction, a little bit lower. But generally, that's the direction. I'm also excited about the new social media partnership like Viber. Let's see where it goes.

It's too early to tell that, but I believe that the digital is the – will begin growth on the C2C, and digital connection to 200 countries. Digital connection to retail locations, digital connection to our account payout network, which we are more than 1 billion accounts. That will come – growth that will accelerate over the few quarters, I believe.

On retail money transfer, I think that that will continue to be flattish. It will continue to be slow. And – but, it's – I think the team is doing a great job there also keeping the retail money transfer very strong. In fact, recently today I just saw the Mexico numbers came out and we are winning, I saw again, market share there. So, that's the thing.

But the global economy, the oil-producing countries like Russia, like Saudi Arabia has a little bit impact to our growth and that's – I would be cautious there. Other side, the Germany did very well. We didn't – even within the Gulf States, Europe (22:19) did well. I mean that's really differentiated country by country..

Okay. Thanks for the color. I'll pass the line..

Thanks, Bryan..

And our next question will come from Darrin Peller of Barclays..

Hi, guys. It looks like overall outside of the callouts you had on pricing in Argentina, et cetera, that pricing has been relatively stable in most cases in the last couple of quarters.

The one thing I just noticed, though, and I want to ask about it is on the wu.com business looks like the transaction growth has held up in the mid-20%s but I think the revenue growth decelerated to more of a mid-teens growth rate.

Is there anything maybe specifically that – I might – maybe I missed it in the prepared remarks, that's causing that?.

Yeah. I think first of all, as you know, Darrin, it changes quarter by quarter, the revenue growth. But the main impact there is the mix and the mobile. As I mentioned earlier, the mobile is growing very fast, mobile transactions. And within the mobile transactions, the revenue per transaction is lower than in an online transaction.

So people are using really strong mobile transactions, but the revenue per transaction has an impact to the revenue. So, that's the gap part. Over – it's also quarter-by-quarter. I believe that we planned to have a strong growth here also in revenue coming over. And the other thing is also we just launched on two new countries in Europe.

We are now in 36 countries. Having the sending capability to 200 countries, so that will bring also. But the differentiation – answering directly to your question is, definitely the mix here..

Okay. So (23:57)....

And just to add, Darrin, we had 55% of our transactions here in the U.S. initiated on a mobile device and so that's driving significant transaction growth in mobile channel..

So I mean the good news generally of mobile is that it'll come with more frequent transactors, right?.

Yeah..

In other words, the transactor will do (24:16)..

Yeah. Well, it's a new customer base too. It's largely....

Yeah..

...incremental opportunity for us, and so that's good. I mean we still had 25% transaction growth....

Yeah..

...and we still expect very strong growth for the rest of this year as well..

Okay. So despite the lower revenue yield, it's actually coming with a more sticky and a better transaction growth rate is basically the way we should look at it..

And, Darrin, there are also new (24:39) cannibalizing our business as you know. There are new customers; we didn't have that..

Right. That's helpful. And then just one follow-up. And I asked this a couple of times before, but it's always impressive to me to see the growth rate of the C2B business.

I know that again you talked a lot about what's happening and some of the market drivers, but just give us some color again on the sustainability into that growth rate on a constant currency basis..

Again, digital, digital, digital, with Speedpay growing very fast..

Yeah..

Our U.S. digital business on the payments are growing really good. That drives the growth. The other one is also Argentina. The Argentina transactions have been coming very well. It's a very sticky business. People are using with their barcodes going to the locations and using our Pago Fácil payments. It's a very sticky business.

People like the convenience. It's fast and biller like the convenience also because they get the money immediately. And it's a win-win situation. And that has been a good business. However, saying that, Darrin, our retail business there has been slowing as you know.

Not significantly slowing, but it's been on a slower growth, negative growth over the last quarters..

Okay. In the U.S.

retail business?.

In the U.S. retail, yes..

Okay, makes sense.

Very quickly, Raj, on the tax rate, 15%, is that still a good number for the year?.

Yeah. We said, mid-teens, Darrin. So, yeah, mid-teens is still a good number for the year. And in any given quarter, it's going to be up or down from that number. But mid-teens is a good number..

Okay. All right, guys. Thanks very much..

Thank you, Darrin..

And the next question comes from Sara Gubins of Bank of America..

Hi. This is David Chu for Sara. You mentioned....

Hi, David..

Hi. You mentioned that timing of spend helped 1Q a bit.

Can you just discuss this?.

Yeah. I mean, that wasn't the biggest factor. It was really related to cost savings that we had from last year's actions and then we've just been managing other efficiency opportunities within the business.

We had some timing of spend, but we also had other things that, like technology spend that were higher than we would have thought in the first quarter. So, it's sort of netted out to zero. That wasn't the primary driver of the margin impact this year – this quarter..

Okay. And then, in regards to these oil-producing countries, I mean, do you expect trends to weaken in upcoming quarters because it seems like to-date you hadn't seen a major impact in Europe – it sounds like you're calling it out now when you hadn't in previous quarters..

Yeah. You got that, David. I mean, first of all, I always called Russia out, right? Remember, Russia was also and we have some – also oil-impacted issues like in Nigeria with the currency. But Saudi Arabia, for instance, still growing, but the pace of growth has been a little – slower than in previous quarters.

Within the Gulf States, though, there are still countries growing very strong and I would say that the growth comes currently from U.S. outbound from Germany, from Europe, parts of Europe and our digital business has been performing very well. And so it's going to continue. That's the beauty of being in 200 countries having that portfolio that we have.

And just say it again, you know it anyway, but none of our countries out of the U.S. are bigger than 7% of our revenue, so which means that we have really a huge portfolio. Some of the countries which we call it out has less than 1% of the revenue. And so, it is – we see some impact, but I wouldn't say that it's major..

Okay. Thanks, guys..

Thanks..

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

Hi. Great. Actually a related question because everything else seem pretty stable or consistent.

Just on the oil-dependent regions, what can you do to revive growth there? I mean, it sounds like pricing is not a tool you will use, anything else that's available to Western Union?.

Well, I think – as you know, our business, sending and receiving, we just – for instance, in Russia or in Nigeria or all these countries, not only on the send countries, Tien-tsin, it's also on the receive countries we see something. We do inbound.

We changed our marketing activities to inbound instead of outbound, and we really do some promotions about that, if the outbound export related oil-producing jobs get less. Besides that, obviously, it's an industry issue if there are less jobs about that, it's economical impact. But I would say that we called it out now. We see the first signs.

I'm not sure if that's going to continue. It can turn around back again and I don't see a major issue but we called it out because we feel the first slowdowns. And Russia, we always called it out..

We're going to continue to benefit with low oil prices in other parts of our business, as Hikmet mentioned earlier. And we continue to get really strong growth in the U.S. Germany was very strong for us again. The U.K. did well. In our dot-com business, we continue to see very strong opportunities there.

So, these other areas will be an offset to some of these other softer areas..

All right. All part of the portfolio. So my only follow-up, maybe for you, Raj, is just you bought back a lot of stock, it looks like this quarter, which is great. It looks, at least mathematically, just over $400 million in cash left in the U.S.

So do we need to expect that the buybacks to slow or do you have some other levers to pull to keep this pace up?.

Yeah. I mean, Tien-tsin, we have about $470 million left on the authorization which goes through the end of next year. So the current – we have enough capacity to be able to buy for this year and next year and we have enough sources of cash and other capacity to be able to continue to buy back our stock..

All right. Good to know. Thank you..

Thanks..

Thanks, Tien-tsin..

And our next question will come from Jason Kupferberg of Jefferies..

Hey. Thanks, guys.

How are you?.

Hi, Jason.

How are you?.

How are you?.

Good. Good. I just want to ask a follow-up question on wu.com because I can appreciate the mix dynamics here.

I'm just thinking about sort of rest of year and constant currency revenue growth potential of the business because I noticed the year-over-year comparisons on that metric are going to get tougher the rest of the year, and it probably wouldn't be surprising if the mobile mix continues to accelerate versus the 55% levels you saw in the U.S.

this quarter just given the way consumer preferences are trending.

So, just so we've got the expectations teed up properly, I mean, this 18%-ish number we saw in Q1, is that a decent run rate or are we going to see some natural slump in the rest of the year because of the tougher comps and because of some potential acceleration of the mix shift to mobile within the wu.com channel?.

Well, Jason, you know me. It's more, more, more is better. Obviously, we want to grow faster. I think our plans are we want to grow revenue, accelerate the revenue growth, and we are working on that. Especially also, the expansion on the new global – new geographies will help that also because these are just starting the new geographies.

Once the customer gets sticky, they started to get revenue also there, right? And I believe that our plans are built on stronger growth definitely here also. And the mix is definitely something that the customer behavior is changing. But I believe also that we just launched in Italy a new mobile app.

We have also in U.K., we upgraded our mobile app there. People are using more mobile, and they are more sticky and we are responding to the customer needs, and I think that will grow stronger..

Okay.

And then can you quantify on average how much lower the principal per transaction is on the mobile wu.com transactions versus the non-mobile?.

I can't really – I mean I can try to quantify it for you, but it's not – I mean it's a little bit of a difference. I don't think we have the real data behind that, but it's enough to make a difference because of the significant growth that we are getting on mobile..

Right..

It's probably $20, $30 difference, so it doesn't make a big difference on each transaction. But when you have such strong growth on each transaction, that's where it's making a difference on the overall picture.

And I would just say that as we add new features, as we add new geographies, more channels, more bank funding, and more bank payout, all of these things are going to layer in more growth opportunity for us as we move forward..

Okay. And just last one for me, I know that FX volatility can have some impacts in your business, and FX vol was peaking last year; it's going to start to probably anniversary some of those peak-ish levels.

I mean is that essentially what you've baked into the outlook for the year? Or how should we be thinking about that dynamic?.

Okay. Yeah. Just – Jason, just on the actual difference in principal, it looks like it's about a $100 difference in principal. I was just trying to remember from memory between mobile and the web channel, just....

Okay. Thank you..

...so you have that. And then, on the foreign exchange volatility, it doesn't really have a big impact to the overall business. It may have some impact in our B2B business in the short-term. And we – whatever we're seeing right now, we've generally tried to take into account in our outlook for the year..

Okay. That makes sense. Thank you, guys..

Yeah..

Thanks..

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

Hi, Hikmet. Hi, Raj.

How are you?.

Hello, Ashwin.

How are you?.

Good.

How are you, Ashwin?.

I'm good. Thanks.

A question on wu.com, is it possible to break that out in terms of how much of the growth is from adding new countries versus sort of a same-store type of growth where you already are? And also, from a geographical perspective, is it safe to say that the North America piece primarily benefited, given the same 50/50 principal that you used in terms of splitting out revenue contribution?.

Yeah, Ashwin, on your 50/50 question, I mean, are you asking why we did it or how does it fit into the (35:56)?.

You always do it, but that would imply that if more of your – I guess the question I'm asking is from a geographical perspective....

Yeah..

... (36:03) America-centric from an outbound perspective..

Let me give a shot on that – try to answer your question. Raj, feel free to jump in.

But on the – most of the transaction – on the first part of your question, most of the transactions are generated in the countries where we've been longer, obviously, like the U.S., U.K., like the countries we've been – like Germany, we've been longer with our online services.

And the new countries, it takes a while to – when they come to at the portfolio. And it's a promotion part – it's the customer (36:38). So, most of the part – the majority of the transactions are definitely from the countries where we have been.

And it's good also because it's more – we see also one phenomenon on the digital is that the customers use more often our services when they use online, when they want to register. They stay there and they use it. So, that's great news. The second part of the question is on the 50/50.

It's basically the combining our efforts, marketing efforts and our branding efforts, our go-to market efforts together with the regions. As you know, we were very much focused with the digital.

Do we have a good start-up with our $300 million revenue approximately a year? We are, I believe, the market leader in the digital pace and we are growing strong here. And now, it's time to really – expanding that faster globally using our agent network.

Within the agent network also, we are promoting our westernunion.com and combining our agent activities, regulatory activities in the regions with our dot-com digital business. That's the positive side. That's why we are putting that also on the region..

Got it. Understood. Sort of a follow-up on the tech expense. Raj, was your comment that tech expense got pulled forward.

Was that what you're saying and the rest of the year is going to be a lower level or were you saying basically that you decided to now spend more on technology?.

No, I – let me just restate. We're going to spend an incremental amount of money this year well over $50 million. The timing of that will vary by quarter as some of the spending started to ramp late last year. So, we may start to grow over some of that towards the end of the year. But that's really what I was trying to say..

Okay. And the incremental spending, I mean in the past, Raj, you had mentioned obviously investing in the core platform, investing in big data. What is this incremental investing for? Is it more – I mean I saw that you guys did a block-chain investment, but that seems more like a financing type of thing, but (39:04)..

Yeah. The block-chain investment is a nominal investment. We make investments like that from time-to-time just to stay close to things that are happening in that space. But the technology spend, the incremental spend is really upgrading our legacy platforms, our settlement system, our data centers, and our core processing capability.

And so, it upgrades those systems. It allows us to be more nimble in the market. It also allows us to be better fit to serve digital partners as we add them. And some of these are multi-year programs, right, so they're not going to be done in a one-year period. They're going to continue on for a couple of years.

And so, that's really where the spending is geared towards..

Got it.

When you say multi-year, can you put a timeframe? I mean is it, say, middle of next year or...?.

Yeah. It's just multi-year in nature. I mean some of these programs will go away at the end of next year or sometime next year. Others will continue on for a couple more years, so it's hard to say exactly when they're going to fall off. And we're going to continue to invest in our digital area too.

So as we add new digital partners, we may launch new upgrades or new programs in that regard, so I don't see us fall off in spending in the technology side anytime soon..

I think, Raj – Ashwin, sorry – as you know that parts of that really finding efficiency for existing IT, parts of that is really investing in the new part on the digital environment and on really the WU Connect or also connecting the banks.

If I connect part of the banks to our system and we see – as I was recently in China, really the ChinaPay connection to us needs some investment and examples like ChinaPay or examples like big banks connecting our systems (41:07) like Viber, social media connecting the system needs some upgrade and required some investment.

That's the part of it, the innovation part of it..

Got it. Understood. Thank you..

Thanks, Ashwin..

Thanks, Ashwin..

And the next question comes from Danyal Hussain of Morgan Stanley..

Hi, Hikmet and Raj..

(41:31)..

Now that you have another quarter under your belt, can you give an update on how WU Connect partnerships are tracking versus your initial expectations? And at this point, do you have a better sense for how many of those transactions are incremental?.

Yeah. I think it's too early to call, Danyal. It's still very small. But I'm very excited actually about the Viber. We just finished the beta test. The results are very good. Actually, the beta mode was last week and so we went to full market launch. Let's see how that works.

It's too early to call from revenue and transaction side, but I'm excited about that. The other thing is also what I'm excited also we have some other partners in the pipeline.

We are developing – that's a part of – as Ashwin asked the question earlier, that's a part of our also investments in the technology to be ready for the new partners also and maybe additional focus on that is required. So I'm not going to share with you the transaction numbers because it's too early to call. It's new use cases.

But we'll see and hopefully when it comes, I can report then better news, good news here about our partners..

Understood.

And the Treasury departments then pretty active in clamping down on inversion, Raj, but do any of their actions have implications for your working capital strategy potentially in the future?.

They should not. And these are not rules yet anyway. They're probably going to go through a lot of evolution before anything actually comes to market, but even in its current form, it should not have any impact to our working capital strategies or tax rate or what's been discussed recently..

Great. Thank you very much..

Thanks..

And the next question comes from Kartik Mehta of Northcoast Research..

Hi. Good evening..

Hey.

How are you?.

Good.

Maybe, Raj, I wanted to ask you about the Business Solutions segment and maybe what type of revenue growth you think we need to – you need to see there to really start seeing improvement in the operating margin?.

Well, as you saw that, we had some improvement in our margin side, but on the revenue side, we definitely want to see better revenue here. 6% we had – despite the global trade issues, despite the global economic issues, despite the currency volatility like in U.K. against other currencies, we did have a 6% growth in revenue terms.

And I think that the global trade will help us once it gets picked up, new customers. But the other thing is also, our market share is quite low here, and we see an opportunity here to grow that on our market share. So, it is – definitely, growth will help to expand the margins, but the team is doing a good job.

We even saw this quarter a margin expansion.

Right, Raj?.

Yeah. I mean margins were up a little bit, 15.1% EBITDA margin versus 14.6% in the prior-year quarter. And then last year, Kartik, we improved margins to around 15% again on an EBITDA basis and that was higher than the 11% that we had in the prior year. So, revenue growth really is the key for us to be able to drive better profitability there.

That business has relatively larger proportion of fixed costs than the rest of our company. But it's heading in the right direction at least from a margin standpoint..

And then just what pressures, if any, are you seeing from the other online money transfer companies that are out there, either from a pricing standpoint or any other competitive pressures that you might be witnessing from them?.

Well, nothing different than the retail competitors, I would say. As you recall, Kartik, at our Investor Day, we had a chart representing the branded money transfer companies, digital companies, what our market share is, what we believe that their revenue is.

So, I believe that given our fundamentals, given our global reach, we do have a quite good expansion. We are growing very fast. We are winning market share here. So, comparing with that, I think also there's still growth opportunities that we can capture growth opportunities with new customer segments, but also on the financial institutions.

More and more financial institutions are looking at us, saying that can you process the transaction from the U.S. to Vietnam or from Germany to Peru? And all these things with our compliance programs, with our platforms, we can expand our opportunities here. So, I think we are gaining market share in the digital environment..

Thank you very much..

Thank you, Kartik..

And next we have a question from Andrew Jeffrey of SunTrust..

Hey, guys. Thank you for taking the question. I appreciate it. A couple of actually housekeeping questions, I guess. One is on the cost of goods this quarter, I saw it was up as a percent of revenue year-on-year. You're obviously doing a nice job on SG&A. I just wonder if you could give a little color on sort of gross margin trends..

Yeah. I mean, on cost of goods, specifically, the two things that impacted – the reason why it's higher is that it's largely related to technology expense increase in the quarter, as well as the negative impact of foreign exchange. And then we had some offsets from cost savings. But those are the primary drivers there.

Commission rates were relatively flat year-over-year in the quarter, and that continues to be the case and in line with our expectations. So it was really driven by these other factors..

Okay.

So, over time, you should see some gross margin expansion?.

Well, we'll be at around 20% overall margins this year, and that's still consistent with our outlook..

Okay. And with regard to cash flow from operations, noticed it was kind of flattish year-on-year, maybe some growth in other assets or working cap.

Can you just elaborate a little bit on what's going on there?.

Yeah. I mean, it's just a result of – I mean, we have lower net income, but then we have some positives in net working capital side. So, we're relatively flat overall. So, nothing special there going on in operating cash flow..

Okay. And would expect those trends to just sort of normalize as the year goes on..

I mean, our outlook for cash flow – operating cash flow is around $1 billion, so it should follow a similar kind of pattern that we've had historically. So there's nothing really special there to call out..

Okay. And then one last one, I know account-to-account is a pretty important growth thrust for Western Union. And I heard you mentioned it, Hikmet, can you talk a little bit about on how we might see account-to-account really kind of play out as a potential long-term revenue driver..

I think there is opportunity. The reason I'm mentioning is that more financial institutions are also start to use our platform because of offering their customers capability on compliance, on technology, on settlement, on multi-currency payout. So, walk in a small financial institution somewhere in the U.S.

saying that I want to send money to Nigeria, we can able that, right. I mean, it's hard for them – others. So, they are using us as partners. And that goes – that starts to be more not only on the retail side being cash-in, start to be account-to-account. So, the funds in, coming from an account then going to an account somewhere in the world.

Recently, we are seeing very strong growth in India. Westernunion.com transactions – billed transactions through an account is growing very well.

Or – and a recent example, there is very – you know it is our bKash model, and it's kind of mobile wallet in Bangladesh, which you can send, it's like you can see that there's an account where you can send money to a bKash account mobile wallet. That was a cooperation between BRAC Bank, MasterCard, and us, bKash together.

So, I see there are growth opportunities for us to grow that. And our goal is – we have more than 1 billion accounts now globally; our goal is expanding that – also reaching out to new customers and being more in more countries with our account network..

Would you anticipate that we could think about that perhaps moving the needle at some point for Western Union in the back half of 2016 or 2017 or did it have a longer tail on it?.

It's early to call it. Probably, I'll give – I can give you more color next year about that. But I would say that I see it as a growth opportunity and I will leave it here for now because it's too early to give you a direction here..

Okay. Thanks a lot..

And the next question comes from Matt O'Neill of Autonomous Research..

Good afternoon, guys. I was hoping you could just help us think about the C2C transaction growth rate, broadly speaking, particularly in the quarter considering the extra day benefit or probably what is roughly a percentage point from leap year and just how you guys think about that metric going forward for the rest of the year? Thanks..

Yeah, Matt. The transaction growth was 3%, which is consistent with the fourth quarter. The leap year probably helped us a little bit but we also had a negative impact from the Easter holiday which fell into the first quarter this year versus second quarter last year.

So, there's probably some offset to that and that doesn't change our overall outlook for the year. We haven't given a transaction growth outlook for the year but our revenue growth is low to mid-single-digits. And it's just reflective of the things that we're seeing around the world. We have some pockets of strengths and some of pockets of weakness.

And some of the differential that you saw between revenue growth and transaction growth in the first quarter was related to Argentina, where the transaction growth continued but revenue growth fell off a little bit. So, that's really what we're seeing..

Okay. Thank you..

And then the next question comes from Rayna Kumar of Evercore ISI..

Good evening.

Do you intend to bid for a Walmart cross-border contract now that Walmart has gone non-inclusive with MoneyGram?.

Well, as you can imagine, I won't give any details on our negotiations or any potential partners or any market environment. Look, we've been doing that for years. We're going to expand our capabilities to get any partners within our terms, which has to be – fit in, in our strategy, which has to serve our customers.

It could be Walmart, it could be someone else, but it has to fit in with our business strategy and within our guidance. That would be my answer..

Okay. Got it. And one last follow-up.

When will the board next meet to discuss an update to your dividend policy and what do you expect the board to decide?.

Well, our board meets on a regular basis and I won't call out exactly when they discuss specific topics. But as you know, dividend payout for us is a key, important part of our overall capital return, Rayna. We're paying a – we have a payout ratio of in the high-30% range. We are paying back almost – or more than $300 million a year in dividends.

So, it's going to continue to be a key important part of our overall capital return strategy..

Thank you..

Sure..

Thanks, Rayna..

And next, we have David Scharf from JMP..

Hi. Thanks for taking the question..

Hi, David..

Hey, first, I might have missed it, Raj, but I believe you made reference to a little bit of a benefit from expense timing in the quarter.

What did that refer to, and should we expect that to show up in the second quarter?.

Yeah. I mean, there is always going to be expense timing from year-to-year versus what we had planned for, so you'll see it sometime during this year. But our outlook for margins are around 20% and that has not changed for the full-year. So, there is some variability in timing of certain expenses and that's all I was referring to..

Okay. It was nothing specific. Got it. Secondly, can you just remind me, of the roughly $1 billion of cash from ops, maybe around $830 million, $850 million of free cash flow, how much is generated in the U.S.

in that forecast?.

Well, we generally have about 25% of our cash flow available to us in the U.S. through our normal repatriation that we do and about 75% outside the U.S..

Okay.

And that mix isn't expected to be any different this year?.

I mean, it's going to vary a little bit year-to-year but that's the general mix..

Got it. And just lastly, a bit of an open-ended question that will maybe put you in the spot a little, but you've obviously provided a lot of detail on your plans and the developments of wu.com mobile initiatives and the like.

Just wondering, in your opinion right now as you look at the competitive landscape, what do you think is the most formidable new technology or offering out there in the industry that obviously – that Western Union doesn't own?.

Mobile, mobile, mobile, right? I mean the use case – the customers tell us that they want to use their mobile while they walk to an underground and send money to Mexico, or while they are sitting in a meeting they want to use their iPad and send money to England.

So that's what we have to upgrade our mobile applications on their Android or on their Apple devices. I think that's something – and I believe that we are really seeing – looking at the numbers and comparing it with the competition and comparing with our prices, we are really leading the industry here.

And the team in San Francisco and my team is doing a good job. There will be always a competition on the – technical competition on the corridor by corridor. I recently was in Copenhagen at Money20/20. There are a lot of FinTech companies coming with ideas, but nobody can really offer the end-to-end solution.

No one of them can say that, okay, you can send money from 36 countries on many mobile apps to 200 countries and pick up the money in minutes and do the compliance and pay out in 131 currencies and to a good price. So that's definitely the technology. We are looking at it. That's definitely the way we are investing.

That's definitely the way we are upgrading our technologies..

Got it. It doesn't sound like any particular vendor out there springs to mind in terms of....

I don't see it. I don't see it. I just was – I did, again, a market tour with my team, I don't see it yet there something. So we are – so it's not only the technology only, it's also the end-to-end process. As I said, it's the regulatory environment. It's a complex business.

It's being a global, having the brands, all these things got together and packaging in a way that customer feels simple from sending money from a mobile phone to 200 countries..

Got it. Thank you..

Thank you..

Laura, we'll take one more question?.

All right. That final question will come from Alex Veytsman of Monness, Crespi, Hardt..

Yes. Hi, guys. A quick question on North America. Could you discuss the trend you expect for the rest of the year? It looks like Q1 was strong driven by Mexico and Latin America.

Could you expect similar outbound trends to continue?.

All right. North America, we've seen – I mean, this has continued from last year, we've seen good trends to Mexico and to Latin America. And then the DMT business, we saw a flat revenue growth. The North American business by all indications should continue to perform well.

I can't give you a specific number, but we continue to see good growth in the North American market at least for this year..

Sounds good. Thank you..

Sure..

Okay. Thanks, everyone, for joining us and we wish you a good evening..

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