Q4 2017 Western Union Co Earnings Call

ENGLEWOOD Feb 16, 2018 (Thomson StreetEvents) -- Edited Transcript of Western Union Co earnings conference call or presentation Tuesday, February 13, 2018 at 9:30:00pm GMT

TEXT version of Transcript

Corporate Participants

   * Hikmet Ersek

      The Western Union Company - CEO, President & Director

   * Michael A. Salop

      The Western Union Company - SVP of IR

   * Rajesh K. Agrawal

      The Western Union Company - Executive VP & CFO

Conference Call Participants

   * Ashwin Vassant Shirvaikar

      Citigroup Inc, Research Division - Director and U.S. Computer and Business Services Analyst

   * Bryan Keane

      Deutsche Bank AG, Research Division - Research Analyst

   * Danyal Hussain

      Morgan Stanley, Research Division - Equity Analyst

   * Darrin David Peller

      Barclays PLC, Research Division - MD

   * James Eric Friedman

      Susquehanna Financial Group, LLLP, Research Division - Senior Analyst

   * Jason Alan Kupferberg

      BofA Merrill Lynch, Research Division - MD in US Equity Research & Senior Analyst

   * Lara Arielle Fourman

      Goldman Sachs Group Inc., Research Division - Associate

   * Rayna Kumar

      Evercore ISI, Research Division - Research Analyst

   * Robert Paul Napoli

      William Blair & Company L.L.C., Research Division - Partner and Co-Group Head of Financial Services & Technology

   * Tien-tsin Huang

      JP Morgan Chase & Co, Research Division - Senior Analyst

Presentation

Operator [1]

 Good day, and welcome to the Western Union Fourth Quarter 2017 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.

 Michael A. Salop, The Western Union Company - SVP of IR [2]

 Thank you. On today's call, we will discuss the company's 2017 fourth quarter results and the 2018 financial outlook, and then we'll 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 the 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 2016 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 measure 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.

 Hikmet Ersek, The Western Union Company - CEO, President & Director [3]

 Thank you, Mike, and good afternoon, everyone. I am pleased with our fourth quarter results as revenue growth accelerated to 5% or 4% in constant currency terms driven by improved trends in our consumer money transfer business. Performance was led by our digital business with westernunion.com money transfer revenues increasing 22% in the quarter and representing 10% of overall Consumer-to-Consumer revenues.

 Regionally, sends from Latin America and North America drove the consumer growth but we also start to see improved performance from the oil-producing countries of the Middle East and Africa.

 Our payment businesses were mixed with good double-digit growth, again, from our Speedpay and Pago Facil bill payment businesses, partially offset by poor performance from Business Solutions which led to a goodwill impairment charge.

 Looking back on our full year, while 2017 GAAP net income was impacted by the Tax Act and goodwill impairment, our business remains resilient and performance overall was solid. We delivered 3% constant currency revenue growth, approximately 20% margins on an adjusted basis and adjusted earnings per share of $1.80 exceeding our initial outlook at the beginning of last year.

 We successfully rolled out our WU Way business transformation, achieving $25 million of savings and changing the way we work to enable operating efficiencies that can fuel future growth. And we are able to generate strong cash flow and return over $800 million to shareholders.

 Strategically, we remain focused on leveraging our cross-border capabilities and reinvesting efficiencies to accelerate growth in the future. In addition to our distribution network and brands, we have a combination of key pillars that differentiates us and continues to put us on a strong position in cross-border money movement. These pillars provide a strong and unique platform with advanced technology, compliance infrastructure, global licenses, regulatory relationships and settlement and FX capabilities. This gives us the opportunity to process and drive more global funds and transactions through our platform by acquiring additional and incremental consumers, financial institutions and global businesses.

 In consumer money transfer, we believe digital will continue to be the growth driver and our resources are focused on digital expansion, more westernunion.com countries, more mobile, more digital partnerships and more products and services.

 At retail, we are continuing to invest in customer experience, including providing digital services to retail customers such as stage-and-pay through mobile. We are also utilizing WU Way and lean processes to minimize customer pain points and optimize experiences throughout our money transfer business.

 In Business Solutions and bill payments, we are implementing new go-to-market strategies continuing to leverage our digital platforms, maximizing digital self-service, making additional tech enhancements and driving operating efficiencies. We believe our unique platform also allows us to serve additional cross-border payment opportunities.

 Now as we look to 2018, our financial outlook reflects our expectations for a stable environment. We believe we will continue to drive good growth from our cross-border, cross-currency global business, led by our digital channels, although we do expect declines in our U.S. domestic money transfer business. The U.S. domestic business, which represented 7% of total company revenues in 2017, experienced softening transaction trends in the back half of the year and it's likely being affected to some degree by free P2P services in the market.

 The cross-border environment, however, remains stable and we again do not expect significant pricing moves this year. In 2017, we had net price increases in C2C after flat average pricing the prior 2 years. We continue to expect good growth from our bill payments businesses.

 Overall in 2018, we expect low to mid-single digit revenue growth and approximately 20% operating margin with stable trends in pricing, commission rates and compliance spending.

 So to summarize, we ended 2017 on a positive note with improved revenue trends in the fourth quarter and overall business performance for the year exceeded our expectations. We implemented the WU Way business transformation process and mapped our strategies to drive accelerated growth in the future. We were again able to deliver strong capital allocation to our shareholders, and we are very pleased to announce a 9% increase in our quarterly dividend. We feel good about our cross-border capabilities and strategies and look forward to continuing to execute against them to drive good results and future growth. Now I would like to turn the call over to Raj to discuss the fourth quarter results and full year outlook for 2018 in more detail.

 Rajesh K. Agrawal, The Western Union Company - Executive VP & CFO [4]

 Thank you, Hikmet. As I review 2017 financial results, I will focus primarily on the fourth quarter, but similar information for the full year can be found in our press release and attached financial schedules.

 Fourth quarter reported revenues of $1.4 billion increased 5% compared to the prior year period, or 4% on a constant currency basis. Currency translation, net of the impact from hedges, increased fourth quarter revenue by approximately $6 million compared to the prior year. In the Consumer-to-Consumer segment, which represented 80% of the company revenues in the quarter, revenues also increased 5% on a reported basis, or 4% constant currency. Transactions grew 3% driven by growth in westernunion.com.

 Total C2C cross-border principal increased 6% or 4% on a constant currency basis. Principal for transaction increased 3% and was flat constant currency. The spread between C2C transaction growth and revenue growth in the quarter was 2%, with a positive 1% impact from currency.

 Mix was neutral in the quarter while pricing had a positive impact of 1% compared to the prior year period.

 Turning to the regional results for the quarter, I will be referring to constant currency movements as I discuss individual country contributions to the region's results. North America revenue increased 3% on both a reported and constant currency basis, while transactions grew 1%. In the quarter, strong growth in U.S. outbound business to the Latin American and Caribbean countries, India and Africa was partially offset by declines in the U.S. domestic and U.S. to Mexico businesses. In the Europe and CIS region, revenue increased 6%, or 2% on a constant currency basis, while growth led -- was led by France. Transactions in the region increased 7%.

 Revenue trends in the Middle East, Africa and South Asia region turned positive in the quarter benefiting from improved results in oil-producing countries including Saudi Arabia. Revenue in the region increased 1% on a reported basis where it was flat constant currency, while transactions were down 2%. Total inbound business to India from all regions grew 7% in the quarter, an improvement after 4 quarters of declines following the government's demonetization program implemented in November of 2016.

 The Latin America and Caribbean region continued to deliver strong revenue growth with an increase of 21% in the quarter or 23% constant currency, driven by Argentina and several other South American markets. Transactions grew 17%.

 In the APAC region, revenue was flat on a reported and constant currency basis while transactions increased 3%.

 westernunion.com C2C continued its strong performance. As reported in constant currency, revenue each grew 22% with transactions also increasing 22%. westernunion.com represented 10% of total C2C revenue in the quarter.

 Business Solutions revenues declined 4%, or 8% on a constant currency basis, and represented 6% of company revenues in the quarter. Revenues were negatively impacted by declines in sales of our hedging products and overall poor performance in Europe, particularly in the U.K., although we continue to see good growth in the education vertical.

 Other revenues, which consists primarily of our bill payments businesses, increased 11% in the fourth quarter, or 14% on a constant currency basis. Other revenue growth was driven by Speedpay, electronic bill payments in the U.S. and the Pago Facil walk-in business in Argentina, and represented 14% of total company revenues in the quarter.

 Turning to margins and profitability. Our consolidated GAAP results reflect some significant special items that we have again provided adjusted metrics to better reflect the ongoing fundamentals of the business. The adjusted metrics exclude the impacts of the Tax Act, the noncash goodwill impairment charge related to Business Solutions, WU Way business transformation expenses and certain federal and state government settlement expenses. I will mention the impact of these items in my remarks but I refer you to our press release tables for a detailed listing of the adjustment items for the quarter and the year.

 The noncash goodwill impairment charge related to Business Solutions was $464 million pretax. The fair value revaluation resulted primarily from recent Business Solutions revenue and profit performance and the impact of the Tax Act. As a result of the charge, GAAP operating profit and margin in the quarter were negative. Adjusted operating margin of 17.9% in the quarter compared to 19.7% in the prior year. The decline was primarily due to incremental marketing spend and the negative impact of foreign exchange. Currency negatively impacted operating profit in the quarter by approximately $13 million compared to the prior year period. Foreign exchange hedges in the fourth quarter had a negative impact of $7 million due to the strengthening of the euro and other key currencies which compared to a benefit of $10 million in the year-ago quarter. For the full year, hedge benefits were approximately $5 million compared to a benefit of $48 million in 2016.

 WU Way expenses were $35 million in the quarter and $94 million for the full year, with about 90% of full year spending attributable to severance and consulting fees. We achieved approximately $13 million of savings from the WU Way initiatives in the quarter which resulted in a total of $25 million of savings for the full year.

 Compliance expense was 3.8% of revenue in the fourth quarter and 3.6% for the full year. Excluding the previously mentioned adjustment items, EBITDA margin of 22.5% in the quarter compared to 24.5% in the prior year period. Tax expense in the quarter included an estimated incremental expense of $828 million related to the U.S. Tax Act. The adjusted tax rate was 14% in the quarter compared to 7% in the prior year period. The incremental Tax Act expense was primarily due to taxes on certain of the company's previously undistributed foreign earnings, partially offset by benefits from the remeasurement of U.S. deferred tax assets and liabilities and other tax balances.

 The company's 2017 U.S. federal tax cash liability, including the effects of the Tax Act in other company income and tax attributes, is estimated at $780 million and will be payable over the next 8 years with 8% per year payable in years 1 through 5, 15% in year 6, 20% in year 7 and 25% in year 8. Due to the complexities and uncertain interpretations of many aspects of the Tax Act, certain of the 2017 impacts have been provisionally estimated and additional effects may be recorded in 2018 in accordance with SEC guidance. We currently expect our tax rate in 2018 to be between 15% and 16%. The Tax Act's BEAT or base erosion provisions on U.S. payments made to foreign affiliates may result in a higher rate for us in 2019, but we are still evaluating interpretations as well as working on possible mitigating actions, so this -- it is difficult to predict the precise impact at this stage.

 We will benefit from tax reform in relation to efficient long-term access to our foreign cash as U.S. taxes on future foreign earnings will no longer be tied to repatriation. We do not expect the Tax Act to significantly impact our capital allocation plan in the next several years.

 The incremental Tax Act expense and the goodwill impairment charge negatively impacted earnings per share in the fourth quarter, resulting in a GAAP loss per share of $2.44 which compared to a loss of $0.73 in the prior year period. The prior year period was impacted by our joint settlement agreements with federal and state governments. Adjusted earnings per share was $0.41 in the quarter, which compared to $0.47 in the fourth quarter of last year.

 Turning to the segment and other margins. The goodwill impairment and other adjustments are excluded from segment operating results. The C2C margin was 21.4% which compared to 22.8% in the prior year period. The margin decrease was due to increased marketing spending and the negative impact of foreign exchange, partially offset by lower average commission rate and lower technology expense.

 Business Solutions operating margin was negative 3.2% in the quarter compared to positive 9.7% in the prior year period. The decline was due to lower revenues and higher technology and other operating expenses. Depreciation and amortization for Business Solutions was approximately $11 million in the current quarter compared to $12 million in the prior year period. The Business Solutions EBITDA margin was 8% which compared to 21.8% in the fourth quarter of 2016. Operating margin for the businesses included in other revenues was 7.8% in the quarter which compared to 6.6% in prior year period. The year-over-year margin improvement was driven by revenue growth, which is partially offset by the negative impact of foreign exchange.

 Turning to our cash flow and balance sheet. Cash flow from operating activities was $736 million for the full year. This includes outflows of approximately $600 million from payments related to the settlement with federal and state government and $77 million of WU Way's spending, partially offset by associated tax benefits.

 Capital expenditures were approximately $55 million in the quarter.

 At the end of the quarter, we had debt of $3 billion and cash of $838 million, with approximately 25% of the cash held by U.S. entities. In December, we retired $500 million of 2.875% maturing notes. We returned $92 million to shareholders in the quarter consisting of $80 million in dividends and $12 million of share repurchases, which represented 611,000 shares. The outstanding share count at quarter-end was 459 million shares and we had $943 million remaining under our share repurchase authorization which expires December 31, 2019.

 Turning to our outlook. We expect solid business performance in 2018 with minimal net impact from foreign exchange and stable pricing. As a result, revenue growth is expected to be in a range of a low to mid-single-digit increase this year, both on a reported and constant currency basis. Operating margin is expected to remain at approximately 20% as we plan to reinvest in growth initiatives to accelerate the top line in future years. We continue to expect to generate incremental savings of approximately $25 million from WU Way transformation initiatives this year which, when combined with the 2017 savings, would equate to a run rate of $50 million a year.

 As previously mentioned, the effective tax rate in 2018 is estimated to be approximately 15% to 16%, with the increase from last year's adjusted rate of 13% primarily due to discrete benefits recognized in 2017.

 We expect full year earnings per share in a range of $1.78 to $1.90. Cash flow from operating activities is projected to be approximately $800 million in 2018, which is net of approximately $200 million of outflows from the combination of anticipated final tax payments related to the IRS agreement from 2011, the New York Department of Financial Services settlement payment and WU Way payments related to 2017 expenses.

 So to summarize, we are pleased with the solid business performance in the quarter, delivery on our full year adjusted financial outlook, and our strong cash flow generation and allocation to shareholders while we continue to implement our strategies to accelerate growth. We expect stable business and solid margins in 2018 and continued strong allocation to shareholders. Operator, we are now ready to take questions.

Questions and Answers

Operator [1]

 (Operator Instructions) The first question comes from Tien-tsin Huang of JPMorgan.

 Tien-tsin Huang, JP Morgan Chase & Co, Research Division - Senior Analyst [2]

 Good to see the acceleration in the C2C business, so I'll ask there. Just on the digital side, I'm curious, how are the margins performing for digital? I know it's 10% of revenues now. And is the 20% growth sustainable, in your views, in 2018?

 Hikmet Ersek, The Western Union Company - CEO, President & Director [3]

 Yes. Tien-tsin. First of all, we are pleased with our performance, overall, I would say, especially driven by the digital, as you had mentioned. Last quarter, 20% growth plus 20% growth, and we are quite -- we are only in 40 countries, and the growth is still coming mainly from the countries which we've been longer existing. In the new countries, they're small, not adding too much to the absolute numbers, but growing very strong. And as you know, we want to be in 200 countries with our westernunion.com delivering to 200 countries. So today, we are sending money from 40 countries to 200 countries, and that's going to expand, obviously, That's what Khalid and the team with Odilon are doing very fast, and we are really picking up the main corridors where we can compete and we can really grow strong. So I'm quite optimistic. On the margin side, I think that's really good margins going -- obviously, we are still in an investment mode. We are still in the marketing. Our main focus is in growth, but we are very pleased also with the margin side and the dotcom side.

 Tien-tsin Huang, JP Morgan Chase & Co, Research Division - Senior Analyst [4]

 Okay, good. And then on the -- I guess the only sort of weight maybe in C2C sounded like it was domestic. I know you gave -- you shared some numbers there, but how much of an impact did that have on C2C revenue? And what's the outlook, or maybe the strategy to turn that around?

 Hikmet Ersek, The Western Union Company - CEO, President & Director [5]

 Yes. I think, as you know, just putting things in perspective, there's only 7% of our C2C revenues is domestic, and domestic money transfer is still the use cases. It's still immediate cash payout at our location, 50,000 locations. Also, send using mobile, sending cash payout or using cash to cash, retail money transfer. We do see some impact with 0 fee like Zelle or Venmo. On that part, we do see some impact on our business and it's hard to compete with 0 fee, obviously. But we do have still use cases. People are still using us to pay out immediate cash when they want cash. It's a different customer than having P2P customers.

 Rajesh K. Agrawal, The Western Union Company - Executive VP & CFO [6]

 I mean, we saw some declines there, Tien-tsin. Just to give you some metrics, and it was 9% of C2C revenues in the last quarter. And a year ago, it was at 10% of C2C revenues. So a little bit of a decline, but it's manageable given the size that it is.

 Tien-tsin Huang, JP Morgan Chase & Co, Research Division - Senior Analyst [7]

 Got you. Then maybe just one last quick one just on the WU Way front. Just curious, do you expect that to have any revenue impact in 2018? I caught the $25 million incremental -- sounds consistent, but do you see any kind of revenue lift potential, potentially...

 Rajesh K. Agrawal, The Western Union Company - Executive VP & CFO [8]

 Yes, I mean, the revenue lift is going to be over time, obviously. We're investing now -- but in various areas including digital. Digital is where we would see more of the revenue lift in the short term.

 Hikmet Ersek, The Western Union Company - CEO, President & Director [9]

 I think Raj, remember, we do also invest in customer experience on the WU Way. It's a different way of go to market with customer experience. The team is doing different things like our stage-and-pay transaction at Walgreens locations where you really do stage your transaction on your mobile, you go and pay in cash. That's a good growth. We call it air transactions. That's going -- doing pretty well. So it's done by a WU Way initiative. We're really looking at then processes going with the lean management tools to the market.

Operator [10]

 The next question comes from Jason Kupferberg of Bank of America Merrill Lynch.

 Jason Alan Kupferberg, BofA Merrill Lynch, Research Division - MD in US Equity Research & Senior Analyst [11]

 I wanted to see if you can just walk us through some of your segment level assumptions for revenue in 2018 between C2C, B2B and C2B. I know B2B, obviously, is having some challenges. I just want to make sure that we get the pieces right here.

 Rajesh K. Agrawal, The Western Union Company - Executive VP & CFO [12]

 Yes. I mean, we're assuming similar to slightly improving trends in some of the areas, obviously, and that's why we've given a low to mid-single-digit type of growth. Our consumer business overall grew 3% last year. And on a constant currency basis, that includes mid-20s-type growth in digital. So that's the kind of range that we would have assumed. B2B, we've assumed better growth than we had last year. Last year, we were down by 3% in the B2B business. So that should improve this year. We're driving a lot of activities to change the sales model in that business. Our bill payments businesses had very strong growth last year, and so that's something we're keenly focused on. That was driven by Speedpay, and then, obviously, Pago Facil as well. And so if those businesses do better than what we saw last year, then we have the potential to be at the higher end of our range. But we've given a range of low to mid-single digits, just accommodating. Obviously, DMT, we mentioned that we expect that to continue to decline this year, and then we've done a little bit of pricing in U.S. to Mexico just on the FX spread side. So we'll have to see how some of those things play out, Jason.

 Hikmet Ersek, The Western Union Company - CEO, President & Director [13]

 Generally, we expect also, Jason, stable pricing. And I think we continue to see that in 2017 -- '18, sorry. '18.

 Jason Alan Kupferberg, BofA Merrill Lynch, Research Division - MD in US Equity Research & Senior Analyst [14]

 Yes. And maybe just on the strategic side, can you walk us through your perspective on some of the blockchain-related initiatives? Obviously, you guys are working with some companies in that space, and just talk about how you see blockchain getting integrated into your business. And maybe give us a sense of what sort of time frame over which that could happen and what some of the benefits could be.

 Hikmet Ersek, The Western Union Company - CEO, President & Director [15]

 Yes, Jason. Obviously, generally, as a financial institution, we do look at blockchain in general, and we've been doing that for a long -- some time, I would say. And we are looking especially in the processing settlement and working capital optimization, also in the regulations part, on the compliance part on the blockchain capabilities. And we do test -- we do have some tests with Ripple. And we did that in some corridors also. And Ripple one example. We also have on the cryptocurrencies, some investments on the digital currency group. And so it is definitely some part of our innovation we are looking. But so far, it's not something to report that we're going to change the environment. Our existing capability is very stable, as you can see from the -- our performance, but that's something that we're taking seriously and looking at it and testing.

 Jason Alan Kupferberg, BofA Merrill Lynch, Research Division - MD in US Equity Research & Senior Analyst [16]

 Okay. And just last quick one for me. I heard you say $800 million in operating cash flow for '18. I didn't hear the CapEx piece. We're just trying to get to a free cash flow number. And then what have you taken to the EPS guide for buybacks?

 Rajesh K. Agrawal, The Western Union Company - Executive VP & CFO [17]

 Yes. I mean, $800 million is the GAAP operating cash flow estimate. That includes $200 million of outflows for very special items, including the settlement with the IRS from 2011, more WU Way payments, and then the settlement with the NYDFS. So if you add those back in, it's a couple of hundred million higher. CapEx, I would expect it to be in the same type of range that we've seen in the last few years. 3% to 5% of revenues is where it's been. It may be towards the higher end of that range this year, just given some real estate and other requirements we have. And then your last question was around share buyback. Share buyback, we have 940 million left on the authorization, which is good for the next 2 years through 2019. And I would expect that we'll utilize most of that over the next 2 years, assuming we don't have any other strategic things that we're looking at, but that would be our base plan.

Operator [18]

 The next question comes from Darrin Peller of Barclays.

 Darrin David Peller, Barclays PLC, Research Division - MD [19]

 Let me just start pricing. Just pricing on the top -- the top line outlook, obviously, is calling for an acceleration, and I know FX is part of that. But we saw some benefit from pricing in the current quarter, as you said. I'm just curious, what -- you're saying (inaudible) can you repeat an element of pricing benefit versus transaction growth through the business mix perhaps once again in '18? Is that helping you drive to maybe that mid-single-digit number? Is that just currency? I mean I'd be curious to hear a little more on what's happening on the pricing environment first.

 Hikmet Ersek, The Western Union Company - CEO, President & Director [20]

 I think we'd see the pricing environment stable. And I think that as I mentioned several quarters earlier that on the stable -- the pricing environment has been stable because it's complex and it's caused some operational expense to do this business to operate in 200 countries. So it is hard to -- our operational model reflects our pricing in the market. We are still 15, about -- around 15, an average 15% more pricey than the other competitors, but has been stable. I don't see any changes here short term, if nothing -- something big thing happens, but I don't see those changes. The other thing is also I would say that on the -- we're going to continue to do pricing investment at certain corridors, but overall, the transaction trends has been also stable. It's not like on the pricing side, so the transaction has been also very stable and very strong growth on the dotcom side, on the digital side.

 Darrin David Peller, Barclays PLC, Research Division - MD [21]

 All right. That makes sense. Just one other question. When thinking about the margin profile and the outlook, again, you're showing some acceleration. It's low to mid-single digit for revenues. You also have the benefit of now hopefully seeing some of the impact of the WU Way initiatives in terms of coming at it. I know you adjusted out, but potentially making the business more efficient. I guess I'm just wondering in terms of margin expansion potential, you're calling for, I think, 20% again. I guess I just wonder what you're planning on investing in. What kind of growth rate on the top line you would actually need to get a more material amount of operating leverage in the business given the backdrop of acceleration.

 Rajesh K. Agrawal, The Western Union Company - Executive VP & CFO [22]

 Yes. And it's a very good question. We've given an outlook for low to mid-single-digit revenue growth this year. And ultimately, the level of margin will depend on where the actual growth level comes out, and we've said approximately 20%. So as we said before, it could be above, it could be below that, depending on where the revenue growth is. We need sustainable mid-single-digit growth at least to be able to get some leverage. We are investing back in the business this year. The most key area that we're investing is back in the digital expansion. We really want to be in 200 countries and territories as fast as we can, and that's going to be over the next few years. So that takes time and money to get there, channel expansion, not just geographies, but also more mobile, more accounts, those kinds of touch points. And then we're also continuing to invest in our technology area in things like information security, privacy, requirements, those kinds of things. So that's where the investment's going, but we absolutely have the potential to drive better profitability in the business if we continue to get sustained growth at the mid-single-digit level.

Operator [23]

 The next question comments from Bryan Keane of Deutsche Bank.

 Bryan Keane, Deutsche Bank AG, Research Division - Research Analyst [24]

 Just want to make sure I had it correct on the stronger growth rate in C2C and the money transfer business. I know it came in at like 4% constant currency. That's up quite a bit from 1% last quarter, constant currency. Is that mostly due to economic improvement worldwide? Because even the digital business is about the same growth rate it's been in the past. So I don't think it was a major driver.

 Rajesh K. Agrawal, The Western Union Company - Executive VP & CFO [25]

 Yes. The 2 key areas that helped the growth improve from the last quarter, Middle East, Africa and South Asia. So the trends, although they're still flattish, they improved dramatically from the third quarter. And we're getting the benefit of overall better performance in the oil markets, including Saudi Arabia which became positive in the quarter, and then India started to grow over from a year ago, the demonetization that happened. So that's a key driver. And then North America was slightly better as well given the strong U.S. outbound business. So those are the 2 key drivers, along with good growth overall in other parts of our business.

 Bryan Keane, Deutsche Bank AG, Research Division - Research Analyst [26]

 So it sounds like that should be pretty sustainable as we go into 2018, now that those comps have gotten easier.

 Rajesh K. Agrawal, The Western Union Company - Executive VP & CFO [27]

 Yes. I mean, from a comps standpoint, it will be good for the balance of the year. We would have to assume a stable environment in the oil markets. And so assuming a stable environment, that should be better. And then we're always looking at opportunities to drive more market share and other growth in our key markets.

 Bryan Keane, Deutsche Bank AG, Research Division - Research Analyst [28]

 Okay. And then the margins in the fourth quarter were below ours, and I think street estimate, but it sounds like you guys were expecting to spend a little extra on marketing. So is that true it kind of came in aligned to your expectations? And for modeling purposes, should we expect the fourth quarter this year to kind of match the lower margin that we saw in this quarter?

 Rajesh K. Agrawal, The Western Union Company - Executive VP & CFO [29]

 Yes. I mean, the fourth quarter of last year, we spent almost 5% of our revenues in our marketing. It was 4.9%, which is higher than it's been for some time. And it was largely timing from the first part of the year, and that's what we expected. We got to 20% operating margins for the full year which is what we had expected, and that's about what we're guiding. It's hard for me to tell you what to think about the fourth quarter of this year. It's really going to depend on how we roll out some of our programs. But we'll give you more color as we have it, as we move through the course of the year.

 Bryan Keane, Deutsche Bank AG, Research Division - Research Analyst [30]

 Okay, super. Then last question for me, Hikmet. I know you talked about the U.S. domestic transactions is going to be a little bit weaker due to P2P services. What's the risk that, that moves into cross-border P2P going forward?

 Hikmet Ersek, The Western Union Company - CEO, President & Director [31]

 I think I don't see that risk high. I mean, in certain quarters, it could happen, but I don't see that risk high because we've been doing that cross-border, cross currency. You need the licenses. You need, definitely, the compliance programs. You need the multicurrency settlement. All the platforms which differentiates us from others have been implemented with us. It's hard to duplicate. It's hard to rebuild it. And that's what we are advancing, and that's what we are really investing in. And some companies which have been doing this, like competitors been only in one country forever, they couldn't expand their services to other corridors because it's hard. It's hard to go to a country -- open a country and doing the services. It's hard to serve the customers in exotic currencies or minor currencies in minutes, dropping money in minutes. So that's our competitive advantage. That's what we are building on. That's the platform I'm talking all the time. So I think that it will be hard to have the P2P like 0 fee P2P to other countries to implement.

Operator [32]

 The next question comes from Ashwin Shirvaikar of Citi.

 Ashwin Vassant Shirvaikar, Citigroup Inc, Research Division - Director and U.S. Computer and Business Services Analyst [33]

 So a question on consumer behavior. Are you seeing any deviations from normal behavior due to changes in U.S. immigration rules? So for example, our checks saw that the send to El Salvador kind of grows after the ruling on El Salvador's [TPS]. I don't know if this is onetime in nature. Are you seeing the same kind of thing, particularly in your send on the U.S. to LATAM or Caribbean? And then I guess the flip side of it is, are you seeing higher send amount that are worth calling out as [indiscernible or things like that?

 Hikmet Ersek, The Western Union Company - CEO, President & Director [34]

 Let me -- so we don't see many -- I mean, we operate, obviously, in 40,000 corridors or whatever that is. We don't see many changes on the send side. If that's the question from customer behavior. Certain corridors, there will be always some behavior changes, depending on the regulatory environment, depending on the pricing, depending on the product. But generally, I would say that we don't see it. The second thing is also, you know what we see, Ashwin, is the digital -- on the digital side, the customers are still to our network. So it's still incremental. It's 80% of the customers still the number has not changed are really new to our westernunion.com. They didn't use the last -- at least the last 12 months, our services, and they are really new to our western union digital environment. That behavior is continuing. So with our digital environment, we are getting new customer segments. With retail, it's all about customer experience, keeping the customers within our network. Does that answer your question?

 Ashwin Vassant Shirvaikar, Citigroup Inc, Research Division - Director and U.S. Computer and Business Services Analyst [35]

 Yes. Now the follow-up question was -- I'm going to combine a couple of numbers-type questions. The tax rate for 2018, that's -- I guess, that's straightforward. I guess, looking ahead to past 2018, given that you kind of lost your ability to use some of this cash management strategy, can you sustain this 15% to 16% tax rate that you have in 2018 into the future? Or should we be looking at that a little differently?

 Rajesh K. Agrawal, The Western Union Company - Executive VP & CFO [36]

 Yes, just a little bit of background on the 15% to 16% this year. If you look at U.S. tax reform, we will benefit from the lower U.S. corporate rate of 21% on income. That is taxed at U.S. rates, or some part, F income. And then our foreign income, most of our foreign income will be taxed now at the minimum 10.5% rate. So the combination of those 2 things are giving us the 15% to 16% rate this year. There's a third piece, which is base erosion or BEAT, which you may have heard about. Which this year, it's not much of an impact to us. Next year, it goes from 5% this year to 10% next year, and that could have an impact of increase in the rate for us. We think there were unintended consequences of this. It effectively creates double taxation for a portion of our income. So we're looking for some kind of legislative solution to it that would help us and other companies or some kind of guidance, and then we're also looking at structurally addressing that potentially this year. So that has the potential to raise the rate by a few points there, Ashwin, if we're not able to solve any of it, but we're certainly working very hard this year to try to solve a portion or all of that.

Operator [37]

 The next question comes from Lara Fourman of Goldman Sachs.

 Lara Arielle Fourman, Goldman Sachs Group Inc., Research Division - Associate [38]

 I just wanted to go through some of the different corridors just in terms of the LATAM business. The send market has been consistently strong and over 20% growth. Is that something that you think you can continue in 2018?

 Rajesh K. Agrawal, The Western Union Company - Executive VP & CFO [39]

 Well, we're hopeful that it's going to continue. I think just look at it in terms of total C2C business. Latin America has been strong, driven by Argentina and Brazil and Chile. Even Mexico outbound has been doing fine, even a smaller piece. So we've gotten the benefit of some of the market changes that have been taking place -- have taken place there. So we're hopeful that we can continue some good growth there. I don't know if it will continue to be at the same level, but we're still hopeful of some good growth in that market.

 Lara Arielle Fourman, Goldman Sachs Group Inc., Research Division - Associate [40]

 And then for U.S. to Mexico, is the second quarter a continued weakness there? I think you mentioned some pricing changes? Could you give us any more color there?

 Rajesh K. Agrawal, The Western Union Company - Executive VP & CFO [41]

 Yes. I mean, transaction growth actually improved in the fourth quarter from the previous quarter, and our pricing, from a fee standpoint, has been quite competitive, but we did reduce some FX spreads in the market for U.S. to Mexico to try to grab some more share. And so that's where -- really, why you're seeing some revenue weakness there. Over the last few years, we've done a really good job of gaining more share in that corridor with our 30,000-plus locations in Mexico, the ability to pay into the majority of accounts there. So we're well positioned. The overall Mexico market, I would say, is also just softer given the environment that we're in.

 Hikmet Ersek, The Western Union Company - CEO, President & Director [42]

 I think over the years, we have been capturing good market share there. If you look at the last 3, 4 years, I think the team is doing a good job to grow this business.

 Lara Arielle Fourman, Goldman Sachs Group Inc., Research Division - Associate [43]

 Okay. And then just one question on compliance. I don't think you gave any guidance for 2018 in terms of where it falls into the long-term range. Any thoughts there?

 Rajesh K. Agrawal, The Western Union Company - Executive VP & CFO [44]

 Yes. Last year, we ended up at around 3.6% of revenues for compliance as a percent of revenues. This year, we expect a similar range. We're not going to give the outlook anymore on the compliance spend given it's become more stable now and it's part of our normal business. But I don't expect it to change materially this year.

Operator [45]

 The next question comes from Danyal Hussain of Morgan Stanley.

 Danyal Hussain, Morgan Stanley, Research Division - Equity Analyst [46]

 Just to clarify the base erosion. Is it as simple as 5 incremental percentage points to the tax rate for 20% to 21% for 2019? And then besides legislation, are there -- were there other operational offsets that you think you might be able to implement?

 Rajesh K. Agrawal, The Western Union Company - Executive VP & CFO [47]

 Yes. On base erosion, I wish it were as simple as just adding the 5 points. It's complex. Basically, base erosion taxes U.S. payments to foreign affiliates, and there are complex formulas that you have to work through. But it's worth a few points to us, so it's absolutely a key focus for us to try to solve that internally. And then the 15% to 16% rate for this year really takes into account all the other puts and takes in tax reform. It ends up not being a significant impact to us this year overall, but it is reflective of everything that we know other than the base erosion provisions that may impact us more next year.

 Danyal Hussain, Morgan Stanley, Research Division - Equity Analyst [48]

 Okay, perfect. And then I apologize if you covered this. You did mention the hedge gains, but were you expecting a meaningful margin impact from hedge losses this year that would potentially fall off in 2019?

 Rajesh K. Agrawal, The Western Union Company - Executive VP & CFO [49]

 I mean, we've had a negative impact from the hedges all year on the margin and we don't expect a significant impact from currency overall. There are some impacts from hedges. There's impact of stronger foreign currency that helps to offset that. But when you net it all out, there's not going to be a significant impact from currency in 2018. We are expecting a little bit of a loss on our hedges this year just given where our currency rates are, but that's more than offset by the strength of foreign currencies against the dollar on our overall revenues and profits.

Operator [50]

 The next question comes from James Friedman of Susquehanna.

 James Eric Friedman, Susquehanna Financial Group, LLLP, Research Division - Senior Analyst [51]

 It's Jamie of Susquehanna. I wanted to ask you about -- I realize it's more of a journey than a destination. But with regard to India, does it feel like we've turned a corner there?

 Rajesh K. Agrawal, The Western Union Company - Executive VP & CFO [52]

 You broke up at the last part. Something about India, Jamie?

 James Eric Friedman, Susquehanna Financial Group, LLLP, Research Division - Senior Analyst [53]

 Oh, sorry. I was asking with regard to India, does it feel like we've turned a corner there at this point?

 Hikmet Ersek, The Western Union Company - CEO, President & Director [54]

 Well, India, I think, India, as you know, many strong corridors to India is from U.S. U.S. to India, Europe to India and from Middle East to India. Definitely, oil-producing countries have been showing improvement, including Saudi Arabia, which is an extremely strong corridor to India. And also, demonetization means that we are -- that was last year, quarter 4, and we over -- it's a grow over there. Also, That helps. And our business in India, we are very pleased. And we also have a lot of India to account growing very strong. As you know, we have over 100,000 locations in India, plus we have millions of accounts in India which people are choosing now, sending either to a location or an account, and we do see us a little bit better principal amount here and using the online sending, dropping money on an account. So the India performance has been very good for us.

 James Eric Friedman, Susquehanna Financial Group, LLLP, Research Division - Senior Analyst [55]

 Okay. And I just wanted to follow up with regard to crypto. I heard your answer earlier, Hikmet, but we get a lot of questions about that. If you could give us some sense of where we are, in your perspective, in the life cycle of crypto applications in money transfer? I mean, is it a technology looking for a business? Or do you see real use cases here?

 Hikmet Ersek, The Western Union Company - CEO, President & Director [56]

 Well, first of all, we have to differentiate between cryptocurrency and blockchain, obviously, right? And then blockchain is definitely something interesting as an application, which we may use it in several parts. As I mentioned earlier, is it the regulatory technology or digitally identifying? Or is it the settlement? And we do, with Ripple, do some tests with some corridors on the settlement side. Is it dollar to pesos. Or on that side, can we use that on a real-time blockchain environment? And so this is the tests that we are using on that. On the cryptocurrency side, look, currency is currency, right? I think the big advantage of Western Union globally is that we turn any currency to use cases. So we really turn an ordinary currency so people really can use the currency to their own day-to-day expenses or day-to-day use cases. And if digital currencies are ordinary currency which is used by a country, then we could do it. But it's hard to do a carwash with a Bitcoin or go buy milk or go pay school fees with a Bitcoin in Bangladesh or in Ghana or in Chile. So I think that's the environment. Then other thing is also, look, we are a regulated environment. That's one of our strongest asset, that we are regulated in 200 countries and we respond to the regulated environment. We do have the compliance programs for 40,000 corridors. And within that environment, with the Reserve Bank together, we apply our regulatory -- our operations to the regulatory environments. So it's important for us that this currency should be regulated, and so we can really serve the customers in the right way.

Operator [57]

 The next question comes from Rayna Kumar of Evercore ISI.

 Rayna Kumar, Evercore ISI, Research Division - Research Analyst [58]

 It's good to see the strong growth in India. I'm just wondering if you've seen any changes in competitive environment just given one of your largest competitors is making a big push in the region.

 Hikmet Ersek, The Western Union Company - CEO, President & Director [59]

 Well, in India, I think generally, it's always where to send money from which corridor to where. The biggest advantage of Western Union is that we are in 200 countries with 500,000 locations-plus with our 40 outbound -- online outbound countries. So if you want, you send the money with Western Union. It stays in the system so we can distribute to 100,000 locations and to our more than 600 million or 700 million accounts in India in minutes. And that's the biggest advantage we have. We feel quite competitive in India, as you can see from our recent reports that our India business is doing well. And definitely, there is the competitors like Ria or MoneyGram are in the market, but that has been in other markets also. The big advantage of Western Union is that we are in many corridors and we are really in many portfolios and we're serving the Indian customers.

 Rayna Kumar, Evercore ISI, Research Division - Research Analyst [60]

 That's very helpful. Could you discuss your commission expense outlook for 2018?

 Hikmet Ersek, The Western Union Company - CEO, President & Director [61]

 I think commissions has been quite stable. Agents like us, we like the agents. And the business model works pretty well to prices and commissions which is very related to each other, obviously, has been very, very stable. If you look at that also over the years, the commission rates have been declining. It helps also in our productivity, and that is also part of that mix. Obviously, mix corridors also helped us to drive the commission rates down, but the agents have been very cooperative with us and that has been a good environment.

 Rajesh K. Agrawal, The Western Union Company - Executive VP & CFO [62]

 The other thing, the digital business growth that we're getting is helping the overall mix. There are multiple different mix impacts. So because we only pay commissions on one side of that transaction, that certainly helps the commissions. But then we also have to look at the overall distribution cost and minimize funding cost in the dot.com business. So there's various mix impacts that are helping as well.

 Rayna Kumar, Evercore ISI, Research Division - Research Analyst [63]

 Got it. I noticed your cross-border principal accelerated to 4% in constant currency in the quarter. What were the drivers of that? And is that sustainable this year?

 Rajesh K. Agrawal, The Western Union Company - Executive VP & CFO [64]

 Yes. I mean, the improvement that we saw in some of the key regions, the Middle East, Africa, South Asia region, that's one of the key drivers of the improvement of principal growth, cross-border principal. And over the last couple of years, you've seen our cross-border principal has been somewhat negative due to that region's performance. So now that we've had a little bit better performance, that's also helping us from a cross-border principal standpoint. And this year, the World Bank estimates for last year at least were for around 3.9% growth, and we grew around 3%. So we'll see. I think the World Bank may continue to revise its outlook, as it always does. So we'll have to see what ultimately comes up.

 Hikmet Ersek, The Western Union Company - CEO, President & Director [65]

 The only thing I would like to add is that principal is good. Also, revenue growth is very important for us, profitable revenue growth. So that has been very -- I'm very pleased with the performance of the team there, and that's something to keep an eye also.

Operator [66]

 The last question will come from Bob Napoli of William Blair.

 Robert Paul Napoli, William Blair & Company L.L.C., Research Division - Partner and Co-Group Head of Financial Services & Technology [67]

 The B2B business, as you pointed out, decelerated quite a bit in the fourth quarter, down 3% for the year. And I think you suggested -- you guys have suggested that it was going to be better than the down 3% in -- or at least in your forecast in 2018. Given the deceleration in the fourth quarter, what is going to turn that around quick enough to get back in the range of better than down 3%?

 Hikmet Ersek, The Western Union Company - CEO, President & Director [68]

 Good question, Bob. I think what we are trying to achieve here is definitely our sales approach getting new clients. New client acquisition has been a little bit slow in 2017. We do see good revenue growth on our payments part of the business. But on the trading part, we have been really slow; right in hedge and forwards. That has been really declining. That has been the challenge. But on the payment side, like university payments or NGO pays has been doing good performance and going to continue to do that. And that the focus is definitely on the forwards and hedges and turning that around. That will help acquiring new customers. That's something that the team is very focused. We put a new sales force, a new sales approach there, and that's something that this team is focused on that currently.

 Robert Paul Napoli, William Blair & Company L.L.C., Research Division - Partner and Co-Group Head of Financial Services & Technology [69]

 The Speedpay business, can you remind me what the size is of Speedpay? What is the growth rate of that business? What do you expect that to be over the next few years?

 Hikmet Ersek, The Western Union Company - CEO, President & Director [70]

 So it's about 4% of...

 Rajesh K. Agrawal, The Western Union Company - Executive VP & CFO [71]

 It's about a little bit less than $400 million.

 Hikmet Ersek, The Western Union Company - CEO, President & Director [72]

 $400 million of our -- last year of our business, and it's a good growth. It's a good business. We really like it. And it has been a double-digit growth over the years, and that has been a very good performance. And so that's something that billers like us also. And customers use that. That makes the payments very easy. It's a U.S. business. It's a domestic business, and it's not cross-border. And we've been very pleased with the performance.

 Robert Paul Napoli, William Blair & Company L.L.C., Research Division - Partner and Co-Group Head of Financial Services & Technology [73]

 Okay. And then last question. Just I mean, your business, I think, has held up a lot better than many would've thought a few years ago. But as you look at your business today and you had a little bit of an acceleration in the quarter, what do you view -- what do you keep an eye on as your biggest risks or competitors? Is it other blockchain players cross-border? Is it things like Venmo? Or what are -- is it Ria? Is it just other companies in your space? What is the biggest competitive threat, especially since you still have that pretty substantial premium on the pricing side?

 Hikmet Ersek, The Western Union Company - CEO, President & Director [74]

 So Bob, that's a great question, obviously. I'm thinking about that daily right? So I mean, one thing I realize also is that over the years, we built something that's really very competitive. Having this cross-border engine or platform with the regulatory compliance and technology advances has been working and working. And we are now what we are doing is that really taking that to the next stage. With our WU Way and technology investments, we are taking that also to the next stage. So one thing is that we are going to the market with our Wu-branded products like we are on our retail with Western Union and on our westernunion.com with Wu-branded products. The other thing is also we see good growth is that the white labeling of our platform to partners like financial institutions or big businesses. I think we get -- I got more and more calls from other businesses, also from financial institutions, can you help us to deliver exotic currencies or minor currencies to certain countries? Or having also businesses delivering our platform doing the multicurrency settlement for many countries, or also the compliance programs for many countries. That's something that I think coming year, we are very focused on that. Besides committed to our Western Union growth, this platform could be used also for some white labeling to extend our platform to new businesses and new financial institutions.

 Michael A. Salop, The Western Union Company - SVP of IR [75]

 Okay, thanks everyone for joining us this afternoon. We wish you a good day.

Operator [76]

 The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.