Jul 24, 2012
Executives
Michael A. Salop - Senior Vice President of Investor Relations Hikmet Ersek - Chief Executive Officer, President and Director Scott T.
Scheirman - Chief Financial Officer & Global Operations and Executive Vice President
Analysts
Tien-Tsin T. Huang - JP Morgan Chase & Co, Research Division Glenn Fodor - Morgan Stanley, Research Division Robert P.
Napoli - William Blair & Company L.L.C., Research Division Kartik Mehta - Northcoast Research Thomas C. McCrohan - Janney Montgomery Scott LLC, Research Division Darrin D.
Peller - Barclays Capital, Research Division Bryan Keane - Deutsche Bank AG, Research Division Ashwin Shirvaikar - Citigroup Inc, Research Division James F. Kissane - Crédit Suisse AG, Research Division Sara Gubins - BofA Merrill Lynch, Research Division Andrew W.
Jeffrey - SunTrust Robinson Humphrey, Inc., Research Division David Togut - Evercore Partners Inc., Research Division
Operator
Good morning, and welcome to the Western Union Second Quarter 2012 Earnings Call. [Operator Instructions] Please note, this event is being recorded.
I would now like to turn the conference over to Mike Salop, Senior Vice President, Investor Relations. Please go ahead.
Michael A. Salop
Thank you, and good morning, everyone. On today's call, Hikmet Ersek, Western Union's President and Chief Executive Officer; and Scott Scheirman, EVP, Chief Financial Officer in Global Operations, will discuss 2012 second quarter results.
Following their remarks, we will open the call for questions. Slides that accompany this call and webcast can be found at westernunion.com under the Investor Relations tab and will remain available after the call.
Additional operational statistics have been provided in supplemental tables with our press release. This call is being recorded, and our comments include forward-looking statements.
Please refer to the cautionary language in the earnings release and in Western Union's filings with the Securities and Exchange Commission, including the 2011 Form 10-K, for additional information concerning factors that could cause actual results to differ materially from the forward-looking statements. During the call, we will discuss some items that do not conform to generally accepted accounting principles.
We've reconciled those items to the most comparable GAAP measures on our website, westernunion.com, under the Investor Relations section. All statements made by Western Union officers on this call are the property of The Western Union Company and subject to copyright protection.
Other than the replay noted in our press release, Western Union has not authorized and disclaims responsibility for any recording, replay or distribution of any transcription of this call. I'd now like to turn the call over to Hikmet Ersek.
Hikmet Ersek
Thank you, Mike, and welcome, everyone. We remain focused on delivering on our vision to become the premier financial service provider for the underserved under the globe -- around the globe, as we outlined at our recent investors day in May.
Our foundation is strong, with a solid core business in consumer money transfer and significant competitive strength, such as our agent network, our high brand awareness with the underserved around the world, our global compliance capabilities and our global organization and resources. We have the right strategies in place to capitalize on these strengths and drive accelerated growth over the long term by focusing on expanding our network and increasing consumer retention in Global Consumer Financial Services; expanding penetration and adding new services in Business Solutions; and developing and growing new services for the underserved in Ventures.
Investments we have made in Business Solutions and Ventures are providing us diversified revenue streams. And as we accelerate growth over the long term, we expect to drive margin expansion.
We also continue to focus on generating strong cash flow and deploying it for our shareholders. In 2012, we remain on track for the revenue, earnings per share and cash flow outlook we provided at the beginning of the year despite economic challenges.
In the second quarter, our consumer money transfer business, which represented over 80% of revenues, continued to deliver solid results, We can see constant currency revenue increased 3%, with consistent year-over-year operating margins. There were some very strong large markets, such as Germany, Saudi Arabia and India, that helped offset economic softness in southern Europe and expected challenges in Mexico and Russia.
westernunion.com online money transfer also continued to deliver strong growth. Interestingly, we are seeing some changes in consumer movements developing from the economic situation is southern Europe.
Portugal, which was historically being primarily a send market, is now almost even split between inbound and outbound. Although Greece is still primarily an outbound market, the inbound business increased significantly and represented almost 30% of the country's mix through the first half of the year.
Through our global network and local market expertise, we are very well positioned to react quickly to these changes in patterns. We are also making more progress ramping up our agent location expansion, including some key retailers in Europe, such as Lottomatica, in terms of locations, one of the largest retailers in Italy.
We now have approximately 510,000 agent locations globally, but there are also an additional 50,000 money transfer touch points throughout ATMs and other transaction-capable spots. It is a great base to achieve our long-term goal of 1 million touch points.
Our access to consumers is even higher when you consider the millions of account holders that can utilize our services throughout online banking and mobile phones. We have agreed to add account-based money transfers with large banks in India and China, and we will continue to expand our services to offer even more convenience and choice to our consumers.
Our account-based money transfer momentum remained strong, with revenue growth of 34% in the quarter. Turning to Business Solutions.
Pro forma constant currency revenue growth was the same as the first quarter at 4%. Although we have tempered our 2012 expectation for this business, primarily due to the impact of slowdowns in global trade, we have not changed our long-term outlook.
B2B business development remained strong, as we recently signed new partners, such as ICICI Bank, through which we will transact international student tuition payments from India on behalf of our university customers; and IBInvestor in the U.S., a global business incubator for media companies. We also expanded Business Solutions to its 26th active country by partnering with our agent in Chile.
We continue to believe we will obtain double -- low double-digit revenue growth in B2B over the next several years as the global expansion and new customer acquisition become more material components of our business. In Ventures, westernunion.com continues to deliver strong growth while we invest in new capabilities.
We are piloting new strategies and pricing actions to drive customer acquisition, upgrading platforms to increase functionality and improve the consumer experience and building highly skilled team at our new San Francisco office. There will continue to be enhancements to our services throughout the year, which will position us well for the future growth.
There's also major activity in our stored value business. Our U.S.
prepaid card distribution will be getting a boost from the signings of retailers, such as Dollar General, which will add thousands of locations over the next several quarters. And our global expansion continues as we'll shortly be launching special receiver-focused prepaid cards in the Philippines.
We are building a solid foundation for stored value, and these recent actions are major steps to drive growth in the future. Finally, we continue to deploy our capital for shareholders, buying back over $160 million of stock and paying over $60 million in dividends in the quarter.
Year-to-date, we have now returned over $430 million to shareholders through our buyback and dividends and plan to continue to pursue strong deployments throughout the year. So our core business is sound, and our cash generation is strong.
We are executing against our strategic plans and look forward to advancing them further to accelerate our growth over the long term. Now to give you a more detailed review of the quarter, I would like to turn the call over to Scott.
Scott T. Scheirman
Thank you, Hikmet. Overall for the quarter, we reported consolidated revenue growth of 4% on a reported basis and 7% in constant currency.
Consolidated pro forma revenue increased 2% constant currency, including Travelex Global Business Payments in the prior year period. In the Consumer-to-Consumer segment, reported revenue was flat with the prior year period on transaction growth of 4%.
On a constant currency basis, revenue increased 3% in the quarter. Second quarter constant currency growth rates were below first quarter trends, primarily due to some additional economic softness in southern Europe and the expected challenges in Russia and Mexico.
We had slightly lower growth in the U.S. Global distribution of our portfolio helped stabilize us against isolated regional dynamics, and strong growth in countries such as Germany, Saudi Arabia and India helped drive overall growth.
B2C cross-border principal declined 2% in the quarter, but increased 1% on a constant currency basis. B2C principal per transaction declined 6% year-over-year, with 3% on a constant currency basis, which was consistent with the first quarter.
Turning to the regions. C2C revenue in the Europe and CIS region, which represented 22% of consolidated revenues, decreased 8% year-over-year.
This decline included a negative 5% impact from currency translation. Russia is generally tracking to our outlook, as it will take 2012 to implement our turnaround strategies, including building a retail network.
Germany continued strong growth, while other large markets, such as the U.K. and France had been stable.
Economic conditions in southern Europe have led to further declines in Italy and Spain. Turning to North America.
Revenue was flat with the prior year period on 2% transaction growth, and the region represented 21% of total company revenue. U.S.
outbound revenue increased, although not as strong as the first quarter, while domestic money transfer revenue grew 4% on transaction growth of 7% in the quarter. Domestic $5 for $50 continues to have strong growth even compared to very high growth rates in the prior year.
Some of the higher-tier bands did not increase as fast, and we are implementing new marketing programs to drive further growth. Mexico revenue declined 7% and transactions decreased 5% in the quarter.
As you recall, we anticipated revenue declines and share losses in Mexico this year, as we implement changes to our compliance-related practices and business model. Results were strong in the Middle East and Africa region.
Revenue in the quarter increased 3%, including a negative 3% impact from currency. Transactions grew 9%.
Saudi Arabia and much of Africa were key drivers of the growth. The Asia Pacific region revenue grew 4%, including a negative 2% impact from currency translation.
Aside from the currency impact, trends were consistent with the first quarter. India contributed strong growth, while the revenue decline in China moderated from the first quarter rate.
The Latin America and Caribbean region reported strong results, again, in the quarter. Revenue grew 5%, including a negative 2% impact from currency and improved slightly relative to the first quarter growth rate.
westernunion.com C2C revenue increased 23%, including a 4% negative impact from currency translation. We introduced some fee promotions in certain corridors in the quarter to attract new customers, which negatively impacted revenue in the short term, but should aid future growth.
westernunion.com transaction growth was a very healthy 35% in the quarter. As a reminder, westernunion.com results are not included in the growth rates for the other 5 regions, although they are included when we discuss specific country trends.
Total electronic channel revenue, which includes westernunion.com, as well as account-based money transfer and mobile, increased 26% in the quarter and represented 3% of total company revenue. westernunion.com C2C revenue increased 23% in the quarter, and revenue from account-based money transfer through banks increased 34%.
We now have nearly 100 banks signed for account-based money transfer, with 47 launched. We also have nearly 30 mobile network contracts, with 13 actively operating.
Prepaid revenue increased 6% in the quarter. And total prepaid, including third-party top-up, represented just under 1% of company revenue.
We expect prepaid revenue growth to increase in the second half of the year, as we benefit from greatly expanded distribution in the U.S. and some of the international introductions.
We will roll out our cards to Dollar General's 10,000 locations, as well as adding Fred's general merchandise stores. We're also continuing to ramp up distribution at the 7-Eleven convenience stores.
The prepaid cards were available at approximately 22,000 retail locations globally, including over 21,000 locations in the U.S. at the end of the quarter, and the new agreements will represent a significant step-up in our distribution.
Turning back to the total C2C business. Spread between transaction revenue growth in the quarter was 1 percentage point, excluding the impact from currency, which negatively impacted the spread by 3 points.
The impact of net price decreases was approximately 1% in the second quarter, while mix was neutral. Moving to the Consumer-to-Business segment.
Revenue decreased 3% in the quarter and was flat on a constant currency basis. South American business continues to grow, while the U.S.
revenue is still stabilizing, but was affected by business mix and the passing through of some of the debit fees savings related to Durbin in the quarter. Business Solutions reported revenue of $92 million in the quarter, which compared to $31 million a year ago.
On a pro forma basis, including TGBP results in the prior year, Business Solutions revenue increased 4% on a constant currency basis, which was consistent with the first quarter. We are below our revenue plan in Business Solutions and have lowered our full year outlook to mid-single digits revenue growth.
Although our transaction growth in the quarter was low-double digits, our principal per transaction was down, which is consistent with economic slowdowns in key markets. In the near term, Business Solutions results are largely driven by the amount of principal existing customer sends.
Over time, the new customer acquisition and geographic expansion will become more meaningful parts of the growth. When integration is completed and the new customer business grows, we remain confident Business Solutions can deliver revenue growth in low-double digits over the next several years.
Turning to consolidated margins. Second quarter consolidated GAAP operating margin was 24.3% compared to 25.7% in the prior year.
Excluding $14 million of Travelex integration expenses, consolidated margin was 25.3% compared to 26.3%, excluding $9 million of restructuring expense in the prior year period. Operating margin of 25.3%, excluding TGBP integration expense, is an increase from 24.3% in the first quarter.
EBITDA margin, excluding integration expense, was 29.3% compared to 29.7%, excluding restructuring expenses in the second quarter of last year. Consumer-to-consumer operating margin was relatively flat compared to prior year.
Consolidated margins declined primarily due to the incremental $10 million of depreciation and amortization in Business Solutions. Consolidated margin was also negatively impacted by investments in westernunion.com and additional compliance costs, mostly related to the Southwest Border.
These impacts were partially offset by benefits from currency, lower bank fees related to Durbin, fuel costs in the prior year, restructuring savings and lower marketing expense. We realized approximately $18 million in restructuring savings in this year's second quarter compared to $13 million of savings in the prior year period.
As we mentioned at our May 9 investor day, implementation of the Dodd-Frank Consumer Financial Protection Bureau remittance disclosure rules is going to add some expense in 2012 that is incremental to our previous outlook. We have completed detailed implementation plans to prepare our systems, call centers and entire agent location network in the U.S.
for adoption of these rules by early 2013. We expect incremental expense of approximately $15 million in 2012 to cover the requirements for our consumer money transfer, bill payments, Ventures and Business Solutions businesses.
These costs include expedited implementation of enhancements to our point-of-sale system at many U.S. agent locations, training for the agents, IT development, call center costs for new error resolution procedures, expenses related to the creation and distribution of new receipt forms.
We'll have some small onetime cost to complete implementation in early 2013, that we estimate at around $5 million to $10 million of ongoing annual cost related primarily to call center time and additional forms. We have also adjusted our full year 2012 outlook for operating margins to reflect higher spending for other compliance costs, primarily relating to the Southwest Border agreement.
We're working on dozens of projects around enhanced risk controls and have continued to evolve. We have increased our projected spend in 2012 primarily for IT development and higher personnel costs.
We expect global spending on compliance activities over the next couple of years will not change significantly from the 2012 levels. While the breadth and complexity of requirements and sustainability around the globe continues to expand, we view our ability to adapt to this environment as a long-term competitive advantage.
Turning back to the second quarter. Other income and expense of $36 million of expense increased $17 million from last year, as the 2011 period included a $29 million gain on the remeasurement of our equity position in Angelo Costa.
Tax rate in the quarter was 12.5%, which compares to 21.1% in the second quarter of last year. Decrease in our tax rate is primarily due to the resolution of the treatment of our international operations, as we noted in the announcement of our agreement with the U.S.
Internal Revenue Service last December. In addition, in the current quarter, we had a non-reoccurring benefit related to favorable resolution of certain foreign and U.S.
tax positions. For the full year, we now expect a tax rate of between 15% and 16%, which is lower than the previous outlook due to the non-reoccurring benefit in the current quarter.
Earnings per share in the quarter are $0.44 compared to $0.41 in the prior year. EPS was $0.46 excluding Travelex integration expenses, which compared to $0.42, excluding restructuring charges in the prior year.
The prior year EPS included a gain of $0.03 related to the Angelo Costa remeasurements. Excluding integration expense in the current quarter and restructuring expenses in the prior year period, earnings per share increased 10%.
C2C operating segment margin was 28.5% compared to 28.6% in the same period last year and an improvement from 27.7% in the first quarter. Compared to prior year, the margin benefited from currency, lower average commission rates and lower marketing, but these benefits were offset primarily by higher compliance costs, Costa and Finint acquisition-related costs and investments in westernunion.com.
Consumer-to-Business operating margin was 22.4% in the quarter compared to 24.6% in the prior year period. Margin decreased primarily due to geographic and product mix and some higher bank fees, partially offset by decreased debit fees related to Durbin.
Business Solutions reported operating loss of $15 million for the quarter compared to an operating loss of $2 million in the prior year period. Last year's loss does not include Travelex Global Business Payments.
This quarter's $15 million loss includes $15 million of depreciation and amortization, with $14 million of Travelex integration expense. There is approximately $1 million that is included in both amortization and integration expense.
Depreciation and amortization in last year's second quarter was $5 million. We continue to expect Business Solutions profitability, excluding integration expenses, to improve throughout the second half of the year, as we benefit from better revenue leverage and initial cost savings from synergies.
Turning to our cash flow and our balance sheet. We continue to have a strong position.
Year-to-date cash flow from operations was $446 million, which include the impact of approximately $100 million of tax payments relating to the agreement with the IRS. We currently do not expect to make additional payments related to this agreement until 2013.
Capital expenditures in the quarter were $46 million or 3% of revenue. We continue to expect capital expenditures to be 4% to 5% of revenue for the full year due to increased signing bonuses on some major agent contract renewals and new signings, as well as investments in technology.
We expect capital expenditures to return to approximately 3% of revenue on average after 2012, although any given year could be impacted by additional new agent signings or other initiatives. Depreciation and amortization expense was approximately $59 million in the quarter.
At quarter end, the company had debt of $3.7 billion and cash of $1.4 billion. Approximately half of the cash was in the United States.
We continue our strong capital deployment policies. We repurchased approximately 10 million shares, totaling $163 million in the second quarter at an average price of $16.87.
This represents approximately 1.5% of the total shares outstanding. In addition, we paid out $61 million in dividends during the quarter.
As of June 30, our shares outstanding were 604 million shares, and we had approximately $305 million remaining in our existing repurchase authorization, which expires at the end of 2012. We remain committed to continuing with strong return of funds to shareholders during the remainder of the year and beyond.
Turning to our outlook for the full year. We are affirming the revenue outlook provided on April 24.
We are reducing our operating margin outlook due to the incremental compliance costs, and we are slightly increasing the earnings per share outlook, primarily to reflect the non-reoccurring tax benefit recorded in the second quarter. We have also increased the operating cash flow outlook due to the timing of tax payments.
For the company overall, we are maintaining our revenue outlook, which includes: 6% to 8% constant currency revenue growth, including a 4% benefit from the full year inclusion of Travelex; and GAAP revenue growth 2% lower than constant currency. Turning to margins.
We have adjusted our operating margin ranges for 2012 due to the increased compliance-related costs relative to our original outlook. The incremental cost include the $15 million related to Dodd-Frank and additional spending primarily related to the Southwest Border.
The current outlook for margins is approximately 24.5% for GAAP or 25.5% excluding the Travelex integration costs. The outlook for EBITDA margins, excluding integration, is consistent with our previous outlook, at approximately 30%.
We are now projecting an effective tax rate of 15% to 16% for the year, down 1% from the previous outlook due to the non-reoccurring benefit recorded in the second quarter. The high end of our earnings per share outlook has been increased by $0.02 compared to our previous outlook, as we have also -- and we have also narrowed the range, although our operating margin outlook is lower, which is being offset by the lower tax rate and slightly lower expenses in other income and expense.
Our assumptions for share repurchases have not changed. Our updated earnings per share outlook is GAAP EPS in the range of $1.68 to $1.72, which compares to $1.65 to $1.70 in the previous outlook; EPS, excluding Travelex integration expense, of $1.73 to $1.77, which compares to $1.70 to $1.75 previously.
Our outlook for cash flow from operations has increased by $100 million due to the timing of the estimated tax payments related to the December 2011 agreement with the IRS. The new outlook is a range of $1.1 billion to $1.2 billion, including payments of $100 million that have already been made relating to the IRS agreements.
There are approximately $90 million in tax payments related to this agreement that remain to be paid, but we expect to pay the majority of those in 2013. Excluding these tax payments, our 2012 outlook for cash flow from operations remains consistent with the prior outlook of $1.2 billion to $1.3 billion.
Overall, we're on track to deliver our financial outlook despite the expected macro and other challenges and higher compliance costs as our diversified portfolio allows us to produce stable results and generate and deploy strong cash flow. Operator, we are now ready for the first question.
Operator
[Operator Instructions] The first question comes from Tien-Tsing Huang of JPMorgan.
Tien-Tsin T. Huang - JP Morgan Chase & Co, Research Division
Just want to -- I guess, first on Business Solutions. The lower guidance isn't a surprise, but I'm curious.
Is it all macro-related? Or did you see some challenges in your sales efforts as well?
I'm just trying to better understand if improved distribution in loan can get you to double-digit growth next year if the macro situation stays the same. So that's why I want to parse those 2 together -- or parse those 2 out.
Hikmet Ersek
Tien-Tsin, this is Hikmet. Mainly -- it's mainly driven by the global trade.
Our existing customers revenue in some parts of the world has been -- especially in the U.S. and some parts of western Europe, has been depending on the existing customer.
It has been lower, and that's because of the global trade slowness. We do have new acquisitions.
We do have new clients. As I mentioned before, ICICI Bank and the universities in the U.S.
and also, IBInvestor kind of -- and we also opened a new country. As you recall, we started after the -- about 8 months ago, 10 months ago, we had 16 countries.
Now we are in 26 countries in the Western Union Business Solutions. And the new revenue take some time, it comes.
And our aim is expanding on to new countries. But I would say that's mainly driven by global trade has impacted our B2B business.
Tien-Tsin T. Huang - JP Morgan Chase & Co, Research Division
Okay, okay. And then the compliance cost moving up.
Do you think this will eventually apply to some of your smaller peers as well and perhaps ease some of the competition, especially in pricing, going forward?
Hikmet Ersek
I think, Tien-Tsin, it's upgrading our compliance. And as you know, we are very focused here, and we are very serious.
It's a competitive advantage long term. I think we are investing heavily here to be really -- I think as an industry leader, we are setting the tone here.
And I think we are very focused here, and I see that as a -- definitely a competitive advantage.
Operator
Next question comes from Glenn Fodor of Morgan Stanley.
Glenn Fodor - Morgan Stanley, Research Division
Just to follow up on Tien-Tsin's question on B2B. I mean, just on the whole market share issue.
I mean, people, I believe, are expecting you guys to offset any macro weakness with share gains. So just straight up, I mean, do you think you're winning share yet?
And if not yet, when do you expect this to happen?
Hikmet Ersek
I believe we are gaining share. We are getting new customers.
We are really gaining share. I think in some parts where we had the existing customers, as I mentioned before, we had some global trade issues.
But generally, we are expanding and we are gaining share. I just want to repeat again.
We have only 2% market share globally, and it can go only up. And the team is very focused to signing new sales efforts.
I think, Glenn, we are definitely on the road gaining share.
Glenn Fodor - Morgan Stanley, Research Division
And then, on a normalized basis, excluding integration costs, it looks like you made some progress, by our calculations, in the operating margin in B2B from 1Q to 2Q. So can this trajectory continue even without an acceleration of the top line over the near term, just coming from synergies and cost optimization?
Scott T. Scheirman
Yes. Yes, Glenn.
If you look at the first quarter compared to second quarter, if you just look at the EBITDA margins, excluding integration, EBITDA margins in the first quarter were about 8%. In the second quarter, they're about 15%.
So they almost doubled it, if you will. And we did have some earlier upfront spending.
We're beginning to see synergies. But it's a very leverageable business model.
So as we bring the 2 businesses together to pick the best technology, the best products, get the talent aligned and go to market, we believe, over the years to come, this business can have EBITDA margins somewhere in the 30% range. And as we move through the year and move into 2013, we continue to expect to make progress.
As we exit '13, we do believe we'll be on a run rate of about $30 million of expense synergies. So we want to continue to drive those margins north and believe we can.
Glenn Fodor - Morgan Stanley, Research Division
This $30 million, just to be clear, expense synergies with overall company or within the B2B segment?
Scott T. Scheirman
Glenn, just within B2B. Within B2B, we see about $30 million of expense synergies, on a run rate, as we exit 2013.
Operator
Next question comes from Bob Napoli of William Blair.
Robert P. Napoli - William Blair & Company L.L.C., Research Division
A little more color maybe on North America, Mexico and some of the troubled regions on some of the trends that you saw there. I mean, I think, you outperformed what you thought in the first quarter.
You certainly had pointed towards trouble in Mexico in the second quarter. What were -- I mean, could you go over again the growth rates in North America, Mexico and what you expect over the next several quarters?
Hikmet Ersek
Sure. Let me start with some color -- more color on North America, Bob.
I think, the Mexico business, North America outbound to Mexico business has beating our expectations. We were expecting some slowdown due to our -- some changes we implemented in the Southwest Border area.
And don't forget that it's about 25% of our revenue is from the South -- from the U.S. outbound to Mexico is coming from the Southwest Border area, 25%.
So it has slowed down. We've put some higher restrictions there.
We put some higher requirement for the customer. And I think, it impacted, short term, our business.
Long term, we believe that we're going to be upgrading, and we're going to set some industry standards here. That has been from Mexico.
Our DMT business in the U.S. is still growing well.
Don't forget, we started about 2 years ago. Our pricing $5 for $50 has been growing over the years and still growing pretty well.
And I think DMT has been a very strong business for us in the U.S. You want to add something?
Scott T. Scheirman
The only thing I would add that the third component of the North America business is U.S. outbound.
And it continued to experience growth in the second quarter, not quite as strong as the first quarter, but it was still growing. And just to reiterate, with Mexico, it's really what we expected to have some challenges in 2012.
As we work through evolving the business model and so forth, we believe that'll put us in a much more stronger position on a long-term basis with Mexico.
Robert P. Napoli - William Blair & Company L.L.C., Research Division
If I could just follow up on westernunion.com and the prepaid business. I mean, prepaid only growing 6%.
I just like a little more color on that. It seems like the industry is growing much faster, obviously.
And then on westernunion.com, the gap between transactions and revenue growth, do you expect that to continue?
Hikmet Ersek
Let me start with westernunion.com maybe. So our target, $500 million in 2015, is still on.
We are currently about $150 million business, and we would like to have that at $500 million business in 2015. So we are in plan.
We're are growing transactions about 35%. We did some fee promotions in Q2, which, gained new customers, and we've been very happy with the results in westernunion.com.
So I'm very confident that the team is doing the right thing to grow that business -- continue to grow that business. That's the gap.
Mainly the gap is between -- due to price promotions we have implemented in Q2. On the prepaid side, we -- don't forget, we have been quite limited on our expansion in the past, and now we are starting to get new retailers.
We have about 21,000 retailers in the U.S. We added Dollar General.
I believe it's going to be -- have a huge impact. It's our customer segment that is looking for kind of -- retail segment that's looking of kind of customer segment.
I believe that will help us to grow the prepaid business also. You want to add something?
Scott T. Scheirman
Yes, the only thing I would add, in the second quarter specifically, is we did do some incentives, and those incentives impacted the revenue line on prepaid. So it was the 6% growth.
We do expect, to Hikmet's point, stronger growth in the second half of the year and adding Dollar General, Fred's, spin up of 7-Eleven stores and then just some of the international markets, we're in Germany, U.K. Austria, we think, all of those things will be helpful to grow that business a little bit stronger as we move through the year with prepaid.
But it's a nice opportunity because it's 1% of our revenue and globally, can leverage our brand, our distribution network and the hundreds of millions of customers we see every year. So it's -- near term, it won't be as meaningful.
But long-term, it is a nice opportunity for us.
Operator
The next question comes from Kartik Mehta of Northcoast Research.
Kartik Mehta - Northcoast Research
Hikmet, in a slowing economy, does Western Union have an advantage in maybe signing new agents or renegotiating agreements with them? As you look at the last recession we had, anything you can take from that, that if we do go through another slowing that you could have some advantages?
Hikmet Ersek
Well, I think, Kartik, our target signing new agents has not changed. If you look at that, we are at 510,000 locations.
And we just have signed another 150 people on the sales force, on the market. And day-to-day, they are signing new agents, and we have been very actively purchasing that.
I think I'm very confident that we're going to sign new agents. And definitely, in some environment it helps.
Signing new agents means also adding new transactions. And we also -- besides that, we also added to going to new customer segment, about 50,000 ATMs globally.
And if you go to Intesa Sanpaolo in Italy or if you go to 7-Eleven bank in Japan, the people are doing transaction via their ATMs. They use the ATMs to put their money transfer numbers, send or receive the money from that.
So I believe I'm going to continue to, Kartik, look, to sign new agents.
Kartik Mehta - Northcoast Research
And then are you seeing any trends in the business maybe leading trends that would give you a look at maybe what's happening with the economy, something you saw last time the economy slowed? Anything in the trends that gives you concern?
Hikmet Ersek
No, I think the environment is tough out there, right? It has not been changed since our Q1.
I think it's a tough environment. Southern Europe is definitely slowing down.
We can see in our numbers. I would say the parts of the business are still holding pretty well.
Germany, northern countries -- northern European countries, are holding. I mean, it's not that the major change happened since Q1 and Q2, but it's tough out there.
And we are -- we believe that we are gaining market share by expanding our -- long term, I would say, we will gain market share by expanding our network. But it's tough there.
I think the economy is not strong as that to help our business, right?
Kartik Mehta - Northcoast Research
And then just one last question, Hikmet. What do you see the impact on the industry from all these new regulatory and compliance issues in terms of consolidation or pricing?
What do you think the overall impact will be on the industry?
Hikmet Ersek
I believe, Kartik, that industry will upgrade -- has to upgrade their -- adapt their -- to the regulatory requirements. As the industry leader, obviously, we are very active here, upgrading, investing heavily on that.
I think the industry has to follow that. While I can't make any comments to the competition, but I believe overall industry has to upgrade their requirements and adapt their requirements to the regulatory environment.
Don't forget, we are in 200 countries. And every country has requirements, and some countries are more visible, some countries less.
But we are adapting constantly to our regulatory environment.
Operator
Next question comes from Tom McCrohan of Janney Montgomery Scott.
Thomas C. McCrohan - Janney Montgomery Scott LLC, Research Division
Just circling back to the guidance questions. Again, given the macro headwinds, the slowdown in global trade and other challenges that are impacting the core consumer business, you still kept your full year revenue guidance unchanged.
I'm wondering if there were some offsets that were not -- that you can call out as far as other areas of the business that were exceeding expectations. Or maybe just kind of add some other comments around why you kept the revenue guidance unchanged given those factors.
Scott T. Scheirman
Yes, Tom, thanks for the question on this. Overall, if you look at the C2C business, it's 80% of our revenues, and that's had good, solid, consistent performance on a year-to-date basis.
You're seeing growth. They're very strong there at the 4% range.
So we're at the higher end just on a year-to-date basis. westernunion.com continues to grow well.
We've seen growth rates in the 20s and 30s from a revenue standpoint. And then, although Business Solutions has been a tad bit softer than we expected, it is about 6% of our top line.
But we believe long term, only having a 2% market share, leveraging our brand, our distribution, our global footprint, we can continue to grow in the low-double digit on a long-term basis. But overall, the core C2C business is strong.
It's solid. We had consistent margins with a year ago, and so we feel good about where that business is at and where we're heading.
Thomas C. McCrohan - Janney Montgomery Scott LLC, Research Division
Great. And if I can ask a follow-up on westernunion.com, which seems to be a bright spot for you folks.
What kinds of trends are you witnessing in that business in terms of some metrics, like customer retention and pricing? If you can compare that to kind of the traditional agent business.
And although it's only 2% of revenue today, you have some potential growth [ph] there. Just trying to understand the economics there and some of those metrics, like customer retention.
Hikmet Ersek
Sure. I mean, what we are doing here is that building on our fundamentals of our global network, global compliance capability and global brands.
We are connecting electronic with locations with retail. No one, as Western Union, can connect 16,000 corridors with electronic and locations.
We can -- no one else can send money from U.S. to New Zealand in minutes, that or to Chad or to Morocco in minutes than us.
We can do that. So what we are doing is that seeing here a huge growth and it's also a different customer.
The cannibalization is very, very low here. It's not the customer who are using retail-to-retail money transfer, it's a new customer segment.
The cannibalization is really very low, and it helps to grow our business. So that helps our patterns.
The pricing-wise, it's the similar pricing. We use it here.
We do use some corridors -- pricing in some corridors to respond, but that's a similar also in the retail money transfer business, right? Corridor by corridor, you adapt your prices.
But generally, I would say the margins are similar and the -- excluding the investments we did, I would say, this is similar business.
Operator
Next question comes from Darrin Peller of Barclays Capital.
Darrin D. Peller - Barclays Capital, Research Division
While I think we all recognize there's been macro challenges impacting most businesses, you've -- and I think you may have touched on this in the -- earlier in the call a bit. But can you just perhaps call out and list off the issues that may have inhibited growth rates in C2C over the past year that are really not correlated with macroeconomic, such as regulatory issues, like those in Mexico and Russia or the pricing changes in Russia or the opportunities in Russia had an impact on market share?
Anything else that may be unrelated to macro, but have inhibited growth and about how much it did sort of affect growth rate that could abate maybe and how that could trend better next year?
Hikmet Ersek
Sure. I can do that.
I mean, no secret is the Mexico's Southwest Border investment that has been impacting our business. And we've been -- we think that, that has a part of our slowdown on our growth.
And the other part is Russia. In Russia, it has been, as you know, we were kind of late to the market in Russia due to some regulatory changes.
And since 1st of January, we could expand retail. We have team there.
They are expending to the retail network like we did it in the PSD in the European Union. We had some issues in China.
China slowed down, had impacted our business a little bit. Besides that, what else?
I think 6% is only the B2B business, so global trades doesn't have an overall revenue impact. But on the C2C business, I would say these 3 areas had an impact to our business.
Darrin D. Peller - Barclays Capital, Research Division
Okay, that's helpful. And if you were to sum up the impact of those 3 areas.
And I think there's been a couple of other little smaller ones probably also. I mean, what would your -- what would you say was the total impact to your full year growth rate from those?
If you can at least give us a sense?
Scott T. Scheirman
Darrin, it's Scott. I would just probably characterize that if those markets were growing versus where they're at, it would be helpful to where we're at.
But I don't want to put a precise a number on that because we're in 200 countries, 16,000 corridors. There's always some puts and takes.
But I think the good news with each of those 3 markets: China, Russia and Mexico, we've got plans in place. So it will take us 2012 to execute and work through those plans.
But hopefully, on a long-term basis, we'll be in a much better competitive position there.
Hikmet Ersek
Just to add on that, Darrin, largest market out of the U.S. is 6% of our revenue.
Darrin D. Peller - Barclays Capital, Research Division
Right, right. Understood.
I guess I'm just trying to understand what a normalized growth rate would be even in a tough macro environment to compare now versus a normalized macro environment notwithstanding all the issues.
Hikmet Ersek
Yes, sure. I know it's tough there.
But we have, again, in the C2C a solid 3% growth, right? And I mean, I think that has been helping our business.
Darrin D. Peller - Barclays Capital, Research Division
Okay. Just one quick follow-up question on the capital side.
Obviously, there are still around 2/3, I think, of your cash flow generated outside the U.S. Any considerations recently by the board to adjust the strategy on capital?
I know that you've been doing decently with the dividend and buybacks to some extent, but still a lot of cash can't be really easily used. And I know you have some near-term benefit from the tax benefit.
But still, if you were to extrapolate or really just consider the repatriation of some of that cash more so maybe that would help or even leverage conditions would be considered differently that could maybe change the way some investors look at the story. Any thought there?
Hikmet Ersek
Yes, I think, we, obviously, -- as management, I am constantly, with Scott together, reviewing our capital structure with the board. We are constantly talking about our strategies, capital structure on the board.
If you look at our -- we are a very strong cash flow company. But if you look at that, we are -- our aim is returning back share -- cash to shareholders.
And we were very active in the first 2 quarters. And I don't see a huge acquisition coming up from that.
We recently had the acquisition with Travelex. We are very focused on integrating Travelex to the B2B business and growing that business, expanding to new countries.
We recently opened Chile as a new country. I think we are very focused, and we are constantly reviewing with our board our capital structure.
Operator
Next question comes from Bryan Keane of Deutsche Bank.
Bryan Keane - Deutsche Bank AG, Research Division
Just wanted to ask about southern Europe. I mean, does it feel like that's going to get worse before it gets better on an outlook perspective?
Hikmet Ersek
Well, it depends on -- I mean, in part of -- some parts of, like, Spain is still an issue, right? Some parts of the southern Europe is changing.
We can see Portugal being 50% inbound, 50% outbound. The southern Europeans are going and other parts of Europe sending back home to their countries.
The typical outbound countries tend to be a little bit also inbound countries, even Greece is 30% of inbound now. And I think it's depending.
It's hard to say that it will change dramatically. I don't see big changes since Q1 and Q2.
It's -- the slowdown continues. But it's hard to say that's is going to be hard or not.
It's, I think -- I would say, cautiously -- I would stay cautious.
Bryan Keane - Deutsche Bank AG, Research Division
Okay. And then when you look at your guys' metrics versus the World Bank or other competitors, do you feel like you're maintaining share?
Or do you feel like there are a few regions that you guys are losing some share?
Hikmet Ersek
Yes, Brian, you've been following our business for a long time. And generally, since 2001, we gained share.
It was 7%, and now we are at 17% cross-border remittance [ph] market, if you compare it with Aite. And I think, in some years, we are gaining market share.
In some years, we are losing market share. In some corridors, we are gaining in market shares.
In some corridors, we are losing market shares. And our principal, the last 6 months, has been flat in 2012, and constant currency principal growth was about 2%.
And just the projection of Aite, for instance, was 5% growth rate, but that was July 2011 last forecast. So I would put things in perspective.
As I said, in some corridors, yes, some corridors they're adapting their market share. But overall, our aim long term is getting market share.
Bryan Keane - Deutsche Bank AG, Research Division
Okay. And last question for me, Scott, I know I got the additional color on some of the compliance costs.
Do you have any idea if you think that will be an ongoing kind of a future cost to the business there? I think you said there's an additional maybe 10 million in the business.
But I guess any idea if you feel the environment is becoming more compliant -- there's more compliance costs that are going to be out there that are going to continue to be in the business model going forward? I don't know if there's any way to give your kind of big picture thoughts on the rising cost of compliance even that might not be in the numbers?
Scott T. Scheirman
Yes, Brian, as we've thought about that, it's hard to say for certain on anything because the compliance, the regulatory environment continues to evolve. But the overall spend in 2012, we think, comparable-wise, that's about where we're going to be in 2013 on a macro basis, specifically with Dodd-Frank.
As an example, we think there'll be $5 million to $10 million of ongoing expenses because of call centers and forms and so forth. But on a macro basis, we think the compliance spend '13 looks probably a lot like '12 just because of the broad global environment.
But long term, we believe that will be competitive advantages for us as we move forward. And our goal is always to comply with the letter and spirit of the law, and we'll continue to drive that direction.
Operator
The next question comes from Ashwin Shirvaikar of Citi.
Ashwin Shirvaikar - Citigroup Inc, Research Division
Hikmet, Scott, I just wanted to ask you to elaborate on the intra-quarter trend for C2C. Overall, the only geo with negative transaction growth was Europe.
But -- just for Europe, as well as other geos, how did transactions trend each month in the quarter? And if you can possibly give some color on July, how it's looking?
Hikmet Ersek
Scott?
Scott T. Scheirman
Ashwin, yes. First I'd say the broad headline is we're confident with the guidance that we provided, the 2012 outlook we have provided today, for revenue growth, margins and EPS.
So we're confident in the guidance that we provided. As you may recall, our historical practice is, we don't comment within a quarter or how the quarter looks because there can be seasonality, other things as you go within a quarter just looking at 1 month by itself.
But the headline I would give you, Ashwin, is that we're comfortable with the guidance that we've provided today.
Ashwin Shirvaikar - Citigroup Inc, Research Division
Sure. No, I certainly understand that.
But when you look at sort of the sequential, I mean, Q2 is not as good as Q1, which is not a surprise to anyone. But is it continuing to get worse?
Or has it stabilized? Your guidance would seem to imply it stabilized.
Scott T. Scheirman
Yes, we're -- again, I'd probably go back to we're confident in our full year outlook. If you compare the first quarter and the second quarter, Europe and the Americas -- North America had some slighter softness.
But if you look at Asia Pacific, Latin America, the Middle East and Africa, each of those markets had growth rates that were very comparable to the first quarter. So they were strong.
We saw good growth with India, Saudi Arabia, Germany and so forth. So that's the beauty of our business.
We're in 200 countries, 16,000 corridors. It's a portfolio approach.
So from quarter-to-quarter, month-to-month, you might have some puts and takes. But overall, within the 200 countries, we feel like we're driving in the right direction and doing the right things.
Ashwin Shirvaikar - Citigroup Inc, Research Division
Understood. It's good to hear.
I wanted to ask about pricing. It's still only a modest negative.
It seems like it's lower than historical trend and except for sort of sporadic pricing initiatives. What's a good price trend line for the next 12 months?
Negative 1 to negative 2 or will it get back to sort of the historical negative 2 to 3?
Hikmet Ersek
Ashwin, I think, generally, as you know, we are looking corridor by corridor in our pricing. We are going to -- in 2012, we're going to be around 1%, and 1% to 2% max, that will be the next forecast.
I guess, given the environment, we are looking price and price action corridor by corridor, but I would say 1% to 2% around that will be in 2012 probably.
Ashwin Shirvaikar - Citigroup Inc, Research Division
Okay. Scott, just a clarification on tax rate.
Clearly, for this year, you get the non-repeating benefit. But the longer-term tax rate, should that still be in the 16%, 17% range?
Scott T. Scheirman
Yes, I would say directionally, yes, Ashwin, the only caution or caveat I'd put around that depends upon if there's tax law changes in any countries or how much cash we may repatriate. But your point is well taken.
The benefit we have to the tax rate this year is more onetime, so we'll probably be closer to that 16% to 17% range unless other things might change. But there's a onetime benefit in the second quarter.
Operator
Next question comes from Jim Kissane of Crédit Suisse.
James F. Kissane - Crédit Suisse AG, Research Division
Hikmet, can you provide a little more color in terms of your turnaround strategies for Mexico and Russia?
Hikmet Ersek
Sure. Let me -- I think 2012 will be still, both countries, a little bit challenging until we turn around.
I think we are investing on the Mexico and there are 2 different issues here. In Mexico, it's more about upgrading our compliance in the Southwest Border and other areas and setting here the industry standards that, long term, we are leading the standard.
And I think in Russia, the issue is more than signing new retailers, signing new -- you know that in Russia, we have financial institutions, and we are leading the financial institution there. And we have a very good business.
Now we are going to the retail sector and adapting our pricing, and we hired new sales people. It will take some time in 2012 turning around Russia.
It will take probably 2013. And once we have signed the retailers, then we will also start with some promotions to attract back the customers to our locations.
So it will be -- we'll see the turn around probably in '13.
James F. Kissane - Crédit Suisse AG, Research Division
So Hikmet, you think the compliance issues are the main problem in Mexico?
Hikmet Ersek
I think in Mexico, one thing also happened is that we -- as the exclusivity ended, we are starting to negotiate with new agent, potential agents. I'm very -- as we speak, the team is there in Mexico.
And I think we are very aggressively purchasing new agents there in Mexico. That will help also to grow our business long term in Mexico.
James F. Kissane - Crédit Suisse AG, Research Division
Great. And what's driving the stronger performance in Latin America?
Any particular corridors?
Hikmet Ersek
I think, in parts of Latin America, we've been very strong in the business. And we did -- in Latin America also, we see new corridors sending intra-Latin America corridors, not only country, but intra-countries within the countries also growing strong.
Our B2B -- our business -- bill payment business is doing very good in Argentina and other countries. That helps also to grow our business there.
James F. Kissane - Crédit Suisse AG, Research Division
And just one more question. Did FX volatility in the quarter help Travelex or the B2B business?
Hikmet Ersek
Not really. I think it was really the transaction principal growth was the impact.
But not really, we didn't see a huge change here.
James F. Kissane - Crédit Suisse AG, Research Division
I thought more volatility actually helps the business. Is that the right way to think about it?
Hikmet Ersek
Yes.
Scott T. Scheirman
Yes, it does. If look at the VIX index, just as one indicator, Jim, Q1 and Q2 in round numbers, I'm slightly off in this, but that index was around 20 both Q1 and Q2.
So I wouldn't say there was a lot of meaningfully different impact in volatility between the quarter, maybe some slight amounts, but not meaningfully.
Operator
The next question comes from Sara Gubins of Bank of America Merrill Lynch.
Sara Gubins - BofA Merrill Lynch, Research Division
You mentioned in your prepared remarks that the higher-tier band in the U.S. didn't increase as rapidly.
Do you think that's a function of the economy or more the competitive environment?
Scott T. Scheirman
On DMT, I think it's probably could be a little bit of each. It's hard to tell for certain.
That business still had 4% growth. We are going to do some additional marketing there with the domestic business.
But it probably could have a little bit economic impact. I'm not sure about the competitive side.
And then, any corridor, any market, you do see some variability from quarter-to-quarter. Overall, I would say we're pleased with the business.
It's growing. It's a 30% margin business, and we continue to see that as a growth business as we move forward.
Hikmet Ersek
And also, I think we are going to implement also some because $5 for $50 and the lower bands are growing very healthy, but it's also going after the higher bands, we may also implement some marketing promotion actions in the future.
Sara Gubins - BofA Merrill Lynch, Research Division
Great. And then you mentioned some potential ramp marketing spend.
Does that change your plans for marketing spend for the year as a whole?
Hikmet Ersek
No, no, Sara. I think we are actually the same.
Operator
Next question comes from Andrew Jeffrey of SunTrust Robinson Humphrey.
Andrew W. Jeffrey - SunTrust Robinson Humphrey, Inc., Research Division
You mentioned some relatively large agent re-signings in the back half of the year. In the past, you've done a good job of driving down commission rates upon re-signing.
Is that the trend that we should expect to continue thereby being a little bit of a tailwind for EBIT margin longer term?
Hikmet Ersek
I think if you look at the last 3, 4 years, we've been driving our cost of sales down. I think from 44% to approximately some-41%.
Was that right?
Scott T. Scheirman
Yes. In 2010, we're around 57%.
2011, round number, 56%. So it's been moving down.
Hikmet Ersek
It takes some time, Andrew, until it comes down. But I think, generally, I would say that we are signing new agents globally in a lower commission rate as we did it in the past.
Andrew W. Jeffrey - SunTrust Robinson Humphrey, Inc., Research Division
Okay. So think about the trends continuing and the effectiveness of your efforts in that direction as well?
Hikmet Ersek
Yes.
Scott T. Scheirman
Yes.
Hikmet Ersek
Yes. Some years up, and some years down.
But you're right, directionally.
Scott T. Scheirman
Yes, in a given year, there could be some variation. But long term, we believe there's opportunities to continue to optimize the commissions on a long-term basis.
Andrew W. Jeffrey - SunTrust Robinson Humphrey, Inc., Research Division
Okay. And to be clear, just to make sure I understood you, Scott, in terms of long-term CapEx, '12, sounds like it's going to be above trend line.
Scott T. Scheirman
Yes, '12, our view is we'll be somewhere around 4% to 5% of our revenues. As we turn the calendar to '13 or on a long-term basis, we think it will be closer to 3%, which is where we run historically.
Again, any given year could vary if there's an agent opportunity or some other initiative. But we think the normalized run rate looks closer to 3% long term.
Andrew W. Jeffrey - SunTrust Robinson Humphrey, Inc., Research Division
Okay. And then one last one, if I may.
On China, you mentioned that there's a little bit of softness there. Would you characterize that as competitive or macro?
And do you still have a big ambitions for what could be a pretty significant market opportunity long term?
Hikmet Ersek
No, I think we are very committed to China. And I'd see there's a really long-term market opportunity in China, I mean, given our presence there, given our agents.
And I think it has something to do with a little bit macro, and it's a mix of macro. I wouldn't see that as a huge competitive trend.
I think we are very well positioned there. So I think I see China as an opportunity.
Operator
The last question comes from David Togut of Evercore Partners.
David Togut - Evercore Partners Inc., Research Division
Hikmet and Scott, EBIT margin, excluding restructuring and TGBP integration expenses, was down 100 basis points in Q2 versus 200 basis points in Q1. So as you look out to the balance of this year and 2013, can you give us sort of the puts and takes on margins?
And I'm more focused on 2013 since you've already commented on 2012. I guess, specifically, what are your thoughts with respect to investment in electronic channels?
And then, number two, can you dial back expenses if we remain in a tough global economy, particularly southern Europe?
Hikmet Ersek
I think we are very focused, obviously, on long-term margin expansion. That's clear.
Revenue growth will help us to expand the margins. That's for sure.
But once we have a strong revenue growth, the margin expansion is here. I would say that we did a significant investment in our San Francisco office, in our digital.
These numbers are already showing that we are growing very fast here. We're going to continue to invest, obviously.
But I'm not sure it could be higher or lower in the future, the investment in that part. I think I'm, long term, committed to grow this business and long-term margin expansion if -- once we grow this business.
Michael A. Salop
Yes. And I'll also add, David, as Scott mentioned earlier, we do have Business Solutions synergies coming.
We'll have about $30 million of cost savings once we -- that's annualized after 2013. But we'll get a fair amount of those in 2013 as well.
David Togut - Evercore Partners Inc., Research Division
You spend about $200 million a year in advertising and marketing. Do you anticipate dialing that spend back next year if the economy remains weak?
Hikmet Ersek
No, I think marketing is -- obviously, our brand, our customer relationship, our expansion is very important for us. I think we are positioned.
We want to expand. We want to gain market share.
I think marketing is one of our tools to gain that.
Michael A. Salop
Thanks, everyone, for joining us. And we wish you a good day.
Thanks
Operator
This conference has now concluded. Thank you for attending today's presentation.
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