Good afternoon, and welcome to the Western Union third quarter earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Mike Salop, Senior Vice President of Investor Relations. Please go ahead, sir.
Thank you, Laura. On today's call, we will discuss the company's 2018 third quarter results. Then we will take your questions. The slides that accompany this call and webcast can be found at westernunion.com under the investor relations tab and will remain available after the call. Additional operational statistics have been provided in supplemental tables with our press release. Today's call is being recorded. 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 2017 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 reconcile those items to the most comparable GAAP measures on our website, westernunion.com, under the investor relations section.
All statements made by Western Union officers on this call are the property of The Western Union Company and subject to copyright protection. Other than the replay noted in our press release, Western Union has not authorized and disclaims responsibility for any recording, replay, or distribution of any transcription of this call. I would now like to turn the call over to Hikmet Ersek.
Thank you, Mike. Good afternoon, everyone. Third quarter results were solid, driven by continued double-digit revenue growth from our digital westernunion.com business and strong overall profitability with operating margins just under 22%. Consumer Money Transfer and bill pay constant currency revenue trends were generally consistent with the second quarter, while Business Solutions delivered good improvement and returned to positive growth. Consumer Money Transfer indicators remain healthy, with transactions growing 4% and cost for the principal increasing 6% in the quarter or 7% in constant currency. Our digital business continued its strong run as westernunion.com money transfer revenue grew 19% in the quarter or 20% constant currency. Constant currency money transfer growth was led by Latin American, Caribbean, and European regions, with continued good performance from our U.S. outbound business offsetting declines in the Middle East, Asia, and U.S. domestic business.
The price reductions that we implemented earlier in the year in key Middle East corridors are generating positive results as we started to see transaction improvement in the region. In addition, our operating margins increased substantially compared to the first half of the year as expected, and cash flow generation was solid. Overall, we remain on track with our full-year financial outlook with a narrowing of our earnings per share ranges and an increase in the adjusted earnings per share outlook. Strategically, we made good progress on several key initiatives, including advancing our digital expansion efforts and adding new cross-border payment opportunities to our global money movement platform. Our digital westernunion.com money transfer services are now available in more than 50 countries and territories, including recent launches in Mexico and Malaysia, with the capability to send to agent locations and billions of accounts around the world.
We also launched a high-value service in the U.K. where consumers can now send up to £50,000 through westernunion.com to bank accounts in key receive markets. It's a part of our strategy to penetrate new customer segments in cross-border transfers. Another strategic initiative we are very excited about is our recent engagement by Amazon to launch a new payment option for their international customers. In this arrangement, we are leveraging our cross-border platform and network to allow shoppers to pay for online purchases in person at our agent locations in select countries for now. This will provide access to online shopping for millions of potential Amazon customers who will be able to shop global and pay local. It is just one example of how we are leveraging our unique global platform in new ways, bringing value to partners through our technology stack, API, settlement engine, and compliance infrastructure.
Now returning to 2018 results. Profitability was strong and consumer transactions growth remained solid. We are also making good progress with the WU Way expanding lean and agile management throughout the company, which is contributing to increased efficiency and to strong margins. We continue to deliver shareholder-friendly capital allocation as we have returned over $600 million to shareholders through share repurchase and dividends to the end of the third quarter. The Business Solutions results in the quarter were more encouraging. I assume you will have some questions regarding recent stories that we may be considering divesting this part of our business.
While we will not comment on specifics, we have stated we will consider any strategic options for our business unit that could benefit shareholder value. We are currently reviewing various alternatives but do not have anything to announce at this time, and there is no assurance any transaction will occur. In the meantime, we remain focused on driving the long-term performance of all our businesses. Now, to give you more detail on the quarter's results, I would like to turn the call over to Raj.
Thank you, Hikmet. Third quarter revenues of $1.4 billion declined 1% or increased 3% on a constant currency basis compared to the prior year period. Currency translation net of the impact from hedges reduced third quarter revenue by approximately $53 million compared to the prior year. Primarily due to continued declines in the Argentine peso. The decline in the peso negatively impacted total revenue by three percentage points. This impact was partially offset by an increase in our Argentina business' local currency revenue per transaction, primarily driven by the effects of inflation on our bill payments business. The increase in Argentina revenue per transaction benefited total revenue by approximately 1.7 percentage points. In the consumer-to-consumer segment, which represented 80% of company revenues in the quarter, revenues were flat or increased 2% constant currency, while transactions grew 4%.
Total C2C cross-border principal increased 6% or 7% on a constant currency basis, while principal per transaction increased 2% or 4% constant currency. The spread between C2C transaction and revenue growth in the quarter was 4%, with a negative 2% impact from currency. Pricing and mix each had a negative impact of 1% in the quarter compared to the prior year period. We do not have any significant new price reductions implemented in the quarter, as the 1% pricing impact primarily reflects actions taken in the Middle East in the second quarter. Turning to the regional results, North America revenue increased 2% on both a reported and constant currency basis, while transactions grew 1%. The U.S. outbound business delivered good growth again in the quarter, particularly to the Latin American and Caribbean countries.
U.S. to Mexico revenue growth improved, while U.S. domestic money transfer revenue declines were similar to last quarter. In the Europe and CIS region, revenue increased 3% or 4% on a constant currency basis, driven primarily by good results from France and Spain. Transactions in the region increased 8%. Revenue in the Middle East, Africa, and South Asia region declined 7% on a reported basis or 6% constant currency, while transaction growth improved 2% in the quarter. Revenue in the Middle East is being impacted by the previously implemented pricing reductions, which have helped volumes as transaction growth in the region turned positive for the first time in three years. The Latin America and Caribbean region continued to deliver strong constant currency revenue growth, both driven primarily by Argentina, Peru, and Brazil. Revenue in the region increased 2% in the quarter or 16% constant currency, while transactions grew 11%.
In the APAC region, revenue declined 10% or 9% constant currency and transactions were down 2%, with the declines driven by a number of smaller markets. westernunion.com continued to deliver strong growth as revenue grew 19% or 20% constant currency on transaction growth of 23%. westernunion.com represented 12% of total C2C revenue in the quarter. Business Solutions revenues increased 1% or 3% on a constant currency basis and represented 7% of company revenues in the quarter. Revenue was driven by growth in payments, which was led by the education vertical. Other revenues, which consist primarily of our bill payments businesses, decreased 9% in the quarter or increased 7% on a constant currency basis and represented 13% of total company revenues.
The Pago Fácil walk-in business in Argentina experienced transaction increases and local currency revenue growth but declined in U.S. dollar terms, and our Speedpay U.S. electronic bill payments business also declined. The depreciation of the peso negatively impacted other reported growth by 16 percentage points, which while increases in revenue per transaction, which were primarily driven by inflation, benefited other reported and constant currency revenue growth by approximately 9.6 percentage points. Turning to margins and profitability, the consolidated operating margin was 21.8% in the quarter compared to 19.4% in the prior year period or 20.7% in the prior year on an adjusted basis. On an adjusted basis, the margin expansion was driven by higher incentive compensation-related expenses in the prior year and timing of marketing spending, which was down 80 basis points compared to the year ago quarter.
Last year's reported margin also reflected WU Way expenses and an accrual related to the joint settlement agreements. Foreign exchange hedges provided a benefit of $4 million in the current quarter compared to a negative impact of $2 million in the prior year period. We achieved approximately $8 million of incremental savings from WU Way initiatives in the quarter, which gives us approximately $36 million of incremental savings year-to-date. On an absolute basis, we are on track to generate approximately $60 million of savings from WU Way for the full year, which is above what we expected. EBITDA margin was 26.4% in the quarter compared to 24% in the prior year period or 25.3% on an adjusted basis. The GAAP effective tax rate was 21.7% in the third quarter compared to 1.5% in the prior year period.
On an adjusted basis, the tax rate was 11.7% compared to 3.6% in the prior year period. The increase in the GAAP tax rate was primarily due to non-recurring benefits in the prior year period and adjustments to our prior year estimates related to the Tax Act in the current period. As we previously stated, certain of the 2017 impacts related to the U.S. Tax Act enacted in December of last year were provisionally estimated and additional effects would likely be recorded this year. In the third quarter, changes in our estimates related to the Tax Act resulted in a $26.6 million tax expense. The increase in the tax rate on an adjusted basis was primarily due to non-recurring benefits in the prior year period. We do not have any updates yet on how the BEAT provision of the Tax Act may impact our tax rate in 2019 and beyond.
We are working on restructuring our internal business flows to fully or partially mitigate the potential double taxation impacts of BEAT, which could cause our rate to move up a few points from the mid-teens base if there is no mitigation. Restructuring these flows has some complexities and requires different regulatory notices and approvals and technology and operational changes, but we are making good progress. We should be able to let you know what we expect when we provide our 2019 outlook early next year. Returning to the third quarter results, earnings per share in the current year quarter was $0.46, which compared to $0.51 in the prior year period. On an adjusted basis, earnings per share was $0.52 compared to $0.53 in the prior year period.
The decrease in reported and adjusted earnings per share was primarily due to higher tax rates in the current year period, partially offset by increased operating profit. The C2C margin was 25.1%, which compared to 23.5% in the prior year period. The margin increase was primarily due to the impact of currency, higher incentive compensation related expenses in the prior year, timing of marketing spending, and lower average retail commission rates. Business Solutions operating margin improved to 14.2% in the quarter compared to 9.1% in the prior year period. The increase in operating margin was primarily due to the timing of spending and cost efficiencies. Business Solutions EBITDA margin was 24.6%, which compared to 19.8% in the prior year period. Operating margin for the businesses included in other was 5.9% in the quarter, which compared to 10.5% in the prior year period.
The year-over-year margin decline was primarily due to lower overall revenue and higher bank fees as a percentage of revenue in our U.S. electronic business. Turning to our cash flow and balance sheet. Year-to-date cash flow from operating activities was $518 million, which includes the impact of approximately $120 million in tax payments related to the agreement with the U.S. Internal Revenue Service announced in 2011. A $60 million payment for the previously announced New York Department of Financial Services settlement and approximately $30 million of spending on prior year WU Way expenses. Capital expenditures in the quarter were approximately $158 million. At the end of the quarter, we had cash of $768 million and debt of $3.3 billion. During the quarter, we returned $184 million to shareholders, including $84 million in dividends and $100 million of share repurchases, which represented 5 million shares.
The outstanding share count at quarter end was 444 million shares, and we had $594 million remaining under our share repurchase authorization, which expires in December of 2019. Based on the year-to-date results and recent business trends, we are affirming our full-year financial outlooks for revenue, operating profit margin, and operating cash flow. We have narrowed our GAAP earnings per share range and increased the adjusted earnings per share range primarily to reflect the lower adjusted tax rate. We continue to expect low single-digit reported and low to mid single-digit constant currency revenue growth for the full year. And the operating profit margin outlook remains at approximately 20%. The GAAP tax rate outlook is unchanged at approximately 13%-14%, but we now expect the adjusted tax rate to be approximately 12%, down from our previous outlook of 14%-15%.
The change is largely driven by improvement in maximizing our foreign tax credit position under U.S. tax reform and certain discrete benefits. Excluding these discrete items, we would have had a normalized tax rate in the mid-teens this year. The GAAP earnings per share outlook is now in a range of $1.85-$1.92. While we have increased our adjusted earnings per share range to $1.88-$1.95, up from $1.80-$1.90 in the previous outlook. Cash flow from operating activities is still projected to be approximately $800 million in 2018, which is net of approximately $200 million of outflows from the combination of tax payments related to the IRS agreement from 2011, the NYDFS settlement payment, and WU Way payments related to 2017 expenses. To summarize, we are pleased with the solid performance in the quarter and operating margin improvement.
We are on track to deliver our full-year financial outlook with an increase to the adjusted earnings per share range. We continue to return significant funds to shareholders. Operator, we are now ready to take questions.
We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. Our first question will come from James Snyder of Goldman Sachs.
Thanks. Jim?
This is Bill Schultz on for Jim. Thanks for taking my question. I just wanted to touch really quick just on the Middle East for a second. You'd mentioned recently you had taken some price actions to rectify some of the competitive pressures there. Curious if you think that's the main driver of the improvement in transaction volumes you guys reported this quarter?
It is the main driver. We took some price reductions in the second quarter of this year related to competitive reasons as well as just the overall market environment. The market environment itself is quite negative just because the expats are leaving many of those markets. We have less jobs for expats in Saudi Arabia, for example. Not only competitive, but also just to address the market environment. We are seeing a direct benefit from the price reductions we took, which is positive. Saudi Arabia, in particular, improved in the quarter.
Just staying with pricing for a second, just touching on Walmart 2 World competition. You've talked in the past about taking some targeted price actions around Walmart locations to ensure you're competitive in those areas. How has that progress been, and do you feel like you're now priced appropriately in those locations?
No. First of all, we have not seen any significant impact in our U.S. outbound business from Walmart. As you know, we have 50,000 locations in the U.S., and our pricing actions we can do is very dedicated. Our U.S. outbound business has been doing very well. U.S. outbound to Mexico business is growing. I think we are very well positioned in the U.S. Also, our U.S. outbound digital business, we are seeing dotcom business showing good results. I think we are very well priced, and we're going to continue to do, we call it street corner pricing or dedicated pricing around some locations we needed, and we have done doing that for many years, and we're going to continue to do that.
Thank you for the color. Appreciate it.
Thank you.
Thank you.
The next question will come from Darrin Peller of Wolfe Research.
Hi, Darrin.
Hey. Thanks, guys. Hey, Hikmet. Hey, guys. Just want to start off on the Amazon announcement. I think that was a pretty interesting partnership, and clearly underscores the magnitude of your network and the opportunity that you can explore around that. I guess I just want to get more color on what the intentions are and what the opportunity is. First of all, maybe you can give us color on how many markets you see this rolling out into, what kind of economics this comes with per trade, how does it work per transaction? Then do you see this going into other types of e-com players as well?
I think it shows really how global our network is and how we give access. Amazon wants to give access to millions of customers to buy their products and using our network so customers can buy globally and pay locally. That's a big advantage for us because we have already the platform. The platform, the agent network, we did some adjustment on our systems, and we are now training some of the locations, and Amazon will announce in the right time the markets they want to open. We are ready to go, and we are testing, and we have some real transactions starting, and I leave it to Amazon to announce that to their customers.
I guess just maybe if you can give us any more color on what you think there could be in terms of incremental here. This is all really going after the underbanked, I imagine, right? Primarily.
Yes, Darrin. It is going really not on underbanked. Also, maybe they have bank accounts, but it's only local, and they really want to use cash maybe, and they really want to use their local cards. It is really a local currency, and they're going to the customers, I believe, that they don't have the access today to pay international payments.
Okay. Thanks, guys. Just quickly, and I'll turn it back to the queue, but on the potential for any type of restructuring on-- It looked like your B2B business actually improved. I don't know if that was just easier compares or something in the business, if you can give us more color on that, on the growth rate, and then the potential for restructuring and strategic alternatives. Is it for the whole business you would explore, either selling or moving around, or is it part of it keeping maybe the education side any more interesting? Any more color would be great. Thanks.
I think as you could see, we are very much focused on our B2B business and has been turning a positive growth again. The team is doing a good job. We have seen good growth rates in certain markets. We do still have some challenges, but as you said, the education part of the business, payments part of the business is doing very well. Also the trading part of business showed positive results. The transactions and the customers are really using it. Please do understand that we don't speculate on any rumors on the markets. We will always look on any opportunity to divest or to buy any business to drive the shareholder value. We will definitely look at that. In this moment, I have nothing to say more about that opportunity or about the divesting the business.
Thanks, guys.
Thank you, Darren.
Our next question comes from Tien-Tsin Huang of JPMorgan.
Hi. Thanks, Good afternoon. Hey, guys.
Hello, Tien-Tsin.
Hello. Always good to talk. The margin coming in at 22%, I believe that brings your year to date closer to the 20% target for the year. I'm curious if we adjust the 21.8% for the 80 basis points and the timing of marketing, why wouldn't 21% margin be the new level for margin to consider going forward? Sounds like WU Way is helping that. Just curious how much of that is sustainable.
It's a good question, Tien-Tsin. You're right, the margin is running slightly above 20%, actually, for the first nine months. Depending on how the expenses play out in the fourth quarter, we could end up above 20%. We said approximately 20%, but it's running stronger at the stronger end, I would say. We're pleased. The WU Way savings that we've been getting are showing up. They are showing up in the margin, and we're always looking for ways to continue to optimize the margin as we look at our cost structure. It's ending up positive.
I think also, Raj, being clear, the revenue growth will help us, of course, given our cost structure being mostly variable. That will help us. Tien-Tsin, and I have to say that as we disclosed last quarter, the team is very much focused on the cost side, margin expansion, efficiency, and our lean management tools are helping the WU Way activities, really helping to find efficiencies. This quarter, we came on savings better than we expected. We hope that we continue to do that. The team is very much focused. The margin expansion is definitely something they are focused on.
Okay. No, it's good. No, it seems like there's a little bit of benefit there on the margins, which is encouraging. My follow-up, I'll ask Trying to think which question to ask. Let's do the peso question, because that has a big impact. Just wanted to clarify for modeling purposes, because it is big. The peso was a three-point drag on FX, and then the inflation piece helped, was a 1.7 point benefit to revenue. Is that a good ratio to consider going forward? I know the peso is so volatile, but it clearly have an impact on the whole P&L. Just trying to understand how we should think about that dynamic of the FX and then the inflation.
Yeah. They don't always work in concert with each other. For this year, that's probably a good ratio, but depending on where inflation is, they could be different from each other. We're just calling that out just to give you more visibility on that market because it's been quite volatile. Obviously, we didn't necessarily see that kind of volatility last year, but we're certainly seeing it this year. The peso has devalued about 45% as of the third quarter, and inflation is probably running a little bit less than obviously. It doesn't necessarily match with each other the way it is right now.
One of the reasons we are calling also is that as you know, we have a part of a business there which is done in pesos, and that impacts the reported and constant currency variance there.
Yeah. As Hikmet said, it's mostly in our bill payments business in Argentina, it doesn't impact the consumer business as much as those numbers show.
Well, thanks for calling it out.
The next question comes from Bryan Keane of Deutsche Bank.
Hi, guys. Just wanted to ask about that tax rate, the adjusted tax rate. It sounds like you're still trying to understand some of the BEAT tax and some of the implications. Maybe you could just walk through some of the potential changes there that you're looking at that could move the tax rate higher.
Yeah. Bryan, we don't have a definitive answer yet for next year. If you think about our base tax rate being somewhere in the mid-teens, this year we've been able to get some specific benefits, some discrete benefits that are helping us around our foreign tax credit position. That's why our adjusted tax rate is around 12%. The BEAT issue for next year, which is really an unwarranted double taxation as a result of the U.S. tax reform. We are trying to change some business flows internally to alleviate some of that pressure. Our goal is to solve it not only for next year but for the foreseeable future. That's the strategy that we're working on. That does require some regulatory approval, some operational changes internally. It's complex, but we're making good progress there.
We can give you more color as we go into next year. The other avenue that is not in direct control is potential legislative change or guidance from Treasury on how to apply the BEAT provisions because they most agree that there were some unwarranted aspects of tax reform related to BEAT, and it's creating a double or even sometimes triple taxation in certain cases. Those are the two ways that we're looking at it. We're making good progress, I would say.
Okay. Hikmet, just wanted to ask about looking at your portfolio of assets. Sounds like you're looking at strategic options in the B2B business. Are there other things you're looking at to either divest or potentially even add to the portfolio of assets as you see it on the Western Union books?
As I said, Bryan, good question. I will always look for an opportunity which drives the shareholder value. Saying that is on the market, if something on the digital environment pops up which could be interesting for us and adds to shareholder value, we will definitely look at that. That could be interesting. Generally, I would say that we are very much focused on the cross-border, cross-currency money movement. That platform, as we also announced with our relationship with Amazon, has a value, and we're going to continue to focus on the moving money cross-border, cross-currency, which fits in there. We will definitely be active there also. So I leave it there, Bryan.
Okay. All right. Helpful. Thanks, guys.
Thanks, Bryan.
Thanks, Bryan.
The next question will come from Jason Kupferberg of Bank of America Merrill Lynch.
Thanks, guys. How are you?
Good. How are you?
Good. Just on C2C constant currency growth, looks like it's been kind of slowing as we go through the year here, I think from 5% to 3% to 2%. There's a tougher comp in Q4. Just want to know how we should think about C2C growth for this current quarter. Could it slow a little bit further? I know you still got some of the pricing headwind from what you did last quarter in the Middle East, but how are you thinking about the Q4 there on C2C?
Just generally, Jason, the consumer business was relatively consistent. A little bit slower. The strong growing areas continue to be strong like Latin America, Europe, and U.S. outbound. U.S. outbound to Mexico actually improved in the quarter. They were not as strong as we saw in the previous quarter, but still good strength there. Middle East got a little bit worse, but the transaction growth is turning positive there, and that's a good thing for us. I wouldn't expect too much of a difference as we go into the rest of the year. We're getting strong double-digit growth in our westernunion.com business, that continues to be very strong. We feel good about the overall trends.
If you look at the cross-border principal that we've gotten in terms of growth that we've gotten year-to-date, it's been growing around 8% year-to-date, which is above where the market is growing based on the World Bank estimates at 4.5%. We're getting good principal growth around the world, and we feel good about our positioning at this stage.
We feel generally good about our year-end guidance as we mentioned earlier.
Just on westernunion.com, I guess the revenue growth, the constant currency revenue growth there has been lagging the transaction growth to some extent. Is that just pricing, or there's some other factors in there? Do you think 20% is sustainable for westernunion.com revenue growth, constant currency going forward?
There's not a lot of pricing in there. It's more geographic mix of the business in terms of going forward.
I mean, we continue to see good growth opportunities there. In any given quarter, the revenue growth and transactions may be somewhat different. We have a lot of things going on, more expansion around with geographies, more channels, more accounts payable, those kinds of things.
Right. Okay.
I think one thing I would like to mention here is also the outbound business is doing pretty well. It saw some softness at the domestic money transfer business, at the westernunion.com business that impacted. Besides that, putting the real focuses, as you know, to outbound business from the U.S. or from Europe. The new markets long term will also add on the transaction growth, which we just announced Mexico, Malaysia, for instance. We have about 50 countries now, and we're going to focus. That's a long-term report, and we're going to focus expanding them. The growth is coming very strong also from the existing markets, and we are pleased with our receive westernunion.com expansion.
Okay. Thank you, guys.
Thank you.
Thank you, Jason.
Our next question comes from Rayna Kumar of Evercore ISI.
Hi. Thanks for taking my question. Could you update us-
Hi, Rayna.
Could you update us?
Rayna.
Rayna, we can't hear you.
Rayna, can you speak up? Sorry.
Hello. Could you update us on your-
Yeah, much better.
Okay, great. Could you update us on your capital allocation priorities for 2019? Specifically, when the board next meets, do you expect them to approve a dividend increase? How much of your cash will you allocate to share repurchase next year?
Yeah. I won't get into all those specifics. If you just look at our history, Rayna, you can see that for the last few years in a row, we've raised the dividend. Obviously, it's based on business performance. We've been able to increase the dividend each year for the last few years. We've also been buyers of our stock the last few years. We've been typically in that $400 million plus range in stock buyback. Our capital priorities have not changed. We want to invest in the business to drive organic growth. We pay more than $300 million in terms of dividends. We want to continue to improve that. We'd like to do the right kind of acquisition. Lastly, we use excess cash to buy back stock, if that's at the right price.
Those are really the capital priorities, and you can see what we've done this year. We've already returned through both dividends and buybacks, about $600 million.
Also, I think we have an authorization of about almost $600 million, $594 million.
Right
end of 2019
Yep.
That's very helpful. Could you also discuss the drivers to the improvement in your Business Solutions business, and could we see revenue accelerate further from here?
We hope that we are very much focused on the Business Solutions. The team is doing a great job. Our payments business, as I mentioned earlier, is doing well, we're going to expand that. Also, our trading business is doing well. The foreign exchange trading business is doing much better. We do still have some challenges, part of the world with some volatility challenges, customer loyalty challenges. Besides that, I see a good path on the execution, much better than earlier, and we hope to keep the momentum.
Yeah. We're moving customers to our WU EDGE digital platform, as we talked about before, that continues. Those are the lower end or smaller customers, that creates more stickiness with that customer base. It also frees up our sales resources to go after the larger value accounts. We're also driving heavily into the vertical segments that have been more successful for us, like education and financial institutions in more geographies. Then, we always need good global trade growth as an underpinning to have good success in this business. The margin improvement in the business has also been a good positive this quarter.
Thank you.
Thank you.
Thank you.
Our next question will come from James Faucette of Morgan Stanley.
Thanks very much. Hi, good afternoon. I wanted to just ask quickly about your new U.K. large transactions offering, how do you think about the growth opportunity in this type of product and what the demand can look like? I'm also wondering from a profitability standpoint, is there any difference on compliance costs, et cetera?
I think that's a very interesting opportunity for us. As you know, we were very much focused on our fast and transactions payout in locations. But as we know how billions of accounts grow globally, we could do products like that with adapting our compliance programs, understanding the customer, know your customer. As you know, over the years, we did invest a lot on our compliance programs. We use artificial intelligence, we feel quite comfortable with our compliance and anti-money laundering programs. The team is doing a good job there to offer new products to new customer segments. Obviously, GBP 50,000 have to come from a bank account and go to a bank account. Doing that, we believe that we have a good competitive position. The market search also shows that we could compete here.
We started now with the U.K., which there is a need on that. We asked the customers, they like that product. Based on the success story, we may go worldwide.
On the compliance issue is that it seems like there's a fair amount of variance among the different competitors for cross-border remittances in terms of who's doing how much compliance. You guys clearly have been a leader in improving the compliance process. Is that still having an impact on customers and that kind of thing, or have customers and share shifts kind of normalized or stabilized so that that's not much of an issue anymore?
I think the customers like to use a trusted brand. In the beginning, of course, if you change the processes, it may have an impact, right? The customer experience changes. Over years, one thing we learned is that the customers, when they move money, they really like to trust. You want to trust a brand, which the money really arrives, where the sender feels comfortable, where you feel comfortable to send that. That has shown the customer experience. Customer service show that customers actually like our programs. We are doing it much easier now for the customers, especially the second transaction, like stage transaction on mobile phone. You stage the transaction, go to a location, and you do your transactions. It's going very well, actually.
All these paperless transactions, knowing the customer in advance, and also knowing the customer in the receive side helps us a lot. Artificial intelligence, what we invest in technology helped a lot. Our biggest benefit is that we are in 200 countries with 131 currencies and combining our more than 20,000 corridors. You need definitely investment on the technology here. I think also as Raj mentioned before, our principal amount is increasing. We are gaining compared with the worldwide market share, obviously here based on our programs.
That's great to hear. Thank you so much.
Thanks.
Thank you.
The next question comes from Ashwin Shirvaikar of Citi.
Hi, Ashwin.
Hi, Ashwin.
Hi, Raj. Hey, how are you guys?
Good. How are you, Ashwin?
Good. Happy November. I guess, well, let me start with you have this $90 million capitalization of contract costs in the quarter. I went back quite ways, and I don't see a capitalization of cost that large. Is that basically like a single contract like Amazon, or were there many super agent renewals, or is there something going on in terms of accounting assumptions? Any color?
I don't see this as a run rate of any kind. We have lumpiness sometimes in our agent renewals. In any given year probably 20% of our contracts are renewing. We did renew a large agent with Safeway, and we extended to the Albertsons relationship which gives an incremental 1,000 locations which will be live early next year. That certainly was a key part of the agent bonuses. Again, our total CapEx, if you look at the total CapEx, it's historically been in the 3%-5% range of the % of revenue, and this year will be at the higher end of that range. The last several years in a row, it's been always in that range, 3%-5%. I don't see it being anything different than that.
Okay. Yeah, that is kind of a use of cash type of question. On the tax rate, I know, Raj, a couple of questions, try to explain the uncertainty with base erosion provisions, and I get that. If the opinion that you get back from the Treasury is a negative one, what are your other tax planning alternatives? I know you mentioned change in business flows, but I don't quite understand what that means. I wasn't sure if you mentioned a timeframe to come up with this. I'm only asking because it's material, a few percentage points. Can you help from a modeling perspective?
Yeah. Because of the way the principal flows happen from U.S. outbound to our international entities and the way the BEAT provisions work, without getting too technical, Ashwin that creates the double taxation and even sometimes triple taxation. We need to change the way the principal flows work in the company to alleviate some of those double or triple taxation. That's what we're working on. Our goal is to get at least part of it, if not all of it, solved for next year and beyond. We also agree that it's quite valuable for us to solve it, and we're looking at that and we're making good progress. There's not much more I can say beyond that. Then there are a number of other tax planning strategies that we are working on, like we do every single year.
This year, our going-in position was we were in the mid-teens rate for our tax rate. We're going to end up probably around 12% on an adjusted basis. We're always looking at some specific opportunities and we'll give you more color as we go into next year. Look at our history of how we've managed our tax rate, it's been quite strong. We have some of the best people working on that, and we'll give you more color early next year.
Got it. Thank you for that.
Sure.
Thanks.
Next, we have a question from Kartik Mehta of Northcoast Research.
Hey, Raj.
Hi, Kartik.
How are you?
Hey, how are you? Good. Yeah.
Raj, looking at the margin, obviously exceeding expectations. You mentioned WU Way as a contributor. Is that the only contributor to the expansion you're seeing, or is there more to it? I know revenue growth hasn't gotten to where you wanted it, I was wondering if there's other drivers maybe to the margin expansion.
Yeah. For the quarter, marketing spend was down from a year ago. That was about 80 basis points lower. That's certainly a key part of it. If you think about margins overall, I think Hikmet mentioned some of the factors. Revenue growth is going to be a key driver because of our cost structure, which is 40% fixed. You look at commissions, which we've been able to do a really good job of the last few years, including this year, on bringing those rates down. The overall mix impact is also helping us there. Compliance costs have been the same, basically, at a percentage of revenue basis the last several years. That's quite stable. Then the WU Way efficiencies, that's above our expectations for this year, that's also helping the margin.
Those are the various factors, as we look at fourth quarter and next year, these are the factors that will impact margins. As Hikmet mentioned, we are absolutely focused on doing more with profitability and trying to find better opportunities for ourselves there, even in the face of the growth levels that we have today.
I know you obviously can't talk about the transaction or divestiture. I'm wondering, though, if you're successful with divesting a business or two, what do you intend to do with the proceeds?
Yeah. We can't really speculate, obviously, Kartik, as you said. In terms of use of proceeds, if we were to have some kind of a transaction, all I can point you to is our capital priorities that I went through earlier. We've been very shareholder-friendly. We've given a lot back through dividends and buybacks. We also have been investing in our business for organic growth. We would like to do the right kind of acquisition if one presented itself. Those are the choices we have, and we'll look at those very closely to see what makes the most sense if we were to have some kind of a transaction, which there's no guarantee of that. If we had something, we would certainly look at through that same lens that we do today in terms of capital priorities.
All right. Thank you very much.
Sure.
Next, we have a question from Andrew Jeffrey of SunTrust.
Hi, it's Jenny picking up for Andrew.
Hi, Jenny.
Hi. Just following up on the comments about lower average retail commission rates. Can you talk about what's happening there? Are you gaining some type of bargaining power or leverage? What's driving those rates down?
I think that's part of it, right? We have been very competitive in the market. As you know, we have more than 550,000 locations. That brings us a huge advantage over the years because we can really go after any market. We would like to see the opportunity where we see competitive advantage. In the beginning, as we enter in a market, you do pay higher commission, but as you generate revenue and you've been longer in the market, you have a deal with an agent. It helps us to bring the commissions down. That's a part of that. It's not a one-time, it's a multi-year effort. We started about three, four years ago, and it has been consistently going down. Sometimes in some quarters, we may have a sign-in bonus or some higher effective rate, but generally, the commissions will continue to go down.
The other part is also the mix. One of our strongest growing business is paying out on an account. For instance, from westernunion.com to an account, that helps also because the account payout has much lower commission rates than paying out on a manual on a location.
Okay, great. Thank you.
Thank you.
Thank you.
Okay. Laura, I understand we have one more question in the queue, so we'll take the final question.
Yes. That question is from James Friedman of Susquehanna.
Hey, guys. Thanks for sticking me in. It's Jamie at Susquehanna. I just want to ask about what is the current temperature on the compliance environment? I know you had put in a lot of automated initiatives. Are we still thinking in the three and a half, 4% range, or is there an opportunity to scale that better over time?
The answer is yes, probably to both your questions. We're still in the 3.5%-4% range this year. If you look at the last 3 years, it's been the same range, same ballpark, around 3.5-ish type percent. At some point, we will get leverage on our compliance spend, right? As we grow the business, as we have more growth overall, we should be able to get better leverage there because there is a portion of our compliance spend that's fixed in nature, then there is a portion that's going to be variable in nature that's more transactional related. We absolutely look at it that way, and we've sort of stabilized out or leveled out after some initial increases a few years ago, that's definitely how we're looking at it.
Also artificial intelligence, which we look at that data management helps a lot to be more efficient.
For my follow-up, I just want to go back to the exciting Amazon partnership, we were getting a lot of questions about yesterday about the use cases. I know, Hikmet, you described some of them, the local and the global. Do you have any updated data about the unbanked population and the network? Because that's been a metric that you shared, but only periodically. We're just trying to figure out who's going to use the Amazon relationship and what the profile might be.
Generally, as you can imagine, there are parts of the world which don't have the international cards. They want to use it, that helps a lot our platform. We are a provider to Amazon. It's Amazon customers. They want to promote the product within the Amazon. I leave it really with Amazon there. We really provide our platform to them to serve their customers, they are focused on the market they want to launch, and they want to promote it, I really want to leave it with Amazon. I believe that you're going to hear within the next few weeks several announcements on that. The customer segment, I would say that there are most of the customers, they would like to go to a location, pay cash, or pay in their local currencies.
You buy online, and then you just go, and then the goods you bought online will be sent to you.
Got it. Thank you for the perspective.
Thank you.
Thank you.
Thank you.
Okay, thanks everyone for joining today's call. Have a good evening.
Thank you.
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