Good afternoon, welcome to the Western Union second quarter 2018 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 touchtone phone. 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.
Welcome to Chorus Call. Please hold for a conference specialist. Welcome to Chorus Call. Please hold for a conference specialist.
Laura, I think we have another call from Darrin. Okay, thanks.
I apologize for that. Please go ahead.
Okay, thanks. On today's call, we will discuss the company's 2018 second quarter results, and then we'll take your questions. The slides for the company, this call, and webcast can be found at westernunion.com under the Investor Relations tab and will remain available after the call.
Welcome to Chorus Call.
Additional operational statistics have been provided.
Please hold for a conference specialist.
In supplemental tables without calculating.
Welcome to Chorus Call. Please hold for a conference specialist. Welcome to Chorus Call. Please hold for a conference specialist. Welcome to Chorus Call. Please hold for a conference specialist.
Apologies. Please stand by. We are trying to fix the problem. Thank you for standing by. One moment, please.
Welcome to Chorus Call. Please hold for a conference specialist.
Mr. Salop, please attempt to go ahead again. I apologize.
Okay, thank you. Today's call is being recorded, and our comments include forward-looking statements. Please refer to the cautionary language in the earnings release and in Western Union's filings with the Securities and Exchange Commission, including the 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 have reconciled those items to the most comparable GAAP measures on our website, westernunion.com, under the Investor Relations section. All statements made by Western Union officers on this call are the property of The Western Union Company and subject to copyright protection. Other than the replay noted in our press release, Western Union has not authorized and disclaims responsibility for any recording, replay, or distribution of any transcription of this call.
I would now like to turn the call over to Hikmet Ersek.
Thank you, Mike, and good afternoon, everyone. Overall, we delivered a solid quarter with good growth across several geographic regions in consumer money transfer, continued strong performance from westernunion.com, and 20% operating margins. The second quarter results once again demonstrated the stability of our core consumer business while our bill payments results were mixed and business solutions continued to be soft. Consumer transaction growth in the quarter was a healthy 5%, an improvement from the first quarter, and cross-border principal increased 9%, indicating we are performing better than World Bank market growth estimates. Our digital business continues to advance with westernunion.com revenues increasing 22% in the quarter. This growth is even more impressive when you consider our multi-year success in the digital channel and our large digital customer and revenue base.
Regionally, the Latin America and European regions remain strong, as well as the U.S. outbound market, partially offset by softness in the oil-producing Gulf countries of the Middle East. We view the overall pricing environment as stable. We continue to make adjustments, both increases and decreases, wherever we see opportunities to benefit long-term growth. This quarter, we did some reductions in the Middle East, which brought the pricing slightly down. This was within our outlook, and the overall competitive environment remains stable. Looking at profits, our efficiency initiatives and expense management programs are delivering good results. I am pleased with our operating margins improvement from the first quarter. We also continued with our share buyback program, repurchasing $250 million in the quarter. Overall, our core money transfer business continues to perform. We are winning and signing major agents.
I'm pleased to announce that we just signed a new contract with Albertsons, one of the largest grocery chains in the U.S. The agreement will add 1,000 locations to our network, a competitive win. In addition to extending our previous Safeway relationship, which in combination places our money transfer and bill payment services in over 2,300 Albertsons locations. Our strong global brand and customer experience in the retail channel, along with our digital capabilities, continue to be a competitive advantage. Longer term, we are continuing to execute our strategic initiatives, focusing on expanding digital offerings, enhancing the customer experience, entering new cross-border opportunities, and creating operating efficiencies. In our consumer business, we have now expanded westernunion.com to 45 markets. We also have many other digital opportunities in progress.
We are working on expanding our co-branded digital offerings, such as with our bank agents, where we offer our money transfer to their online banking services and their ATMs. Based on information provided by our agents, we believe these digital offerings already represent approximately 2% of our C2C revenue, which is in addition to the 11% of revenue generated by westernunion.com. In addition, we are introducing high principal value account-to-account services in certain corridors with an intent to roll out more broadly over time. We also see good opportunity to increase our westernunion.com penetration in existing markets, including Europe. Other consumer initiatives include various customer experience improvement and relationship management programs, such as rollout of our digital-initiated retail services, where a transaction can begin on the Western Union app and conclude at retail. Operationally, we expect our WU Way programs to continue to drive ongoing efficiencies-
Conference call. Please hold for a conference specialist.
I'm sorry.
Welcome to Chorus Call. Please hold for a conference specialist.
Please proceed.
I'm sorry. I'm going to continue where I stopped. There must be an issue on the connections from the operator. Okay. Operationally, we expect our WU Way programs to continue to drive ongoing efficiencies and improvements as we further integrate lean and agile management throughout the company. We are excited about the future. Our second quarter results demonstrated solid progress in the core consumer business and good operating margins, as well as near-term challenges with some of other businesses. Overall, our full-year outlook remains solid, and we are continuing to make progress on long-term initiatives. Now, I would like to turn the call over to Raj to give you more detail on the quarter's results.
Thank you, Hikmet. Second quarter reported revenues of $1.4 billion increased 2% compared to the prior year period, or 3% on a constant currency basis. Currency translation net of the impact from hedges reduced second quarter revenue by approximately $9 million compared to the prior year, as significant declines in the Argentine peso offset favorable translation from Europe. The decline in the Argentine peso negatively impacted revenue by approximately two percentage points, primarily in the bill payments business. We were able to offset part of this impact through increased revenue per transaction in local currency terms. We estimate the offset was approximately one and a half percentage points in the quarter. In the Consumer-to-Consumer segment, which represented 80% of company revenues in the quarter, revenues increased 4% on a reported basis or 3% constant currency, while transactions grew 5%.
Total C2C cross-border principal increased 9% or 8% on a constant currency basis, while principal per transaction increased 5% or 3% constant currency. The spread between C2C transaction and revenue growth in the quarter was 1%, with a positive 1% impact from currency. Pricing and mix each had a negative impact of 1% in the quarter compared to the prior year period. Turning to the regional results, I will be referring to constant currency movements as I discuss individual country contributions. North America revenue increased 3% on both a reported and constant currency basis, while transactions grew 2%. The U.S. outbound business was again driven by strong growth to Latin American and Caribbean countries and Africa. Trends in the U.S. to Mexico business improved sequentially and returned to positive growth, while the U.S. domestic business had continued softness in the quarter.
In the Europe and CIS region, revenue increased 9%, or 4% on a constant currency basis, driven primarily by France. Transactions in the region also increased 9%. Revenue trends in the Middle East, Africa, and South Asia region reflected continued softness in the oil-producing countries and some pricing reductions we implemented in the Middle East to drive volume. Revenue in the region was down 4% on a reported basis or 5% constant currency, while transactions were down 1% in the quarter. Our Latin America Caribbean region continued to deliver strong revenue growth, driven primarily by Argentina and other South American countries. Revenue in the region increased 11% in the quarter or 20% constant currency, while transactions grew 16%. In the APAC region, revenue declined 5% on both a reported and constant currency basis, while transactions were flat.
westernunion.com delivered strong growth again as reported revenue grew 22% or 21% constant currency on transaction growth of 26%. westernunion.com represented 11% of total C2C revenue in the quarter. Business Solutions revenues declined 4% or 6% on a constant currency basis and represented 7% of company revenues in the quarter. Revenues continued to be negatively impacted by declines in Europe, particularly in the U.K., although the education vertical delivered good growth again in the quarter. Other revenues, which consist primarily of our bill payments businesses, decreased 2% in the quarter or increased 9% 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 in U.S. dollar terms, this was largely offset by the depreciation of the Argentine peso. Our Speedpay electronic bill payments business in the U.S. also declined in the quarter.
Turning to margins and profitability, the consolidated operating margin was 20.1% in the second quarter compared to 15.6% in the prior year period, or 21.7% in the prior year on an adjusted basis. The increase in reported operating margin was primarily due to a legal settlement accrual and WU Way-related expenses incurred in last year's second quarter. The decrease in adjusted margin was driven by the timing of marketing and compliance-related spending, as last year's second quarter spending was relatively low in both areas. Marketing increased 100 basis points as a percent of revenue compared to the second quarter a year ago. Foreign exchange hedges had no impact in the quarter compared to a benefit of $7 million in the prior year period. We achieved approximately $16 million of incremental savings from WU Way initiatives in the quarter, which gives us approximately $28 million of incremental savings year-to-date.
EBITDA margin was 24.7% in the quarter compared to 20.4% in the prior year period or 26.4% on an adjusted basis. The GAAP effective tax rate was 14.8% in the second quarter compared to 9.7% in the prior year period. On an adjusted basis, the tax rate was 17.3% compared to 11.2% in the prior year period. The increase in the tax rate was primarily due to non-recurring benefits in the prior year and timing items in the current year 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 second quarter, changes in our estimates related to the Tax Act resulted in a $6 million benefit to our GAAP tax expense.
Earnings per share in the current year quarter was $0.47, which compared to $0.35 in the prior year period. On an adjusted basis, earnings per share was $0.46 compared to $0.50 in the prior year period. The increase in reported earnings per share was primarily due to the legal settlement accrual in WU Way-related expenses in the prior year period, while the decrease in adjusted earnings per share was primarily due to the lower adjusted operating profit margin and higher adjusted tax rate in the current year period. The C2C margin was 23.6%, which compared to 24.9% in the prior year period. The margin decrease was primarily due to the timing of marketing and compliance-related spending. Business Solutions operating margin was 1.2% in the quarter, which compared to 5.5% in the prior year period.
The decline in operating margin was primarily due to lower revenue and increases in various expenses. Business Solutions EBITDA margin was 12.6% compared to 16.6% in the prior year period. Operating margin for the businesses included in other was 8.5% in the quarter, which compared to 12.1% in the prior year period. The year-over-year margin decline was primarily due to lower revenue and higher bank fees in our U.S. electronic business. Turning to our cash flow and balance sheet, year-to-date cash flow from operating activities was $299 million, which is net of a $60 million payment for the previously announced New York State Department of Financial Services settlement and approximately $27 million of spending on prior year WU Way expenses. Capital expenditures were approximately $53 million in the quarter. At the end of the quarter, we had debt of $3.3 billion and cash of $938 million.
We issued $300 million of 5-year notes with a 4.25% coupon in the quarter in anticipation of retiring our $400 million 3.65% notes which mature in August. During the quarter, we returned $336 million to shareholders, including $86 million in dividends and $250 million of share repurchases, which represented 12 million shares. The outstanding share count at quarter end was 449 million shares, and we had $694 million remaining under our share repurchase authorization, which expires December 2019. Based on our first half results and our recent business trends, we are affirming our full-year financial outlooks with two adjustments to reflect exchange rate changes and GAAP tax benefits. We continue to expect low to mid single digit constant currency revenue growth for the year.
we are adjusting the GAAP revenue outlook to low single digits to reflect recent weakness of the euro, the Argentine peso, and other major currencies against the U.S. dollar. The operating profit margin outlook remains at approximately 20%, and we continue to expect adjusted earnings per share in a range of $1.80-$1.90. Due to the second quarter benefit related to adjustments to provisional accounting for the 2017 Tax Act, we are adjusting our GAAP tax rate outlook for 2018 to approximately 13%-14%, down from approximately 14% in the prior year outlook. We expect the adjusted tax rate to be approximately 14%-15%. The GAAP earnings per share outlook is now expected to be in a range of $1.82-$1.92, up from $1.81-$1.91 previously.
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 anticipated final tax payments related to the IRS agreement from 2011, the NYDFS settlement payment, and WU Way payments related to 2017 expenses. To summarize, we delivered a solid quarter with good margins, and we used our strong free cash flow to return significant funds to shareholders. Our financial outlook for the year is on track with minor adjustments for currency and tax. 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 touch-tone phone. If you are 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 Tien-Tsin Huang of JP Morgan.
Thank you. Good afternoon. Good to catch up. Just wanted to ask, I guess, on the revenue side. The customer revenue growth did step down a little bit from Q1. I'm curious how much of this was cyclical versus maybe pricing or mix or other factors, maybe for both C2C and the non-C2C businesses? Thanks.
Sure. Hi, Tien-Tsin. This is Raj. In the C2C business, some of it was clearly due to pricing, but we have very good trends in the consumer business. We feel very good about the stability of that business. The .com business continued to perform well. Latin America, Europe, North America were strong. Clearly the Middle East region had some issues. We also had some pricing there. That's what you're seeing in the consumer business. The B2B business and Speedpay and the bill payments businesses were somewhat of a drag to the overall growth from quarter to quarter, and that's really what you're seeing there. Overall, the consumer business had pretty stable trends.
Yeah, I think we are really solid, especially the retail money transfer business has been solid except in Middle East, that's not new, as you know, Tien-Tsin, we did some pricing actions there. We do see some good return already on transaction-wise, this is within our normal guidance. It's up and down on the Middle East. Our U.S. outbound business is doing very well. As Raj mentioned, Europe outbound is doing very well actually, in France particularly is doing good. .com is still a star and continue to be a star. Given the base compared with the competition, we have a much larger base, we are still growing with 20%. We are affirming our outlook on the revenue side. That's why. There are some headaches also, Tien-Tsin, as we outlined already.
The Western Union Business Solutions and payments part has been slower than within our expectations.
Got it. Sure, everything's still in the range. It's helpful to get some additional color. I wanted to ask a quick follow-up just on the Albertsons win. I know that's a big one. It's a competitive takeaway. I know they have some corporate things going on, too. I'm curious if the pipeline for agent signings, if that's changed or could that be up given some of what's going on with MoneyGram and maybe with Walmart, the commitment that they've had or whatnot. Have you seen any change in activity amongst bigger agents becoming available?
No. I think as the agent signing, we are competitive on the market, it's a great win, and we are very satisfied with that. It's also extension of our Safeway, 30 years of Safeway relationship and adding Albertsons as they merge together. That has been a good one. I would say that we are continuing to be very active on the market, and the agents like us, not only about the cash-in payments. Also they liked our stage transactions a lot, where you stage a transaction on mobile, and you go and just put the cash there. That has been growing very fast. The digital combination, retail combination, bringing agents new customers has been a success story. Our compliance programs, these big agents really look at our compliance programs also.
They trust us, and we trust them, and the customers trust us. That has been a win-win situation. A great example is Albertsons. I hope more to come.
Great. Thank you so much.
Thanks, Tien-Tsin.
Thank you, Tien-Tsin.
Our next question comes from Darrin Peller of Wolfe Research.
Hey, Darrin.
Thanks, Darrin.
Hey. How are you?
Good.
Thanks for the time. Just first questions on just a bit higher level. The westernunion.com business generally still trends very well. I think there may be some questions, obviously, as you highlighted over the Western Union Business Solutions segment. I guess, Hikmet, really just asking strategic initiatives, how you think about the options for the company to reposition it for some sort of an acceleration at some point in the next couple of years. Is there anything you can do around either adding on, building on pieces to westernunion.com or pruning some part of the company that might make sense?
Great question, Darrin. I think we are always looking what's the best for the return for the shareholders are. Currently, we are definitely focused to fix the Western Union Business Solutions issues. Part of the Western Union Business Solutions, especially the foreign exchange trading part, is not performing well, especially in the U.K., not well. There's a specific problem that we are focusing. It has been for a longer time, you're absolutely right, the performance has not been within lower within expectations, and we will definitely look for Western Union Business Solutions, what's the best for us and what's for the best for the shareholder. Saying that also, our digital expansion is great. We will double on that. We will invest more. We will go in 200 countries. We are in 45 countries. Our customer experience programs with westernunion.com is going very well.
One thing I mentioned also in my opening comments is the white labeling our programs with our existing agents and our new banks. The account-based digital money transfer is already 2% of our revenue. That's what our agents reported to us. That's additional to our 11% of our revenue with dotcom, but it's also something we are going there. If there are strategic, if there are also acquisition opportunities there, we will go after it. It has to pay back, and it has to have the same growth rates, good margins for us.
Okay. That's really helpful. I guess just follow up to that with Hikmet, are you at all being more aggressive on M&A, specifically on the digital side?
Well, we've always been looking at that, right? As you know, thank God we have a good business model with good cash generation, right?
Yeah.
We're always looking at that. Some of the multiples have been, as you know, some of them, they don't even make money. They just grow. We just want to make-
Yeah.
Their base is very small, actually. It has to make a kind of good acquisition for us. We do have some prospects. We are looking at it, but it has to be a good return.
All right. Just very quickly follow up. The mix and pricing impact on C2C, it looks like it was a little bit lower. It caused revenue to be a little lower than transactions. It's been generally a pretty stable trend, though, in the last few quarters. I just want to make sure there's nothing from a trend line that we should keep an eye on. It's just here and there each quarter.
Yeah. Generally, it's here and there each quarter. We are pleased. The transaction growth actually went up in the quarter, as you've seen, Darrin. It went to 5%.
Yeah.
The cross-border principle was very strong at 9%, so we're very pleased with that. I think the Middle East is an area that we were trying to invigorate some transaction growth, so that's where a lot of the pricing was focused. Overall, as Hikmet said before, we don't see any significant changes in the pricing environment around the world, and we're always doing increases.
In the Middle East, just want to mention that, Raj, maybe for being more clear. In the Middle East, it's not only competitors or price adjustment, but it's also the economic environment, the oil prices. The customer behavior has changed, and there is programs like in Saudi Arabia about Saudization that have impacted. We are really adapting our prices to the market needs.
Actually a market issue.
More a market issue. Yes, Raj. It's more a market issue. Overall, I feel comfortable, Darrin, with the pricing environment, and it's within our guidance. It's nothing unusual.
All right. That's great to hear. Thanks, guys.
Okay.
Thank you.
The next question will come from Bryan Keane of Deutsche Bank.
Yeah. Hi, guys. Just want to follow up on that. On the C2C business, North America and Europe and CIS, transaction growth both accelerated, but the constant currency growth decelerated. Is there pricing as well that's causing that dynamic?
Yeah. It's a good question, Bryan. We had some prior price increases that we had made in both regions, we always test things out. We had rolled back actually some prior price increases, it was less about reductions and more about just getting it back to, in some corridors, back to where it was before. That's why you see the differential there. In North America, the revenue growth is still higher than the transaction growth. In Europe, we're just getting good growth from France, but that's really what it was, more of a rollback of certain price increases we had done before.
Okay. On operating margin, C2C operating margins were down on a year-over-year basis, and that was due to timing of marketing and compliance-related spend. As we look at our models for the back half of the year, what do some of those trends look like for C2C on a year-over-year basis?
Well, on a year-over-year basis, marketing was higher than last year in the first half. You'll probably see an opposite impact year-over-year in the second half. For the year, if you look at it on a full-year basis, marketing is still going to be in the same range as it was last year, so about 4% of revenues. That's what we're expecting, but just some timing from first half to second half on a comparable basis. If you recall, we had much heavier spending in marketing in the second half of last year. It will not be as high as that spending level. There's some other gives and takes. Compliance is going to be relatively stable, and otherwise, nothing else really to call out there, Bryan.
Will compliance-related spending be similar as a % of revenue as last year?
It's going to be similar. It has been for the last few years, actually. It's been in that similar range, I don't expect it to be materially different this year either.
anything you can do to get those costs down on a going-forward basis?
Well, marketing is something that's really special to us, and we want to keep driving growth in our digital business. On the compliance and other areas, we're always trying to do things as efficiently as we can. Our WU Way programs and driving operational and lean management, that's really the way we're trying to optimize things. It's not about cutting costs. It's really about putting better processes in place in the company, and we're always looking at better ways of doing things, including in the compliance area.
Okay, guys. Thanks for the help.
Thanks, Bryan.
The next question comes from Jason Kupferberg of Bank of America Merrill Lynch.
Hey. Thanks, guys. I just wanted to circle back on the comments about the oil-producing regions. I want to make sure we kind of understand the dynamics there, because obviously the oil prices have been on a nice upward trend, I guess we would have thought that at some point that's stimulating more infrastructure projects and so forth, bringing in more migrant labor and stimulating actually more demand for remittances. It sounds like there's actually pressure coming out of those send markets. Am I interpreting that right, or what are the actual kind of dynamics under the hood that are causing some of the pressures and then led you to try and stimulate demand with some pricing actions?
Yeah, there are several things, Jason, which impacts that. First thing is the immigration trends has been, as you know, Middle East, oil-producing countries have different immigration policies than the rest of the world. It's a two years or three years of visas you get it. The country controls immigration based on the projects they invest in. Generating cash flow over the years was less than the years previous. They really came down with the projects there. Now it will start. Now the investment started again. It will attract long-term, again, new workers to Middle East. That's number 1. The second thing is that the Saudization project, which started in Saudi Arabia, that has been giving jobs to more Saudis than giving jobs to South Asians, that has had an impact.
The third one is that we adjusted the prices to the customer needs because the earned money was less. There were different economical impacts, that has been particular in some parts of the Middle East. I don't want to mention because of competitive reasons, some parts of the Middle East, not all over the Middle East, we have done some pricing action. It's really responding to the market needs than an overall pricing change in our company's policies or that's it, actually. I don't know what to say more, Jason. That's it.
No, that's comprehensive. That's helpful. Just coming back to WU.com for a minute, obviously, it continues to slowly but surely increase as a % of total C2C revenue. When you look out longer term, how big can it become as a % of total? What would you aspire to there? Is this 20-plus % revenue trajectory sustainable for another few years or so? I know the base will keep getting bigger, but obviously, there's somewhat of a tailwind just structurally for that.
I think we are in the beginning of a journey here, Jason. We are quite satisfied with our growth rates to 20%. It's a great question. You have a great base compared with the competitors. Can you continue to grow with that space? I think so because we are on 45 countries only, and some of the countries we just opened the last maybe 24 months.
Right.
Once that gets paced, that will also contribute to the growth rate. In the existing countries, like in the U.S. outbound or like France outbound, what we are doing is the customer experience. The customers, once they use westernunion.com, we saw that they don't easily go to the competition. They like our system. We are increasing our customer experience program. I think that's what we are going to continue to do. It's just the beginning of a journey, and we're doing that. The other thing is also, I'm going to mention again our bank dot coms using our system. Many banks want to offer to their account holders our global network, and it's already 2% of our revenue. Scotiabank in Canada is a good example, for instance.
They use our systems, they transfer money to 200 countries, that's growing also, we have in France the same thing. That's something also we are excited about that.
Okay. Well, thank you for the comments.
Thank you.
Our next question comes from Ashwin Shirvaikar of Citi.
Hi, Hikmet Ersek.
Hey, Ashwin. How are you?
Good, thanks. I wanted to turn the focus a little bit to the B2B business, if I could. Obviously, you guys made these acquisitions almost, I'd say, eight to 10 years ago, spent a couple of billion dollars on them. Over that time period, the operating earnings from those two acquisitions have been really small. It seems to be sort of a cycle of continuous investment. I guess the question becomes, what's fundamentally wrong with your positioning in that market, and what's the fix? Can you sort of break that down for us?
Yeah, I think it's a great question, Ashwin. I think the issue is really the FX part of the business, the foreign exchange trade part of the business. It has been the market volatility has not been favorable for this business also. That's the part of that. What we really believe is the vertical part of the business, like the student pay, like the NGO pay. This part of the business is going very well, but it doesn't show it at the overall results at the Western Business Solutions because it's still a smaller part of the business. It's growing really very well, and we are very satisfied on that. Look, overall, obviously, that's a great business. We believe on the big opportunity on that, but we also look at that if we can find how we can give the best back to the shareholders.
That has been always for anything, the shareholder value is the highest for us, and we look at that. The team is doing a great job. They really trying to fix it, and U.K. is a particular issue That's an issue that we're going to focus on that.
Got it. Then the second question is with regards to the tax rate. Could you go into the actions that led to the and it's a relatively modest difference, but the actions that led to the tax rate being slightly lower. Where I'm going with the question is with regards to as we think of tax rate into 2019 and beyond, will you be able to then use your tax planning mechanisms to keep the tax rate low?
Ashwin, I just want to make sure I understand your question. You said why is the tax rate higher? I didn't quite understand.
No, lower.
Lower. Oh.
I mean, yeah.
Yeah.
What's the tax planning to keep it at the current level there, as opposed to going higher?
I think we're benefiting from various aspects of the U.S. tax reform, but there are also pieces that are hurting us or are going more negative, if you will. If you look at our overall tax rate, it is about 14%-15% this year, and that's a combination of the lower U.S. corporate tax rates as well as the minimum tax on our foreign profits, and we earn the majority of our revenues and profits outside the U.S., as you know. All of that gives us about a 14%-15% tax rate this year. The one thing that is still outstanding as we think about next year is the BEAT or the base erosion provisions of the U.S. Tax Act, which generally have a minimum tax on foreign payments or payments to foreign affiliates from the U.S.
This year, that's not impacting us because that's only at a 5% rate. Next year, when that goes to 10%, that does have an incremental tax effect to us, which would be negative to us unless we can solve the issue. We are looking for guidance from Treasury or legislative change to fix that issue because we believe that was unintended in the tax law changes. We're also looking at some things structurally to address that. We'll have more color for you, Ashwin, as we enter the new year on how much of that issue we solve. That's worth a few percentage points to us, so you can imagine that we're putting a full effort behind solving that issue.
Got it. Thank you.
Sure.
The next question will come from Kartik Mehta of Northcoast Research.
Hey, good afternoon, Raj and Hikmet.
Hi, Kartik.
Hey, Kartik.
Hikmet, when you initially discussed WU Way, one of the objectives was to hopefully help with top-line growth. The underlying thought was cut expenses, but ultimately help with top-line growth. As you're into that program now, are you to the point where WU Way is helping with top-line growth, or is that still going to take a little bit of time before you see the benefits of that?
I think it will because it's really running the business in a different way with our lean management tools and agile management tools being faster in the market. One of the things is that what we use at WU Way and other programs is that expanding our westernunion.com. No other company has 45 send countries worldwide to send money to 200 countries, to 500,000 locations, to 4 billion accounts. That's definitely using our WU Way tools, how we can be faster. One thing we are also using our WU Way tools is in the customer experience one. We know that online users use us more often. They are repeat customers. This is really done with our WU Way methods, processes, how we attract these customers. These are two examples.
We already use it, and I think it's about 4,000 people or 6,000 people at Western Union get the WU Way training. Our processing centers in different parts of the world, all our employees are really having their agile programs, WU Way training programs, and they go after every project with their lean management tools.
Hikmet, as you look at potentially new agent signings, what's the trend been for signing bonuses and terms? Have you seen any changes in the last 6-12 months for either one of those?
Not really different than two, three, four, five years ago. I think that has been as you look at our agent commissions, spend on sales, really going down over the years, which is great, actually, the agent commissions and which includes also agent signings and everything. The effective rates of the agents has been going down, and our agents have been, once we have the agents, they've been for multi years with us. Our top send agents have been more than 30 years with us.
21 years.
Sorry. Raj just corrected me, 21 years. That long-term relationship has been all this year, and we are happy with that, and has nothing changed. It's really being on the market. What changed, though, is that larger agents, especially with good names, are choosing partners like Western Union not of our global brand and digital offerings, but also about our compliance programs, not to disappoint their customers, work with a company like Western Union, which has a good compliance programs.
Thank you, gentlemen. I appreciate it.
Thank you.
Thank you.
The next question comes from Andrew Jeffrey of SunTrust.
Hi, this is Jenny Dugan on for Andrew Jeffrey.
Hi, Jenny.
Hi. How do you view growth in Zelle and Venmo playing out in terms of your U.S. pricing and volume currently, and then if you look out a few years?
I think generally, as you know, Jenny, most of our business is coming from cross-border, cross-currency money transfer business, and that's our specialty. We have 20,000 corridors, and that's where we really make money. If you put the U.S. aside, none of our countries are bigger than 6% of our revenue. It's a very diverse portfolio. On the domestic money transfer business, we have some countries like the U.S. and some other, not many countries like U.S. domestic.
7%
7% of our revenue if you put in prospect total revenue, that's a smaller part of our business. It's a slower growth business, but there are certain customers, they like it because what happens is that, especially if you send money from your mobile app, you immediately get cash in 45,000 locations in the U.S. This is a huge competitive advantage, and these kind of customers like that immediate cash availability, sending money, let's say $70 immediately from your phone, and someone nationwide can pick up the money in minutes. That has been the case. It's a slower business than our international business, slower growth business, and we respond to the certain customer needs.
Zelle and Venmo
Sorry, what?
Zelle and Venmo. Some customers may be migrating to those, but those are account-to-account services, right? It's just different to what our business is, and that's why they're not that related, but there might be some migration of customers to those other free services.
Got it.
We still make money. We charge fees, customers pay for that convenience.
Yeah.
I think Venmo and Zelle fee structure is zero, I believe.
Okay, great. Then just real quick on WU.com, you've talked about 80% of new users coming from outside the Western Union base. Is that still the case, or are you seeing more transition from your core?
Right. It's still the case. That's a good news. It's still the case. They are new. They like it. They join this westernunion.com. What we hear also from our agents, account-based digital money transfer, they're also a new customer segment, and that's great actually. Digital attracts new customer segments to our global brand.
The great thing about our .com business is that it is digitally initiated, but the vast majority of the revenue we earn is still at a retail payout. It's not the place where competitors are actually trying to compete with us. They're trying to play in the account-to-account space, which is actually a business that we are going to be very good at as well. We're putting a lot of our resources and growth into account-to-account or online-to-account. Because of our global presence already, we're going to be able to get there faster than anybody else is going to be in 200 countries and territories around the world.
Great. Thank you so much.
Next we have a question from Rayna Kumar of Evercore ISI.
Hi. Thanks for taking my questions.
Hi, Rayna.
I just want to better understand your pricing actions in the quarter. Was the pricing decreases in the Middle East and rollback on pricing in other regions a response to Walmart2World pricing, or are you seeing some new competition out there? Secondly, do you expect further pricing cuts or rollbacks of pricing in the second half of the year?
No, absolutely not. The pricing actions were really region-specific. It has nothing to do with Walmart2World. Our U.S. outbound business has been growing very well, actually. You saw the numbers. We've been competitive. We do always pricing action in the U.S. or whatever that is, right? It's always within our guidance. It's business as usual. That has not changed. We are very proud of our U.S. outbound business.
Rayna, we're always testing pricing, even in close proximity to the Walmart locations. We've done some things there, which is a very small fraction of our network and not a big impact to the overall pricing picture. We're having some success there as well. We feel good about the U.S. outbound, which is where the Walmart2World was focused.
Great. That's really helpful. It's good to see the Albertsons win. When do you expect that to become material to revenue and earnings? Is there some additional upfront spending involved to get that on board?
Yeah. The Albertsons will be largely live as we start next year. We're going to spend some time to make sure we launch it really well.
Within the Albertsons group, we have Safeway already.
We already have Safeway, which is the majority of the network. We'll be adding the additional locations, the additional 1,000 locations by early next year. It's a nice win for us, and we're looking forward to that revenue ramp-up.
Great. Just one final question from me. The higher compliance spend in the quarter, was that above the traditional 3.5%-3.6% of revenue range? Was that like a pull forward of compliance spend, or are you seeing something out there in the regulatory front which you're reacting to?
No, Rayna, it was more about lower spending last second quarter, last year's second quarter. That was unusually low because we had a one-time benefit that helped us last year in the second quarter. This year is much more normal range. It's in that range that we've been at for a while.
Thank you very much.
Sure.
Thank you.
Next we have a question from James Schneider of Goldman Sachs.
Hi, Jim.
Good afternoon. Thanks for taking my question. I'm not sure what time it is anymore. There were a couple questions on pricing, I did want to ask you about the Asia-Pacific, where I think transactions outrun the constant currency revenue changed by quite a bit. You didn't call that out, I don't believe, in your prepared remarks. Can you maybe just talk about what's happening in that region?
APAC is a relatively small portion of our overall revenues, and this is outbound revenue from APAC, which is about 7%. I would say the two key drivers there were in Malaysia and Singapore. Those were the two countries. We had done some prior price actions, but that was back in the fourth quarter, so we're still continuing through that. Australia is probably the biggest market there. The APAC region overall has been relatively flattish for us and not a big contributor either way. We are doing some things there and launching digital in some markets soon and some other things as well.
Fair enough. Maybe Hikmet on the digital strategy, I think you've talked in the past about partnerships with social media companies as being a potential driver to stimulate volume. Can you maybe give us an update there in terms of how much have those partnerships to date turned into revenue? Any kind of sizing will be helpful. I guess going forward, would you expect there's a pipeline of additional partnerships that actually might jumpstart that business even further? Thank you.
First of all, great question, Jim. We always look for additional partners, and we are in acquisition mode. Our sales people are doing a good job, our country people doing a good job. I think there will be definitely new announcements because people are really joining our network, and they like that global network. On the partnerships, I would say that the main growth, as you saw it does on digital expansion, comes from westernunion.com. The send customers do trust the Western Union brand, and they want to use the Western Union brand that the money received. The other big partnerships are those with banks, where the funds are already on the banks, and this is a growth area. We believe that we can offer our platform to the banks, and we are doing it, and it's already 2% of our revenue, and it's growing very good.
There will be more announcements there also, I believe, coming and like banks using their own brand, but on the back is our processing machine, our payout network, everything. That has been also very good.
Thank you.
Thank you, Jim.
Sure. Thanks, Jim.
Operator, I understand we have one more question. We'll take the final caller.
Yes. That final question will come from David Scharf of JMP Securities.
Hi, David.
Hi, good afternoon. Thanks for squeezing me in here. Hey, two questions, one specific, one general. On the specific side, Latin America's obviously remained sort of the bright spot in terms of growth. I'm trying to get a sense for WU.com's impact there. Can you remind us sort of the geographic focus of WU.com, whether-
Sure
remittances to Latin America on that channel are proportional to Latin America's overall representation of revenue?
Generally, what we see also, it's a general, although the base is low, kind of outbound trend from the emerging markets, which Latin America is there also. We see good growth from some traditional inbound countries, also now new outbound transactions, and Latin America is a part of that. You see that growth there. From WU.com, obviously we were for years very focused on the U.S. outbound and Anglo-Saxon environment like U.K., Canada, and Australia. The big growth also is coming from Europe outbound, WU.com is growing. I have to say that we just scratched the potential there. We just started there. I think the team is doing good with customer experience. The expansion is definitely to the new countries, in the Gulf states, to the traditional outbound countries is also the next expansion.
In Asia, we are hoping that we can expand. A new assignment is going to Brazil. We just signed Brazil outbound with our WU.com and others to come.
David, just to clarify, the regional reporting that we do is on an outbound basis. The Latin America revenue growth and transaction growth is outbound. The U.S. to Latin America sends from WU.com would be in the North America region, and it is a big, important part of the business.
Got it. That's helpful. Just to wrap up, maybe kind of bigger picture question. When I reflect on kind of the bullet point in your strategic initiative slide about entering new cross-border opportunities, even considering signing up Albertsons as a takeaway. Maybe you can help us understand a little bit from a capital allocation standpoint, how you compare the returns of those opportunities to just buying back more stock. It does feel like you're so large, so sprawling that eight years into a global recovery, no matter how much you spend on marketing, promotion, restructuring WU Way, the aggregate numbers are still sort of 2% here, 4% there, 3% growth there.
Has the board ever considered the opposite tact of perhaps rationalizing your footprint, maybe paring back slower growth regions that might be more secularly changing, like the Middle East, not just a result of certain cyclical factors?
Well, you know our business very well, David. The big advantage of our business is that being in 20,000 corridors, right? As you know, if you followed us for many years, you saw some regions are growing, some regions are coming down. The portfolio management with our pricing artificial intelligence, with our pricing what we do here is our competitive advantage. Sending money from U.S. to 200 countries is huge. Sending money from Italy to 200 countries is huge. No other company do that, we are not losing money. We are always making money, or most of our costs are variable costs, we need the growth, that's what adds it. If you are only in few corridors, let's assume that one economic crisis happens at that region, it will be even more risky.
We do allocate our marketing investment, our investment against opportunities, we are constantly looking at our operating model with WU Way activities, how we can optimize it, to drive the shareholder value.
Got it. Thanks very much.
Thank you.
Thank you.
Okay, thanks everyone for joining the call. Also, thank you for not asking us any questions about beer sales. We hope you have a good day.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.