Western Union - Earnings Call - Q1 2018
May 1, 2018
Transcript
Speaker 0
Good afternoon, and welcome to the Western Union First Quarter twenty eighteen Earnings Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Mike Salas, Senior Vice President of Investor Relations.
Please go ahead, sir.
Speaker 1
Thank you, Laura. On today's call, we will discuss the company's twenty eighteen first quarter results and then we will take your questions. The slides that accompany this call and webcast can be found at westernunion.com under the Investor Relations tab and will remain available after the call. Additional operational statistics have been provided in supplemental tables with our press release. Today's call is being recorded and our comments include forward looking statements.
Please refer to the cautionary language in the earnings release and in Western Union's filings with the Securities and Exchange Commission, including the 2017 Form 10 ks 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.
Would now like to turn the call over to Hikmet Ersk.
Speaker 2
Thank you, Mike, and good afternoon, everyone. We are very pleased that we continued the momentum from the end of last year into the first quarter twenty eighteen. We delivered healthy 7% revenue growth or 5% in constant currency for both the overall company and our consumer money sensor business and we also generated solid profitability. Our digital business continued its impressive run with 23% revenue growth for westernunion.com money transfer in the quarter or 20% constant currency. And westernunion.com is becoming an increasingly important part of our business, representing 11% of total money transfer revenues in the quarter, up from 6% just three years ago.
Regionally, outbound business from Latin America led our money transfer growth with US outbound also strong and Europe accelerated nicely from the trends at the end of last year. Overall, our cross border principal grew an impressive 9% in the quarter due to our good execution in retail and continued strong growth from digital. Among our payments businesses, Speedpay U. Electronic bill payments delivered a solid revenue increase in the quarter and Pagofacil Argentina bill payments again posted strong double digit revenue growth. Business Solutions revenue increased 3% reported or declined 2% in constant currency terms, an improvement compared to the fourth quarter, but still below our long term expectations as we continue to implement turnaround actions.
So overall, we are very pleased with our strong first quarter top line growth, especially in cross border money transfer. But also, our profit margins and cash flow were solid, with margins just over 19% and cash flows from operations of $133,000,000 Based on our first quarter results and our expectations going forward, we are affirming the full year revenue and operating margin outlooks we provided in February. We have had a nice start to the year from a growth perspective, although there is still some softness in The Middle East and with U. S. Domestic money transfer.
The pricing environment globally has been stable for the last few years and we had slight net price increases in consumer money transfer in the first quarter twenty nineteen. As always, we will continue to monitor globally the competition and competitive pricing actions like the recent one in The U. S. From Walmart. We adjust if needed in certain quarters, but we do not expect significant changes in our pricing actions at this time.
Now turning to our long term strategy, we remain focused on our vision of being the leader in cross border, cross currency money movement. Our goal is to accelerate revenue growth by leveraging our strong cross border capabilities to serve additional customer segments on our platform. Digital expansion is a priority and we expect to open multiple new westernunion.com countries this year with a focus on mobile. We have just begun digital expansion in Latin American and Caribbean region, adding transactional capabilities to a new app in Panama and a website in Jamaica. In retail money transfer, we continue to work on enhancing retention to better customer experience and relationship management, including initiatives such as state and pay that introduce mobile and digital elements to retail transactions.
With our payments businesses, efforts focus on expanding with new payments based services and new geographies in b to b, providing digital solutions to clients and migrating our services to next generation platforms. We also remain committed to driving continuous improvement in our operations with plans to create further efficiencies and productivity improvements to fuel investment in our growth initiatives. So to summarize, we delivered a very good first quarter. There are some soft spots, but we have good momentum in key parts of the world and feel confident about the business. And we are continuing to execute our long term strategies, including driving operating efficiencies and the continuous improvement mindset with our Wu Way programs.
I look forward to updating you on our progress throughout the year. But right now, I want to turn the call over to Raj to give you more detail on the first quarter results.
Speaker 3
Thank you, Ikhmet. First quarter reported revenues of $1,400,000,000 increased 7% compared to the prior year period or 5% on a constant currency basis. Currency translation, net of the impact from hedges, benefited first quarter revenue by approximately $19,000,000 compared to the prior year. In the Consumer to Consumer segment, which represented 79% of company revenues in the quarter, revenues also increased 7% on a reported basis or 5% constant currency and transactions grew 4%. Total C2C cross border principal increased 9% or 5% on a constant currency basis, while principal per transaction increased 5% or 2% constant currency.
The spread between C2C transaction and revenue growth in the quarter was 3%, with a positive 2% impact from currency. Pricing had a positive impact of 1% compared to the prior year period, while mix was neutral again in the quarter. Turning to the regional results, I will be referring to constant currency movements as I discuss individual country contributions. North America revenue increased 4% on both a reported and constant currency basis, while transactions grew 1%. Growth was driven by U.
S. Outbound business to Latin American and The Caribbean, Africa and India, partially offset by softness in The U. S. Domestic and U. S.
To Mexico businesses. In the Europe and CIS region, revenue increased 14% or 5% on a constant currency basis, driven by France, Turkey and Spain. Transactions in the region increased 8%. Trends in The Middle East, Africa and South Asia region were similar to the fourth quarter, although slightly softer in the oil producing countries. Revenue in the region was flat on a reported basis for a decline of 1% constant currency, while transactions were down 2% in the quarter.
The Latin American and Caribbean region continued to deliver strong revenue growth with an increase of 20% in the quarter or 25% constant currency, driven primarily by Argentina and Brazil. Transactions in the region grew 17%. In the APAC region, revenue increased 2% or is flat on a constant currency basis, while transactions grew 1%. Westernunion.com delivered strong performance again as reported revenue grew 23% or 20% constant currency on transaction growth of 24%. Westernunion.com represented 11% of total CEC revenue in the first quarter.
Business Solutions revenues increased 3% or declined 2% on a constant currency basis and represented 7% of company revenues in the quarter. Revenues were negatively impacted by declines in Europe, particularly in The UK, which were partially offset by strength in North America. The education vertical continued to be a bright spot in B2B, again delivering good growth in the first quarter. Other revenues, which consist primarily of our bill payments businesses, increased 4% in the quarter or 10% on a constant currency basis and represented 14% of total company revenues. Other revenue growth was once again driven by the Pago Plus Hill walk in business in Argentina and the Speedpay electronic bill payments in The U.
S. Turning to margins and profitability. The consolidated operating margin was 19.1% in the first quarter compared to 18.4% in the prior year period or 19.5 in the prior year on an adjusted basis. The decrease compared to last year's adjusted margin was primarily due to higher marketing spending and the negative impact of foreign exchange, partially offset by lower average commission rate and operating leverage from revenue growth. Foreign exchange hedges in the quarter had a negative impact of $9,000,000 compared to a benefit of $7,000,000 in the year ago quarter.
Overall, currency negatively impacted operating profit in the quarter by approximately $3,000,000 compared to the prior year period. We achieved approximately $13,000,000 of savings from Wu Way initiatives in the quarter compared to minimal savings in the prior year period. So we are firmly on track to generate approximately $25,000,000 of incremental savings this year. EBITDA margin was 23.9% in the quarter compared to 23.5 in the prior year period or 24.6% on an adjusted basis. The GAAP effective tax rate was 8.9% in the first quarter compared to 24.1% in the prior year period.
On an adjusted basis, the tax rate was 11.4% compared to 24.8% in the prior year period. As we previously stated, due to the complexities and uncertain interpretations of many aspects of The U. S. Tax Act enacted in December, certain of the 2017 impacts were provisionally estimated and additional effects would likely be recorded this year. In the first quarter, changes in our estimates related to the Tax Act resulted in a $6,000,000 benefit to our GAAP tax expense.
Due to the Tax Act provisional accounting changes, we are now providing both GAAP and adjusted tax rates and earnings per share calculations for 2018. The decrease in the adjusted tax rate for the first quarter was primarily due to the prior year rate being unusually high and to a lesser extent, some discrete benefits in this year's quarter. As you may recall, in the 2017, our rate was negatively impacted by changes in the internal ownership structure of certain of the company's international subsidiaries. Earnings per share in the current year quarter was $0.46 which compared to $0.33 in the prior year period. On an adjusted basis, earnings per share was $0.45 compared to $0.35 in the prior year period.
The increase in adjusted earnings per share was primarily due to revenue growth, the lower effective tax rate and fewer shares outstanding. The C2C margin was 22.2%, which compared to 22.5% in the prior year period. The margin decrease was due to the same factors impacting total company adjusted margin. Business Solutions operating margin was 2.9% in the quarter, which compared to 2.6 in the prior year period, while the unit's EBITDA margin was 13.8% in both the current quarter and the prior year period. Operating margin for the businesses included in other revenues was 10.1% in the quarter, which compared to 12.4% in the prior year period.
The year over year margin decline was primarily due to the higher bank fees in our U. S. Electronics business, partially offset by revenue growth. Turning to our cash flow and balance sheet. Cash flow from operating activities was $133,000,000 in the first quarter, which is net of a $60,000,000 payment for previously announced NYBFS settlement and approximately $20,000,000 of spending on prior year Wu Way expenses.
Capital expenditures were approximately $37,000,000 in the quarter. At the end of the quarter, we had debt of $3,100,000,000 and cash of $934,000,000 We returned $88,000,000 in dividends to shareholders in the quarter. We did not have any share repurchases in the first quarter due to some timing factors, but we have not changed our full year expectations for buyback and expect to resume buyback in the second quarter. The outstanding share count at quarter end was $461,000,000 shares, and we had $943,000,000 under our share repurchase authorization, which expires in December 2019. Based on our first quarter results and our recent business trends, we are affirming our revenue, operating margin and cash flow outlook for the year.
We continue to expect revenue growth to be in a range of low to mid single digits this year on both the reported and constant currency basis and operating profit margins of approximately 20%. The GAAP earnings per share outlook was increased to reflect the more favorable first quarter tax rate, including the impact of the adjustment related to provisional accounting for the Tax Act. We now expect our GAAP tax rate in 2018 to be approximately 14% and the adjusted tax rate to be approximately 15%. Our previous outlook reflected a range between 1516%. Consequently, we have increased the GAAP earnings per share outlook to a range of $1.81 to $1.91 for the full year, with adjusted earnings per share in a range of 1.8 to $1.9 Cash flow from operating activities is still projected to be approximately $800,000,000 in 2018, which is net of approximately $200,000,000 of outflows from the combination of anticipated final tax payments related to the IRS agreement for 2011, the New York Department of Financial Services settlement payment and Wu Way payments related to 2017 expenses.
So we have started off the year well with good growth momentum and solid profitability and cash flow and have adjusted our full year earnings outlook modestly to reflect the tax benefits realized in the first quarter. Operator, we are now ready to take questions.
Speaker 0
And our first question will come from Brian Keane of Deutsche Bank.
Speaker 4
Hi, guys. I wanted to ask about the a little bit of the higher marketing expense and then the negative impact that FX had on the operating margin, the adjusted operating margin. Maybe you could break that out and then just trying to figure out if that marketing expense is just timing and it will even out throughout the year? Or is there something specific going on in the numbers that we should be we need to know about? Yes.
Speaker 3
Brian, this is Raj. On the marketing expense, we were just under 4% of revenues on marketing expense for the quarter, which is closer to what we expect the full year average to be. And that was higher than last year's first quarter just because we sort of underspent in the first quarter of last year. And the FX piece of it, we had a negative 50 basis point impact to margins in the first quarter and that was largely driven by the negative impact of our hedges. And then there were some offsets to that.
So we would expect the FX impact in the first quarter to actually reverse assuming rates stay where they are during the course of the rest of the year. And then just some timing of other expenses. So that's really what the makeup is in the margin in the first quarter.
Speaker 4
Okay. And then so in the second quarter then, will we still have a negative FX impact or will reverse starting in the second?
Speaker 3
Well, if you think about it really depends on where the euro rate was and other foreign currencies last year and a few other factors. So the euro strengthened quite a bit during the course of the year, particularly in the second half of the year last year. So you'll see less of an impact in the second half, maybe less of an impact in the second quarter as well. And then we have some other offsets like the Argentine peso devaluation continues as well as some impact from our hedges. But you'll have less impact the next three quarters than you had in the first quarter.
Speaker 4
Okay, helpful. And then, Hikmet, just thinking about the competitive landscape, obviously, the news of Walmart getting more involved in money transfers globally. It sounds like there's no plans for you to make any adjustments to pricing changes at this time. Maybe could you just talk a little bit about what that competitive environment now means with Walmart entering and what you'll be looking at to see if you need to adjust price or not?
Speaker 2
Yes. Look, Walmart is one of the competitors for many, many years. We have that question several times. We operate more than 20,000 corridors globally. Obviously, we adjust prices prices if needed.
You know, just to put income in in in in you know, we have 50,000 locations in The US. Walmart has 4,700 locations in The US. We are sending to 550,000 locations globally from The U. S. We are operating in 200 countries in many corridors.
So I believe that our competitive environment has been very good. We will definitely look at the prices. We may have to do some pricing actions around the competitive locations, but that's we've been doing that the street corner pricing, weekend pricing, different band pricing, next day pricing, we have been doing that for many years and we will continue to do that. On the pricing environment, I don't see big competition. It has been stable for the last years.
We even had price increases, slight price increase in Q1. And I think that the environment has been stable and I don't from today's point of view, I don't expect big price changes from our outlook. Brian,
Speaker 3
our pricing is quite competitive also when you look at our U. S. Outbound business. U. S.
To Mexico is the number one corridor and we already have $8 up to $1,000 Jamaica, Philippines, we're also very competitively priced. Positions us well even with the changes that have been made recently.
Speaker 4
Okay. Thanks for taking my questions, gentlemen.
Speaker 2
Thanks.
Speaker 0
The next question comes from Jason Kupferberg of Bank of America Merrill Lynch.
Speaker 3
Hey, good afternoon, guys. I just wanted to
Speaker 5
start with a top line question. Obviously, a good start to the year here, the 5% constant currency revenue growth here in Q1. I know you're leaving the guidance for the year unchanged at the low to mid levels. Is that just because you've got a tougher comparison in Q4, I believe it is? Or are you just being a little bit cautious at this early juncture of the fiscal year in terms of some of the soft spots in the market that you alluded to in your prepared remarks?
Speaker 2
Generally, we are pleased with the start. As you said, Jason, I think we had a very good start, 7%, respectively, 5% constant currency. I think the team is doing a very good retail money has been executing very good. U. S.
Outbound business several quarters has been very strong, Europe nicely and Latin America outbound has been very good. So I think that's going to continue. I would say that it's too early to look at giving changing the guidance here, but we like the good start and we like how we started the year and we're going to continue to execute.
Speaker 5
Okay. And just on wu.com, the constant currency growth there did slip a couple of points, I think. I think you were 22% last quarter, if I'm not mistaken, 20 this quarter. Do you expect that to reaccelerate? I think you did have a meaningfully tougher year over year comparison here in Q1.
So just wondering if we can get back into the low 20s or low to mid 20s? Or are you thinking '20 is kind of the barometer for the year?
Speaker 2
So we are also here. We are pleased with our 20 plus growth rates, obviously. And one thing what we do is that two we follow the two stages in the markets where we have been for several years. We do the customer experience. The customers using us coming more often.
And like in The US outbound online transactions, they are really loyal customers. They like our service to send money to 200 countries. And the other thing is also we are expanding, you know, it's now we are more than 40 countries. We recently announced Jamaica and Panama. Panama.
And, you know, we're gonna you're gonna hear more announcements opening new countries very soon, and we're gonna expand especially mobile. The people like mobile. Most usage on the online is the mobile apps, and and they stay loyal. So I am confident about the 20 plus, you know, that that has been our track record. It's, you know, is it '21, '22, '25?
It depends really on the quarter and depends on the seasonality pricing sorry, seasonality actions we do, promotions we do, and it depends on the corridor. So we're going to continue to execute that.
Speaker 6
Okay. And just the last
Speaker 5
one I wanted to ask is on U. To Mexico. I know you mentioned having the competitive pricing there. I think maybe in the prepared remarks, you said something about some potential or some ongoing softness there. I just wanted to dive into that a little bit.
Just kind of volume and transaction trends in that corridor just compared to what we've seen the last couple of quarters? Like, we stabilized? Or have things gotten any better or worse in the corridor?
Speaker 2
Yes. I think U. Outbound to Mexico is only one corridor for many corridors. We have been seeing a little bit softness compared with the other corridors, but none of our corridors are bigger than five None
Speaker 3
of our countries are bigger than 6%.
Speaker 2
Of the of the revenue. So I think, you know, if you put in perspective, it's made more of a seasonal relative. Just to put things in perspective, in Mexico, we have about 30,000 locations. And in The U. S, we have about 50,000 locations plus our very strong growth on the.com connecting the 30,000 locations to Mexico has been a very good growth.
And we also payout in accounts and that has been definitely something that we've been very it's going to it's a good business. We like it and we're going
Speaker 3
to focus. But U. S. Outbound generally has been a good run, Raj, Yes. And Jason, we have not seen Mexico get worse.
The U. To Mexico, it got a little bit better in the first quarter compared to fourth quarter, but it's not at least at this stage, it's not getting worse. We're positioned well competitively, as Hickman said, when that market turns around.
Speaker 5
Okay. Appreciate the comments, Thanks.
Speaker 2
Thanks, Jason.
Speaker 0
And our next question comes from Jason Faucette of Morgan Stanley.
Speaker 7
Yes. Just a quick question for me. So I understand that you're not seeing a lot of pricing pressure right now. But when you look at the longer term and where you need to be dedicating investment and development on R and D, what are how do we think about your prioritization there, first of all? Secondly, when you look at other things like foot traffic, etcetera, has there been any noticeable change of that even if you haven't seen pricing pressure over the last while?
Thank you.
Speaker 2
Yes. I think on expansion of digital is the expansion. We are really seeing a good growth. Remember, about few years ago, it was only 5% to 6% of our revenue was online. Now it's already 11%.
It's a significant part of our scent channel is the westernunion.com from many countries, 40 countries to more than 40 countries to 200 countries. I think that's gonna expand. So we're gonna spend money there. We're gonna invest there. We're gonna promote our online business.
We're gonna promote our apps globally in many, many countries. On the second part of the question was was
Speaker 3
Foot traffic, any change in foot traffic?
Speaker 2
Not really. You know, what we see is that repeat customers are we invested also on the customer service, especially in the retail side. We started some initiatives there and we see more and more repeat customers coming and that makes also or if we are satisfied with that result.
Speaker 3
A key part of our growth in consumer money transfer was an acceleration of our retail business. So we saw 6% revenue growth in retail and 3% constant currency and transaction growth was 2%. So we're seeing good retail business as well. Great. Thank you very much.
Speaker 2
Sure. Thank you.
Speaker 0
The next question will come from Tien Tsin Huang of JPMorgan.
Speaker 8
Thank you. Good acceleration in revenue and principal sense. So I wanted to ask, are you seeing early benefits of Wu Way or maybe any opportunistic activity in transactions given some of the FX moves? Just trying to better understand the acceleration you saw in both revenue and principal spend.
Speaker 3
Mean, Tien Tsin, this is Raj, and I'll let Hikmet speak after I do. But we saw acceleration in many aspects of consumer business. Some of it was related to pricing obviously, but that was about a one point lift in the consumer business. We had transaction growth acceleration. The market overall seems quite healthy.
Principal growth for as you mentioned, we had 9% principal growth and 5% constant currency that was driven by many different parts of our business. U. S. Outbound was a key driver, parts of Europe were also a key driver there. And so we're seeing good traffic and good acceleration.
And we'll see how the rest of the year plays out, but Q1 was quite good for us. And also on
Speaker 2
the Wu Way, you asked the question on Wu Way, the Wu Way actions, the companies, how we operate, the way we operate this has changed. Obviously, we not only look at our operating efficiencies, we also look at how we can really invest in our growth initiatives, how we can accelerate to open new countries faster with our .com business, How we can have more efficient marketing initiatives, how we can have repeat customers more. And we always use our lean management Wu Way initiatives there, and that's really kind of a new mindset within the company. And the lean management initiative, the Wu Way initiatives are not only working on the productivity actions, but also on the growth actions.
Speaker 8
Okay. Good to know. Just on the Europe acceleration, just to dig into that, is regulation driving some of that? And I'm not sure if if there's there's some new regulation being proposed around DCC, and I don't know if that impacts you directly, but anything we need to consider there for Western Union?
Speaker 2
Really not Tien Tsin. I think it's really the execution on the market and the .com part is also working very well. I did not hear anything that regulatory environment has changed in Europe. Obviously, we are very much focused on the privacy side. That's the new area that we're going to focus on that.
And that but that we are not alone here. That's many companies doing that. And but besides that, the usual things, we are active there. We have our compliance programs. We have our anti money laundering programs.
And we saw a nice acceleration in France. We saw a nice acceleration in Turkey to different corridors. And so that that has been the driver. So nothing unusual.
Speaker 8
Okay. Good to know. Just last one, I promise, just on the share repurchases. No no repurchases in the quarter. Raj, did you did you mention any restrictions?
I may have missed it. Just want to clarify that.
Speaker 3
I didn't mention anything specifically, Tien Tsin. We just have some timing factors and considerations where we were out of the market, but we would expect to be back in the market in the second quarter. And we have timing things from time to time that prevent us from buying, but we should be back in the market in Q2.
Speaker 8
Very good. Thank you so much.
Speaker 3
Sure. Thanks.
Speaker 0
The next question comes from Andrew Jeffrey of SunTrust.
Speaker 9
Hi. This is Jenny Dugan on for Andrew. As volumes pick up and agent exclusivity breaks down a bit, is there going be any change to your physical branch growth strategy?
Speaker 3
No. I mean, we continue to see a lot of white space opportunity for continued retail expansion. And you've seen that over the last couple of years in various parts of the world. You know, competitively speaking, we continue to, you know, get new agents. We're adding more to our portfolio and, you know, we that's why you're seeing some of the results that you're seeing.
Speaker 2
So I think, you know, the success is really we are really competitive on the market. I don't see any, you know, big know, the team is doing very well in the market, so I don't see any big issues on the market.
Speaker 9
Okay. And then is there any change to your strategy in India just given some of the change in cash use usage and electronification over the last year or so?
Speaker 2
I think India you know, we are very pleased with our India strategy, actually. We have more than 100,000 locations all along in India, and we really have also the, we are very active in major corridors. Is it from Saudi Arabia, UAE or Qatar to India? Or is it from Middle East, generally from India or Canada, from US, from Germany, from England to India? These are Australia to India.
These has been the corridors we've been very active and putting real good promotions that drives our growth there. Compared with the other competitors, have I think we have a good side there and our competitive environment has been very well. And I think that's Yes. It,
Speaker 9
Okay, great. Thank you.
Speaker 0
And the next question comes from Lara Forman of Goldman Sachs.
Speaker 10
Good afternoon. Thanks for taking my question.
Speaker 3
Hi, Lara. How are you?
Speaker 10
Good, good. Just in terms of the pricing increases you mentioned, is there any color you can give us on if there's any where they're coming from or if they're on a certain transaction size or anything? I know you have 20,000 corridors, but any color there. And then also just more positive commentary into the commission trends. Is that more from mix changing more digital?
Or are you actually having better negotiating power when you renew some of the merchants and some of the partners you have?
Speaker 2
Well, on the pricing side, I would not you know, there's nothing special. It's really, you know, the pricing, as you know, over the years, the pricing environment has been very stable. And if you compare us with competition, we still have 15% to 20%, 15% higher premium than the competitors. Obviously, customers like our brands, like our customer experience, like the westernunion.com, they use like our reach, the global reach and being in five fifty locations, our anti money laundering programs, our multi currency settlement in 131 currency helps. And that's really the premium that the customers are paying.
And to be on the market, this business has to generate some revenues and we've been doing a pretty well job there, I guess. And the increases, I would say that has been more than mix side. We do invest in some corridors, we decrease in some corridors and it has not been a significant increase. It has been a slight increase. On the commission side Raj, do you want to say something?
Speaker 3
Yes. On the commission side, we're getting benefits in several different ways, Laura. We've been able to do a good job of bringing our overall retail commissions down over the last several years and that trend has continued into this year. We also are getting the mix benefits from a faster growing digital business because that business is digitally initiated either credit card, debit card or bank account, but then one side of it pays out at a retail location. So that mix is benefiting us.
We really want to look at overall distribution costs in the company, and our goal is to bring total distribution costs down. So as the business mix changes over time where we have more bank funding and bank payout and other ways of distributing the product, that's going to help us as well. So we're pleased with the overall commission trends as well.
Speaker 10
Got it. And then just one more for me. More for Raj, you gave some color on the tax rate in 2018. Any guidance you can give on 2019? I know last time you were talking about the BEAT tax could have more of an impact in 2019.
Do you have any more clarity there?
Speaker 3
Yes. Not at this time. We're still working through the BEAT provisions, base base erosion provisions, which effectively double tax a portion of our profits. So there's still a couple of angles there. One is to push for a legislative change or potentially guidance from treasury, which we're trying to influence or the other one is really to try to take things into our own hands and try to impact our structure or change our structure internally to alleviate the issue that causes the beat or the base erosion or the double taxation, if you will.
So we're still working on it. It's complex, as you can imagine, and it's going to take us the balance of the year to really come to a view on what that means for us later into next year.
Speaker 10
Okay. Thank you.
Speaker 3
Sure.
Speaker 0
And our next question will come from Ashwin Srivakar of Citi.
Speaker 3
Hi. Hi, Ashwin.
Speaker 2
Hi, Ashwin.
Speaker 11
I guess, let me start with a two part question related to expenses. One is just, you know, to clarify, other than FX reversing, are there other factors that drive the 10% operating margin, you given you started the year and then softer with '20. And then the the basic question is, have you already made all the GDPR specific investments that you need to make? I remember reading you.
Speaker 2
I mean, it's so hard to understand you. I don't know. On the
Speaker 12
tax side
Speaker 3
Let me try to give it a shot, Ashwin, if I understood your question correctly. On the margins, I think you're asking about the negative FX impact in the first quarter. That will certainly reverse the rest of this year. We also would expect to get some leverage from our revenues. They will be higher in the latter part of the year and that will give us some margin lift.
And then just timing of overall expenses will also help us. So that will help to get us to the margins of approximately 20%. It could be a little bit above, a little bit below, depends on where things trend. And then, I believe your second question was around GDPR. We're in the process of making those investments.
That's a regulation that goes into effect in Europe this month. And we've made a lot of different technology upgrades and changes. We've also invested in various operational changes in the company and are are in the process of putting that in place right now.
Speaker 2
Yeah. We hired also good talent reporting to our general counsel, Colin Sai, recently here in The US and in Europe. So that will help us also a lot.
Speaker 11
Got it. And then on wu.com, I just want to understand sort of the breakdown of what contributes to wu.com growth in any given quarter between new countries that you add, same store transaction sales versus pricing? Any kind of help you could give to break that down?
Speaker 3
Yes. We don't really give a breakdown like that. But clearly, the existing markets are going to be the biggest contributor. The newer markets, it takes time for them to develop and for us to create awareness, and they will add more customers over time. And that's growth model here is keep adding more countries, more channels.
Those things will contribute over the long term while the current business keeps driving the short term.
Speaker 2
And the current business is all about customer relationship, customer management and we know that the customers once they use our apps, they use our online, they register, they use our more often than retail. So that helps on the new new once we open a new country, it takes some time and then they start to use us and that that grows also very well. The model is really investing in the customer relationship with the existing, existing customers, existing countries and opening new countries.
Speaker 11
Got it. Understood. Thanks.
Speaker 2
Sure. Thanks, Ashwin.
Speaker 0
And next, we have a question from James Friedman of Susquehanna.
Speaker 12
Hi. Thanks. It's Jamie at Susquehanna. Hickman, I believe in your prior comments, you had mentioned some of the use cases for Wu Way as a growth driver. We often think of it as an expense initiative.
I was wondering, have we seen or can you share with us some of the use cases? Like, have we seen any materialization? I think there was a WeChat and maybe a Facebook. I apologize. I really apologize if I got these cases wrong.
But, you know, how do we see, Wu Way in the marketplace?
Speaker 2
Yeah. I think what we do is that we have agile. You know, what we we are not really focused on the end to end processes and from sending and receivers, and we look how to optimize the go to market environment faster, how we do transaction in a faster way and in a more agile way. The Wu Way next step is the, going market more agile, really investing in our innovation and that that that started and, you know, opening new countries and also building their customer relationship in a better way that's all built on Hubei. Just to give you an indication, about half of our employees, more than 10,000 of our employees have been trained on Hubei and they have the Hubei awareness training.
And, we have daily huddles. The people start to work with getting together, what are the ways, what is what where they can, analyze the processes, where they can be more faster. Correction rates, that's how we do it, and that has started to pay. It's a long journey, but it has to start to show first good results.
Speaker 12
Got it. And then if I could just follow-up on the expense side. I thought you said, Raj, you did $13,000,000 may have gotten that wrong in the Q1, 25,000,000 for the year. Is that just because the comps get harder? Or is there another reason why that wouldn't run rate longer into the year?
Speaker 3
Well, the the run rate for this year will be $50,000,000. So that's what we'll achieve for the full year, which is 25,000,000 more than last year. We we achieved, you know, quite a bit in the second half of last year. So, yes, when we grow over, there's not as much incremental benefit in the third and fourth quarter. And so that's why you'll see most of the increment in the first half of the year compared to last year.
Speaker 12
Got it. Makes sense. Thanks for the context.
Speaker 2
Sure.
Speaker 0
Our next question comes from Ramsey El Assal, sorry, of Jefferies.
Speaker 6
Hey, guys. This is Ben Butish on for Ramsey. Just wanted to follow-up on a question from earlier. You mentioned that with wu.com, sometimes there's promotional activity. I'm just curious, is that sort of what drove the divergence between the transaction growth and the constant currency revenue growth in this quarter?
Or was there anything with mix or principal transaction per transaction, anything like that?
Speaker 3
Mix. It's the mix also. It's the mix. Yes, just mix of the where the growth came from in the business.
Speaker 6
Okay. And then just one other for me on the B2B segment. You kind of mentioned earlier that there was some improvement but below kind of the long term plan. Can you maybe parse out like what drove the improvement quarter over quarter? And then what you sort of expect over the next couple of quarters or years in the longer term?
Speaker 2
As we said earlier, I think our current business is below expectations. We are improvement. We have a refocus on the business. We really go to market differently now. We do use also Hoover activities here, how to go to market, acquire new customers, how we serve the customers.
Our long term objective is definitely gaining market share here and growing stronger. Today's growth rates are good turnaround, good start to year, but below our expectations.
Speaker 6
Okay, great. Thanks for taking my questions.
Speaker 1
Okay, Laura, I understand we have one more caller in the queue, so we'll take the final question.
Speaker 0
Sure. And that question will come from Rayna Kumar of Evercore ISI.
Speaker 4
Good evening. This is Nick Cremo on behalf of Reina Kumar. I just wanted to ask how your partnership with Ripple is progressing and if you guys are seeing any other additional use cases for blockchain, functionality, besides the back office.
Speaker 2
Yeah. One of the things is that, obviously, we look currently, given our business performance a lot on innovation and different way of looking at our processes. Blockchain is definitely something interested. We are looking at it. We are testing also with Ripple.
Our test is still a test. We are understanding where we can use the efficiency with Ripple, efficiency with the blockchain. And we also have different investments, smaller investments in different start up companies, different innovative companies. So that that's gonna continue to to happen. We don't see a big change in our business model yet, but we will continue to, you know, be investing in we are gonna continue to invest in innovation.
Thank you.
Speaker 1
Laura, I understand two more people joined the queue. So we'll take we still have time for a couple more questions.
Speaker 0
Okay. We have a question now from Bob Napoli of William Blair.
Speaker 13
Thank you and good afternoon. Just on strategic question on pricing. I think, Hikmet, last quarter, you suggested that the Western Union's pricing broadly is about 15 above the competition. I mean, I think that's come down somewhat over the years, but it does still seem like there are other players in the industry that are growing at a much faster pace. Do you think that your price premium at this point is at the right level?
Or does it need to continue to narrow over time?
Speaker 2
I think first of all, I'm comfortable with our price premium. As I mentioned earlier, why the customers are choosing us, there are several reasons. Obviously, brand many people like our brand, like our services, like our global reach being in 200 countries. We adapt prices constantly, Nick. We do constantly change our prices quarter by quarter.
We even have weekend prices. We have over we have quarter prices, street corner prices and different to different. But overall, our business intelligence, our competitive intelligence shows us that we are still 15% higher and that has been stable for a long time, 15%. It's not been decreasing in a lot and we've been feeling very stable on that. And from today's point of view, I feel comfortable with our pricing, comfortable with our services.
And if one quarter goes down with the price competition stronger, we will adapt to that. We will look at that, but in other quarters, we may increase prices. That's what we do. It's like an airliner. Right?
You know, where you fly weekend, you pay different prices, you fly different destinations, different classes. I think that's what we do with 20,000 corridors. And within the 20,000 corridors, we do use artificial intelligence to adapt our bands. We do use different customer behavior, and that's our one of our biggest competitive advantage to be in 200 countries.
Speaker 13
Thank you. And was there a and I'm sorry, missed part of the call, a benefit from the volatility in currency and foreign currency volatility picked up quite a bit in the first quarter. Was that did that have much of an effect on the quarter's earnings?
Speaker 2
Yeah. The it's just from the first part of the before I give to Raj. One thing also, you know, I wanna mention is those are principal who impressive 9% this quarter and our transactions also grew. So the people are using our services more and more. I think our pricing environment has been well received by the customers.
Speaker 3
Sorry, Raj. Yes, no problem. And Bob, volatility, I would say there was a lot of market volatility. I'm not so sure that we saw a lot of foreign exchange volatility. So it was not a big driver in our B2B business or more broadly in the company.
I don't think that was really a factor for us to call out.
Speaker 13
Thanks, Raj. Appreciate it.
Speaker 3
Sure.
Speaker 1
Okay. I think we have one final question.
Speaker 0
Yes, we do. And that question will come from Matt O'Neill of Autonomous Research.
Speaker 5
Yes. Hi, this is Craig for Matt. Two questions and apologize for getting on late. I'm curious why the top end of guidance wasn't raised considering the strong revenue performance. Should we be worrying about anything in the back half of the year that could mute performance?
And secondly, any thoughts on pricing considering the Walmart to world offering that Bunny Graham and Walmart just launched? Thanks.
Speaker 2
Thanks, Craig, joining the call. As I mentioned earlier in that call, I think that we are very pleased with our start and we have a strong quarter and we are continuing with our performance from 2017 and our programs we put in place are really, especially in the C2C businesses doing well. And that's the outcome of that in Q1. Our customer relationship and our customer experience in retail has been doing very well and our .com business has been growing and adding new customers by the way, additional customers to our network with our .com business doing very well. So I think we are from growth perspective, we are pleased with that.
It's too early to give we believe it's too early to give a new guidance here, but we are confident with our business and we are pleased with our outcome. And second part of the question was the Walmart part, I answered that question earlier. Look, Walmart is one of the many competitors worldwide. If you especially if you operate in 200 countries like we do and 20,000 corridors like we do, there are many competitors. Just to put things in perspective, Walmart has 5,000 locations, 4,700 locations in The US.
We have about 50,000 locations in US to send into 550,000 locations worldwide and more than 3,000,000,000 bank accounts worldwide. So I think the connection that we do from US outbound is very competitive. If you have to adjust prices, we will adjust. It's one of the corridors. We we may do pricing promotions around the Walmart locations.
That's what we do daily. It's nothing new for us to compete in the market. That's what we do daily, and the team is doing a good job.
Speaker 5
K. Thank you.
Speaker 2
Thank you. Okay. Thanks, everyone,
Speaker 1
for joining us today, and wish you a good evening.
Speaker 0
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.