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Executives

Gary Kohn - Vice President, Investor Relations

Christina Gold - President & Chief Executive Officer

Scott Scheirman - Chief Financial Officer

Analysts

Tien-Tsin Huang - JP Morgan

Analyst for Julio Quinteros - Goldman Sachs

Kartik Mehta - Ftn Midwest Securities Corp.

James Kissane - Banc of America

Bryan Keane - Credit Suisse

Franco Turrinelli - William Blair & Co.

Glenn Greene - Oppenheimer & Co.

Bob Napoli - Piper Jaffray

Timothy Willi - Avondale Partners

David Scharf - JMP Securities

The Western Union Co. (WU) Q4 2008 Earnings Call February 5, 2009 8:30 AM ET

Operator

Welcome to the Western Union fourth quarter 2008 earnings conference call. (Operator Instructions) I would now like to turn the presentation over to your host for today’s call Mr. Gary Kohn, Vice President, Investor Relations.

Gary Kohn

Welcome to the Western Union fourth quarter 2008 earnings conference call. Thank you for joining us today. As we indicated in our press release we have prepared slides to accompany this call and webcast. These slides are available at www.westernunion.com under the Investor Relations tab and will remain available after the call for your convenience.

Before turning the call over to Christina, I will take a moment to remind you that today’s call is being recorded and that our comments include forward looking statements. I ask that you refer to the cautionary language in the earnings release and in Western Union's filings with the SEC including the 2007 Form 10-K for additional information concerning factors that could cause actual results to differ materially from forward-looking statements.

During the call, we will discuss items that do not conform to generally accepted accounting principles. We have reconciled those measures to GAAP measures on our website www.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, Western Union does not authorize and disclaims responsibility for any recording, replay, or distribution of any transcription of this call.

With that it is my great pleasure to introduce our President and CEO, Christina Gold.

Christina Gold

Welcome to our first quarter call. Looking at the fourth quarter, demand for money transfers softened as consumer confidence, unemployment, and economic headwinds deepened across the world. However, our fourth quarter earnings per share, excluding restructuring charges, were $0.37, up 16% year-over-year on revenue of $1.3 billion.

Full year earnings per share, excluding items affecting comparability, were also up 16% to $1.31. This was in line with our previously guided range and that is something we are very proud of.

Our operating margin for 2008 rivals our peers in the money transfer space and nearly all peers in the payment space, at 27% excluding restructuring expenses. This margin was consistent with 2007’s operating margin.

We generated $1.25 billion of cash flow from operations with minimal capex. Cash flow is a key metric for 2009. We believe our overall financial strength has Western Union positioned to continue creating long-term shareholder value.

Our 2008 results, characterized by 120 basis points of market share gains, were a reflection of our team executing on our four key strategies. In the current environment we are rationalizing expenses and putting an extra filter on investments.

Despite that, 2009 is a time of opportunity for Western Union, a period where we will prudently invest to create further market share gains. Within the C2C business we handled 49.0 million transactions this quarter compared to 45.0 million in the prior year. Transaction growth moderated from the third quarter and the average amount of money sent per transaction declined. These factors impacted C2C revenue growth in the fourth quarter. Pricing has remained stable. 2008 reductions totaled 1% of consolidated revenue.

Now let me take you through our three C2C regions:

Europe, Middle East, Africa, and South Asia [EMEASA] represent 44% of our total revenue for the quarter and posted a revenue increase of 1% on 16% transactions growth. Full year operating margin in the regions improved to 28%. Europe continues to present a challenge as we experienced a sequential decline in transaction growth from the third quarter into the fourth quarter.

Offsetting some of the weakness in Europe, the Gulf States and India continue to do well and remain among our fastest growers. In India, revenue growth was 29% with transaction growth of 50%. Across EMEASA we are directing investments to meet market share opportunities, including making intra-transfers available in more geographies and adding new types of agents to the network.

The upcoming implementation of the Payment Service Directive in late 2009 in the European Union presents an exciting opportunity for us. The regulatory change will make it possible to operate in 27 countries under a single license. This also allows us to expand the classes of trade that can offer money transfer services in certain countries.

Because this is such a unique opportunity, we believe that it is imperative that we act now and the centerpiece of our effort is the agent acquisition we are finalizing. By acquiring one of our largest agents we will have more direct management control over our brand and the sub-agent network and we are better positioned in several key geographies that will benefit from the Payment Services Directive.

Additionally, we have established a dedicated sales force that is targeting agents in different classes of trade. We look to PSD as a significant growth opportunity for us long term and the steps we are taking have us poised and ready.

In the fourth quarter the Americas region represented one-third of consolidated revenue and experienced a revenue decline of 5% year-over-year on flat transactions. The full year Americas margins decline 100 basis points to 27% as a result of the revenue decline in the higher-margin domestic money transfer business.

In this region our domestic business saw 5% revenue and 4% transaction declines for the quarter. And as we sit here today, we anticipate that these trends will continue throughout 2009.

In terms of Mexico, our transaction performance again outpaced the market as reported by the Banco de Mexico, however, our revenue and transactions were weaker than expected, declining 10% and 3% respectively in the quarter.

Under Stewart Stockdale’s leadership we are implementing a new go-to-market strategy in the Americas that we believe enhances efficiency and effectiveness. Specifically, we have combined our U.S. and Latin American organizations, including the Western Union Vigo and Orlandi Valuta sales forces. We are looking to open new distribution points and are making progress in the U.S. banking channels.

We have also aligned our marketing activities and put in place a new structure and added several new senior leaders, all designed to maximize the opportunity and to continue to make financial and strategic progress.

Asia Pacific grew 7% on a 30% increase in transactions. The revenue growth slowed in part due to headwinds in China where revenue declined 8% on 3% transaction growth. Asia Pacific’s full year margin improved to 25%.

For our China business, the sequential revenue and transaction trends in the third to the fourth quarter have continued as China, unlike other countries we serve, relies heavily on transactions conducted by entrepreneurs, usually exceeding $1,000.

The Philippines is another market where Western Union’s extensive network and high brand awareness are driving market share gains. Our 2008 growth rates in this market have outpaced the 15% impound market growth as reported by the Central Bank of the Philippines.

To that point, we see the broader Asia Pacific region as a meaningful contributor to our future growth, as it contains not only China and the Philippines, but countries where we have been expanding our presence, like Thailand, Viet Name, Indonesia, and Malaysia.

The opportunity is tremendous as today our Asia Pacific region makes up only 7% of our revenue, yet according to the World Bank this market is estimated to be 19% of the world’s cross-border remittance market.

We are extremely focused on achieving more growth throughout Asia Pacific. We have realigned the teams, including expanding Hikmet Ersek’s ability to include this region. He brings a depth of knowledge and proven strategies that have our teams energized and set to capture the opportunity.

Moving to our consumer-to-business segment [C2B] we generate nearly 90% of the segments revenue in the United States and we are certainly feeling the impact of the recession as the American consumer remains under pressure and those likely to use our service are conducting fewer payment transactions both sequentially and year-over-year.

In an effort to diversify, we are pushing hard on international expansion and have introduced bill payment in Peru and Panama. We are also currently working on obtaining our license in Brazil. The Pago Fácil business continues to perform ahead of our expectations with full year revenue growth exceeding 30% and the team making this happen is the same team executing on the international expansion.

Additionally, we are constantly evaluating acquisition targets that will diversify our payments offering and geographic mix.

So to sum up the C2C and C2B discussion, we generated revenue in 200 countries with no single country outside of the United States contributing more than 7% of our top line. We serve 15,000 corridors and have the ability to shift investments across our portfolio to maximize effectiveness and we believe this is a very good position to be, given today’s global economy.

Now I would like to turn the call over to Scott.

Scott Scheirman

Fourth quarter revenue of $1.3 billion was down 1% on a reported basis. On a Euro-adjusted basis revenue was flat year-over-year. Full year revenue growth was 8% reported and 6% on a Euro-adjusted basis. Euro translations benefitted revenue for the year by $82.0 million and operating profit by $19.0 million.

Revenue growth rates, on a calendar and currency-adjusted basis, were generally consistent for each month of the fourth quarter.

Transaction fee revenue for the fourth quarter, which makes up 81% of company revenue, declined 2% due to slowing transaction growth within C2C, and to a lesser extent, consumers sending less cash per transaction for the period.

Year-over-year C2C principal per transaction declined 4% in the fourth quarter.

Foreign exchange revenue is 17% company revenue and is generated from the difference between the exchange rate we make available to our customers and the rate at which we or our agents are able to acquire foreign currencies. This revenue stream is primarily driven by our international C2C business. Foreign exchange revenue this quarter was flat year-over-year due to slowing growth in transactions and lower principal per transaction.

Breaking fourth quarter revenue down further, reported revenue in the C2C segment, which was 85% of total revenue, declined 1% and was flat Euro-adjusted. Revenue in this segment was driven by a transaction growth of 9% in the fourth quarter.

In a broader sense, an increasing number of corridors experienced the impact of the global economic slowdown. Our international C2C business saw a revenue growth of 2% on a Euro-adjusted basis, or 1% as reported. Transactions grew 12%.

The portion of the international business that does not touch the U.S. saw a revenue growth of 4% Euro-adjusted, or 2% reported, while transactions grew 18%.

As Slide 17 details, the spread between C2C revenue and transaction growths widened in the fourth quarter, the largest factor in the reported revenue number, accounting for 4% of the 10% difference, was currency.

Also impacting the spread was: first, geographic mix—transactions carry a different revenue per transaction based on originating geography and destination; second, product mix—inter-transfers are a lower revenue per transaction than our cross-border transaction. The geographic and product mix impact for 2008 were consistent with 2007; and third, pricing—in 2008 pricing declined a total of 1% of revenue compared to 3% in 2007.

After adjusting for currency, the transaction revenue growth spread difference in the fourth quarter was generally consistent with all of 2008. For 2009 the spread may continue to widen from currency translation and our global initiatives to drive our intra-country money transfer business. We expect price decreases in 2009 to be similar to 2008 at around 1% of total revenue.

Fourth quarter C2C operating margin was 28.9% compared to 27.5% in last year’s fourth quarter. Operating margin for the year was 27.3%, up from last year’s 26.8%, excluding the stock compensation charge.

Contributing to the overall C2C margin improvement this year were the relocation of call centers to lower cost geographies, workforce reductions, leveraging of our marketing spend, and tight management of expenses.

The [C2B] segment, which is 13% of our revenue, saw a revenue decline of 5% on flat transactions in the fourth quarter.

Operating income for the segment was down 16% and this quarter’s operating margin of 27% is down 350 basis points compared to fourth quarter of 2007. We have taken costs out and will continue to evaluate additional cost savings initiatives.

We do not foresee improvements in the U.S. C2B business in 2009, while the U.S. consumer remains under pressure. This makes our international expansion and product diversification, including acquisition, all the more important.

One final note, consistent with previous quarters, restructuring expenses were not included in these segment results I just mentioned.

Moving down the P&L, let’s go to cost of services and SG&A. To get meaningful comparison compared to 2007, we excluded the stock compensation expense from 2007 results and restructuring expenses from 2008 results. The dollar amounts are detailed in the earnings release.

On an apples-to-apples basis, in the fourth quarter, cost of services declined 3% to 56.5% of revenue versus 57.5% in the fourth quarter of 2007. And for 2008 cost of services was 57% of revenues, consistent with 2007. In terms of SG&A in the quarter, and for 2008, it was 15% of revenue, consistent with the fourth quarter and full year 2007.

Fourth quarter consolidated operating margin was 25.9% as reported and excluding restructuring expenses it was 28.4%. This is a 50 basis point improvement from 27.9% in the fourth quarter of 2007. Our full year 2008 operating margin was 25.7% reported, or 27.2% excluding restructuring expenses. This compares to last year’s reported margin of 27.0%, or 27.4% excluding the stock compensation charge.

The tax rate this quarter, which benefitted from the favorable resolution of certain U.S. tax matters, was 22.8% excluding restructuring expenses. This compares to 27.4% in the fourth quarter of 2007. The 2008 GAAP tax rate was 25.8%, an improvement from 29.9% in 2007. The effective non-GAAP tax rate for 2008, which excludes restructuring expenses, was 26.6%.

Our tax rate continues to benefit from increased foreign derived profits, which are taxed at lower rates compared to U.S. derived profits, and the finalization and implementation of foreign tax planning strategies. We expect these items to drive sustainable cash benefits on a go-forward basis.

In 2008 cash flow from operations was $1.25 billion and capital expenditures were $154.0 million. This implies a net income to cash flow conversion of 120% and it is a very important metric to our liquidity, giving us a competitive advantage as we invest cash to grow the business.

We finished the year with $1.3 billion of cash on hand, with $700.0 million in the U.S. and $600.0 million internationally.

We had outstanding debt of $3.1 billion, including about $100.0 million of commercial paper. This program is fully backed by a $1.5 billion revolving credit facility that expires in 2012. Excluding commercial paper, maturities are $500.0 million in late 2009, $1.0 billion each in 2011 and 2016, and the last $500.0 million in 2036.

In November we paid off a maturing $500.0 million note with cash and commercial paper, which we then replaced with a short-term syndicated loan with an estimated cost of around 5% to 6%.

During 2008 we had nearly $300.0 million of our surplus international cash invested with a reserved international liquidity fund. So far we have received $194.0 million in cash from the fund and we expect the remainder to be returned.

We feel good about our financial strength in an environment where liquidity is critical.

Before addressing our 2009 outlook I want to update you on our pending agent acquisition. This acquisition positions us to better gain market share and improve margins across key European geographies, especially in light of the upcoming implementation of the Payment Services Directive throughout the European community.

The benefits are clear. We will have a closer relationship with the network agents and we can run the country or region more profitably by utilizing our scale and operating expertise. This acquisition, including integration expenses, will utilize less than $200.0 million of international cash, impacts 2009 operating margin by about 40 basis points and will be $0.02 dilutive to earnings.

Beginning in 2009 we will provide revenue and EPS on a reported and constant-currency basis. The Euro is the majority of our foreign currencies but as the international business continues to grow other currencies may become more meaningful to Western Union’s business.

For comparative purposes, 2008 revenue growth was 6% on both a Euro-adjusted and constant-currency basis. Fourth quarter revenue growth was 2% constant currency. In 2008 there was an operating income benefit on a constant-currency basis that is offset by derivative losses so netted out there was no EPS impact from foreign currencies in 2008.

Looking at our outlook for 2009, we expect constant currency revenue to be down 2% to 5% and reported revenue to be down 5% to 8%. Our revenue forecast is based on many drivers, including we anticipate the world’s cross-border remitted principal to grow less in 2009 compared to 2008, we expect single digit growth in our total cross-border principal handled. We expect this growth to be faster than the overall market growth and therefore, again, increase market share.

We expect mid- to high-single digit growth in C2C transactions with transactions likely to be weakest in the higher-margin U.S. business. We expect principal per transaction to decline. C2C price decreases are expected to be consistent with 2008 at approximately 1% of consolidated revenue.

And finally, for the C2B segment, we expect the fourth quarter of 2008 revenue and profit trends to continue into 2009. C2B margins will likely decline but not to the same degree as in 2008.

Our outlook for constant currency EPS is $1.16 to $1.26. Our outlook for reported EPS is $1.18 to $1.28. Our EPS range assumes $0.02 dilution from the Asian acquisition, net other expenses of approximately $150.0 million due to less interest income. This adversely impacts 2009 EPS by $0.03 compared to 2008. A tax rate of approximately 26% and buyback of $400.0 million.

We provided a wide EPS range to reflect the uncertainty we see across our 15,000 corridors and the factors that will impact profitability. We are trying to hold margins in 2009 but recognize that variables exist, such as revenue performance, product mix, the pending Asian acquisition, and investments that may impede margin stability.

We expect revenue and EPS to be slightly stronger in the second half of 2009. In addition, we have historically and planned to achieve higher operating margins in the back half of the year.

During 2008 we improved our cost structure by relocating operations to Costa Rica at outsourcers, eliminating positions, and selectively reducing agent commissions. And had the global economy not changed so significantly, the business model would have delivered margin expansion in 2009.

About 65% of our costs are variable. These costs should move as revenue moves. In addition, we will closely manage expenses in 2009, including marketing and other expenses. The cost reduction steps we have taken, and our leveragable business model, should allow us to drive margin expansion as the market improves and revenue reaccelerates.

In addition to our revenue and EPS outlook we expect to generate cash flow from operations in excess of $1.1 billion and to make capital expenditures of less than $150.0 million.

The $400.0 million buyback target stems from several factors. First, in today’s environment we believe that liquidity is very important and we need to be conservative until the market stabilizes. Second, we believe it is important to maintain our A-minus credit rating. And finally, we believe that the acquisition landscape will be increasingly more favorable in 2009. This is simply a prudent strategy in the current environment. We will monitor this throughout the year and align our cash priorities accordingly.

Christina Gold

Before closing, I want to provide some insight into January. In January this year we saw similar patterns to Q4 for C2C transactions. Across our geographies we continued to see softness in places like Europe and the United States while other regions, like the Gulf States, India, and the Philippines remained strong.

January results are consistent with our expectations relative to our 2009 outlook. We believe we are entering an era where the strong will get stronger. In 2008 Western Union delivered record levels of revenue and cash flow. Revenue was $5.3 billion and we generated $1.25 billion in cash flow from operations. We handled $67.0 billion in cross-border C2C remittances and while we are very proud again to have grown our market share in 2008, we know that with 17% global share, we have opportunity to capture additional market share.

We remain a leader in the money transfer industry and by the end of 2009 we will have a global agent base that exceeds 400,000 locations. It is our business model, and how it translates into financial performance, that I believe creates such an advantage for us.

Specifically, we generate significant levels of cash flow and yet the ongoing cash needs of the business are relatively modest. And in terms of expenses, about 65% are variable, allowing us to respond to the economic environment quickly.

In terms of our core business, we will invest in our most important assets: our brand, our network, our technology, and our people. We believe that this will allow us to gain market share faster than those that may not have the ability to invest at this time.

Specifically on the marketing front, we plan to spend roughly 5% of revenues on marketing, although we have some flexibility here. Our research shows that this is time to go out with a more efficient global campaign. Our focal point is the recently launched Yes! campaign designed to support consistent global messaging. We believe it will enhance awareness and trust, aiding us over time in entering more markets and new businesses.

Our network expansion has, and will continue to drive growth. Take India for example, since 2003 we have grown the network in India by 3.5 times to more than 50,000 agent locations, driving revenue growth of more than 6 times. This has been a great success and as I mentioned earlier, we look to replicate the India success in markets like Indonesia, Thailand, Viet Nam, and Malaysia. Again, the opportunity here is very large. Asia Pacific is only 7% of our revenue and yet it makes up an estimated 19% of the global cross-border principal market.

We are increasing our investment in technology and systems in 2009. In fact, we continue to evolve our systems that allow us to move money from virtually anywhere in the world and not only in a compliant manner, but in minutes.

The rules on money transfer and global payments are becoming more complicated and in some cases more onerous. We are fortunate that we have the financial strength and infrastructure to enable us to respond to these developments.

Additional technology enhancements are designed to support new products, additional distribution channels and to perform deeper analytics on our customer relationship program.

On the mobile front, our many capabilities, like physical agent locations, brand recognition, technologies, and compliance, are helping us make progress and ensure we are positioned to succeed over the next three to five years as consumer acceptance evolves.

We offer money transfer services in almost every region where mobile operators exist and have partnered with top operators and associations including Vodafone, Orascom Telecom, Bardi Artel, Globe Telecom, Smart Communications, and the GSM Association.

On the C2B side, we are investing in international expansion and broadening our product offerings. We will also be evaluating acquisitions. We are optimistic about the landscape and we believe we can participate in consolidation with the goal of strengthening money transfer, diversifying further into payments, and adding value to the company through technology. And finally, I am confident that we can accomplish all this and still return capital to shareholders in 2009.

Longer term, we are very, very confident in our future. We have a proven business model with talented and committed employees. We have an unrivaled network which is distinctive in its competitive advantage. We serve a large market which will grow when the economy improves. In fact, the World Bank sees remittances to developing countries growing 6% in 2010.

The mobile workforce will continue seeking employment opportunities throughout the world. There are an estimated 200.0 million cross-border migrants, as well as an estimated 300.0 million people who have migrated within a country. This population will not only need to transfer cash home, but they will ultimately need other services at the point of sale. We are very well positioned to service the existing and expanding needs.

So in closing, I will revisit what I talked about in my opening remarks. Although 2009 will be a challenging year for Western Union and many other companies around the world, it is an opportunity to make smart choices by deploying capital to extend our industry leadership and positions us for continued share gains in the money transfer market and other global opportunities that leverage our network, our brand, and customer relationships.

With that, we are now ready for our first question.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Tien-Tsin Huang - JP Morgan.

Tien-Tsin Huang - JP Morgan

What are your underlying assumptions for C2C principal per transaction in 2009? It looks like you are expecting transaction growth to stay within, give or take, four key levels. So curious about the principal per transaction, and also how that relates to World Bank and their outlook for 1% to 6% declines in principals remitted.

Christina Gold

The World Bank is looking at zero to minus six and I think in 2008 they had about 6% in principal growth. We had 17%, so we always have a much stronger number than they do because of the volume of transactions that we move through the system.

But as we look at principal per transaction in 2009, there are a number of variables at work here. You say in the fourth quarter we had a decline of 4%. The other issues that we have are geographic mix and also [intraverses] international transactions. As you know, an intra-country transaction, like in the Philippines, has a much lower principal and much lower RPT, so the growth that we are pushing there is incremental but it doesn’t give you the same amount of principal RPT. So there is some of that at play in our business model as well.

I think that we are monitoring that across the spectrum and trying balance the different corridors, where the growth is, where there is some slowing, because obviously in the Middle East and India, where we see strong growth, you tend to see a lower PPT and a lower RPT, so that has an impact.

So it’s really balancing all those 15,000 corridors across the globe to really come up with where we got to the 2% to 5% decline on a constant-currency basis.

Tien-Tsin Huang - JP Morgan

It sound like a little bit of a premium still to some of the World Bank outlook but it will depend on mix in the end.

Christina Gold

That’s exactly right. And I think there will always be a premium because we intend to gain market share in 2009.

Tien-Tsin Huang - JP Morgan

I am having a hard down in getting down to the midpoint of your EPS guidance with the cost savings, the lower tax. It sounds like flat margins and we’ve got the down revenues. I think the difference is other expenses. I was hoping you could give more clarity on that.

Scott Scheirman

The other expenses, we are estimating net of $150.0 million and those will be $0.03 worse compared to 2008. It is primarily related to our cash on hand. The interest rates earnings on cash are just at all-time lows so it’s tough to earn interest there. And our key with our cash balance is its safety is most important and then earnings is second most important, within our business model.

Tien-Tsin Huang - JP Morgan

Are there some derivative losses that are baked in there as well?

Scott Scheirman

No, it would be primarily interest income on the cash that will be less in 2009 compared to 2008.

Tien-Tsin Huang - JP Morgan

Then the constant currency EPS and the difference between that and the GAAP EPS, the $0.02 or so, what was the delta there?

Scott Scheirman

We have had a very effective strategy over the last two to three years and we layer in hedges over the next 12 to 36 months on a rolling basis. So if I use the Euro as one example, when we hedged out 2009, we really hedged it at 2008 rates. And when we hedged 2008 we hedged it at 2007 rates. So as the dollar devalued against the Euro we continued to gain on the bottom line there.

So our best guestimate right now, it should be a couple of pennies helpful to us as we move forward into 2009. Because of our effective hedging strategy.

Operator

Your next question comes from Analyst for Julio Quinteros - Goldman Sachs.

Analyst for Julio Quinteros - Goldman Sachs

On the guidance, how do you view your guidance, are you very comfortable with the lower end of the guidance. Do you need to actually have a couple of new signings to make the lower end of your EPS guidance and revenue?

Christina Gold

I think we feel comfortable in the guidance in terms of the light of what we see at this moment in time. It has been a bottom-up formulation in terms of how we built the plan. We have worked the 15,000 corridors. We obviously know the markets where we have some stress, but also where we have great opportunities, so we have tried to balance that.

So we feel very comfortable with the ranges that we put out there for 2009.

Analyst for Julio Quinteros - Goldman Sachs

With 65% of your cost structure being variable and with the rebates actually coming down as a percentage of revenue, where do you think you have the most of leverage in your cost structure in 2009 and what is your margin expectation in 2009?

Scott Scheirman

Our goal is to hold margins in 2009 if possible. It will be dependent upon revenue performance and other factors in investments and so forth. We do believe our business model has leverage and we expect margins to expand as revenue reaccelerates. So we believe we have a leveragable business model for sure.

One thing that is helpful with our business model is that roughly 65% of our costs are variable so those will move as revenue moves. We took some nice actions in 2008, relocating our operations to Costa Rica to outsourcers. We did do some reduction in force. So we’ve taken all the right steps to get our cost structure positioned well and long term our goal will be to continue to gain market share. We are very well positioned in the marketplace and as revenue reaccelerates we expect to see margin expansion.

Operator

Your next question comes from Kartik Mehta - Ftn Midwest Securities Corp.

Kartik Mehta - Ftn Midwest Securities Corp.

I was hoping to get more insight into your agent acquisition, if you are able to talk about it. Maybe the revenue side of that agent and from a big picture standpoint, was this just a great economic opportunity or does this allow you to do things that the agent maybe didn’t want to or their structure wouldn’t allow?

Christina Gold

I can give you a little bit. We should be finalizing all the details before the end of the month. But I think this was actually a very important strategic acquisition for us. With the Payment Service Directive that is coming into Europe that will impact 27 countries, it will change the playing field for money transfer companies. So we saw this an important opportunity to go in and be able to manage a business and expand our network and operate a little differently than we do now with the sub-agent network. So we needed a large scale agent.

And we have been negotiating this for quite some time. It’s been over a year that this has been in discussion so we are delighted that we are coming to a final close on this. But I think over the years this is going to be a key acquisition that is going to give us incremental revenue and will be a tremendous asset for us.

Kartik Mehta - Ftn Midwest Securities Corp.

From a timing aspect, how have you put that in guidance?

Christina Gold

I think it’s built in there as $0.02 dilutive and I think it’s 40 basis points on the margin.

Kartik Mehta - Ftn Midwest Securities Corp.

Is that assuming that it happens today or happens in the middle of the year?

Scott Scheirman

We anticipate it to close sometime in the second quarter.

Kartik Mehta - Ftn Midwest Securities Corp.

On the cash, I understand wanting to save cash in this environment, so is it that you would do acquisitions in 2009 but they would just have to be incredibly lucrative or is it that acquisition in 2009 it looks like there would be some really good potential because of what’s happening in the environment, that’s why you would like to save some of this cash?

Scott Scheirman

We see good opportunities in 2009 and 2010. As we look at acquisition, strategically it has to fit. Our C2B business is one area where we are keenly focused in on. But strategic fit is very important to us, sticking close to our knitting, if you will.

And also we want to make sure it has the right cash-on-cash, or the economic return as we look forward.

So we think 2009 is a year of opportunity. The strong will get stronger and we want to be well positioned to take advantage of the market opportunities.

Kartik Mehta - Ftn Midwest Securities Corp.

You talked a lot about this inter-company transfer and I know it’s fairly new, but if this build subsides, what would be the impact on margins? Is this a business that has similar margin characteristics as your core business or does it have better or worse?

Christina Gold

This is the intra-businesses? I think when you look at the margins, the margins support the businesses. If we look at EMEASA there’s a lot of intra-business in EMEASA, in Russia and some of the countries there, and you saw how they have come up to a 28% margin in the fourth quarter. We have it in the Philippines and again in Asia, we have come up to 25% margin. So it’s really incremental. It’s just maximizing the network you have. But your fundamentals change because you are starting with a lower principal and a lower RPT but on a profitability basis it is very supportive of our margins.

Operator

Your next question comes from James Kissane - Banc of America.

James Kissane - Banc of America

Is your guidance assuming a slowdown in the Gulf States and India?

Christina Gold

When we put the guidance together we tried to look at where the risks were in the plan because we have seen some slowing in India. Although it is very strong, it is not as strong as we saw earlier in 2008. So we built that in.

The other unknown that we see is that in some of the gift-giving occasions where we normally get a big bump, we have kind of pulled that down a bit because we saw even in the fourth quarter of the Christmas, although okay wasn’t what we had expected. So we have built that in.

And we have also built in some flexibility in case one part of our corridors have some challenges. Because it’s very difficult to read right now what’s happening. We’re ready all of the commentary.

We have run the guidance, also, with some economists to get a feel in terms of how they feel about how the different parts of the world are functioning. So we feel very comfortable with what we put out there, but recognizing it is very challenging times and this is an economy that we’ve never quite seen before.

James Kissane - Banc of America

And how quickly can you react on the cost structure, if the revenue comes in at the low end of your range, or even below that?

Christina Gold

I think obviously we’ve already got science in place in terms of we have earmarked certain things that we can do. Scott and his team continue to look at other ways that we can leverage our business.

So, as you saw in the fourth quarter, we were still able to have margin expansion despite the fact our revenues were basically flat. So we can react pretty quickly and we keep our eye on it all time, so we are watching it very closely.

James Kissane - Banc of America

What happened in Mexico in October? Can you give us a little more color, especially since it came on the heels of an FX hit in the September quarter.

Scott Scheirman

In October, during a couple week period, the peso very rapidly devalued against the dollar, as much as 20%. And what we saw, and this is primarily in our Vego business, was that consumers rushed to the counters to send pesos to Mexico and what we normally do is estimate what we think the customers are going to send, and they sent dramatically more peso than what we had anticipated. And as a result when we went back into the market to buy the pesos we bought them at slightly unfavorable exchange rates.

A couple of things that will put this in context, it was about $5.0 million. Second is we have improved the process and we are more diligent. And then the third, I would say Mexico, because it’s probably been our oldest international market, per se, it’s unique as far as how we settle. We supply the pesos there. Almost all the other receive countries around the globe, I settle either in U.S. dollars or Euros primarily. So we feel like we have the necessary steps to prevent that but we did want to honor the customers when they sent their transactions, to pay those out in Mexico.

James Kissane - Banc of America

And on the super agent. I thought the super agents typically had other activities, but it’s not adding anything to your revenue, post acquisition, so are you just buying a slice of the business?

Christina Gold

Basically we are buying the piece in total. And what that really allows us to do is really go out and look at our network, how we operate and really look at driving incremental revenues in different countries, because of this new legislation that is coming up and just giving us a bit of difference in the model.

James Kissane - Banc of America

So this is unique? You won’t be out trying to buy the other super agents?

Christina Gold

No, I think it’s where we think there was an opportunity and where it was enough size and scale to make a difference.

Operator

Your next question comes from Bryan Keane - Credit Suisse.

Bryan Keane - Credit Suisse

Looking at the guidance, it’s pretty much what a lot of us expected. I guess the big difference in delta is this principal per transaction. Can you talk about the C2C principal transaction for the first three quarters of the year and what it did in the fourth quarter and do you expect that to get materially worse or change the delta to get more negative going into 2009?

Christina Gold

I think as we went through 2008 it was growing. In the mid-single digits. Then it went to a negative in the fourth quarter. So obviously there was a big swing there and it happened particularly as we came into, let’s say the holiday period, we saw that drop-off.

As we look to 2009 we anticipate that our consumers will still be under stress so it’s as you look at previous years it’s going to be a bigger swing. So we anticipate that that will be a little more difficult in 2009. That’s why we have a bit of a wider range. But it also will depend on which parts of the world, which corridors, are feeling the most stress.

Bryan Keane - Credit Suisse

Did I hear minus 4% for the fourth quarter?

Christina Gold

Yes.

Bryan Keane - Credit Suisse

And also I guess mix is playing a part into this?

Christina Gold

Yes.

Bryan Keane - Credit Suisse

So is there a percentage of transactions now that are intra-country and is there any other piece of the mix that we need to think about?

Christina Gold

I think our intra-businesses, as it sits outside the U.S., is not that large, except in countries like the Philippines or in Russia and also Chile. But we see that we can drive that business to a more meaningful amount but it does drive transactions. A high level of transactions. But it doesn’t give you the same RPT so that it does dilute that a little bit.

Bryan Keane - Credit Suisse

And the revenue per transaction in some of the regions you are expecting to take a hit from are probably larger than the ones that are going to be relatively resilient?

Scott Scheirman

It varies region by region but we planned at the 15,000 corridor level but it will vary region by region.

Bryan Keane - Credit Suisse

Is there a location growth number? I know for the year you ended at 375.

Christina Gold

We expect at least 400,000 by the end of 2009.

Operator

Your next question comes from Franco Turrinelli - William Blair & Co.

Franco Turrinelli - William Blair & Co.

Back on the Asian front, to pick up on Jim’s question, I wasn’t clear if this will be a pure acquisition in the money transfer business or if you’re going to end up picking up and subsequently needing to shed some other unrelated businesses.

Christina Gold

It will be a pure money transfer acquisition.

Franco Turrinelli - William Blair & Co.

If we look at your acquisition strategy, obviously it has been a while since you did anything other than agent acquisitions. As you say, the strong get stronger, the weak get weaker in this environment. Are you interested in going back and looking at other money transfer businesses other than the agents that you are already working with?

Christina Gold

I think we are looking at some across the globe but we are always looking. I think that one of the phenomena that we are seeing, particularly in the international business, some of the very small niche players are really having difficulty because of liquidity so that is also offering us an opportunity to move transactions over to us as well.

Franco Turrinelli - William Blair & Co.

Do you just kind of stick around and wait for them fail by themselves or do you help put them out of their misery?

Christina Gold

I won’t say put them out of their misery but we are kind of negotiating sort of deal, to move transactions, not buying the entity but sort of buying the transactions across.

Franco Turrinelli - William Blair & Co.

On the derivative strategy, as you point out, that’s working out pretty well for you right now, this is not something that you plan to make money, right? This is really just a hedging strategy. Is your intention to continue to hedge forward rates or are you kind of backing that off a little, given where the dollar has gone?

Scott Scheirman

Our objective is completely for hedging and predictability of cash flow. So we will continue with our 12 to 36 months rolling hedging program but it’s just to get predictability of our cash flows and no element of it is for speculation at all.

Operator

Your next question comes from Glenn Greene - Oppenheimer & Co.

Glenn Greene - Oppenheimer & Co.

Can you give some color, specifically within Europe? Are there any countries, regions, that you particularly notice that really softened, quarter-to-quarter?

Christina Gold

I think where we continue to see as the stress point is Spain. And we have seen that through the back half of 2008 and it continues to be a challenge. Obviously the U.K. had some issues. Some of the markets are still growing but not at the pace they were growing before, so that has its impacts. And you can see a little bit in Russia as well because there is a lot of turmoil in Russia.

Glenn Greene - Oppenheimer & Co.

So it’s really the economies that you would expect based on the economic trends?

Christina Gold

Exactly. As you look at GDP and you look at what is going on in different countries, because it’s really pushing our customer and they are looking for jobs. In the end, it will create opportunity for us because people will have to migrate to different geographies or to different jobs and we will be able to pick that up. But on this time of uncertainty they are holding back a bit.

Glenn Greene - Oppenheimer & Co.

And you haven’t seen any real weakness in the oil-producing nations? You did mention Russia?

Christina Gold

In the Middle East, it still continues to be a jewel for us. It is doing extremely well. We are pleased to see that and we see that going into January. But obviously we are monitoring that on a daily basis, because we read the newspapers. But the Middle East, there are so many different types of labor, people that are in so many different industries, that it offers a great opportunity for us in our business.

Glenn Greene - Oppenheimer & Co.

The monthly transfer out the quarter, was it pretty consistent, October, November, December, or did it get worse at the end of the quarter?

Christina Gold

It was consistent, however we didn’t get the bump-up that we would normally appreciated to have let’s say, for the Christmas season.

Operator

Your next question comes from Bob Napoli - Piper Jaffray.

Bob Napoli - Piper Jaffray

How do you think the market is going to change related to the Payment Services Directive?

Christina Gold

From our perspective it gives us an opportunity to open different classes of trade. In some of the countries we operate in you have to be a bank. Now you do not have to be so it gives better hours, you can create different types of locations. But we are cognizant as well, from a competitive point of view, it’s easier to get a license, if you get can one license for 27 countries.

So that’s one of the reasons that we want to make sure we do this acquisition now and we are out there building that network to make sure that we capture all the opportunities out there.

Bob Napoli - Piper Jaffray

And this acquisition, did I hear $200.0 million?

Christina Gold

Under $200.0 million.

Bob Napoli - Piper Jaffray

On the share repurchase program, I saw you had $400.0 million. Do you expect to execute on that kind of consistently through the year?

Scott Scheirman

It is probably helpful to review our cash priorities: investing in the business, acquiring companies, and returning capital to shareholders. So we have targeted $400.0 million and we will look at such things as the financial markets. Our cash flow is in a variety of things. But right now our objective is to repurchase $400.0 million of stock.

Bob Napoli - Piper Jaffray

The transaction growth again, it’s a lot stronger than what we thought. How much of it is intra-country?

Scott Scheirman

We provided the range of what we are thinking about is mid- to high-single digits. It will be a combination of both cross-border and intra-country. I think one key thing to keep in mind is that we want to gain market share in the cross-border events market. We have gained market share every year the last three or four years and we believe with our strong brand, we will have 400,000 locations a year from now, our financial strength, we are well positioned to gain market share.

Bob Napoli - Piper Jaffray

On the acquisition front are you seeing more opportunities in the pipeline? You are focused, I assume, solely on C2B and money transfer, right at this point?

Christina Gold

Right. And we do see targets in sight. But clearly for us the must be strategic and that they give us the long-term return. We do see some things that we are very interested in.

Bob Napoli - Piper Jaffray

Can you talk about which geographies you are most expanding in?

Christina Gold

Everywhere. But I would say one of the things that we also look at is using our international cash, like the acquisition that we are doing now with the agent will use international cash. But again, if it is strategic and will bring value to shareholders, we will go after it wherever it is.

Operator

Your next question comes from Timothy Willi - Avondale Partners.

Timothy Willi - Avondale Partners

Some of the marketing initiatives you are doing, you talked about some realignments of some regions and you r global campaign as well. Is there anything special or different that you had to reconfigure around some of these big, emerging markets like Asia, India, that we may not see initial benefit but your history in building other markets would show that if you are correct in how you are going to be approaching these new markets with what you have learned, that 12, 18 months down the road there should be a real noticeable improvement out of what you are trying to do with the brand and the agent network versus how they have been performing?

Christina Gold

I would take it in two tranches. If I take the Americas and Stewart’s team, I think they have really organized this one front to the consumer and looked at the segmentation of the consumer but really making a more effective fact to the consumer. So like with the Yes! campaign, incorporating that. Going against the right targets. So I feel very strongly that we will see benefits of that as the U.S. market improves, I think we are really going to see gains there.

As I look at the region that we created between EMEASA and Asia, India has been a strong performer for us and that’s been within Hikmet’s group. I think when you look at Indonesia and Malaysia and having the leaders from India have now connected to those markets, I see tremendous opportunities to take that 7% of our business and double it. So there are huge opportunities there. And I think that team, with their skill sets, and we have done some reorg underneath Hikmet, I think that is really going to drive and we are going to see great numbers from them as we move forward.

Timothy Willi - Avondale Partners

How much of that Asia area would you say, meeting the metrics and the returns and the goals you have set for that marketing program, how much of that would be dependent upon the macro environment? You’ve said in the U.S. that market has to turn but are there levers you can pull with Asia just on the marketing side that you could see a benefit without the macro having to come back to a great degree?

Christina Gold

I think in Asia we have more opportunity in certain markets. Obviously China is a very different kettle of fish. But if you look at some of the other markets, I think one big one is just network expansion. Hikmet’s team has really driven growth in the network. We talked about India, they grew to 50,000 locations. Four or five years ago we had 3,000 locations, now we have 50,000 and their revenues have grown six times. So you can see the importance of having the network right and having the connections right. So that kind of thinking is going to go into countries like Indonesia, where there is a huge population and we really have such a small share of that market.

Operator

Your final question comes from David Scharf - JMP Securities.

David Scharf - JMP Securities

I want to revisit the acquisition and the Payment Services Directive. As I understand the PSD it basically makes it easier for other entities to enter the money transfer business. It tries to increase competition, level the playing field. I’m trying to understand the context of this acquisition, it sort of positioned in your comments as strategic and a big boom. It sounds like you are spending close to $200.0 million defensively, because you have to, because of this directive. Are similar initiatives potentially afoot in other parts of the globe, not just within the European Union and if this is going to be a trend?

Christina Gold

I think it is a great opportunity for us. Obviously there is a competitive element to it. But the real issue here is that certain classes of trade were closed to money transfer companies. We know how to really put feet on the street and drive those classes of trade into our network. By making this acquisition, picking up a sales force, connecting with our sales force, building that team, we will move through Europe to make sure that we pick up that network and we don’t leave it to others. And as we do that we will gain more market share and more points of presence for our business.

David Scharf - JMP Securities

Do you have any sense of what the landscape in Europe is going to look like over the next 24 months with this initiative in place in terms of other non-traditional remittance companies perhaps entering the market, that they may be fairly well capitalized or do you feel at the end of the day it’s really not going to invite that many new entrants?

Christina Gold

Well, you have to think about the brand, which we have, which is outstanding. Plus you need a network because even if you open up a location you have to send it somewhere, so we have that. You also have to have compliance. You have to have the capabilities and all of this takes money. And we have cash.

So I think those are all the important ingredients to make it happen.

David Scharf - JMP Securities

Just revisiting the underlying assumptions behind the revenue guidance, I realize this is a bottom-up 15,000 corridor plan. I’m wondering what type of unemployment assumptions are really underlying the low end of the guidance, the 8% revenue fall off? The immigrants are in place. People crossing borders, that trend hasn’t stopped. But the bottom line is they need jobs and obviously employment tends to be a lagging recoverer. Everything spreads from the U.S. globally. Is the low end of your revenue guidance assuming a certain unemployment rate in the U.S. and ultimately how that may filter out to the rest of the globe?

Christina Gold

We have taken that into consideration. Clearly we recognize the U.S. is one of our more challenged markets. But we have also looked at other markets across the globe individually so it’s a combination of all of that. And I feel very comfortably that we have dug deep into this to get a good feeling of what we have. We recognize, too, that our customers, regardless of unemployment, which is a big issue, will still look for ways to earn money but just have a little less to send. So I think that this is not something that is going to last forever. We will come through this phase and the stress of our business will allow us to continue to see enormous growth as we come out of this and also the work we have done on our value chain will really help us to leverage our margins going forward.

So we feel very confident in what we put into our guidance and where we are taking the business.

David Scharf - JMP Securities

Should unemployment in the U.S. by the middle of 2009 actually reach double digits and then the implications for what that means for Western European economies which have so many immigrant workers, would the low end of your revenue guidance capture that?

Christina Gold

I think that’s what we tried to do in having a much wider range, is to give us a feel of what are the book ends of this. I don’t have a crystal ball. There could be something extraordinary that happens in six months. But as we sit here today, we feel comfortable with the guidance that we have out there and we feel very confident in our business model.

Operator

There are no further questions in the queue.

Gary Kohn

Thank you all for joining us today.

Operator

This concludes today’s conference call.

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