Visa Inc (V) 2009 Q1 法說會逐字稿

Welcome to Visa Inc.'s fiscal first quarter 2009 earnings conference call.

All participants are in a listen-only mode until the question-and-answer session.

Today's conference is being recorded.

If you have any objections you may disconnect at this time.

I would now like to turn the conference over to your host, Mr.

Jack Carsky, head of global investor relations.

Mr.

Carsky, you may begin.

Thanks, Stacy.

Good afternoon, and welcome to Visa Inc.'s fiscal first quarter 2009 earnings conference call.

Joining us today are Joe Saunders, Visa's Chairman an Chief Executive Officer, and Byron Pollitt, Visa's Chief Financial Officer.

This call is currently being webcast live over the internet.

It can be accessed on the investor relations section of our website at www.investorvisa.com.

A replay of the webcast will also be archived on our site for the next 30 days.

A PowerPoint deck containing highlights of today's commentary was posted to our website prior to this call.

Let me also remind you that this presentation may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

By their nature, forward-looking statements are not guarantees of future performance, and as a result a variety of factors -- excuse me, as a result of a variety of factors, actual results could differ materially from such statements.

Additional information concerning these factors is available on the Company's filings with the SEC, which can be accessed through their website, and the investor relations section of the Visa website.

For historical non-GAAP, or pro forma-related financial information disclosed in this call, related GAAP measures and other information required by Regulation G of the SEC, are available on the financial and statistical summary accompanying our fiscal first quarter earnings press release.

This release can also be accessed through the investor relations section of our website.

With that I'll turn the call over to Joe.

Thank you, Jack, and thanks to all of you for joining us this afternoon.

I'm pleased to report that in spite of the ongoing challenges with the economy we begin our fiscal 2009 with solid results across the board.

Keeping in mind that our first quarter service revenue, which represents approximately 40% of our total revenue, is based on a one quarter lag, earnings, revenues and payment volumes all came in better than we anticipated going into the year.

The resilience of our business could be seen in the contribution of our debit products in the US, as consumers continued to more frequently use debit as a method of payment.

In addition we also saw growth in credit products outside the United States, particularly in emerging markets.

That said, the economic situation across the globe has had and will continue to have an effect on dollar payment volumes in the US and internationally for at least the next two to three quarters.

On the other hand I should point out that Visa continues to benefit from growth in the number of transactions conducted over our network.

As a reminder, approximately 30% of our revenue is derived from the absolute number of transactions that take place over Visa net..

This volume grew 8% in the December quarter to almost ten billion transactions, demonstrating that even in severe economic times, Visa continues to take volume from cash and checks.

Now, let me give you a brief overview of the financials for the quarter.

Once again, with the one quarter service revenue lag in mind, net operating revenues in the first quarter were just over $1.7 billion, an increase of 17% over the year-ago period and ahead of our guidance.

Operating margins, which benefited from seasonal impacts, were strong as well and exceeded our stated full-year guidance of the mid to high 40% range, and adjusted first quarter net income of $599 million was 35% greater than the year-ago period.

As I mentioned, we are now seeing signs of a more pronounced decline in US payment volume growth and global cross-border volumes than we had expected going into our fiscal year.

While we began 2009 with the expectation that revenue growth would slow to the high single digits in the back half of the year, we are now projecting that growth to be in the low single digits.

So our full-year fiscal 2009 revenue now looks to be in the high single digits, somewhere below our longer-term guidance of 11% to 15%.

In our next fiscal quarter, however, we continue to expect revenue growth to be in the middle of the 11% to 15% guidance range as it benefits from a one-time $70 million addition to incentives in the prior year.

This means that the normalized second quarter growth rate is expected to be in the mid to high single digits, further decelerating in the second half of the year to the low single digits.

On the positive side, we are reducing expenses which, based on the current trends we see for the year, will help us meet our objective of 2009 diluted earnings per share growth of greater than 20%.

Specifically, we have accelerated our previously-announced global integration efforts.

As we continue to integrate our previously independent operating units we are reducing duplication and prioritizing our project funding, including our marketing spend, which we expect to be somewhat below the level of fiscal 2008.

As a result, we are reaffirming our 2009 earnings per share and operating margin guidance.

But let me be absolutely clear about our operating plan.

All of these efforts will be consistent with fully funding our growth initiatives.

Byron will provide additional detail on our guidance momentarily.

Looking ahead to fiscal 2010 we are cautiously optimistic that we can regain our 11% to 15% revenue growth target, assuming some recovery in the US economy and cross-border volumes by early 2010 and the anticipated more favorable year-over-year comparisons on gas prices and foreign exchange rates.

On that basis we reaffirm all of our guidance for 2010.

Additionally, we expect to achieve our earnings per share and operating margin targets even if the revenue growth is somewhat below our guidance range.

To deliver these results in challenging times it is more critical than ever that we have the people and the mechanisms in place to effectively engage our clients.

We are focusing on their specific business needs and challenges and creating programs to help them build stronger and more profitable relationships with their customers.

And as we make our business decisions we will thoughtfully consider how our actions may impact our clients' businesses.

Of course we take nothing for granted but we believe this commitment to client service combined with our product and network strengths position us well, particularly during a period of intense consolidation in the banking industry.

With that let me turn the call over to Byron, who will take you through the financial results and our current thinking and financial guidance.

Thank you, Joe.

Let me start with the financial highlights of our fiscal first quarter and then I'll touch on trends we are seeing for the quarter ending in December, as well as some early results for January.

As Joe mentioned, it was an encouraging start to 2009 with solid revenue and earnings growth, keeping in mind that service revenues, which represent almost 40% of revenue, are reported on a one quarter lag.

Total payment volume through the end of September 2008 grew 12% to $701 billion over the same quarter of 2007.

During this time the US posted solid results, growing 9% to $421 billion.

Broken down further, debit delivered a strong 14% growth, while credit continued to moderate and slowed to 3% from the prior-period's 5%.

As a reminder, our US payment volume is about equally distributed between debit and credit.

On a constant dollar basis, rest of world payment volume grew at 22%, modestly higher than the 20% growth of the June quarter.

In contrast to the September-ending quarter, cross-border volume growth in the December-ending quarter slowed to zero on a constant dollar basis, down from low double digits in the prior period.

This slowdown was broad-based.

Globally, which excludes Visa Europe, total cards outstanding for the period ending September grew 10%, with 1.7 billion cards carrying the Visa brand.

Credit cards grew 6% to 812 million cards, while debit rose 14% to 864 million cards.

Importantly, international growth of 16% remained very healthy.

Card growth combined with ongoing efforts to broaden acceptance and usage represent a significant opportunity.

Transactions processed over Visa's network, which are reported with no quarterly lag, totaled $9.8 billion in the first fiscal quarter, an increase of 8% over the similar period a year ago.

It is important to reiterate a point that Joe made at the beginning of this call.

While payment volume and average ticket sizes are moderating in the face of much more difficult economic times, our transaction counts, which are an important component of our net revenue, are growing very well as the underlying secular shift to electronic payment, and more precisely to Visa, continues.

Turning to the income statement.

In the first quarter gross revenues of $2 billion were up 16% from the similar period in 2007(Sic-see press release).

Volume and support incentives increased by $19 million to $269 million, which represented 13% of gross revenue, moderately below our expectations coming into the year.

Volume and support incentives are recognized based on current quarter results and this decline was almost entirely a function of lower fiscal first quarter payment volumes, which in turn resulted in lower payments and accruals.

We expect that this dynamic will continue to provide some level of offset to lower revenue growth in our second quarter.

Given our updated full-year revenue projections, we now expect 2009 volume and support incentives to be 14% to 16% of gross revenue, down from our initial guidance of 16% to 17%.

Net operating revenues were just over $1.7 billion, a 17% increase over the operating revenues recorded for the first fiscal quarter of 2008.

Moving to the individual revenue line item.

Service revenue was $793 million, up 8% over the prior-year period and reflective of solid year-over-year payment volumes in all regions for the quarter ending September 30.

Data processing revenue, reporting on a current-quarter basis, was $554 million, up 13% over the prior year.

International transaction revenues, also reported on a current quarter basis, were thir -- we up 33% to $505 million, as moderating cross-border volumes in the period were offset by competitive pricing modifications.

Our adjusted operating margin, which tends to be highest in our fiscal first quarter, was approximately 58%, above our full-year guidance, as Joe mentioned.

In addition to seasonal impacts and better-than-anticipated expense savings the increase in margin was due to lower volume and support incentives.

which are recognized in the current quarter.

I'll provide additional color on our margin expectation in a moment.

On an adjusted basis operating expenses for the first quarter declined $29 million, or 4% year over year, driven by lower costs for personnel and professional fees, as well as flat marketing spend.

As Joe mentioned earlier, our focus on cost is broad-based and aimed at delivering the expense savings committed to by management during our IPO road show.

Please note that while we had originally guided to flat marketing spend in fiscal 2009 versus 2008, our current expectation is that the spending level will be somewhat below the level of 2008.

Capital expenditures were $68 million in the quarter, approximately $40 million of which was dedicated to the build out of our new data center.

The center will be fully operational by the fiscal fourth quarter.

Moving on to the balance sheet.

We ended the first quarter in excellent shape with very little debt and cash, cash equivalents, available-for-sale investments and restricted cash of $5.6 billion.

Of this total, $2.6 billion is restricted cash, which represents an amount sufficient to fully fund the American Express and Discover settlements.

Two significant cash outflows are notable for the quarter.

First, in mid October we redeemed all of the Series 2 and a portion of the Series 3 Class C shares that were held by Visa Europe for a total of $2.7 billion, resulting in a single class of C shares and the elimination of our pro forma approach to share count and earnings per share.

All Class C shares are now translatable, one to one, into Class A equivalent shares.

Second, at the end of December we delivered on our commitment to return excess cash to our shareholders when Visa funded the litigation escrow by $1.1 billion directly from our cash balances instead of conducting an expensive follow-on underwriting.

This had the same effect as a stock repurchase and reduced the amount of shares outstanding for EPS calculation purposes by 20.8 million shares.

While there was little effect to the average share count in the first fiscal quarter, the full effect will be realized in the second quarter and beyond.

As a result of these two transactions, as of December 31, 2008, Visa, Inc.

has 755 million Class A shares outstanding on an as-converted basis and began the fiscal second quarter with a fully -diluted Class A share count of 756 million shares.

Now let me comment on the trends we are seeing that will impact our results in the coming quarter and fiscal 2009.

While we expect to hit the middle of our 11% to 15% revenue guidance range in our fiscal second quarter, in part due to a non-recurring $70 million addition to incentives in the prior year, the back half of 2009 is now looking to be more challenging than we expected going into the year.

This will have ramifications to our revenue projections in the third and fourth quarters, though we remain committed to delivering our full-year earnings per share and operating margin guidance.

Specifically, here in the US payment volume growth has declined from 9% in the September quarter, to essentially flat in the December quarter.

Deconstructing this further, credit volume ended the period at a negative 6%, while debit posted a 6% gain.

More recently through the end of January, aggregate US payment volume growth is trending relatively flat; credit growth is negative, in the mid single digits, relatively unchanged from the December quarter; and debit appears to have regained some momentum, rising from positive low single digits in the month of December back to the mid single-digit range in January.

When you dig a little deeper into the underlying dynamics of these trends, what we are seeing is that the steep drop in gas prices over the past several months has noticely -- noticeably dampened payments growth, despite notable growth rates in other categories of spend like recurring bill pay, quick service restaurants and healthcare.

All of these categories tend to favor debit over credit in this environment, which underlies some of the resilience of that product.

Net-net this leaves us cautiously optimistic that debit will continue to sustain respectable growth in this tougher economic environment.

Outside the United States, for the quarter ending December 2008 constant dollar payment volume growth rates declined from the low 20s to the mid-teens.

As mentioned earlier, cross-border volumes were flat in the December-ending quarter and in January have declined to negative mid single digits.

Now let me comment on what we see over the coming year as far as our operating performance is concerned and how it may impact our current guidance.

As Joe previously mentioned, on a full-year basis we are projecting total net revenue to come in below the lower end of our 11% to 15% guidance range in the high single digits.

While we still expect to achieve the middle of our 11% to 15% guidance range in the fiscal second quarter, the third and fourth quarters are now shaping up to be more challenging than we had signaled last quarter, with the probability of low single-digit growth.

This second half outlook also encompasses a more pronounced foreign exchange impact, which, on a year-over-year basis, is expected to reduce revenue growth by about three percentage points.

Despite the strong adjusted operating margin exhibited this quarter we are maintaining our long-term guidance of the mid to high 40% range for adjusted operating margin through 2010.

Though we should continue to realize incremental savings from our merger and cost initiatives, given the pressure on revenues in the back half of the year, the general uncertainty around the economy and our intention to continue investing for future growth, we are staying with our current range.

More importantly, and to reiterate Joe's statement, we remain on track to deliver our guidance of annual adjusted diluted earnings per share growth of greater than 20% for 2009.

Looking beyond 2009, assuming some US economic recovery by early 2010, as well as more favorable comparisons, particularly in cross-border activity, gas prices and foreign exchange rates, we expect to achieve our earnings per share and operating margin guidance.

That concludes my comments, so I'll turn the call back over to Joe.

Thanks, Byron.

Let me conclude by saying that it's important to remember that Visa's business in the US, while vital to the Company, is only one part of a large and growing global enterprise.

and despite the current economic headwinds our international growth opportunities, both in credit and debit, continue to offer us very attractive longer-term prospects as economies expand and mature and payment systems evolve around the globe.

And when economy of the US does turn for the better the actions we are taking now on expenses, on new product development in both credit and debit, and on international expense -- expansion will pay enormous dividends over the long term.

Thank you all for listening and with that we are ready to take questions.

Operator?

Thank you.

(Operator Instructions).

Our first question today comes from Craig Maurer of Calyon.

Good evening.

Regarding the "competitive pricing" changes regarding - around cross-border\s I was wondering if you could just characterize how that plays with the regulators over there, considering the environment, particularly in Europe?

And my second question is, can you characterize the level of your marketing spend that's tied to contract obligations versus what's completely discretionary?

Thanks.

Well, to begin with the pricing changes that we're talking about were made several quarters ago and are being manifested in what we do -- in what we do now.

This isn't a recent action.

In the second regard, the majority of our marketing spending is discretionary, not non-discretionary.

Okay.

And so -- and that continues to be the case.

I would say that the traction that we're getting on marketing spend is mostly related to the efficiency of what we're doing today as opposed to what we did a year ago when we were a new Company.

Right.

Which includes the recent consolidation of agencies?

Yes, the consolidation of agencies and, frankly, the lower cost of different types of media.

Okay.

Thanks, guys.

Thank you.

Your next question comes from Tien-Tsin Huang of JPMorgan.

Thanks so much.

Appreciate the commentary on the December volumes in the US, it's actually a bit better than we expected.

I was just curious, it looks like US payment volume is tracking closer to retail sales than it has in the past, kind of like it was flat.

Still a premium but not as big as the usual secular premium that we would see.

So I guess I was trying to better understand what do you think is driving that reduction in the premium?

Is it really just lower average tickets and gas influencing that?

Well, to a certain it's lower -- modestly lower average tickets, which is related to the economy in general.

So quick service restaurants and categories like that are increasing more rapidly than high-end retail or travel or airlines.

Having said that, fuel prices have a significant impact on our payment volume growth in the short run.

If you go back through last October, gas prices steadily increased to well over $4 a gallon from depending on what week you're looking at, they're around $1.70 a gallon right now.

So there's a huge drop in the price of gas and gas accounts for about 10% of our total payment volume across both categories, so you have 10% of your volume where the cost of a gallon of gas is off by 40%, 45%.

That obviously will not be the case in 2010.

Assuming everything stays the way it is, you can do the numbers, but it makes a difference in our growth rate.

Okay, that's really helpful.

Did you see any noticeable change in average tickets or I guess the number of swipes in the US in December?

We got the volume data but I was just curious if you saw a similar trend in transaction counts.

I think as we said we saw the number of transactions go up at a pretty strong high single-digit rate and was eight -- I think it was 8% -- I think that we just said 8%, but the average ticket size in the aggregate is down by several dollars, by 5%, I think.

Okay.

Great.

And then lastly just the --

Not all of that is fuel, but fuel is a considerable hunk of it.

Right.

Yes, because we've been trying to focus more on transaction count.

I'll end by asking, just to confirm, the data processing line is primarily transaction based, correct, not volume based?

That's correct.

(inaudible) is 100% transaction based.

Terrific.

Thank you so much.

So we're very pleased with the number of transactions going through our system in this period of time and, frankly, you can't look at it and not think that we're doing what we set out to do, which is to compete with cash and checks.

Next question.

Our next question comes from Jason Bilodeau with UBS.

Your line is open.

Thank you.

Good afternoon and congratulations, guys.

Wanted to ask a question just to start off with, we're getting more inquiries from investors trying to separate cyclical and secular trends here.

Obviously the cyclical part of the growth equation's getting a little bit more challenging, which I don't think is surprising to anyone.

Can you talk a little bit about the confidence level in the secular piece?

There's obviously a lot of views out there that the days of easy credit are over and if the consumer does go into a period of more sustained deleveraging with an increased personal savings rate, to what extent do you guys think about that potential dynamic as you shape the outlook over the next year or so?

Okay.

So to begin with, if you look at our combined debit and credit volume, 95% of the volume that goes through our system comes from people that use debit cards, which don't have a credit limit, or in those cases where it is a credit card from people that either pay their bill in full every month, or occasionally revolve and never revolve it more than 50% of their life.

So part of the answer is that a lot of the volume that we have is gen -- is not generated by people that are borrowing a lot of money.

We've got to keep reminding ourselves and everybody else that the growth in receivables in the credit card business has a lot to do with balance transfers in the acquisition of new accounts.

Balance transfers, those loans that are created as a result of the balance transfers never go through our system.

Those are transactions that are handled outside of Visa's system, if you will, so while they may come under a Visa-branded product, they are not Visa volume to us.

Having said that, it's clear that things are more difficult than they used to be and it's clear that our volumes are down as a result of the economy in the US and economies around the world, although as we said, our credit card volumes in some emerging countries remain quite strong.

On the other hand, our transactions are up and they appear to be up because we appear to be taking share from cash and checks in categories; in the quick service restaurants, in the bill paying categories, which are often larger dollar amount transactions, in supermarkets and wholesale food chains -- wholesale retail chains and so forth and so on.

I think that the answer that encourages me the most is.

if things begin to turn around, even modestly, we have structured ourselves to be poised to take advantage of it in a serious way.

Okay.

That commentary is great and I think Adam has a follow-up question for you.

Hey, guys, how you doing?

Good.

Pulling a Brett Favre here, I just couldn't stay away.

(LAUGHTER) But, Byron, you were pretty clear that your expense reduction program would not interfere in your growth initiatives, but is it also logical to think that once top-line growth recovers at some point, hopefully sooner rather than later, you won't have to add back at least the bulk of these expenses?

So I guess another way to ask it is, what you're cutting now does it have to be added back later once revenue growth reaccelerates?

Well, I think we made clear from the beginning that not all of the savings that we would realize as a result of the merger would be flowed through to the bottom line and that we stand ready to reinvest those -- a portion of those savings in new product and growth initiatives and that remains true.

I think to help ground everyone, as Joe indicated, the margin for the first fiscal quarter is typically our highest throughout the fiscal year, so we would expect margins to moderate through the balance of the year, which is why we expect the -- which is why, frankly, we are holding our margin guidance to mid to high 40s.

I would only add to that that in relation to the question you asked, are the dollars -- the expenses that we are saving going to show back up when the economy gets better, the answer is no.

They will not show up.

Perfect.

Thanks, guys.

They're going away.

Good, keep them away.

Thanks.

(Operator Instructions).

Our next question comes from Julio Quinteros with Goldman Sachs.

Sir, your line is open.

Great, hey, guys.

My question is really just want to focus more on pricing, and I know that we've heard a lot of commentary, chatter up in talking to a lot of folks out there that pricing increases are coming from Visa, Master Card, prepare for that., and I guess what I'm really trying to understand more than anything else, even if they were some pricing increases, not necessarily the magnitude, but where exactly should we be thinking about how each one of these pieces would flow through the revenue items.

I guess if you could focus more on thing like the card services line, the data processing fees and cross-border, how do we break out where or (inaudible) with it, or if you can provide a way to think about where those increases would really actually manifest themselves in the model?

I think in the short run, I just suggested in my talk that we're going to be very careful about what we do, given the fragile state of the bottom line of our clients, particularly in the US.

So while I'm not going to say we will do nothing, what we will do will be in concert with our partners and it'll be done in a thoughtful -- I think we've said a thoughtful, surgical way and we're not going to back off of that.

That's not where we believe our greatest opportunity lies.

Okay.

And then maybe just in terms of the model itself, and maybe, Byron, you could just comment on, thinking about the line items, where would it actually show up in the model if there were to be anything like that?

Yes, I -- the way we've tried to be helpful is to elevate to an overall level of revenue guidance in combination with margin.

I think we've said from the beginning that in our first 12 to 18 months as a public Company, as a merged entity, we had a lot of practices and a lot of opportunity to standardize and optimize our business across the globe.

We are doing that and we'll -- then we'll basically have a non-normalized rate of growth through this year, but as we move beyond this year, again, as we've said before, the vast majority of our revenue growth should be attributed to taking share from cash and check and growing our business with transactions and a higher penetration of TCE.

We actually expect pricing to be a much more moderated impact over time on our revenue growth.

Perfect.

Thank you, guys.

Our next question comes from James Kissane with Banc of America/Merrill Lynch.

Sir, your line is open.

Hey, thanks.

Byron, just following up on that, what portion of your revenue growth this year will be from the price increase?

And then maybe just a quick follow up.

When will the cross-border pricing adjustments anniversary?

Thanks.

Let's start with the second.

The cross-border pricing adjustments you're referring to were initiated in Q3 of 2008 -- fiscal Q3 of 2008, so they will anniversary at the mid-way point of this fiscal year, which is a contributing factor to our guiding down revenue growth in the second half.

With regards to how much revenue is tied to price adjustments, that's not something that we have spoken to publicly and again, we tried to be helpful by giving, in this case, relatively specific revenue guidance by quarter for all of 2009.

No, it's very helpful.

Thanks.

Our next question comes from Andrew Jeffrey with SunTrust.

Sir, your line is open.

Hi, guys, thanks for taking the question.

One of the things or one of the premises on which you're kind of basing the 2010 outlook is the thought that maybe we find a bottom here, at least in the US economy, 2009 and at least in credit volume.

Is there anything anecdotally or otherwise that you see out there that makes you feel comfortable with that kind of projection?

Is it the disconnect between the view of restriction of credit and the type of customer or the type of transaction that flows through the network, or is there something else that makes you feel like that's something we should be thinking about?

Let me respond first by saying this is not a projection.

What we have said is that, if the economy in the US begins to has some degree of recovery in early fiscal year 2010, in combination with some recovery of cross-border, in addition to more favorable comparisons, specifically with gas prices and FX rate, then we beli -- then we will -- we are confident that we will resume our revenue guidance of 11% to 15% growth.

So what we're -- the way we're trying to be helpful here is if there -- under those circumstances, we feel very comfortable in projecting revenue growth in back into our guidance range.

Yes, let me just be a little bit more specific.

I don't know when the economy in the world is going to recover, so when Byron suggests that there needs to be some recovery, that's what we're saying.

If there is in the -- by around the first quarter of 2010 then I think we're in good shape.

As it relates to the foreign exchange and the gas prices we're considerably more certain that that will happen.

So it's really a mix of the two and remember, I don't need the economy to recover to a point of where I have to get to the revenue guidance to continue to deliver the 20% earnings per share.

Okay.

Then, as a follow up on contra revenue it sounds like you're getting a little more constructive there relative to your net revenue growth, should we actually begin to see support and incentive payments fall as a percent of volume at some point in 2009?

The way we've articulated that is as a percent of gross revenue, and so we had -- going into the year, we had guided volume and support as a percent of gross revenue at 16% and 17%, because growth has been a bit less than anticipated, as a percentage of gross revenue that has fallen to, in this case, 13% for the quarter, and then we adjusted our guidance to 14% to 16% on a full-year basis.

Okay.

Yes, we don't expect it to remain that low.

Okay.

All right, thank you very much.

Thank you.

Your next question comes from Chris Brendler of Stifel Nicolaus.

Hi, thanks.

Good afternoon.

Just a quick follow up on that last question.

The 14.5% -- or the 13% this quarter and the volume and support incentives, I assume that's based -- in your guidance for fiscal '09 is based on volumes staying relatively consistent where they were in the fourth quarter and January.

If you've taken a leg down, does that line item have more potential to drop and could it conceivably be as low as 10% of revenues, or is it not that sensitive if volume falls?

Let me just -- let me start out by reminding you that the incentives are booked on a current quarter basis and the revenues on a lag basis, so you're talking about service revenues up to October and you're talking about incentive expense on a real-time basis that occurred in the ensuing quarter.

And I would just add to that that the way the incentives would respond would be with diminishing return.

So if revenues were -- if revenue growth was -- or payment volume growth continued to slow, there would be a diminishing dampening effect by incentives over time.

It's not linear.

Okay.

And then another follow up on --

And the flip side to that is once you begin annualizing that and you have recovery, you have the same phenomenon on the uptick that incentives will be -- will start to come back as growth in payment volumes begin to recover.

Okay.

And then your guidance for and your commentary around cross-border, it sounds like cross-border actually did get worse in the month of January and once we hit the second quarter were running negative single digit like we were in January in terms of volumes.

We're going to see that in terms of revenues, as well, because pricing's going to anniversary.

Is that in your guidance already, negative cross-border revenues by the second half of '09?

Thanks.

Everything that we know is in our gui -- is in the guidance that we're giving you today.

There is nothing that we've talked about that we haven't thoughtfully considered in putting together the comments that we put together today.

Okay.

Thanks, Joe.

It doesn't suggest that things can't get worse, but we have considered everything that we're looking at.

Thanks.

Thank you.

(Operator Instructions).

Your next question comes from Chris Mammone of Deutsche Bank.

Thanks.

I guess just following up on that last question, maybe you could get a little more granularity on the slowdown, is it sort of broad-based or could you touch on your major regions and specify if some regions are dragging down the overall volume numbers more than others?

And then also a quick follow up, I don't know, could you give the process transaction growth for January?

Thanks.

So let me respond.

With regards to regional granularity, when the economic malaise began to set in different regions entered that zone at different timeframes, but I think it's fair to say today all our regions are -- it's broad-based.

All our regions are experiencing declines.

All the regions contributed to the reduction in growth in cross-border.

I admit that's true about cross-border but I -- we have seen transaction and payment volume growth in some -- in several of our emerging countries and some of our regions outside the United States.

So we have some countries that are accepting (inaudible), yes.

And then we -- on transactions processed, we didn't give the January number.

Our practice is to give it at the quarter, which we will do at the next earnings call and that'll be for all three months.

All right.

Thanks, guys.

Thank you.

Your next question comes from Don Fandetti of Citigroup.

Hi, good evening.

Joe, I was wondering if you could just give us an update on your debit expansion in Asia in terms of timing and your outlook there?

Well, as you know we've just begun a joint venture in Asia and we are in business.

We have a number of clients in queue and over the next 24 to 36 months we think that that'll be a pretty viable operation that will generate more than noticeable revenues, so that's how we're starting to push debit out in Asia.

We have debit initiatives going in other parts of the world.

Okay, thank you.

Thank you.

Your next question comes from Moshe Katri of Cowen and Company.

Hey, thanks.

Can you break down -- can you give a breakdown of payment and transaction growth by regions; US, Europe, Asia-Pacific?

I think these are numbers that you gave us last quarter.

And then could you elaborate a bit more on your cost cutting initiatives, I guess with the exception of advertising, are we focusing more aggressively on personnel, systems, data centers, et cetera?

Thanks.

I'll answer the second question, then Byron will answer the first question.

As it relates to the second question, what I said was that we are executing on what we said we would execute on in the IPO, and that is to deneutralize the Company and to eliminate duplications and wind up focusing on implementing projects that made sense to the business and eliminating those things that were extraneous or duplicative and that is exactly what we're doing.

One of the fallouts of that, of course, is that we're reducing our headcounts in certain places as it relates to this duplication.

But that's essentially what we're doing.

We're putting together a Company that is effective, efficient and focused and we're doing what we should be doing and we're doing what we promised we'd be doing and it happens to coincide with a period of time where it's extremely appropriate and important that we get about the business of doing that and getting it done and that's what we're committing we will do.

With regards to transactional data by region, let me refer you to our website and we will have posted today, Jack?

Yes.

We will have posted today for the period ending September 30t, all the detailed statistics of which transaction by region are included and are available for you to access.

And just to verify, did you say that average ticket prices were down 5%?

Thanks.

No, we did not.

We said -- we didn't give any specific quantitative on average tickets.

Well, Joe, Joe said it was about 5% in aggregate.

Thanks.

Thank you.

(Operator Instructions).

Your next question comes from Sanjay Sakhrani of KBW.

Hi, thanks.

Joe, I guess I just wanted a little more clarity on that 2010 guidance.

Is there a base level of revenue growth in that year that would lead you to believe that 20% EPS growth is still achievable?

We think -- we're pretty confident at this point, without knowing in absolute terms what's going to happen that the things we know that will change off of the baseline that we expect in the third and the fourth quarter will get us to where we need to go.

We think it could get us back up to the 11% to 15% range.

We think it could fall short of that and still deliver the 20% earnings per share.

I mean I -- you could stress test it all the way down the hill, but we're reasonably confident that we're in pretty good shape knowing what we know now.

So just to build on that a moment, so we guided in the second half of the fiscal year to a probability of low single-digit revenue growth.

As Joe mentioned earlier, what we do know is what gas prices have been and what we will anniversary in terms of gas pricing.

We also expect to favorably anniversary the change in FX.

We then went on to say that, in order to deliver our -- get back into our revenue guidance range that we expect that we would depend on at least some recovery in cross-border and some recovery in the US.

Joe went on to say that even if we underperform slightly -- underperformed our revenue guidance somewhat we could still hit 20% or better EPS growth.

So that's how we've tried to frame it for you all.

Okay.

So we could think maybe high single digits still achievable, maybe below a little bit harder to?

I think we've given you a pretty good frame, you should take it from there.

Okay, fair enough.

And then just on capital management, I was wondering where we were with that.

I think you guys still have a fair amount of cash.

Any intentions of instituting another share repurchase above and beyond the $1.1 billion?

Thanks.

Good question.

So as I mentioned in earlier in the remarks, we did $1.1 billion of share repurchase in the month of December.

And we have ample opportunity to go back to our board to seek additional authorizations at a time and an amount that management feels appropriate.

Okay, thank you.

Stacy, we probably have time for one more question.

Thank you.

Then your next question comes from Bob Napoli of Piper Jaffray.

Thank you, good afternoon.

Just want to make sure I -- the foreign exchange effect on revenue, I think can you give a little more -- I think you said in the back half of the year it's like only 3%, what is --?

In the back half of the year, we said that it was three full percentage points of impact on growth.

That's on the Company's entire growth rate.

So -- and that's currently the ballpark that's we're contemplating.

And I guess the effect on revenue for -- on a run -- the change in currencies, the dramatic change we saw over the last 60, 90 days, the net effect of that is only 300 basis points on the growth rate?

On the year-over-year growth rate.

Okay.

And the effect on profitability?

In the way that we hedge, we hedge the economic exposure, so revenue less expenses is an income exposure.

We hedge the income, so that's -- from an economic standpoint that's hedged.

When we gave the guidance for 20% or better EPS growth that's on an as-reported basis, so the foreign exchange impacts are fully contemplated in that guidance.

Okay.

And fuel -- I want to make sure I heard this you right, you said fuel was -- before the decline in fuel prices was 10% of all spending on your card?

That's higher than I'd heard from other --

About -- Joe said about 10% in the US.

Okay.

The US.

And just last question, on the -- there was a major security breach, I guess, in the industry here in the US and I think that there is -- the risks of security breaches in the industry are going up.

I was wondering if you could comment on that and the -- how concerned you are about that and what economic effects you think the security breach that is out there could have on various players in the industry?

Obviously we're aware of it and obviously we're involved in the correction of it and obviously we're concerned that it happened.

We believe that we have made a considerable amount of progress through PCI -- for lack of a better term -- to mitigate the possibility that these things happen.

There have been some that have occurred but not -- but frankly, not many.

Now, having said that, to us, one of the most important things is that from -- in that regard we have promised consumers that they will never be financially liable for anything like this occurring to them.

That is totally intact and consumers can feel comfortable using Visa cards and comfortable in the notion that no security breach will ever financially affect them and I think that is the most important thing.

We have worked on making sure that nobody in the process gets hurt, but our promise is to the consumer and the confidence is directed at the consumer and I'm happy to say that that continues to be 100% effective.

Thank you, Joe.

And thank you all very much.

Thank you, Stacy.

And if anybody has any follow-up questions feel free to give investor relations a call.

Thank you.

This concludes today's conference.

You may disconnect at this time.

Thank you for joining,