Visa Inc (V) 2009 Q2 法說會逐字稿

Welcome to Visa Incorporation fiscal second quarter 2009 earnings conference call.

(Operator Instructions).

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 Investor Global Relations.

Mr.

Carsky you may begin.

Thanks Jose.

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

With us today's are Joe Saunders, Visa's Chair and Chief Executive Officer and Byron Pollitt, Chief Financial Officer.

This is currently being web cast live over the internet.

It can accessed on the Investor Relations section of our website at www.investor.visa.com.

A replay of the web cast will be archived on our site for 30 days.

A power point deck containing highlights of today's commentary is posted to our Web site, 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 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, and can be accessed who the SEC's Web site, or the investor relations section of the Visa web site.

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

This release can be accessed through the IR section of our web site.

With that, I will turn the call over to Joe.

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

To begin with, I am very pleased to report that our fiscal second quarter results were consistent with the guidance and expectations we provided, in our last quarter's earnings call.

Despite the challenging global economy, Visa delivered strong operational and financial performance, benefiting from its diverse product set, our intense focus on expense management, and the underlying world wide secular shift from cash and checks to electronic forms of payment, which continues unabated.

Our operating net revenues in the second quarter were over $1.6 billion.

An increase of 13% over the year-ago period, and right in line with our guidance this quarter..

Our adjusted operating margin of 55%, which benefited from our ongoing efficiency drive, was solid as well and exceeded our stated full-year guidance of the mid-to-high 40% range.

Finally, an adjusted second quarter net income of $553 million, was 38% greater than the year-ago period..

Looking forward from a macro standpoint, the world economy continues to slow and while Visa is resilient it is not immune.

Aggregate payment volume growth in our international regions in the December quarter were a positive mid -- double digit rate and preliminary volume trends through march suggest only a modest decline since then.

This of course will be reflected in our fiscal third quarter service revenues but there continues to be regional bright spots around the globe where the trend are holding up even more substantially.

In the U.S.

specifically, payment volume growth declined to an approximately 1% negative rate in the December quarter, and we saw little change through the March quarter.

We are encouraged that in aggregate, over the five-month period through April, we have seen some stabilization in the U.S.

payment volume trend.

Of course, the more than 30% rate of decline in the year-over-year price of gasoline has resulted in difficult year-over-year comparables which will continue for the next few months before finally abating as we move into fiscal 2010.

And importantly all of the results we achieved to date are in spite of foreign currency head winds which we also expect to abate by the beginning of fiscal 2010..

The underlying resilience of our business was evident in the contribution of debit products in the U.S.

which Visa pioneered in the mid 1990s.

Debit in the US posted growth in each month of the March quarter as well as through the month of April.

The continued strength of debit is attributable in part to that product's strong correlation with nondiscretionary spend categories which are holding up relatively well in the face of a tough economy..

In fact, in the quarter ending December, for the first time in Visa's history, U.S.

debit payment volumes eclipsed that of credit.

An important milestone in the history of our business, and a testament to the diversity of our product.

Process transaction growth was resilient as well, posting gains of 6% through the end of March, with even better performance through the end -- or through this point in the month of April..

Before touching on our near-term outlook let me underscore several important themes that I think you should take away from this call.

Our financial performance in fiscal 2009 is unfolding consistent with our expectations and guidance and reflects appropriate funding of all of our growth initiatives.

Our business model has proven resilient in the face of today's economic challenges.

Transaction growth led by debit has continued unabated in part driven by the secular shift from cash and checks to electronic forms of payment.

This global shift in spending behavior is also being driven by Visa through product innovation, expansion of payment categories and focused global advertising that moves consumers to want to transact at the point of sale with Visa products.

With the global economy having some impact on revenue growth, Visa's management teamed remains focused on delivering the margins and the adjusted earnings per share growth outline during our IPO road show.

We have therefore accelerated merger related cost efficiencies which have fully offset shortfalls in revenue growth.

In the near term, the continuing challenge in cross border payments, payment volumes, foreign exchange and gas price headwinds and lap in price increases will have a negative effect on the back half of our fiscal year.

For this reason, we still expect low single digit revenue growth in our fiscal third quarter, although the fourth quarter should now be slightly higher, based on several factors, including planned strategic pricing action, recently announced.

With this in mind, we are confident in achieving the high single-digit revenue range for all of fiscal 2009..

With the anticipated contribution from expense savings, we are on target to meet our 2009 diluted earnings per share growth guidance of greater than 20%.

Given the fiscal year-to-date results in our adjusted operating margin, we are taking the full-year 2009 guidance up modestly from the current mid-to-high 40% range to the low 50s range.

Additionally, we are taking the 2010 adjusted operating margin to the high 40% to low 50% range.

Byron will touch on this further in a moment.

Looking ahead to fiscal 2010 we're not changing the outlook we shared with you last quarter.

We continue to be cautiously optimistic that we can regain our 11% to 15% revenue growth target.

Assuming some recovery in the U.S.

economy, and cross border volumes by early 2010 and we expected more favorable year-over-year gas prices and foreign currency exchange rates.

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

And finally, we continue to focus on client service, given the historic times in the banking sector and borderer economy.

Consultations in the banking industry may continue, and Visa expects to be the beneficiary of this activity.

We will do so by remaining committed to providing our clients with the products and programs that move their businesses forward, and add value to their customers.

Debit and our prepaid platform as well as money transfer and new technologies for payment at the point of sale will continue to differentiate Visa from the rest of the payments industry.

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

Thank you, Joe.

As is now our custom, let me begin with the financial highlights of our fiscal second quarter.

And then I will touch on trends we're seeing for the quarter ending in March as well as some early results for April.

As Joe mentioned, it was a solid fiscal second quarter, with strong revenue, and earnings growth.

Remembering that service revenues which represent 41% of our gross revenue, are reported on a one-quarter lag.

Total payment volume growth for Visa Inc.

through the end of December, 20, 2008, in nominal dollars was a negative 1%, falling to $675 billion over the same quarter, in 2007.

In the U.S.

debit delivered a solid 6% growth while credit was a negative 7%.

And in the December quarter, for the first time in our history, U.S.

debit payment volume eclipsed that of credit volume although credit still remains the payment vehicle of choice, internationally.

On a constant dollar basis, rest of world payment volume grew at 14%, moderating from the 22% growth exhibited in the September quarter but still solidly positive.

A further recognition of the secular resiliency of plastic in many emerging and developing economies.

As a reminder, 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.

The slowdown was broad-based.

Through the end of March, it continued its decline and ended the period at a negative 6% constant dollar growth rate..

Excluding Visa Europe, globally, total cards outstanding for the period ending December, grew 8% with over 1.7 billion cards carrying the Visa brand.

Credit cards grew 2% to 813 million cards, while debit rose 14% to 905 million cards.

Debit card growth primely in the United States was positively affected by prepaid gift card programs that are obviously very popular around the December holiday.

International card growth of 13%, remains very healthy as well.

Overall, credit card growth in the U.S.

has slowed as a result of retrenchment in credit card marketing programs, but this slowdown is being more than offset, by gains internationally..

Transactions processed over the Visa network which are reported on a real time basis ,totaled $9.4 billion in the fiscal second quarter an increase of 6% over the similar period, a year ago.

It is important to reiterate a point that we made last quarter, and Joe touched on earlier.

While payment volume and average ticket sizes have continued to moderate, our process transactions which represent approximately 28% of our gross revenue continue to post solid growth as the underlying secular shift to electronic payments and more precisely to Visa continues.

Turning to the income statement.

In the second quarter, gross revenues of $1.9 billion were up 8% from a similar period in 2008.

Volume and support sensitives decreased by $43 million to $295 million, representing 15% of gross revenue, in line with our full-year expectation in the range of 14% to 16% of gross revenue.

As you know, volume and support sensitives are recognized based on current quarter results.

The year-over-year decline, was the result of lower, 2009, fiscal second quarter payment volume growth, as well as the effect of a one time $70 million nonrecurring charge, in last year's quarter, Partially offset by new contractual adjustments in the current quarter.

Net operating revenues were just over $1.6 billion, a 13% increase over the operating revenues reported for the second fiscal quarter of 2008, and right in line with the guidance we gave last quarter.

Moving to the individual revenue line item, service revenue was $804 million up 2% over the prior year period.

And reflective of moderating year-over-year payment volumes in all regions, for the quarter ending December 31.

That data processing revenue reported on a current quarter basis was $534 million, up 10% over the prior year, as processed transaction growth remained solid.

Data processing revenue reported on a current quarter basis was $544 million, up 10% over the prior year, as processed transaction growth remained solid.

International transaction revenues, also reported on a current quarter basis, were up 18% to $446 million as moderating cross border volumes in the period were off set by competitive pricing modifications enacted in the fiscal third quarter of 2008.

Our adjusted operating margin, was approximately 55%.

above our stated mid-to-high 40% guidance, as Joe mentioned.

The increase in margin was due to lower volume and support incentives which are recognized in the current quarter, as well as certain expenses shifting from our second fiscal quarter into the back half of the year.

I will provide additional color on our future margin expectations in a moment..

On an adjusted basis, operating expenses for the second quarter declined $38 million or 5% year-over-year.

Driven by lower costs across the board with the exception of network and EDP.

Our focus on expense reduction is broad-based and is driven by merger-related efficiencies.

All of our long-term product investments are being prudently funded.

While some expenses will increase in the back half of the year, such as marketing, these were anticipated and are fully consistent with our guidance.

Capital expenditures were $68 million in the quarter, approximately $33 million of which were dedicated to the build-out of our new data center.

The center was partially brought on line in March and will be fully operational by the end of our fiscal fourth quarter.

We anticipate the associated depreciation and amortization costs in the second half of the year to be about $12 million.

Moving on to the balance sheet.

We ended the second quarter in excellent shape, with very little debt, and cash, cash equivalents, investments and restricted cash of $5.8 billion.

Of this total, $2.1 billion is restricted cash, which represents amounts sufficient to fully pay out the American Express and Discover settlements.

We also recently announced our intent to unlock up to 30% of the outstanding class C share holdings, which will help alleviate some of the share overhang as we approach the ultimate unlock date of March 25th, 2011.

Conversion and sale of these shares will increase our public float but will have no diluted impact on our shares outstanding.

As mentioned in our press release, we will shortly be filing a shelf registration, that will allow us the flexibility to quickly access the capital markets, with either equity, or debt instruments.

The proceeds of any future transaction could be used for a variety of reasons, but at this point in time, we have no plans or reasons to go to market.

This action is nothing more than pro active capital structure planning.

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

As we said last quarter, we expect the back half of 2009 to be more challenging from a revenue standpoint.

And this continues to be our view.

Specifically, here in the U.S,.

payment volume growth has declined from a negative 1% growth rate, in the December quarter, to a negative 2% growth in the March quarter..

Further credit volume growth ended the period at a negative 10%, while Debit volume growth continued in positive territory posting a 5% gain.

Deconstructing this further, credit volume growth ended the period at a negative 10%, while debit volume growth continued in positive territory posting a 5% gain.

More recently through the 28th of April, aggregate US payment volume growth has trended back to a negative 1% growth rate.

Credit growth continues at a negative 10%.

while debit growth has regained some momentum, rising from a positive 5%, in the March period, to a positive 7% April month-to-date.

Regardless of the potential impacts of an Easter shift, these growth rates -- these growth trends are encouraging, and consistent, with performance we have seen over the past four months.

As further perspective, certain categories of spend, like gasoline, airline, and lodging, continue to be challenged especially as they relate to credit volume.

On the other hand, recurring bill pay, quick service restaurants, health care, and supermarkets, continue to grow very nicely.

And these categories tend to favor debit over credit, even more so in this environment, which is the foundation of some of the resilience of that product.

On balance, as Joe mentioned earlier, over the past several months, we are seeing in aggregate, some stabilization in the U.S.

payment volume growth trend.

Having said that, we do not know for certain whether we're seeing an inflection point.

Outside the U.S.

for the quarter ending March 2009, we expect constant dollar payment volume growth rates to be solidly positive, but to decline modestly from their levels, at the end of December.

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

Month-to-date in April, we have seen similar results.

Processed transaction growth ended the March period at 6%, while month-to-date in April, it has reached 9%.

Also a testament to the strength and resilience of debit as a greater percentage of process transactions are debit based.

Now let me comment on what we see over the coming year, as far as our operating performance is concerned.

And how it may effect our current guidance.

Based on our second quarter results and our improved balance of year outlook, we are confident about delivering net revenue growth in the high single digits.

And as Joe said, we continue to expect revenue growth in the third quarter in the low single digits while the fourth is projected to be modestly higher.

Also, as a reminder, this second half outlook encompasses a more pronounced negative foreign exchange impact, which on a year-over-year basis, is now expected to reduce revenue growth, by about 4 percentage points in each quarter.

Given the strong adjusted operating margin exhibited this quarter, we are adjusting up our 2009 guidance, to the low 50% range.

For 2010, recognizing the general uncertainty around the economy, our attention to continue investing for future growth and the impact of higher depreciation and amortization expenses, we are moving our guidance from mid-to high 40s to the high 40s low 50s range.

Most 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 to 2010, given a scenario that includes some recovery in the U.S.

economy and in cross border travel, combined with more favorable comparisons in gas prices and foreign exchange rates, we would expect to exceed 20% earnings per share growth.

That concludes my comments.

So I will turn the call back over to Joe.

Okay, thanks Byron.

Let me conclude by saying that while the economy continues to present challenges, Visa remains in a strong position to weather the storm and more importantly, realize operating advantages when the economy finally does turn around.

We have and continue to lay the groundwork for an effective and efficient expense structure.

We're making the proper investments in products and processes to drive incremental growth in the future and most importantly we continue to work with our clients to provide them the best possible credit and debit products and processing solutions to meet their business needs.

Over the longer term, the success of these initiatives will be recognized in the strength of our relationships with our clients and the growth our business with each of them wherever they are located around the world.

Thank you all.

And of course, thanks Jack, for introducing me.

With that, we will take any questions.

(Operator Instructions).

The first question comes from Jason Custoberg with UBS.

You may ask your question.

Thanks and good afternoon.

I want to start with a question on the margins.

Obviously nice to see the raise in the outlook there.

So, I guess it begs the question of thinking sort of longer term beyond 2010.

I mean, how high can the margins in this business theoretically go, understanding that obviously the business scales very well.

You have accomplished significant cost takeout that should be even more beneficial when volumes reaccelerate.

But at the same time people shouldn't expect huge pricing power to prevail indefinitely and you're continuing to invest in the long-term growth of the business.

So how should investors think about the longer term margin potential of this business in your opinion?

Well, I don't think we're ready to predict that at this particular point in time.

I think that in the current situation, in the current environment, in the current economy, there are things that we probably are doing somewhat less aggressively because they simply aren't things that would gain traction right now.

It certainly doesn't make sense to over advertise in an environment where there is going to be less credit usage for instance.

I mean, as an example.

But there is a lot of other things.

And so I think we have to carefully consider that.

But we are obviously focused on expense control and efficiency, and we will never stop focusing on that, in the future.

So, we will see.

Are you guys thinking about the broad impact on the card industry, potentially if some of the currently proposed legislation on the non-interchange side end up becoming law, especially if this end up including some of the more restrictive elements that potentially go beyond the Fed UDEP regulations that were approved in late '08?

I mean is some of that factoring into your thinking as your outlining the top line outlook for us in the fiscal 2010?

Anything that effects our clients, ultimately, did ultimately affects us.

We're as concerned as they are.

That whatever transpires, is done thoughtfully and in collaboration.

We think that, we do not believe that what is happening, or what will happen, will mark the end of the credit or the debit card business in the United States, and I am reasonably certain that we will continue to see increase in volumes as the economy recovers.

But these are troublesome times.

And there are many many issues out there.

And while we are not directly affected by UDEP or some of the other, some of the proposed regulations in bills that are attached to it are somewhat of the opinions that our president has, we are concerned and ultimately, ultimately, impacted.

So we're going to keep our eye on that and as I said, try to help make sure that it gets thoughtfully enacted.

Okay.

Makes sense, thanks guys for the color.

The next question comes from Julio Canteros with Goldman Sachs.

You may ask your question.

Great.

Byron, can I start with you just real quick on just trying to reconcile the commentary for cross border volumes in the March quarter relative to the revenue growth you posted there.

I think it was roughly 18%.

I think you said it was flat but revenue growth was 18%.

Is the Delta between that zero and 18% purely pricing, on some of the adjustments that you're making there.

Yes, we are -- that's right.

We are annualizing out.

This will be the last quarter of annualizing price adjustment that were taken in the third fiscal quarter of 2008.

So you're seeing the last impacts of that annualization.

Okay.

And then there was another price commentary that you made, that would have kicked in April, I believe, as well.

April of --

2009, I guess.

Not -- not on international.

No.

I'm sorry.

On the North America side excuse me.

Not familiar, not familiar with what you're referring to.

The last substantive adjustment we made that would have been impacting this quarter would have been the international adjustment third quarter, fiscal year 2008.

And nothing else to, expecting going forward in fiscal '09 at this point then.

Say that last part again?

Yes and you're just not expecting anything else from the international side or domestically going forward?

Yes, that's correct from, as you move into the current quarter, you should expect that the impact of that annualization to be felt, or the absence thereof.

Great, got it, thank you.

The next question comes from Jim Casane, Banc of America.

You may ask your question.

Yes, Thanks.

And Joe, following up on that question in the release you talking about right sizing the pricing structure.

Can you put a little more color on that?

Thanks.

Well, I think that we have said that from the beginning, in our on the road show in our guidance, we have always suggested that, a modest amount of our growth for the time being is going to come from pricing changes.

And indeed it has.

And indeed I think it will, although, I think on a somewhat reduced basis.

As Byron just said, there are no pricing changes that were made in the third quarter, that are going to impact our earnings.

As I said, there are some modest adjustment has the were made that will affect us in the a positive effect in the fourth quarter.

That is like 1% to 2% or can you put like range around it?

It's a little too soon to call.

Okay.

And just, you also touched on consolidation.

Any update on timing of contract renegotiations, as a result of the consolidations?

You know maybe like Chase and WaMu?

Well, I would certainly like to give you some definitive information.

And you can rest assured that I will as soon as I can.

Okay.

Is it an '09 event?

We will let you know as soon as --

I tried.

Thank you.

The next question comes from Craig Maurer, Calyon Securities.

You may ask your question.

Yes, good evening, guys.

I wanted to ask you internally if you can discuss what your planning looks like or your thought process looks like around, if the current Swine Flu was to expand to SARS-like proportions.

Thanks.

Well, we have looked at that, obviously.

And -- we, at this exact point in time, based on what we know, right now and of course this is something that is unfolding.

But as we look at it and we look at SARS, this would not cause us to back off of the guidance that we just gave you.

I mean, we would still be looking for high single digit growth, revenue growth for the year.

Obviously, if something happens it might be a little less than if it doesn't but we're talking the same range.

I think one thing that you should keep in mind and everybody should keep in mind, when SARS occurred cross border volume was pretty robust and growing pretty rapidly.

And then it subsided from that.

There was only one really bad quarter during the SARS epidemic.

Then it was totally back within four quarters, and actually after the one bad quarter it was, it had gone, it went back up about 50%.

Nothing says that this is going to be the same kind of activity, but the other very important thing to remember is that a considerable number of people, as we have continued to remind everybody, in our quarterly reports have already stopped traveling.

Yet you don't have the same base of leisure travel, that is going on today, as there was when SARS occurred.

They didn't need the flu epidemic to stay off of airplanes.

Right.

So it is purely from an economic pressure point of view, people have stopped traveling.

Well,

I mean, obviously they have.

Our cross border volume, I keep saying, has gone down.

Another question on cross border.

Would you be able to tell me what, around what percentage of cross border transactions occur in the United States from people outside the U.S.

vs.

the other way around?

We haven't commented on that level of breakdown.

We were prepared to be a little more specific around Mexico, if that question was targeted.

But we haven't made a decision yet to regularly disclose that level of detail.

We will take that under advisement, though, and consider that going forward.

So how are you doing in Mexico?

If we were to isolate Mexico, the impact on revenue or the contribution to revenue, as it relates to cross border travel is less than 1%.

And that is primarily reflected in the international fees.

So even if it turned out to be a significant impact on cross-border related to Mexico, that, as Joe mentioned earlier, we are still very comfortable reaffirming the high single digit revenue guidance for the year.

And when Byron says less than 1% he's talking about 1% of gross revenues.

Right.

Thank you, gentlemen.

The next question comes from Tien-tsin Huang, JPMorgan.

You may ask your question.

Thank you so much.

Just wanted to ask a couple of questions on the March-April trend.

It was nice to hear the stabilization in the U.S..

A bit better than what we expected.

But can you detail again what you're seeing outside the U.S.

in terms of more recent trend, maybe more detail across the four international regions?

The flavor?

What we, with regards to payment volume trend, which I think is what you're referring to.

Yes

Remember that because we report them on a one quarter lag, we don't expect to have that data, we don't have that complete data yet.

What we did say, was that with regards to payment volume growth on a constant dollar basis, rest of world in the December ending quarter, which was the basis for our service revenues in the current quarter, grew at 14%.

And we would expect preliminary results suggest that the payment volume growth, rest of world, constant dollars will remain solidly profitable, but at a modest lower level than what we experienced, in the prior quarter.

Got it.

Especially preliminary discussions with some of the international banks.

You can come to that conclusion, right?

Yes.

Okay.

Just a couple more if you don't mind.

The process transactions, Byron, describe that up at 9% I believe, in the April month?

Can you break that up as well for us between for U.S.

and rest of world if possible?

Or is that not available?

What I can give you, so first of all, the 9% was month-to-date through the 28th for April, we only have that for the moment.

On at an ink level.

But if we were to go back to the prior quarter, for the March-ending quarter, growth rates were mid-single digits for both the U.S.

and rest of world.

Okay, great.

So it is nice to sow that pick up a bit.

Last housekeeping question.

Just accelerated class C release program, can you give us some detail on how that might get executed?

So, recall that each class C share represents a one for one conversion ratio into our publicly traded A shares.

So today, we have 151 million of C shares or A share equivalents all of which are locked up.

That represents about 20% of our outstanding shares.

All of those shares today, unlock on March 25th 2011, which was not a situation that we wanted to allow to happen.

Therefore, pro actively, we wanted to begin unlocking those shares early, to release some of the pressure that would have otherwise occurred in 2011.

30%, or roughly 45 million C shares have the opportunity to unlock between July 1, of this year, through September 30th.

When we say "unlock," that means they have, that the banks that own them, have the opportunity to sell them.

Doesn't mean they will sell them.

It means they have the opportunity to sell them.

And so, we will be ready by July 1 to take requests from our member banks from our non U.S.

banks, all C share holders are non U.S.

banks, we will be prepared to process requests for them to unlock shares and make them available for sale.

Once a C share sells, it automatically becomes an A share, and is added to our float.

As a further matter of perspective, we currently trade about 9.5 million share a day.

So 30% of the $151 million is roughly 45 million shares or about five days worth of trading.

So, we would expect, that the unlock would occur, during the course of that window, July 1 to September 30th.

with very little disruption, to our trading volume, or price.

Got it.

So you'll get the subscription level and that will probably drizzle out.

So there is not necessarily a secondary there or direct share purchase program at this stage.

That is exactly right.

We expect requests to come in during the course of the window.

We will unlock promptly.

So there would be no secondary or any one-day or several days that would have, that we would expect to have significant transactions.

OK.

Thanks so much.

Nice quarter.

Thank you.

The next question comes from Don Vandetti, Citi.

You may ask your question.

Good evening.

I was wondering if you could provide maybe just an update on the regulatory environment in the U.S.

and outside if there are any hot spots.

I know that there was a little bit of talk about interchange on the pending card bill but it looks very unlikely, if you could provide some color, that would be great.

I don't know that I am in the business of predicting what Congress will do, in this environment, but we feel quite good about the any interchange legislation not being in UDEP or (inaudible) or Maloney or Welsh or any other bill, for the time being.

We seem to be making some progress, although I do not have an official announcement for you, from Australia.

Maybe new Zealand, there has been some comment , there has been some things that are going on in Europe that doesn't directly affect us.

I think we're generally we're in pretty good shape.

Other than the comments that I made earlier about UDEP and how it affects their

Okay, thank you.

The next question comes from Christopher Brendler, Stifle Nicholas.

You may ask your question.

Can you talk about your guidance for fiscal 2010.

I think It includes reacceleration of revenue growth but the operate margin guidance includes the high 40s.

Why would the operating margin fall back down to the 40s under that forecast in your mind?

We said high 40s to low 50s.

Yes, under the current circumstance you can tell that we're running in the low-to-mid 50s and but before doing all of our formal planning and everything we're saying that it will likely be in that neighborhood, next year, too.

.

Chris, I would just reiterate something Joe said earlier.

Which is, this is an unusually difficult time, for many of our clients.

There has been retrenchment in card marketing programs, there is a more limited expectation that were we to invest in growth initiatives, that there would be the same level of traction today, as there would be if the environment were more favorable.

And so we are being very, we're just being cautious about expressing margin expectations, recognizing that there is a lot of growth runway with this Company, and with this industry.

And that once the economy improves we want to be positioned to take advantage of it.

And just to follow-up, Bryon does that mean, when you're talking about helping your constituance, your customers does that mean increased incentives or rebates or increased margin spending, both, is it press level right now and this could rebound to 2010?

Good question.

As the economy improves, as payment volume growth improves, or our clients, we would expect, the way our incentive formulas work we would pay out more in incentives because more would be earned and we would be thrilled to do so, by the way.

And then, with regards to marketing, that was something Joe specifically called out, as an example of an expense, that were the environment more favorable and we believe that there would be more traction and response to marketing.

We would be fully prepared to slate our ability to accelerate our ability to grow payment volume and our revenues.

The short answer that is I do not necessarily expect operating margins to go below where they are now.

At any time in the near future.

Perfect.

Obviously on certain environment.

The separate question.

Is it the C class release, and the increase in the flow give you additional capacity to do share repurchase.

And any updated thoughts on excess capital what your plans are to do with it, thanks.

Yes, the answer is yes to the first question.

When a C share converts, it becomes an A.

And what that means, if it is an A share, it means that it is not owned by any of our member banks.

Therefore, the amount of float that would be available for us to repurchase and keep public ownership above 50% would increase.

So the answer to your first question is absolutely yes.

And with regards to the second question, we have continually reaffirmed our intent to use excess cash, to pay dividends, and to repurchase shares, under a strong belief that that capital should be excess cash should be returned to share holders.

And so, we remain very committed to that principal.

Thank you, gentlemen.

(Operator Instructions).

The next question comes from John Williams.

McWyrie.

You may ask your question.

Good evening.

Thank you for taking my question.

I was hoping you could provide a little bit more color on what you're seeing from your bank customers in terms of their appetite for things like debit products and prepaid and money transfer, particularly when you look at it against credit-type products in this environment.

Well, I think that it is, I am not sure that it is an appetite issue, with our clients.

I think it is a function of the economy, and what people are willing to do, and what they are capable of doing, and how the banks assess that, how the financial institutions assess their capabilities.

So in other words, how much credit are they going to,give anybody in this particular environment.

So as we, as we said, we are getting a lot more traction off of our Debit volume and our debit transaction, both in dollars and in numbers of transactions.

I would expect that to continue in the moderate run.

I don't think that the credit card business is going to go away.

But I think that we're operating in some relatively troubled times.

I think that our clients are pretty smart about their businesses.

I think they know what they are doing.

I think that they will promote those things that they think will resonate at a particular point in time, and we're going to have to wait and see what happens in the economy, before I can accurately or totally predict exactly what they are going to do.

Thank you.

How about a money transfer.

Is there any specific commentary you guys can offer?

I don't have any specific to say about it but we have talking about it as one of our initiatives.

We have not abandoned that notion at all.

We did make an announcement, I believe last quarter, about an arrangement that we have with Money Gram where people can transfer money between Visa accounts at any Money Gram location.

That is not the end of what we're going to do.

It is barely the beginning.

And we will bring you up-to-date on it when we have firmer and more specific plans.

Thank you, guys.

Appreciate it.

The next question comes from Sanjay Sakhrani, KGW.

You may ask your question.

I guess I was just hoping if you could help me with the two larger expense lines a little bit more.

I guess on marketing, could you help us think about how much discretion you have to pull, if needed, on that line and some of the deflationary pressures you're seeing in that market.

And then, on the personnel line could you just talk about kind of where we are as far as head count rationalization is concerned.

And what we could think about or how we should think about that line going forward, thanks?

I will talk about the marketing and let Byron talk about the people.

Look.

As far as the marketing goes, we have an ROI model.

We pay attention to the return that we get.

And we are focusing all of our advertising and all of our marketing expense right now on increasing usage.

So we're trying to keep that transfer of attitude from cash and cashing checks to plastic, alive.

And we keep it alive with our advertising.

If you look at our new "go" campaign.

It is totally, in the United States, it is totally debit card focused.

Totally talking about using a debit card to buy a pizza to go to the aquarium, to get a song on your ipod and any one of a number of things, instead of using a check or instead of using cash.

So, we measure the effectiveness of that.

And we will continue to spend the amount of money that we feel is appropriate, as it relates to helping us increase the volume and therefore, increase our revenue.

And I think we have done a pretty good job of being disciplined.

Now, of course we can ratchet back on the category without getting substantially harmed.

And we will do what is appropriate to do, in the environment that we're in.

So that we can continue to deliver what we have promised we will deliver.

On the personnel side, if we were to elevate for a moment and take you back to our road show commitment, we had a commitment to reduce at least $300 million of cost associated with the merging of the six businesses that currently comprise Visa Inc.

that took place in October of 2007.

What we have said, and rationalizing personnel costs were an important component of that.

We would expect that to be largely complete.

The merger-related synergies, by the end of this year.

And at that point as you can appreciate with a company that is now continuing to assimilate six different companies, we have opportunity to reengineer our processes, so that they are less regional-based and more global-based reflect that we're now operating as a global enterprise.

And so the productivity improvement opportunities that are always present with every company, become more of a routine opportunity for us the, also translate that it is heavier sledding to get those because you're re-engineering processes.

You're standardizing systems platform, so it takes an investment often to get those gains.

But as Joe said we're a business that is maniacally on delivering expense improvement as a part of our value proposition, and we will continue that focus unrelentingly.

Okay, great.

Just one quick follow-up.

In the guidance you guys talk about certain economic recovery assumptions.

What exactly are those?

I mean, are you guys expecting like a decelerating rate of deterioration, or are there any specific data points you guys are targeting?

What we said were four things.

First, that in early fiscal year 2010, that there would be some recovery in U.S.

payment volume or the U.S.

economy, and the cross border travel.

Recovery means that there is no, that we're starting to see some year-over-year growth.

Recovery is not a lower decelerating.

Recovery is some year-over-year growth.

And we know that in the first fiscal quarter.

The quarter beginning in October, we know that that was the quarter where gas prices took a significant reduction, from where they had been through most of 2008.

And we also know that during that quarter, is when the U.S.

dollar strengthened considerably against an array of currencies.

And so once we get into that October-November time frame we're now lapping those two situations.

So from that standpoint, we feel pretty confident that those two will happen.

And what it really depends on is some recovery, in U.S.

payment volumes and in cross border travel.

Okay.

Great, thank you.

The next question comes from Bob Napoli, Piper Jaffray.

You may ask your question.

Good afternoon.

There was some discussion reported in some newspapers I guess that Visa was looking at an acquisition of a processing division of a large bank here in U.S.

and Ohio not too long ago.

And I just wondered, what your thoughts are on acquisitions in the U.S., or internationally, in the processing market, and the merchant acquiring side of that business, or otherwise.

Well, that is a good question.

I mean, there was something in the paper, and it was about a processing operation, in Ohio, and we have obviously didn't do it.

And didn't decided that we didn't want to do it.

We also purchased as you know, YCS to do processing for which is a processing system that we use outside of the United States, it is multi-currency and multilingual.

It is easier to deploy than VisaNet, than VisaNet would be.

And so, we made that transaction.

We're looking at other transactions, that would put us at the center of the payments business, in other regions around the world particularly emerging regions.

It is not clear to me, that there is anything that is in the offing tomorrow or the next day, but we are alerted to what is going on and we're paying attention to it and we will make the moves that we think are strategically appropriate.

Thanks Joe.

And that, I mean, you're talking about merchant acquiring businesses and related --

In the end in the end we are not a merchant acquirer.

No, we own 10% of an acquiring business in Brazil, which people have talked about potentially being IPO'd, we own parts of processing entities of several other small processing entities in several other Latin America countries.

We may participate in an acquiring business in an emerging economy, but if we did, it would essentially be to speed up the terminalization of that region.

And we would not ultimately desire to be in the acquiring business.

But it may or may not be necessary to get something going.

And just a numbers question, if I could.

The last question.

On the percentage, do you know what percentage of your credit card payments volume are on cards, that do not revolve?

No borrowing.

Approximately.

Yes, I think, the way we have tried to approach that, is that if you take.

let's say, if we can answer from the U.S.

perspective.

If you take our total U.S.

consumer payment volume, recognizing that a little over 15% is now on debit, which by definition doesn't revolve, and then you add into that, those credit card accounts where during the course of the year, -- less than half the credit line is used, and you add those two together, we have that a little over between 90% and 95% of our U.S.

consumer payment volume would fit that definition.

And we view saying that less than half the credit line is used throughout the year, as basically saying that is an account that generally doesn't revolve, for much of the year.

Thank you.

Jose at this point we have time for one more question.

The last question does from Dan Perlin, RBC.

You may ask your question.

I got one in, excellent.

Couple quick questions.

With this corresponding shelf registration and I understand you're kind of saying it is good capital management, but I am just wondering can you give us an update on this Visa put.

I suspect you would want to issue some debt for whatever reason you want to handle that.

On the put there is no update.

We have no reason, whatsoever, to believe that Visa Europe is interested in the put.

Were they to put, we would of course look at that as a possible source of financing.

But that has absolutely nothing to do with the shelf registration.

As we were approaching the December time period for replenishing our escrow account, we decided in the end, to do a direct purchase of the shares, the permission for which was required by our share holders, in the event that that permission which required a super majority voting provision was not given, we had a back-up course of action to do a follow-on-underwriting.

And we prepared for that in parallel.

So what we found, since we had the favorable vote to do it directly, in December, we basically had done all the work for our shelf registration and therefore decided to go ahead and file it.

Perfect.

Does the new data center provide you guys any near-term opportunity to lower your uni-cost?

And there is a corresponding data center that is closing as a result?

I forget how that works.

The answer is yes.

to both questions.

So this replaces an existing data center, and when, with that replacement, it brings in a significant capacity increase to our existing network and leveraging that capacity increase will allow us to bring down per transaction charges.

Okay.

And that is something we're going to see, is that part of the embed numbers as you think about 2010 or that is part of the embedded number as we think about back-half of '09.

'10 and beyond.

Okay.

And then lastly since I'm the last one.

Would you be willing to keep incentive fees moderately higher than what the volume would suggest in order to take opportunities to get some greater market share?

We deal with each of our clients on a basis that advantages both the client and Visa and that's about all I --

Care to say about that?

Understood.

Fair enough.

Thanks.

All right.

Thank you all very much.

If anybody has follow-up questions, feel free to call Investor Relations.

Thank you for participating in today's conference call.

The call has concluded.

You may go ahead and disconnect at this time.