Visa Inc (V) 2013 Q4 法說會逐字稿

Welcome to Visa Inc's fiscal Q4 2013 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.

Thank you, Brad.

Good afternoon, and welcome to Visa Inc's fiscal fourth quarter and full year 2013 earnings conference call.

With us today are Charlie Scharf, Visa's Chief Executive Officer, and Byron Pollitt, Visa's Chief Financial Officer.

This call is currently being webcast over the internet.

It can be accessed over the Investor Relations website at www.investor.visa.com.

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

A power point deck containing financial and statistical 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.

These statements aren't guarantee of future performance and our actual results could differ as the result of a variety of factors.

Additional information concerning these factors is available in our most recent reports on forms 10-K and Q, which you can find on the SEC's website and the IR section of our website.

For historical non-GAAP or pro forma-related financial information disclosed in this call, the related GAAP measures and other information required by the Reg G of the SEC are available in the financial and statistical summary accompanying today's press release This release can also be assessed through the IR section of our website.

With that, I will now turn the call over to Byron.

Let me begin with my usual call outs and observations.

First, some color on the fourth quarter's net revenue growth.

As reported, net revenue grew 9%.

Three call outs, starting with gross revenue.

For the quarter, it grew at a healthy 11% rate.

Turning to the incentive line, during the quarter, we closed 73 major deals, compared to a quarterly average of 53 for the 2013 fiscal year.

This resulted in an incentive rate of 18.6% for Q4, which is well within the neighborhood we signaled on our Q3 earnings call.

When combined with the first three fiscal quarters, incentives as a percent of gross revenues came in at 16.5%, right in the middle of our 16% to 17% guidance range for the full year.

Finally, the FX headwind, which has accelerated in the second half of the year, reached about 1.5 percentage points of drag on revenue growth in Q4.

The full year FX headwind was just under 1% for fiscal 2013.

We expect this headwind to continue to grow in fiscal 2014 to about 2 percentage points of drag on reported revenue growth net of our hedges.

Second call out relates to full year revenue growth.

We began fiscal 2013 with revenue guidance of low double digits, and refined the guidance to around 13% on the Q3 call.

We end the year with revenue growth of 13%, after absorbing the impact of heightened deal activity in Q4 and a growing unfavorable FX impact.

Third call out relates to the most recent US payment volume trends.

While rest of world payment volume and global cross-border trends remain in double-digit growth territory for the September ending quarter, US domestic payment volume dropped from 11% growth in August to 8% in September.

While October's first three weeks have upticked slightly to 9%, there has clearly been some constraint in US consumer spend showing up in our numbers in both debit and credit.

Our guidance encompasses what we are seeing in September and October and presumes that a tepid recovery in US economic growth continues.

Fourth call out relates to operating income and EPS, which grew 15% and 20% respectively versus fiscal 2012's adjusted results.

Included in our Q4 results was a restructuring reserve of $44 million, representing about $0.04 of EPS.

This restructuring reserve reflects a streamlining of our cost structure, aimed at achieving greater alignment between our costs and our strategic priorities and capturing organizational efficiencies as we adapt to changes in our management structure.

Finally, fifth call out, we remain committed to returning excess cash to our shareholders.

Three highlights.

First, as announced last week, we raised our quarterly dividend per share by 21% to $0.40.

Second, during Q4, we repurchased over 7 million shares at an average price of $177 per share, returning $1.3 billion to shareholders.

Finally third, we announced a new $5 billion share repurchase program, our largest ever.

Please note, this buyback program has no expiration date and is in addition to $251 million still remaining under our prior authorization.

This means purchases could take place throughout fiscal 2014, and in 2015 as well.

Now let's turn to the numbers.

As is my practice, I will cover our global payment volume and process transaction trends for the fiscal Q4, followed by our results through October 21.

I'll then cover the financial highlights of our fiscal fourth quarter, and conclude with our guidance outlook for fiscal 2014.

Global payment volume growth for the September quarter, in constant dollars, was 13%, on par with the June quarter's 13%.

This was driven by a sustained growth in all of our regions.

More recently in the US, through October 21, payment volume growth was 9%, compared with 10% in the September ending quarter.

Drilling down further, US credit growth was 9% through October 21, compared to 11% in Q4.

Similarly, debit grew at 8% in October, compared to 10% in Q4.

While a decline in US gas prices is part of the story, there is also a modest downshift in other retail segments.

Global cross-border volume delivered a solid 11% constant dollar growth rate in the September quarter, on par with the 11% rate in the June quarter.

The US grew 10%, and the rest of world 11%.

Through October 21, cross-border volume on a constant dollar basis grew 13%, with a US growth rate of 10%, and rest of world at 14%.

Transactions processed over Visa's network totaled 15.5 billion in the fiscal fourth quarter, a 14% increase over the prior-year period.

The US grew 10%, while the rest of the world delivered 28% growth.

Through October 21, process transaction growth was 13%.

Now turning to the income statement.

Net operating revenue in the quarter was $3 billion, a 9% increase year-over-year, driven by solid growth globally in both domestic and international transactions and, as mentioned earlier, restrained by a significant increase in incentives tied to deal activity and a growing FX headwind.

For the full fiscal year, net operating revenue was $11.8 billion, up 13% over the prior year, and at the high end of our beginning of year guidance of low double digits.

Moving to the individual revenue line items.

Service revenue was $1.4 billion, up 10% over the prior year, and was driven by solid global payment volume growth.

Data processing revenue was $1.2 billion, up 12% over the prior year's quarter, based on solid growth rates and Visa process transactions inside and outside of the US, and continuing strong CyberSource transaction growth.

As we signaled last quarter, we have fully lapped the implementation of US debit regulation, resulting in revenue growth that more closely approximates growth in process transactions.

International transaction revenue was up 13%, to $899 million, reflecting solid strength in cross-border volume and a continuing benefit from higher currency volatility.

Total operating expenses for the quarter were $1.2 billion, up only 1% from the prior year results.

Personnel costs were up 6% for the quarter, and 12% year-over-year, in support of our growth strategies around the globe, which heavily emphasized the investments in our country teams outside of the US, along with our newer product initiatives.

That said, in Q4, we also took a $44 million restructuring reserve for the reasons discussed earlier.

This call out is important when considering our run rate for personnel costs as we move into fiscal year 2014.

Marketing expenses were flat from the prior year, and declined 6% sequentially, primarily as a result of lower media spend.

Operating margin was 59% for the fourth quarter, and 61% for the full fiscal year, both in line with our guidance of about 60%.

Our effective tax rate for Q4 was 32.5%, and while higher than our full-year guidance of 30% to 32%, the full year figure of 31.4% was within our guidance range.

Capital expenditures were $138 million in the quarter, and totaled $471 million for the full year.

This was at the top end of our expected range going into the year.

At the end of the fiscal quarter, we had 638 million shares of class A common stock outstanding on an as-converted basis.

The weighted average number of fully diluted shares outstanding for the quarter totaled 644 million, and for the year totaled 656 million.

Finally, in terms of guidance, we had previously provided fiscal 2014 metrics around revenues, EPS, and free cash flow.

Let's start there.

Given our expectation for a more significant FX headwind in 2014, we are reframing our revenue growth guidance going forward, leading with a constant dollar growth rate, which is consistent with the payment volume metrics we provide each quarter, and better represents the underlying growth and health of our business.

Then we will provide the expected FX impact for the year.

So for fiscal year 2014, we expect constant dollar revenue growth of low double digits and an FX headwind of around 2 percentage points.

A little further color on revenue.

Given the continued slow pace of global economic recovery, combined with the growing impact of a strong US dollar, our expectations today are slightly lower than they were in June on Investor Day.

That said, our expectation for diluted earnings per share remains the same, and continues to be mid to high teens.

Free cash flow guidance of about $5 billion reflects the partial reversal of a 2013 tax deduction associated with the eventual return of Visa's share of the multi-district litigation cash payment as a result of merchants opting out of the multi-district litigation class settlement.

As I mentioned in June at Investor Day, this event, combined with the non-recurring deduction in fiscal 2013 associated with our multi-district litigation settlement payment, will lower free cash flow from $6.9 billion in fiscal 2013 to about $5 billion in fiscal 2014.

New guidance metrics for the full year 2014 include the following.

Client incentives, as a percent of growth revenue, will move up modestly next year, within an expected range of 16.5% to 17.5%.

Our annual operating margin is expected to show a very modest improvement over the past couple of years, which means we expect it to remain in the low 60s.

Finally, we have made the decision to discontinue providing quantitative guidance on marketing expense, capital expenditures and tax rate.

We are moving in this direction because of the track record we have established since our IPO in 2008.

Given the progress we have made with, and now the stability of these metrics, we deem them ripe for retirement.

However, having said that, and to provide some parting color, we would view marketing and capital expenditures as likely increasing over time commensurate with overall growth but at manageable rates.

While we'll always seek opportunities to optimize our tax rate, we are not going to see the same magnitude of sustained improvement that we were able to drive in the first five years of our public life.

We expect to see more modest, incremental improvement only.

And with that, I'll turn the call over to Charlie.

Thanks very much, Byron, and good afternoon to everyone.

I thought I would start out with just a few comments about the fourth quarter, and then move on to some other topics.

First of all, we feel very good about the continued strong financial performance that Visa has exhibited, with no surprises to speak of.

As Byron mentioned, our revenue growth of 9%, and on a gross basis at 11%, was reflective of heavy incentives during the quarter, as we anticipated, and we just think of those as a good thing.

That is getting more long-term deals signed with our clients -- is clearly a positive for us.

Global payment volume growth of 13% consistent with the prior quarter, expense growth of 1%, as we talked about, including $44 million of severance.

15% net income growth, while we bought back 7 million shares for about $1.3 billion.

All of this contributed to EPS growth of 20%, again including the effect of those incentives during the quarter, and restructuring.

All of that added into the 2013 full year performance of 13% revenue growth, 8% expense growth, translating to 23% EPS growth, all in line with the guidance that we've been giving.

Let me turn now and just give a couple of updates on other topics, and I'll start with litigation and regulation.

First, I'll start here in the United States.

As I think most of you are aware, we are awaiting final ruling on the MDL, the multi-district litigation case.

A decision is expected at any time.

We continue to remain confident that the court will approve the agreement, as we've said in the past.

Also within the United States, again, I think most people do know that the US district court judge Richard Leon ruled on July 31 that the Federal Reserve implemented certain parts of the Durbin Provision of Dodd-Frank improperly, specifically related to the level of interchange and the networking provisions.

Just a couple of comments on the Judge Leon ruling.

First of all, we are pleased that the Federal Reserve filed a notice of appeal in August, and that the Fed was granted a stay in July pending the results of its appeal.

Our review of the appeal papers filed by the Federal Reserve leads us to believe that the government has a strong case on appeal.

Relative to the timing, as best as we note, there is no timeline proposed for when the case will be argued or decided.

However, the briefings are expected to be completed by December 4 of this year.

Over in Europe, we have talked about a series of things there in the past.

There really is no new news with anything that we've discussed, including the Visa Europe put.

Let me move on now and talk about tokenization for a minute.

On the last quarterly call, I spoke at length about our thoughts on tokenization and where we viewed our role.

We made a significant announcement this quarter, which I hope you saw.

We, along with our partners in the industry, MasterCard and American Express, announced a set of standards to move towards a newly-tokenized payment environment.

This will serve several purposes.

First of all, as we all know, it is just good for security.

Removing sensitive information crossing the payment system is good for every network participant.

But probably more importantly, for the long-term, it creates a framework as new network participants emerge to ensure the security and the integrity of the payment system is in fact maintained.

And when I talk about the integrity of the payment system, I'm including protecting the position that we have, and our clients have, in the value chain.

And that is something that is obviously very important to us.

It is early dates.

They are just standards, as they've been defined, but we're working both on the technical implementation of these, as well as the practical implications, with more to come in the future.

But we think this could lead to some exciting things.

Next update, I'll turn to V.me for a second.

We've spoken before about the convergence of physical point of sale, e-commerce and mobile.

You hear it everywhere you go.

Our objective is simple with V.me.

People talk about wallets sometimes as if they are very confusing to us, and what our goals are, they are simple and straightforward.

We want to replicate the simplicity, the speed and the security of a transaction, just like people have today when they swipe, dip or tap a card.

It is that simple.

We've learned a great dial since I've arrived from Visa, through discussions with issuers, acquirers and merchants, relative to our own development of V.me, and we are in the process of simplifying our product, becoming targeted towards the goal of creating this simple, fast and secure online and mobile acceptance.

The feedback has been hugely valuable.

Our product is going to be issuer, acquirer and merchant focused.

That's relative to the branding and the data flow.

We are working to make it easier to integrate into merchant websites and into mobile applications, and we've done this in collaboration with our clients today, and the feedback has been positive and we are optimistic.

Having said that, we have made significant progress.

We have over 150 financial institutions and about 60 e-commerce retailers offering V.me within the United States, Canada and Australia today, and we have an additional 300 merchants signed and are in various stages of integration.

We move on now and just talk for a second about network security.

In my year here, as I've gotten the opportunity to talk to many of you and read many things sent across about what is going on in our industry, there is a great deal discussed about the potential disintermediation of existing payment systems.

And I just -- relative to network security -- I want to make clear that I do not think people should underestimate the value existing payment networks have regarding security.

Criminals across the globe, there are becoming more of them, they are becoming smarter, they are better funded, and they are becoming more bold.

Their attacks are becoming more frequent and much, much more complex.

We as a company, and the established people in the marketplace have, been dealing with these risks for years.

In our case, 40 or 50 years.

We've invested billions of dollars to secure our network, and you just have to remind yourself, people use networks because they trust them, and they'll use them until they do not trust them anymore.

And then when they do not, those networks will not exist.

We understand that, and work every day to protect our environment, and just keep in mind risk takes several forms.

The first is just practical, day-to-day fraud.

We spend an awful lot of energy working on our data analytics, as our clients do, to fight common everyday fraud.

Our transactions are screened by us and our financial partners on a real time basis.

The modeling to do this has been developed over 40 or 50 years, and we've driven fraud rates down to historic lows, to the point where they are less than $0.06 for every $100 transacted over our network are actually lost to fraud.

The second risk is the scary one, and its perpetrators are getting access to the network.

Just remind everyone that we have a centralized processing and architecture that allows us to scan, evaluate, protect and react to any risk that we see as necessary.

As a company, as I said, huge resources, huge amount of our time as a management team, and we have some of the most talented people and sophisticated technology to combat threats, and are committed to continue investing in this.

As we think about these risks, again, I want to point out, these risks are very real.

These aren't things that our people are concerned about that might never come to fruition.

They will go to the weakest link in the system.

As I think most of you know, the White House is directly engaged in this, as is the President himself, and we certainly feel that having the secure environment, like our established payments network, is a great place to be as the risks continue to increase.

Now let me turn and talk for a second about the almost year that I've spent at Visa, and just share a few of my thoughts.

Again, many of these don't relate to anything that I've done, but relate to the broader team at Visa.

First of all, this Company has delivered growth consistently, and delivered on what it said it would do since the IPO.

I personally remain confident in our ability to continue to grow the franchise over the long-term.

The opportunities are hugely significant.

They are global, they are technology driven, and they are based on partnerships that we have and will continue to strengthen across the globe.

First of all, on globality.

Again, I've had the opportunity, since I've joined the company, to spend a lot of time overseas.

I've visited over a dozen countries.

I've probably met with 40 to 50 financial institutions, from the very largest to some of the very smallest.

Met with two dozen acquirers, met with many merchants, and government officials in five countries.

You all know, and I think we've talked about this, that our business outside of the US is growing at a rate much faster than inside the US, but the opportunities within both are still hugely significant.

We talked at Investor Day that the displacement of cash is still the big opportunity for us.

41% of transactions in the developed world are still cash and check.

62% in the emerging markets.

That translates to over $11 trillion of cash and checks in our geographies, which excludes Visa Europe, and those numbers are growing.

What has been most striking to me, as I've had the opportunity to travel across the world, is the extent to which governments understand the huge benefits of moving payments to electronic means, and the desire to partner with us to bring about this change.

And that is in fact what we are doing.

As I just alluded to, technology is also a huge driver of the opportunity we have in front of us.

Cash is, in fact, the enemy.

Electronic solutions just are far superior.

They are safer.

They are more secure.

We have some of the best products in the world.

Our products are accepted, if you include mobile points of acceptance, between 36 million and 40 million locations across the globe.

We have over 2.1 billion cards outstanding, a full set of products, and again, a tradition of safety, security and soundness.

We all know data and mobile create the opportunity to accelerate that electronification, and we have continued and will continue to build out our capabilities here.

We've also talked a lot about partnership.

Our clients are much more than clients.

They are partners.

Our issuers have always looked at us that way, that we are a strategic partner for them in building their business.

When we talk to a lot of people on the outside, they like to talk about the price of our network.

When we talk to most of our issuers, absolutely they are concerned about price.

But they are equally concerned about the ideas and the assets that we can bring to help them grow their client relationships.

And that is what we spend our time inside the company working to develop.

It is what has been done for years.

The same is true for the acquirers.

And I've said, we're building this DNA news capabilities to create those kinds of merchant partnerships that we do have in some parts of the world, but we need certainly here in the United States and elsewhere.

We have a long way to go.

We know it is critical for our success.

But we do want to be viewed as a partner to grow their business at a fair price.

And we will be flexible.

We will customize our efforts here as long as we preserve the things that I've talked about that are important to us and the network.

And in short, we feel great about the future.

So everything we've been talking about our future is still, in fact, the same.

Let me shift gears now and talk for a second about capital.

Since our IPO, we've been consistent about how we have thought about capital management, and since I've come on board, I've reaffirmed the same principles that have existed within the Company.

To date, the Company has repurchased the equivalent of about 151 million shares, or about 20% of the Company's shares outstanding.

We have returned nearly $17 billion of capital to shareholders.

Let me walk through a couple of principles, which I laid out on a prior call, but let me just do again.

We believe the highest and best use of our excess capital is to reinvesting it, first organically in our business, and then through acquisitions to further our growth.

After supporting that growth, we believe in continuing to grow our dividend, and we think about targeting a 20% payout ratio of prior year net income.

The final use is buying back our stock.

Just a few notes for a second.

We treat decisions to invest our capital for both organic and acquisition purposes as serious, independent and discrete decisions.

And we conduct vigorous analysis on all of those.

And so we get excited when we find investments, whether they are organic investments or acquisitions that pass those tests, and we are constantly searching for ways to grow those things.

We also understand the value of a consistent and fair dividend to our investors.

So our goal is to grow the dividend as our net income grows.

And our stated goal has been, and continues to be, to return the majority of excess free cash flow to our investors.

We've done this through aggressive buybacks, and will continue to do this, always with an eye towards valuation.

We understand that when we buy our stock back, we are making an investment decision.

And to the extent that we are buying the stock back, that tells you what we believe the future of this company is like.

As you've seen, we have continued that practice through this quarter.

We announced the 21% increase in our quarterly dividend, from $0.33 to $0.40 per share.

This equates to 20% of that prior year net income, as I alluded to earlier, and that's the way we think about it.

We also announced our 10th and most significant share repurchase authorization to date, which was $5 billion.

Both of these decisions, as I've said, reflect our belief in returning excess capital to shareholders, and in our confidence of our future.

And speaking of the future, just a few last words before we open it for questions.

Byron commented that through October 21, we've seen solid payment and transaction growth across the world.

Some weakness here in the US, with some strong growth elsewhere.

As we've said, the recovery has not accelerated.

Uncertainty certainly continues, as you look across the world, and our financial guidance reflects this tepid global growth and volatility in the foreign exchange markets.

We do expect one day to benefit from stronger economic growth.

We just don't know when yet.

Looking ahead to 2014 and beyond, I continue to remain excited and energized about Visa and the opportunity that we have to continue growing the business from the top line.

We continue to focus on the same initiatives that we outlined at Investor Day.

The secular opportunity to penetrate cash and check PCE remains healthy across the globe.

We are working hard to expand the value of VisaNet.

We are continuing to invest in our future, and we continue about being more flexible and adaptive to the business needs of our customers as we seek to become closer partners with them.

In closing, I would like to thank the 9,500 global employees of Visa who are all working hard every single day to build a better company for all of our shareholders.

And with that, operator, Byron and I would love to take some questions.

(Operator Instructions)

Our first question will come from Jason Kupferberg of Jefferies.

You may go ahead.

Thanks, guys.

On the currency, because I know it is unusual, if you have a call out of this magnitude.

Is it mostly the volatility in the Brazilian real, or are there some other specific currencies, and you simply didn't have enough hedging in place?

And as follow on to that, does the top line impact that we saw in Q4, and that we're projecting for fiscal 2014, is that similar impact on the bottom line?

Let me respond to that.

On currency, I'll just remind everyone, we hedge one year out on a rolling basis.

Literally, every month, we put hedges on, hedges come off.

So we'll never be perfectly matched with regards to our foreign exchange exposure unless, literally, there is no volatility whatsoever in the rate.

We hedge 14 currencies.

We do business in 180.

The impact does include the Brazilian real, but it is more than that.

It includes the Aussie dollar, the yen, the Canadian dollar, so there are a handful of currencies that are causing this impact, not just limited to Brazil.

The primary impact is revenue.

There is a more modest off-set in expenses.

Obviously, expenses incurred in other currencies that are brought back to the US dollar actually translate at a lower level.

So the impact on the bottom line is moderated by the expense benefit, but it doesn't moderate it all that much.

Our next question will come from Craig Maurer of CLSA.

Your line is open.

Yes, a couple of questions.

First, the high deal volume in the fiscal fourth quarter.

Could you please discuss, if you can, the pricing trajectory at a high level for those deals versus what you were seeing during the rest of 2013?

And secondly, just thinking about growth outside of the US, we're hearing that the Mexican banks are lobbying hard for Visa and MasterCard to be allowed to process locally.

Any thoughts on those discussions or the timeline for that?

Thanks.

Let me take the first one.

When we gave our guidance on the Q3 call, we guided to 16% to 17% incentives for the year, the incentive rate that we ended up incurring in Q4 is very, very consistent with that guidance.

And very consistent with how we expected deals to sort out.

And as it relates to pricing, I would say there is no major call out here on pricing.

I think the perspective we would leave you with is, we were pretty much spot on in the end of year and Q4 incentive guidance, which should give you some comfort around how we anticipated those deals to be priced.

The reason as I alluded to in my remarks, the reason that the incentives are so high is because we did a significantly higher number of important deals in that quarter.

Something that is not unusual.

It is why incentives are lumpy, and we do not guide by quarter.

We guide on the full year.

And so that is the perspective we'd offer on that front.

Charlie, do you want to pick up on Mexico?

Sure.

On Mexico, certainly, and I think, if you think back to the Investor Day, Bill Sheedy talked a great deal about what we believe is the opportunity outside of the United States to increasing our processing penetration.

Mexico is certainly one of those markets.

I've been there, and we've had the conversation about the value that we think our processing capabilities can bring to the banks.

And so we are hopeful -- and trying to be helpful -- that our processing capabilities will be useful in that market place.

Just on a related note on Mexico, because I didn't cover it in my remarks, but I do think it is an exciting for us.

We announced today that we've signed an agreement with the joint venture between Grupo Bimbo, which is the largest Mexican-owned banking company and Blue Label telecom limited, which is a leading provider of prepaid airtime.

The significance is, we have also talked a great deal about the opportunity to increase acceptance in the markets that aren't as developed as the United States.

This is an opportunity for us to work with the capacity that Bimbo has, and potentially add up to 150,000 point of sale terminals, using their distribution capabilities.

So it is something that we are very excited about, and when we think about increasing acceptance, and we think about processing, it certainly is one of the bigger opportunities for us.

Our next question will come from Tien-Tsin Huang from JPMC.

Your line is open.

Just on the incentive line, the 73 major deals.

How many of these were new deals for Visa versus renewals?

And then looking into 2014, should we expect a more normal year for deal activity?

We do not have immediately handy how many were new versus renewal.

What I can provide is additional color, is the majority of those were outside of the United States, with a heavy focus on the Asia Pacific and CEMEA region.

With regards to 2014, I'm not quite sure what a normal year would be, but we've given you our guidance relative to incentives.

And what I can say is that, if we were to look at it, say, from the perspective of our top 10 global clients, none of those are scheduled for expiration or renewal in the upcoming year, 2014.

And I want to add to what Byron said earlier, which is, again, we do not guide quarterly on incentives, because we know it is going to be lumpy.

And this, while it is a large number, not a surprise to us.

And again, to the extent that we are signing up people either earlier or more of them, we think those are good things.

And over the course of the year, those things tend to balance out, which is why we provided the guidance that we provided for 2014.

Our next question comes from Dan Perlin of RBC Capital.

You may go ahead.

Thanks.

As we think about 2014 a little more on the incremental investment side, and you mentioned a lot of things going on here.

But you did highlight previously that about 80% of your investments, incrementally, up to this point, have been on products, technology and infrastructure.

And about the remaining 20% was on international markets.

And I'm just wondering, it sounds like it might be tilting more toward international markets.

And should we expect the incremental margins from that to be similar, better, worse?

Because your margin guidance, for me, seemed like it was biased to the upside.

Thanks.

How to respond to that?

I think those ratios continue to work.

I would say that, when we talk about 80% of investment going into product, a lot of that is capital.

When you think of the investment that goes into rest of world and countries outside -- other than the United States, and we think of headcount, a lot of that is going into our country teams.

And we consider those investments, because we're at our best when we are present locally, serving clients locally.

And so the margins are highest when we are leveraging transactions over the network in our core businesses, and they are less when we are investing in products and services that begin to move away from the network.

They extend the network, but they are transactions that require additional investment and additional cost in order to drive the transactions to the network.

And so the way we talked about it, I think, on investor day, is probably a good way of continuing to think about it in 2014 and 2015.

Charlie, do you want to add anything?

The only color I would add is where you wound up, which is, as we sit here today, and we've obviously have our plan for next year, and they are in all of the glorious detail that you would expect.

We do not look at the distribution of those investments as being at all significantly different than we thought at investor day.

It is still the same set of opportunities.

The growth opportunities outside of the US have been hugely significant for this company.

It is where the majority of the headcount growth has been over a period of time.

So we would expect where we invest to look very similar as we develop the products and services that we talked about.

Our next question is from Darrin Peller of Barclays.

Thanks, guys.

When we look at the volume trends through September and October, first of all, just comment on some of the moving parts her, in terms of maybe the government shutdown impacting, or any other variables.

And then, when you think about your 2014 guidance, is that inclusive of this kind of a run rate for the US trending in the 8% to 9% range versus what you've seen in the past few months?

So on the first -- on the US side, I would say it is continuation -- as we said in the remarks, it is the continuation of a tepid recovery.

And so somewhere in the zip code of what we have been seeing is what we would expect to see going forward.

And I'm sorry, the first part of your question was?

I can do it.

The government.

(multiple speakers)

Yes, so I just want to repeat what Byron said.

He also said this in his opening remarks, which is that our guidance encompasses what we are seeing in September and October.

Okay, that is helpful.

And as Byron said, that our guidance presumes that we do have this tepid recovery with the US economy.

And then, listen, relative to the government, it certainly appears, from our looking at our information, that the government shutdown certainly has an impact.

Very hard to prove, very hard to understand exactly what the impact is.

So it is more guess than anything else.

And certainly, to the extent that the US government can get its act together, on the debt limit and on the budget, we would expect that to change the trajectory that we would see for consumer spend.

Our next question is from Glenn Fodor of Autonomous Research.

Your line is open.

Hi.

Thanks for taking my question.

Charlie, given your experience at a place that was impacted by Dodd-Frank's debit regulation, and the looming second round of potential actions here, could you just put your bank hat on and share with us your views?

As if this does go through, how issuers may approach their response to further debit interchange reductions and/or loss of exclusivity on signature?

And how that could that impact the networks?

Sure.

I'll answer the question relative to, in my current job, conversations that we've had with issuers, and our sense for the way people are thinking about it.

Listen, I think, first of all, relative to the level of interchange, it certainly depends on where the rule ultimately comes out.

When issuers first were dealing with the Durbin reduction down to $0.22, there was a lot of thought that went into the people's desire to support the product.

And at $0.22, while people don't make much money on the product, the consumers like the product, and they still felt the need to support it.

And we see strong debit growth at that point.

As the number drops, if the number drops significantly below that, people do have to rethink what that means.

We always have to remind ourselves that we can sit around and talk about what we like, and our issuers can do the same, but there are customers on the other end that are using these products, and consumers like debit cards.

They like to segregate their money.

They like to have control over what they spend relative to the amount of money that's in their bank account.

And all of the safeguards, checks, alerts and all of the things that go along with that.

And forcing consumer behavior to change is a very hard and very dangerous thing to do.

And not one that I think, at least that I could tell, banks take lightly.

So we're still, depending on where the numbers come out, confident that the support will still be there.

And if for some reason people choose to look another way, there are very good prepaid products in the marketplace, which could be important drivers of their business and our business, as is the case with credit cards.

And we just remind ourselves, the credit card business is very different than it was 10 years ago.

Credit card companies are predominantly controlled by banks that look at the entirety of the relationship, and the entirety of that relationship allows them to make credit decisions that they wouldn't have felt comfortable making years and years ago.

And to the extent that they can make those credit decisions, put controls and alerts and parameters around that that consumers like, that is certainly an option.

So lots of things unfolding here.

Obviously, it depends on where the appeal turns itself up.

And then, listen, relative to network routing, the only thing I would say on that one is, that one is very complicated.

It is not clear that the system is capable of handling that today, and the system thought about broadly, whether it is physical devices, whether it is networks, whether it is acquirers, processors or anything like that.

And so that one, I think, we will wait and see what happens in the appeals court and go forward from there.

Our next question is from son Sanjay Sakhrani of KBW.

Your line is open.

Just a question back on the US spending trends.

I was wonder if there was more elaboration around the trends?

Byron, you mentioned certain verticals seeing impact as well.

I was wondering, maybe, what those verticals were?

And maybe what consumer segments you might have seen the impact?

And then just one data point question.

When I look at the card service to purchase volume ratio that declined a lot more in the fourth quarter than it did in the third quarter.

And I was wondering if you could help me with what might have attributed to that?

Thank you.

With regards to the softening in the US retail spend, clearly, gas is important.

We are looking at an average price per gallon on October 21st of $3.36, which for us is 12% below where it was at the same time a year ago.

And that shows up in a significant way in the short fall.

I would say other verticals that show up, supermarkets, various elements of travel, a number of categories that we would traditionally associate with small business.

And when you look at the spread, it's pretty broad-based.

And I would almost say, after gas, I think what struck us, with how many categories you would naturally associate with small business.

With regards to the second part of your question, I'm not familiar with the ratio that you are inquiring about.

Could you rephrase that real quick?

I guess I look at card service revenues to purchase volume -- card service fees to purchase volume.

And that ratio was like 12.67% relative to the 12.75% last quarter.

And when I look at the year-over-year decline, that decline was a little bit more than what we saw last quarter.

Yes, it is a metric we do not typically look at.

So this is service fee over PV?

If that is what you are looking at, to the extent that we have been adjusting our pricing so that more of what we book ends up in data processing versus service fees, as was the case with a major US bank that recently signed up for 10 years, that would impact that ratio.

But beyond that, I do not really have a comment.

But we will look at that, and see whether there is some additional insight that we address in a future call.

Our next question is from Rod Bourgeois of Bernstein.

I just wanted to acquire more about the restructuring actions.

Can you just provide more specifics on what the restructuring actions were, and what prompted them, and also whether there is more to come?

And then related to this, on a more strategic level, does the need for some restructuring recently mean you're needing more levers to keep your margin trajectory?

It seems that, given the inherent operating leverage in your business, you probably do not need significant restructuring to hit your margin targets at this point.

But I wanted to inquire about that in case we're missing something.

Yes, so let me start with the last one.

We do not believe in using restructuring to manage margins.

We use restructuring if there are things that we want to do to right-size different parts of the company.

This is not expected to continue.

It doesn't mean that we won't learn things as time goes on, and decide to move resources around at the company, but that is exactly what this is.

The majority of this restructuring comes from a sharpened focus on what we're doing in our global products area.

As you know, we've had some leadership changes there over the past couple of months.

We've spent a lot of time, as I referenced in my remarks, talking with our clients about what we're doing, what they want from us, and where they want to focus.

And that has directed us to reorient our activities.

And I think of that, by the way, as just those activities as normal practice.

If we're innovating enough, if we're doing enough things, some of those things will turn out not to have all of the opportunity in them, and we will course correct.

And that's what we've done here.

So I think that answers all of your sub-questions.

Byron, did I cover everything?

Yes, I think that's good.

Our next question is from Smitti Srethapramote of Morgan Stanley.

Your line is open.

Hi, there.

Just a quick follow-up to the tokenization discussion that you talked about earlier.

I'm just wondering, what is the process timeline for it to move from being a proposal to being a standard in?

Can you talk about the timing on when these standards could potentially get implemented?

That is a good question, - I would be left inaccurate if I was too specific.

The standards have been published.

We have continued to put out some guidelines to our clients as to what fields will have to be available in releases that will come out next year, because this tokenization work requires work of acquirers and processors.

And we would hope that some of these solutions would be in the marketplace by, call it, the second half of the calendar year, next year.

Our next question comes from David Hochstim of Buckingham Research.

Your line is open.

Hi, thanks.

I just wondered, could you expand again on the spending changes?

Did you see changes in signature and credit on your high-end credit cards?

We've talked about affluent consumers drivers driving a lot of the spending in the past.

Did that change in September and October, as well?

And I wonder if you could give us an update at the end of the period in terms of what signature debit's contribution is to volume, revenue and earnings?

We do not typically break it down between signature, or what we refer to now at Visa debit versus Interlink.

I think the important call out here is that we are now lapping the full implementation of Durbin, where we had a year where there was a significant and a permanent loss of debit share as a result of the routing, and that is now in our base.

And so as we begin to lap that, the debit numbers are going to look a whole lot healthier, growth numbers, than they did a year ago.

With regards to specific reference to the affluent, I would say as we have articulated previously, this remains an affluent-led recovery.

To the extent that there may be some lift on debit, at least in the US, that would partially be due to a shift from credit to debit as a result of a drop in gasoline pricing.

As the price of a fill-up gets more within range of immediately accessible funds, it has been our experience that we will see some shift from credit to debit.

But that is a result of the drop in oil prices, and since they are in drop mode, that is something we wouldn't be surprised if we saw at the next report out.

Our next question is from Bill Carcache of Nomura Securities.

Thank you.

Charlie, some investors have expressed concern over the inevitability of slower growth at some point in, say, the next few years, given that, just mathematically, you are growing off such a large base.

Can you talk about your confidence in the sustainability of the current mid to high teens growth, as you look to the future?

And perhaps comment on whether an eventual slowdown is something you worry about?

Or is the run rate for growth so large that it's not even something that crosses your mind?

I think when you are new at a company that is growing like this, it is something that you think a lot about, and you look a lot about.

So absolutely, it is something that, as I've gotten here, I don't know whether worry is the right word, but certainly spent a lot of time on.

Listen, I don't think that the opportunities for this company are significantly different than they were 4 or 5 years ago.

In fact, we believe there are things going on in the marketplace that would suggest that the opportunities are broader.

I know we are concerned about our quarters, and we are concerned about our years.

We give guidance.

We understand the importance of that.

But here, we're talking about our belief that this company continue to grow for the long-term.

The dynamics that exist with cash and check across the globe is a gigantic opportunity.

I don't even know how long it will take us to actually conquer cash and check across the globe, but it is a very, very long period of time.

We also look at all of the things that are going on in the world of technology that people initially get concerned about, relative to our position.

The majority of them, we look at and believe they are hugely valuable to us.

The network that we have, as I've said, it is really, really, really hard to duplicate what we have.

A couple of people have networks like this.

There are always going to be niche players out there, but to tackle the global opportunity that exists in growing payments, you need to have the size and the scale that some of us have.

And so this is the world's great platform to be able to do that.

And I do not feel any worse, and perhaps in fact, I probably feel better about the long-term growth opportunities from a revenue perspective of the company today than when I first joined.

And that is consistent with what I thought at Investor Day.

Brad, at this point, we have time for one last question.

Your last question comes from Arvind Ramnani of BNP.

Your line is open.

Hi.

Just one final question.

If Visa isn't being a partner with the issuers, merchants and acquirers, then why do so many groups out there putting hundreds of millions of dollars into finding a way around Visa?

Why is Visa not offering them what they want anyway so badly?

We should spend some time with you offline, because we've talked a lot about, and I think I've been very, very open and honest about, our need to do business somewhat differently in some parts of the world than we've done it in the past.

So there is no question that the participants in the network have to do a better job of balancing out the role of the issuers, the acquirers and the merchants.

We've not treated them as partners, as much as we possibly could, especially here in the United States.

Again, other parts of the world, you get a very, very different story.

And at the heart of a lot of the disagreements that we've had, we certainly believe that we have got the opportunity to change the nature of that relationship.

And that is why we formed the group under Elizabeth Buse called global solutions.

We are dedicated to showing up with solutions to help them grow their business over a period of time.

I've also said, this is not going to take one month, one quarter, or even a couple of quarters.

It is going to take a period of time.

But listen, we have the tools, we have the assets, and we have the desire to do that.

And it is on us to change the nature of those relationships.

We have started those conversations, and over time, it will be very easy to judge our success.

But it is certainly something that we're excited about, because we know that we can add a great deal of value to the merchant community.

So with that, I guess I'll wrap it up and thank everyone for taking the time and for the effort in following our stock.

That concludes today's call.

Thank you all very much, and if you have any follow-up questions, feel free to give myself or Victoria a call.

Thank you for your participation on today's conference call.

At this time, all parties may disconnect.