Visa Inc (V) 2014 Q2 法說會逐字稿

Welcome to Visa Inc.'s Fiscal Q2 2014 Earnings conference call.

(Operator Instructions)

Today's conference is being recorded. If you have 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, Adrian.

Good afternoon, everyone, and welcome to Visa Inc.'s Fiscal Second Quarter 2014 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 on the Investor Relations section of our website at www.investor.visa.com. A replay of the webcast will also be archived on our site for 30 days. A PowerPoint 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 guarantees of future performance, and our actual results could materially differ as the result of a variety of factors. Additional information concerning those factors is available in our most recent reports on Forms 10-K and 10-Q, which you can find on the SEC's website and the Investor Relations 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 Regulation G of the SEC are available in the financial and statistical summary accompanying today's press release. This release can also be accessed through the IR section of our website.

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

Thanks, Jack.

Let me begin with my usual call-outs and observations. First, turning to revenue. As expected and previewed on our call last quarter, revenue growth moderated during the quarter, growing 9% year over year on a constant dollar basis, or 7% nominally, which includes the expected 2 percentage points of FX headwind we have been guiding to since the beginning of the fiscal year. As a reminder, the current Q2 is lapping 15% revenue growth in the prior-year quarter, which benefited from a number of favorable one-time adjustments.

Looking ahead to Q3, we expect nominal revenue growth to be in the mid single-digits, which could be a couple of percentage points below Q2's growth rate. As signaled on last quarter's call, a softer Q3 growth rate was also anticipated, given continued FX headwinds of 2 percentage points; a 17% revenue comp in the prior-year quarter also driven in part by one-time events; and a moderation in cross-border spend, which we view as short-term. After two softer quarters, in fiscal Q4, we expect to see constant dollar revenue growth more reflective of the secular shift, as well as the e-commerce and mobile trends that have driven, and will continue to drive, attractive growth for years to come.

As a footnote to fiscal Q4, we expect very little impact from Chase card conversions, particularly given our quarter lag in reporting of service fees. This event will have more impact in FY15. Our guidance for client incentives remains unchanged. Despite delivering first-half client incentives as a percent of gross revenues of 15.8%, we expect incentives to be second-half weighted, and finished the year within the current guidance of 16.5% to 17.5%.

On a full fiscal year basis, we now expect our guidance of low double-digit constant dollar net revenue growth to be in the 10% to 11% range, with a negative 2 percentage point impact from FX.

Now let's turn to payment volume and transaction growth. On a constant dollar basis, global payment volume growth was 12%, unchanged from Q1. US payment volume growth for Q2 was 8%, also unchanged from Q1. With a boost from Easter timing and better weather, US payment volume growth for the first 21 days of April rose to 12%.

The deceleration in cross-border growth seems to be bottoming out. Q2 constant-dollar growth was 8%, 4 percentage points down from Q1. But the first 21 days of April registered 7% growth, nearly flat to Q2.

Cross-border weakness is pronounced in Latin America, as in Brazil, Argentina, Venezuela, the Canada to US corridor, and Russia. Visa process transaction growth was a healthy 11% in Q2, and rose to 14% for the first 21 days in April. Taken together, we are seeing a sustained economic recovery, but no signs yet of acceleration.

A word on Russia and Ukraine. We have clearly seen a drop off in cross-border volume, and sanctions are expected to have some impact on volume. Our guidance assumes several pennies of EPS impact for the fiscal year. We are fully engaged with all parties involved, and will continue to adjust our outlook as the situation clarifies over time.

Next call-out relates to our effective tax rate for the period. At 22% for the quarter, our rate was positively influenced by the recognition of tax benefits under IRS Section 199, which allows for the deduction of a portion of the income related to US domestically-produced computer software. As a reminder, successfully employing strategies to manage our tax rate lower has been a consistent component of our earnings guidance since we went public in 2008, and will continue to be in the future. The total benefit to the quarter was $218 million, $184 million of which represented prior years, and $17 million of benefit for each of the first two fiscal quarters.

We expect an additional $30 million to $35 million of benefit over the remaining two fiscal quarters, and a continuing benefit in future years. Accordingly, we are adding to our guidance for FY14 a full-year tax rate approaching 30%. Please note, this rate was contemplated in our full-year EPS guidance for FY14.

Last call-out. We remain bullish on our future growth prospects and fully committed to returning excess cash to our shareholders. To this end, we repurchased a total of 5.1 million shares during the quarter, at an average price per share of $217 and change, resulting in a total cost of $1.1 billion. This leaves an outstanding open-to-buy of $3 billion at the end of March. And as always, we will take advantage of market movements to effectively repurchase at attractive rates.

Now let me dive a little deeper into the numbers. As noted earlier, global payment volume growth for the March quarter in constant dollars was 12%. The US grew 8%, and international grew 16%.

Drilling down further for the March quarter, US credit growth was 11%, slightly higher than the 10% in Q1. Through April 21, credit improved to 14% growth. US debit was 7% in Q2, flat compared to Q1. And through April 21, debit also improved, rising to 11% growth.

As mentioned earlier, global cross-border volume delivered an 8% constant-dollar growth rate in the March quarter, down from 12% in the December quarter. The US grew 7%, and international grew 8%. Through April 21, cross-border volume on a constant-dollar basis grew 7%, with the US growing 8%, and international registering 7% growth.

Transactions processed over Visa's network totaled 15.4 billion in the fiscal second quarter, an 11% increase over the prior-year period. The US grew 7%, while international delivered 23% growth. Through April 21, process transaction growth rose to 14%.

Now turning to the income statement. Net operating revenue in the quarter was $3.2 billion, a 7% increase year over year, driven primarily by growth in both domestic and international transactions. And as mentioned earlier, negatively impacted by a 2-percentage-point foreign currency headwind.

Moving to the individual revenue line items. Service revenue was $1.5 billion, up 7% over the prior year, and was driven by moderating global payment volume growth. The difference between the 7% reported revenue growth and the 12% growth in constant dollar payment volume is largely due to 3 percentage points of negative FX. Visa's service fees are disproportionately impacted by foreign exchange translation, compared to other revenue lines.

Data processing revenue was $1.2 billion, up 7% over the prior year's quarter, based on solid growth rates in Visa process transaction, both in the US and internationally. The difference between 7% revenue growth and 11% transaction growth in the period was due to one-time FANF accrual reversals in the prior year, in combination with the influence of the fixed fee component associated with the FANF pricing structure that does not grow with transactions.

International transaction revenue was up 5%, to $871 million, reflecting some moderation of growth across the globe that first impacted us at the outset of calendar year 2014.

Total operating expenses for the quarter were $1.1 billion, up 2% from the prior year. Certain expenses have been rephased to the Q3 and Q4 fiscal quarters. And as signaled last quarter, we continue to expect elevated marketing investments in Q3 and Q4 relative to Q1 tied to the 2014 FIFA World Cup event.

Operating margin, 65% for the second quarter, ahead of our annual guidance of low 60%s, but consistent with our expectations for higher expenses in the fiscal third and fourth quarters. That said, we now expect our full-year operating margin to be in the low to mid 60%s.

Capital expenditures were $97 million in the quarter. At the end of the March quarter, we had 629 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 634 million.

Finally, given our year-to-date results and our outlook for the balance of the year, let me recap our full-year guidance. Constant dollar net revenue growth, 10% to 11%, with 2 percentage points of negative FX impact. Client incentives in the 16.5% to 17.5% range. Operating margin in the low to mid 60%s. Tax rate, approaching 30%. EPS growth of mid to high teens. Free cash flow of about $5 billion.

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

Thanks a lot, Byron.

Good afternoon, everyone.

Let me start with a couple of comments about the quarter and reiterate some of the things that Byron had said. First of all, probably most importantly to us as we look at our results, underlying what we see, the business drivers for the most part remained steady from last quarter. Specifically, the US spending levels grew consistent with that of the prior quarter, not accelerating or decelerating, but still reasonably strong. And as Byron had mentioned, April is off to a strong start, which is certainly encouraging for us.

Non-US domestic spending grew to consistent levels as well, and non-US cross-border spending was weaker. And as Byron mentioned, it is from very specific corridors, which we can certainly talk more about.

Revenue growth came in where we expected. And as we mentioned, it was impacted by the strong US dollar and these nonrecurring comps from the prior year. And we expect these effects to be slightly more pronounced in the third quarter. And looking even beyond the third quarter, we would expect in the fourth quarter to see revenue growth more reflective of the strong payment volumes that continue to underpin our quarterly results.

Let me move now for a second, and just describe what we see in Russia. As I am sure you all know, the US government imposed economic sanctions a few weeks ago, which has forced us to take action. We are complying with US law, as you would expect, which means that two affected banks cannot issue for acquired transactions for Visa. These banks represent less than 1% of our volume in Russia. And you would expect that we would continue to comply with US law, as the sanction situation evolves. As of now, all of Visa's systems are processing normally, and we continue to serve all of our other clients in Russia today.

Due to US sanctions, the Russian Duma is working on modifications to the current national payment system law. President Putin has directed the Duma to pass a series of changes, which could pass as early as tomorrow. The proposed modifications are revolving; but as we understand them, could include the following.

First of all, all domestic data processing would need to be onshore. Second, most domestic transaction data would need to remain domiciled within Russia. Third, a payment network must provide continuity of services in compliance with Russian law.

Fourth, the creation of a settlement center 100% owned by the Central Bank of Russia. Fifth, a collateral requirement for foreign payment systems. And lastly, the ability to impose fines on foreign payment system providers.

Keep in mind, this is all still fluid. And while none of this is certainly helpful for Visa if passed, parts might even cause us to rethink our domestic processing opportunity in Russia. But we are hopeful that there is still opportunity for Visa to participate in the growing electronic payments business in Russia.

We will not understand the impact on our business and potential future until the laws and regulations are completed. But we remain committed to finding ways to provide our services, as long as US government and Russian governments allow.

On the legal and regulatory front, not a lot to talk about this quarter. As I am sure you know, in late March, the US Court of Appeals for the DC Court ruled that the Federal Reserve acted properly in its interpretation of Dodd-Frank, a result which we are obviously pleased with.

A quick update on payments security and specifically industry collaboration. Last quarter I spoke at length about the need for the industry, defined broadly, to work together to create payment standards and improve security. We believe there is an opportunity for this collaboration to occur and are encouraged. We and MasterCard have formed a cross-industry working group to accelerate this joint collaboration.

The purpose is to work with a broad group of participants in the payments landscape, not just to move forward to more secure technologies in the short term, but to think in the long term as well. This includes driving EMV adoption. But it looks to create a clear roadmap for the future of payment security, inclusive of both physical, POS, as well as card-not-present transactions. The group will have representation of banks of all sizes, credit unions, acquirers, retailers, point-of-sale manufacturers, and industry trade groups. We also look forward to broad network participation so we can be as effective as possible.

On EMV specifically, First Data STAR Network, FIS's NYCE Network, Discover Financial Services PULSE Network, and other regional network providers have agreed to participate in the common debit solution that Visa introduced last year. The collaboration between Visa and our partners will help enable the deployment of debit EMV solutions. This is again an example of industry players working together to move payment security forward.

Let me talk for a second about tokenization. The standards, services and technologies we are working on will play an important role not just in security, but in enabling and securing new payment experiences in the online, mobile and face-to-face channels. We are making progress on our work towards getting it into the marketplace. The token standard that we, MasterCard and American Express jointly wrote and sponsored, has been adopted by EMVCo, the industry standards body, and is currently in a comment period across the other card networks, banks, and security industry groups.

We will be rolling out our token services capable of associating a limited use visa token, with an underlying card credential, and are working with issuers, processors and acquirers to introduce our first wave of token programs. You will see applications deployed within the next 12 months. And these tokens will play a role in our offerings, but also those of select strategic partner engagements ranging from remote online or mobile purchases to proximity mobile interactions.

We have also talked a great deal about our merchant efforts. We recently reorganized the Company to strengthen the outreach to our merchant partners. We are lucky to have hired Ramon Martin, a well-respected industry expert in payments, with a great deal of merchant knowledge. As an example, he has a history as a member of the Board of Directors of the National and Retail Federation. We are excited that he will lead our efforts, relative to our merchant strategy, and help deliver customized products and services, and look forward to discussing more specifics in the future.

Let me now just turn for a second, and just talk about small business merchants. We have made changes to our FANF structure, our Fixed Acquirer Network Fee, including modifications that are designed to lower, or in some cases eliminate, FANF on volume from small merchants with less than $15,000 in annual gross Visa sales.

Most importantly, we believe these changes could serve to expand the Visa acceptance among very small businesses. While eliminating the fees for smaller retailers, we are also making other adjustments to FANF to improve the alignment of these fees, regardless of whether a merchant connects to Visa through an acquirer, a processor, a payment facilitator or other party. We have also talked on these calls about rules in the past, and our efforts to simplify our operating regulations.

On October 1, we will be eliminating close to half of our operating rules. This includes reducing the complexity of our dispute resolution processes. And while we are making substantial changes now, we continue to get client feedback and will continue to introduce more changes beyond.

I am going talk for a second about Japan. I have spoken about two things here in the past, both the opportunity within Japan, but also the importance of growing our processing business globally. Just a reminder that although Japan is the third largest economy in the world by GDP, the number of payment cards and the market usage is still very low, only 14% of PCE and just 8% on Visa products.

Earlier this month, we acquired 100% ownership of GP Net, the joint venture that we founded with seven leading Japanese issuers back in 1995. As a result of having total control, we now control our domestic transaction processing activities. It will allow us to further integrate our processing and product solutions to merchants, acquirers and issuers, something that we are very excited about.

We are also very focused on the debit opportunity in Japan. While debit is still considered in its infancy stage, there is a meaningful opportunity for growth, given the large deposit base which exists in the banks from which to grow a debit business. As an example, this quarter we launched Visa debit with Bank of Tokyo Mitsubishi, one of the three mega banks. Again, just one example of how are working collaboratively with the banks to target a very meaningful opportunity.

To conclude, let me just make a couple comments looking ahead. First of all, I continue to remain very excited about the opportunity that we have to continue growing the business. While the strengthening US dollar and difficult comps from the prior year have affected our reported revenue and will again next quarter, the underlying revenue growth of the business is strong. It will accelerate, as the economic recovery accelerates as well.

And most importantly, the long-term secular trends and our competitive position remain as strong as ever. And I am constantly reminded, that there is more cash to disintermediate today than when the Company went public in 2008.

And with that, Byron and I are glad to take your questions.

(Operator Instructions)

Our first question is from Sanjay Sakhrani from KBW. Sir, your line is open.

Thank you. I guess, I just wanted some more context around some of the comments Byron had about the volumes. Byron, you talked about cross-border weakness being temporary, and seeing some firmness in the decline. Can you talk about what gives you comfort that we could rebound from here, or at least flatten out?

And then second, you talked about sustained economic growth, but not accelerating growth. Is that simply just by observing the absolute volume statistics? Or is there something else you are seeing underneath the covers that lead you to believe that it is more sustained, versus accelerating? Thank you.

So let me start with cross-border. We haven't seen single-digit cross-border growth rates since I would say, 2009. That was five years ago.

And given the underlying secular trends in our business, none of those are diminished. None of those are going away. As Charlie said there is more cash disintermediate today, note outside the US in particular, than there was when we went public. From our standpoint, we look at cross-border, the fundamentals are still in place. If recovered nicely from 2009.

We expect to -- so we expect to see the same -- hard to predict when, but -- and it may be a little early to call, given the April results. But by given the 4 percentage point drop we saw between the two quarters, and given the fundamentals underpinning this secular shift, our view is we could be reaching a bottoming out. And in any event looking forward, we would expect this to move north.

In terms of the broader economic question of sustained recovery, this is very much anchored in the volume trends we are seeing. Recognizing that there is modest, but if not weak job creation in the US At some point that will begin to accelerate, but what we are adding jobs.

So the underlying fundamentals that should inform and drive spend are in place. They are just in first gear. And so, that is our take on the environment. Charlie, would you like to add?

The only thing that I am going to add, back to the first part of the question on cross-border. As Byron and I both pointed out, the corridors that we are seeing the weakness are very, very specific places. So for instance, when you look at US cardholders traveling abroad that volume -- that -- those growth rates are actually flat quarter-to-quarter, which is obviously a good sign for US and the health of US consumer.

Again, very, very specific places, and not at all across every single geography. Which would give us more cause for concern.

Can I ask one more follow-up, if you don't mind? Embedded in your guidance, is what assumption around the cross-border growth for the rest of the year?

No acceleration.

Okay, great. Thank you.

Our next question is from Tien-Tsin Huang from JPMorgan Chase. Your line is open.

Great, thanks. Just first to clarify is revenue revision at the high end of the revenue outlook, is that really just explained by cross-border or is there something else? I just want to clarify.

And then just maybe on the Russia front, could you disclose how much it represents in terms of revenue today? And I am curious -- as a bigger picture question, sorry, to build on this. But maybe, Charlie, does this Russia situation sort of build this case that maybe more countries are going to consider creating their own domestic schemes, like the one that Putin is talking about? Thanks.

I will tell you what, Tien-Tsin, could you re-ask your first question? I didn't actually understand it.

Yes, sorry. I am rambling a little bit, Byron Just the first question is simplistic, in a simple way.

Is the revenue revision in terms of you outlook -- I think you said it was 10% to 13% before, and now we are looking at 10% to 11% if I heard that correctly. Is the difference there just cross-border, or is there something else?

Yes. We would -- it is heavily driven by cross-border. We would also add that US debit downshifted more than we had anticipated when we constructed the original range. And so, those are the -- I would say those the two primary.

Understood. And the Russia stuff?

And on the Russia, let me answer the first part of the question, which is the revenue part. And then, I will turn it back over to Charlie for the second part.

When we said that there were several pennies of impact, you may attribute 100% of that to revenue. And we didn't put any expense offset against that. So it would be the revenue equivalent in this fiscal year heavily weighted -- just looking 90% weighted to fiscal Q's 3 and 4.

And the only thing I would just, on that point and going to your last point, Tien-Tsin, is remember, we don't know exactly what our position will be in the marketplace. So the issues that exist really today relate to domestic processing within Russia.

We still think, by the way that there is meaningful reasons why the Russian government should want ourselves and the other established networks to participate there. And so, we are not assuming that it is in the best interest of them, for us not to want to be there.

And away from the domestic business, there is obviously a very big part of our opportunity there is cross-border. Which is you know is extremely hard to build a cross border brand and processing assets in a short period of time. So again, we really are still trying to understand ourselves exactly how this could play itself out. But still are hopeful that we still have a meaningful opportunity to continue to participate in the growing electronic payments business in Russia.

And then, more broadly last part, on your question on national payment systems. Certainly this -- the activities within Russia get people thinking about what it means for them. I am not sure how many parts of the world are actually contemplating the types of activities that Russia has taken upon themselves to bring about the sanctions, which certainly should factor into people's minds.

But as you know, there are national payment schemes in different part of the world that we compete with. And we firmly believe that what we have to offer, goes well beyond what a national payment scheme can offer, in terms of the capabilities of out network, our global acceptance, our abilities to be accepted across all channels, fraud screening. I mean, we can go on and on with the list.

And so, we are used to competing. And as long as there is the opportunity to compete, then we feel okay about the prospects. But certainly, it's an issue.

Makes sense. Thank you.

Next question?

Our next question is from Bryan Keane of Deutsche Bank.

Hello. Just a couple questions.

One, just the down shift in US debit, and then obviously the lower cross-border volume. Is any of that impacted by a share shift or share loss, or do you think that is all economically driven?

And secondly, just a clarification on Russia. Is the couple pennies that you are talking about in earnings hit, is that 100% of Russia going away? Or is that just the piece you think is going away, due to the written proposal, the legislation that Charlie highlighted? Thanks.

On US debit, it is, and we expect it to continue to be a pretty competitive space, without full access to all the other debit spend just yet. Hard to know whether there is any shift going on, but we think that there is -- there has been a downshift in debit spend. We saw some of it occur right after the Target breach.

And so, this is one where we will just have to see it play out. We are very encouraged by the spike that -- post-Easter. So I think let's -- we will stay with this question over the next couple of quarters, and get better informed.

Cross-border, we don't think so, in terms of share shift. When you revert back to very specific corridors, very specific countries that have regulatory and tax events, namely in Brazil and Argentina, manipulation of exchange rates by the Venezuelan government. Those things are going to impact everybody, and so we don't think there is a sense of share shift their. This is just something much more fundamental to cross-border travel and it should impact all.

With regards to Russia, a portion of the downshift in revenue growth is very clearly cross-border. In the quarter leading up to the Crimea crisis, we began to see a downshift in Russian travel. But it was modest deceleration. It then dropped quite a bit further after the Crimea crisis unfolded.

This is a level of travel that -- this country generates a level of cross-border travel that if things, quote, return back to normal -- whatever that is in the future -- we could easily see a rebound in Russia -- Russian cross-border. We have got some placeholders in for sanction effects that could be ongoing. But honestly, as Charlie said, it's way too early to call this. The situation is very much fluid at the moment, and we will keep you updated as we progress.

Charlie, do you want to add?

No, I think that is fine.

Next question.

Our next question is from Glenn Fodor of Autonomous Research. Your line is open.

Thanks for taking the question. Appreciate all the color on a confusing situation like Russia.

But Charlie, turning to an issuer you know very well. During the quarter, Chase gave a little more color on what they are doing with Chase Net to now. We have the largest wallet initiative out there, among the large issuer's.

So just thinking about it, if this initiative takes hold, and other -- and is successful for them, and other large issuers start considering the same strategy, what do you think it means for your efforts with V.me? And I am sure this issue comes up in your discussions with large issuers. Can you shed some light on how they reconcile the thoughts between their own initiatives on wallets and V.me? Thanks.

Sure. Listen, I can't speak for every issuer, or certainly I can't -- I cannot speak for Chase as well. But I can tell you from our point of view is we are fairly agnostic, as to whether it's our wallet or someone else's wallet, as long as our cards are appropriately represented on a fair and level playing field. And in the case of Chase, whether it's our cards or whether it runs over VisaNet or their version of VisaNet, again we view those as our transactions.

So to the extent that other issuers choose to want to go build their own wallets, we will be supportive of that. But that doesn't stop us from continuing to build our wallet capabilities, which I don't like to use the word for wallet. I like to use the word, digital acceptances way to think about what we try to build. So that every bank out there, and can serve its customers properly in digital commerce with digital acceptance.

So hope that answers your question.

Next question?

Our next question is from Daniel Perlin of RBC Capital Markets. Your line is open.

Thanks. So just quickly, I thought I heard you say Charlie, there -- that you are dropping -- on October 1, you are eliminating say 50% of your operating rules. Is that -- ?

That's correct.

Okay. And so, what I was try to get at, I guess, in that question is, what is it that I guess you're hoping to achieve by simplifying that? I know it is a big part of a strategy that you have highlighted in the past. But I am wondering, is that if that hope that it's going to come with incremental volumes, and the retailers are looking to this? And you have also adjusted the FANF fee for small merchants.

So I am just trying to understand from a bigger perspective, what is it that you are hoping to gain by changing half of your operating rules? That is a pretty significant change.

Sure. Listen, I think all of these things that you pointed out, in addition to the operating regs, go towards the point of -- I think most people would tell you, whether you were an issuer or merchant or an acquirer, people would say that historically, that we were probably pretty difficult to deal with.

And we operate in a very competitive world today. People have choices, both established choices and have the opportunity to think of other -- other ways to process payments. And we want people to enjoy doing business with us, and to think that we treat them openly fairly and clearly.

And our operating regs, which I have got the version -- they are sitting on my desk, it is 16 -- actually 1,538 pages pre our changes. Okay? And so, imagine trying to be -- you are an issuer or an acquirer and you have got to live by those.

And so, simplification, redundancy, helping people understand what it means to do business with us. As well as going out -- and what we have been doing is asking, again issuers, acquirers, merchants what don't you like, and what doesn't make sense? And a big part of the feedback that we received was on chargebacks, and the processes that we have put in place, the reporting requirements, documentation, and things like that.

So we are very committed to continuing to support the integrity of our brand, the integrity of the payment system security, and things that go towards the quality of our network. But we have to be the kind of place that people say, I understand the rules. I understand what it means to do business with you, and you don't have a bunch of things buried on page 1,427 that they didn't understand. That in combination with these other things, again, I think just if I was on the other side, trying to figure out who I would want to do business with, this is the way I would want to be treated. And that is the way we are approaching it.

Got it. Thank you.

Next question?

Our next question is from James Friedman of SIG. Your line is open.

I wanted to ask you about NACHA, and the prospects for acceleration in ACH, either Charlie or Byron. If you could help us think about the competitive dynamics, in the instance that ACH were to be accelerated, how if at all might impact your business?

Sure. So I guess, I would start with this, which is -- we, our -- the differences between the established payment networks have, and what ACH is, the differences are huge. It's not just the frequency of settlement.

It's the underlying ease-of-use, it is the ability to integrate within your systems. It is the data that we have collected, and then enable both issuers acquirers and merchants to use it in a way, which is good for risk purposes. Scorings that we developed.

We have a whole series of capabilities that again, we have all developed over 10 years, 20 years, 30 years, 40 years that really is not easily replicable. Our view is that certainly the issuers understand the benefits of working with that in this ecosystem. They control the customer relationships. And so, we are very confident in the position that we have, and the ability to differ -- differentiate our services versus what ACH can do.

And I think if you look at some of the big players that use ACH, and actually track through ACH and see well, how does it actually impact the customer experience? It is a terrible experience for the customer, as opposed to a network like ours. In the environment that we live in today, and the way banks are viewing the importance of their customer relationships, it's just another differentiator that we have. So we love the position that we have relative to ACH.

Thank you.

Next question?

Our next question is from Don Fandetti of Citigroup. Your line is open.

Yes, Byron. Just given the slowdown in cross-border, I was wondering if you could talk a little bit about the relative revenue yield?

My understanding is in the US the yield is pretty high, compared to domestic. I mean, is there a difference between let's say, Lat Am and Asia? Can you talk a little bit about that.

There are differences, and there are different practices with regards to yields across the globe. We typically don't get into that level of detail. I -- to be a little helpful in this arena, to the extent that there is strong growth by US cardholders, that it is a strong consistent yield from an area of the world that is particularly well-positioned to grow cross-border, because of the strength of the US dollar.

You will note that when we referenced the cross-border weakness before, we called out a specific corridor, it was Canada to the US The US to Canada corridor is doing just fine. And as Charlie said, the outbound travel by US cardholders has remained quite strong. And so, I will leave the color at that.

Next question?

Our next question comes from David Hochstim of Buckingham Research. Your line is open.

Yes, thanks. I wonder, can just you give us an update on what's happening with Cybersource? There is a little bit of deceleration in volume growth, and V.me findings too.

Okay. I will take the CyberSource.

So there has been some deceleration in the growth of Cybersource. We contribute that specifically to two large customers or clients that were -- that we lost in FY13, and we are starting to see the impacts of that in 2014. That said, we are very bullish on Cybersource. We recognize the issue.

We are investing significant sums to upgrade and add to the features of our CyberSource platform, both for large enterprise businesses, as well as for small businesses. We are actively adding people to this business. So our enthusiasm remains robust. I will caution that it will take several quarters, before we can get this turned around, but we remain very bullish and very confident on the outlook of Cybersource's future with Visa.

And let me take V.me. As I think I have talked to on the priors call, we have learned an awful lot since our initial rollout of V.me, and we have altered our approach to really take away all the functionality, other than what I described before as meaningful digital acceptance.

And so, we are getting really excellent feedback from merchants and issuers alike. We have actually rolled out the first phase of the new platform a few months ago, and we have begun launching it with those merchants. Is incredibly -- it is hugely more simple for them to actually integrate into their checkout experience, literally days as opposed to months.

And the new integrations that we have include Lulu, Lemon, AutoZone, Petco, and The Wine Enthusiast. But probably more exciting, those are terrific names, but that we have also executed term sheets or master service agreements, with an additional 38 large merchants, which represent almost $60 billion in adjustable volume, 23 of those merchants are actually in the internet retailer top 100.

So we are going to continuing to press forward. We have a much better solution in the market, and it's resonating.

Next question?

Our next question is from Craig Maurer of CLSA. Your line is open

Yes, hello. Thanks. A couple things.

Regarding -- just I want to clarify -- so your EPS guidance fully contemplates the tax benefit you received in the quarter. Please clarify that.

And secondly, regarding Russia, should we see the changes to law that you that discussed earlier, specifically related to the basically trapping data and transaction flow and whatnot within Russia. Is your current network structure capable of doing that as of tomorrow? Or because, if I remember correctly, you were in a hub and spoke network, where your data flows back through the states? Thanks.

Let me take the tax and EPS question first. The direct answer to your question is yes. The tax benefit that we recorded this quarter was contemplated in our full-year guidance. That said, let me just provide a bit of perspective.

When we give guidance, as we did at the beginning of the fiscal year -- so this was back in October, we -- our style is to offer guidance without caveat and without excuse. And so, when we give guidance, it is naturally broader and has to take into a number of unknowns, and you make educated judgments on how the year would unfold.

The rate of economic recovery, unknown. Cross-border impacts, given a stronger US dollar and currency movements, unknown. Cross-border impacts due to global tensions, unknown.

The thing about taxes, is that as you get into a lower -- the range where we currently are operating on taxes, this becomes more initiative driven, as opposed to where your operating throughout the country -- throughout the world. And so, as these initiatives -- as this one often take several years to research, prepare, before recording. And so, the timing of these is often outside of our immediate control, and therefore unknown with regards to when we can actually take them.

And so, all of these things are contemplated. We did contemplate including tax.

We also began the year with a range of revenue that was low double-digits constant dollar, which was 10% to 13%. Had be delivered in 12% to 13% constant dollar, as opposed to what we are now seeing given other impacts in other areas of 10% to 11%, then we would have been at the upper end -- certainly at the upper end of our guidance, if not a little above, because more than one factor is playing out in our favor to a greater degree, than we might have contemplated in the beginning. So that's the context.

Charlie, Russia?

So let me -- just a second, so I am the Russian expert here.

So on the question again, I just want to reiterate, to be clear, that the law is still evolving. It -- as it gets read, it does evolve and get -- and there are changes that occur from day-to-day. And then once the law is actually passed, there do have to be regulations to coincide with those laws before they get implemented.

So there is some things in the law, which they would be relatively quick implementation. There are other things, which I think some of the dates go out until 2016.

To answer your specific question, today we do not have the ability in a very quick way to deploy a separate version of VisaNet in a specific country. Having said that, we do have instances where we can start to move parts of it, whether authorization is much easier for us to do, than entire clearing and settlement. And is certainly something that we are capable of building, even though it might take a little bit of time.

But also remember -- and I think this is critical -- because you have got very much -- we are caught between the politics of the United States and the politics of Russia. But if you just get down to reality for a second, we have 100 million cards in Russia today. Okay? We have 100 million cards there, and it is not in anyone's best interest inclusive of the Russians, to make those cards not available to their own citizens.

And so, that is why we are hopeful that as the situation unfolds that, the people understand things like that. And that to the extent that they believe it is important to build a national payment system, it can be done in a way where there is the appropriate transition. And we have the ability to figure out whether it makes sense to compete in that marketplace. But there would be unlikely that unless there is some draconian things that are passed, that it wouldn't evolve in a way like that.

Just on that point, because I think this is important, looking out concerning the NSA concerns and whatnot. If they did go ahead and make those changes, have you contemplated the length of time it would take to restructure your network to comply, because this could apply in the future to how China opens up. And we know that your biggest competitor is already there with the technology in place. So if it was a short window given, a conversion could theoretically be done away from you?

Okay. So two different things. Number one is, absolutely we have done an awful lot of work, and you can assume that we are preparing, for everything that we should prepare to. The second is, I would just caution you, to make the statement that others can comply.

Okay. Thank you.

Next question?

Our next question is from David Togut of Evercore. Your line is open.

Thank you very much. Can you give us an update on the size of the commercial card as a percentage of total volumes? And give us also a sense of the growth rate, and whether that has been affected at all, by the issues you brought forward today.

On the first part of your question, no. I -- investor relations could give you an update on that afterwards. Let me just quickly look.

Commercial payment volume growth, we can give you a perspective from the US. And since, the beginning of the calendar year, it has been low double-digit growth -- very high single to low double-digit growth consistently January, February, March with an uptick in April.

Thank you.

Next question?

Our next question is from Darrin Peller of Barclays. Your line is open.

Thanks. I just want to shift gears to margins for a minute. The personnel expense came in below our estimates, and you also raised your outlook for margins to the mid-60%s, versus low 60%s previously. First, is there anything new that is driving the change versus your initial expectation, and can we expect that to really continue off of a new base being mid-60%s now into future years?

And then, just a quick housekeeping question, Byron. I know you that -- you showed metrics into April 21. Most of them look like they were expanding or accelerating.

Just what impacted Easter actually half, given the timing in April this year versus last year? I don't know if you said that on the call before? Thanks.

We didn't. What I said on the call, beginning with the April results is that it is very clear. I have been in a form of retail for 18 years before coming to Visa.

The Easter impact is absolutely a phenomena that exists. Typically, you look at the run rate going in, the run rate going out. You compare to the prior year. We are several weeks away from being able to do that metric. But the lift -- part of the lift is certainly due to Easter.

It is also sensible, that part of the lift could well be a return to more normal weather. It is very hard to isolate specific weather impacts. But we have done a lot of work around those states in the US for example, that had much more severe weather the normal versus those that didn't.

The growth rates -- there is a clear delta in the growth rates. Some of it, but not all of it mitigated by eCommerce. So as we get back to more normal periods post-Easter, post-weather, I think we will see more normalized growth rate, and one that may very well have some pent-up demand fueling it.

With regards to expenses, the -- at some point predictably, as we continue to invest aggressively in extending our network, the reach of our network, like a Cybersource those -- that investment will come with margins that are not -- that are attractive, or we wouldn't invest, but they are not going to be in the 60%s. We have not reached that inflection point yet. And so, that's why you saw us on the margin move up the -- from low 60%s to low to mid 60%s.

And with regards to personnel, if you think about it when we went public in 2008, we had 4,000 plus employees. Today we have 10,000. And so, in the span of a little over five years, we have more than doubled our employee base, and we go in surges.

We digest. We optimize. We go forward. We will continue to invest in talent, which is a key driver of our success. And we would expect growth off of the personnel base that you see today, despite the more than doubling of our personnel over the past five years.

Adrian, at this point, we have time for one more question.

Our final question is from Jennifer Dugan of Sterne Agee.

Thank you. Most of my questions have been answered. But I was wondering, could you give us a little bit more color on the expected fiscal 2015 revenue impact, from the Chase conversion that is going to happen towards the end of the year?

At this point, we would it -- we do expect it to have an impact. It should not be -- it is a valued and important addition to our business.

I think to the extent that, we wouldn't give color on that specifically. But we do expect it to start showing up in the first fiscal quarter. And I will just remind the group, some of the conversions are taking place today, and will pick up pace -- are expected to pick up pace as the year unfolds.

But to the extent that, that revenue shows up in service fees, we book our service fees on a one quarter lag. So any conversions that take place say, in the fourth fiscal quarter, the service fees won't show up until the first fiscal quarter of FY15.

And with that, we would like to thank everybody for joining us today. If anybody has follow-up questions, feel free to call Investor Relations. Have a nice evening.

Thank you for your participation. This concludes today's conference, and you may disconnect at this time.