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 on the Investor Relations section of our website at investor.visa.com. A replay of the webcast will also be archived on our site for the 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 are actual results could materially differ as a result of variety of factors. Additional information concerning these factors is available in our most 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, 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. With that, I'll now turn the call over to Byron.

Thank you, Jack. 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, we 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 callout relates to full-year revenue growth. We began fiscal '13 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 up 13% after absorbing the impact of heightened deal activity in Q4 and a growing unfavorable FX impact. Third callout relates to the most recent U.S. payment volume trends. While rest of world payment volume and global cross-border trends remained in double-digit growth territory for the September ending quarter, U.S. domestic payment volume dropped from 11% growth in August to 8% in the month of September. While October's first three weeks have upticked…

Thanks very much, Byron and good afternoon to everyone. I thought I would start 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, 50% net income growth while we bought back 7 million shares for about $1.3 billion. All this contributed to EPS growth of 20%, again including the effect of those incentives during the quarter and restructuring. All 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 will start here in the United States. As I think most of you are aware, we are waiting final ruling on the MDL, the multi-district litigation case. A decision is expected at anytime. 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 U.S. District Court Judge, Richard Leon ruled on July 31st that the Federal Reserve implement certain parts…

(Operator Instructions) Our first question will come from Jason Kupferberg of Jefferies.

So just on the currency, I know it's unusual if you guys have a callout of this magnitude. Is it mostly the volatility in the Brazilian real or are there some other specific currencies and you simply didn't enough hedging in place? And then just as a follow on to that, does the top-line impact that we saw in Q4 and that we are projecting for fiscal '14, is that similar impact on the bottom line?

So, let me respond to that. So on currency, I'll just remind everyone, we hedge one year out on a rolling basis. So 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 reais but it is more than that. It includes the Aussie dollar, the yen, the Canadian dollar. So there are a handful of currencies that have -- that are causing this impact, not just limited to Brazil. The primary impact is revenue. There is a more modest offset in expenses. Obviously, expenses incurred in other currencies that are brought back to the U.S. 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.

Couple of questions. First, the high deal volume in the fiscal fourth quarter. Could you please discuss, if you can, the pricing trajectory and high level for those deals versus what you were seeing during the rest of 2013? And secondly just thinking about growth outside the U.S. 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?

Let me take the first one. When we gave our guidance on the Q3 call, when 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 callout 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's not unusual. So our incentives are lumpy and we don't guide by quarter, we guide on the full year. And so that's the perspective we would offer on that front. Charlie, do you want to pick 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 as 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 marketplace. Just unrelated note on Mexico because I didn't cover it in my remarks but I do think it's an exciting thing for us. We announced today that we’ve signed an agreement with the joint venture between Grupo Bimbo, which is the largest Mexican owned baking company and Blue Label Telecoms Limited, which is a leading provider of prepaid airtime. The significance is we’ve also talked a great deal about the opportunity to increase acceptance in the markets that aren’t as developed as United States. This is an opportunity for us to work with the capacity that Bimbo has and potentially add up to a 150,000 point-of-sale terminals using their distribution capabilities. So it’s something that we are very excited about and when we think about increasing acceptance, we think about processing. It’s certainly one of the bigger opportunities for us.

Our next question will come from -- yes, so the next question comes from Tien-Tsin Huang of JPMC. Your line is open.

Great. Thanks. Just on the incentive line, the 73 major deals, how many of these were new deals for Visa versus renewals? And then I guess, looking at ’14, should we expect a more normal year for deal activity?

Well, I don’t have it immediately handy, how many were new versus renewals. What I can provide is additional color is the majority of those were outside the United States with a heavy focus on the Asia-Pacific and CEMEA region. With regards to ’14, I’m not quite sure what a normal year would be, but we are giving you our guidance relative to incentives. And what I can say is that if you look at it, say from the perspective of our top 10 global clients, none of those are scheduled for exploration or renewals in the upcoming year ’14.

And I just wanted to add to that, what Byron said earlier, which is again, we don’t guide quarterly on incentives because we know it’s going to be lumpy and this -- while it’s 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. So as we think about ’14, little bit more on the incremental investment side, 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 the remaining 20% was kind of on international markets. And I’m just wondering it sounds like it might be tilting more towards international markets and should we expect kind of the incremental margins from that to be similar, better or worse because your margin guidance for me seem like it was biased to the upside? Thanks.

See, how do we respond to that? I think that if you were to -- I think those ratios continued 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 in 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 more people were 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 don't directly -- they are transactions that require additional investment and additional costs 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 over -- in '14 and '15. Charlie, do you want to add anything?

The only color I’d add is where you round up which is -- as we sit here today and we obviously -- we have our plans for next year and all the glorious detail that you would expect, we don't look at the distribution of those investments as being at all significantly different than we thought at investor day. It's still the same set of opportunities, the growth opportunities outside the U.S. have been hugely significant for this company. It's 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.

Just when we look at the volume trends through September and October, first of all, I mean just comment on some of the moving parts here in terms of maybe the government shutdown impact thing or any other variables? And then when you think about your '14 guidance, is that inclusive of this kind of a run rate for the U.S. trending maybe in the 8% range versus the 9% range versus what you have seen in past few months?

So on the U.S. 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 the government?

Yes, so I'll just 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. And as Byron said that our guidance presumes that we do have this tepid recovery of the U.S. economy. And then what’s 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's more guess than anything else. And certainly to the extent that the U.S. government can get its act together on the debt limit and on the budget, we would expect that to change the trajectory of what we would see for consumer spend.

Our next question is from Glenn Fodor of Autonomous Research.

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, can 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 could that impact the networks?

Sure. I'll answer the question relative to in my current job conversations that we have 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 talk that went into people's desire to support the product and the $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 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 if I could tell banks take it lightly. So we’re still depending on where the numbers come out confident that the support will still be there and for some reason, people chose to look another way. There are very good prepaid products in the market place which are -- 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 alert some parameters around that, that consumers like, that certainly an option. So lots of things unfolding here. Obviously it depends on where the appeal turn itself up. And then just relative to network routing, I guess, the only thing I’d say on that one is, that one is very complicated. It’s not clear that the system is capable of handling that today. The system, we thought about broadly whether it’s physical devices, whether its networks, whether its acquirers, processors or anything like that. And so that one, I think we will -- we will wait and see what happens in the appeal scored and go forward from there.

Our next question is from Sanjay Sakhrani of KBW. Your line is open.

Thank you. Just a question back on the U.S. spending trends. I was wondering if there was more elaboration around the trends. Byron, you mentioned certain verticals being 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, the purchase volume ratio that declined a lot more in the fourth quarter than it did in the third quarter. And I was just wondering if you could just help me with what might have attributed to that. Thank you.

With regards to the softening in the U.S. retail spend, clearly gas is important. We are looking in an average price per gallon in October 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 shortfall, 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, its pretty broad based with and I would almost say after gas that what -- 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’re enquiring 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 is kind of in the -- it was like 12.67% relative to the 12. -- like 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’s a metric we don’t typically look at -- so this is service fee over PV. If that’s what you’re 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 well as the case with a major U.S. bank that recently signed up for 10 years. That would impact that ratio but beyond that, I don't really have a comment. But we will look at that and see whether there is some additional insight that we can address in our future call.

Our next question is from Rod Bourgeois of Bernstein.

Yes. I just wanted to inquire 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 I guess related to this on a more strategic level, does the need for some restructuring recently -- meaning you’re needing more levers to keep your margin trajectory, it seems that given the inherent operating leverage in your business, you probably don't need significant restructuring to hit your margin target at this point but I wanted to enquire about that in case we are missing something.

I mean just -- let me start -- we don't 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, doesn't mean that we won't learn things as time goes on and decide to move resources around the company but that's exactly what this is. The majority of this restructuring comes from a sharpened focus on what we are doing in our global products area. As you know we have had some leadership changes there over the past couple of months. We spent a lot of time, I referenced in my remarks, talking with our clients about what we are doing, what they want from us and where they want us 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 are innovating enough, if we are doing enough things, some of those things will turn out not to be 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.

Just a quick follow-up to the tokenization discussion that you talked about earlier. Just wondering what is the process timeline for it to move from being a proposal to being a standard and can you talk about the timing on when these standards could potentially get implemented?

That is a good question. I would be less than accurate 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 the second half of the calendar year, next year.

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

I just want to -- could you expand again on the spending changes that you see changes in signature, on your high end credit cards, you talked about affluent consumers driving a lot of the spending in the past. Did that change in September, October as well? And I wondered could you just give us an update at the end of the period in terms of what signature debit contribution is to volume revenue and the earnings?

We don't typically break it down between signature or what we refer to now as Visa Debit versus Interlink. I think the important callout 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's 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 -- as we have articulated previously, this remains an affluent led recovery. To the extent that there maybe some lift on debit, at least in the U.S. that would partially be do to a shift from credit to debit as a result of a drop in gasoline pricing. As the price of the fill up gets more within range of immediately accessible fund, it has been our -- it has been our experience that we will see some shift from credit to debit. But that’s a result of the drop in oil prices and since they are in drop mode, that something we wouldn’t surprise, if we saw at the next three [quarters].

Our next question is from Bill Carache of Nomura Securities. Your line is open.

Thank you. Charlie, some investors have expressed concern over the inevitability of slower growth at some point, say, the next few years, given that just mathematically you are growing up such a large base? Can you talk about, your confidence and 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 that you worry about or is the runaway for growth so large that is not even something that crosses your mind?

Well, I think, when you show, when you are new at a company that is growing like this. It’s something that you think a lot about and you look a lot about. So, absolutely, it’s something that as I gotten here, I’ve -- 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 four, five years ago. In fact we believe that there are things going on in the marketplace that would suggest that that both -- that the opportunities are broader. And I am speaking out, I am not, and again I said this, I know, we are -- well, 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 are talking about, our belief that this company can continue to grow for the long-term. The dynamics that exist with cash and check across the globe is a gigantic opportunity. It will take us. I know -- I don’t even know how long it will take us to actually conquer cash and check across the globe. But it’s a very, very long period of time. We also look at all 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 there 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 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, one of, the world’s great platform to be able do that. And I don’t feel any worse. 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’s 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 the Visa believe in kind of being a partner with the issuers, merchants and acquirers, then why there are so many groups out there kind of putting hundreds of millions of dollars into finding a way on Visa? Why is Visa not offering them what they want anyway so badly?

All right. Well, we’ll just spend some time with you offline because we’ve talked a lot about and I think, I have been very, very open and honest about our need to do business somewhat differently in some parts of the world than we have 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 merchants. We have not treated them as partners as much as we possibly could, especially in the United States, again other parts of the world we get a very, very different story. And at the heart of a lot of the disagreements that we had, I -- we certainly believe that we have got the opportunity to change the nature of that relationship and that’s why we formed the group under Elizabeth Buse called Global Solution were dedicated to showing up with solutions to help them, grow their business over period of time. I have 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’s on us to change nature of those relationships. We started those conversations and overtime, it will be very easy to judge our success. But it’s certainly something that we are excited about because we know that we can add a great deal of value to merchant community. So, with that, I guess, I’ll just wrap up it and thank everyone for taking the time and for the effort and 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.