Q4 2019 Earnings Call
Welcome to thesis fiscal fourth quarter and full year 2018 earnings conference call. All participants are in listen only mode until the question answer session. Today's conference is being recorded if you have any objections you may disconnect. At this time I would now let's turn the conference over to your host Mr., Mike Miller touch senior Vice President of Investor really.
And Mr. military <unk> you may now begun.
Thank you Jordan.
Good afternoon, everyone and welcome to the thesis fiscal fourth quarter and full year 2019 earnings call. Joining us today are out Kelly Bces, Chairman and Chief Executive Officer, Amazon, Prabhu decent Vice Chairman and Chief Financial Officer.
This call is being webcast on the Investor Relations section of our website at Www Dot investor decent Dot com.
A replay will be archived on our site for 30 days.
Slide deck containing financial and.
Statistical highlights has been posted to our IR website.
We also remind you that this presentation includes forward looking statements. These statements are not guarantees of future performance and our actual results could differ materially as a result that many factors additional information concerning those factors is available in our most recent forms 10-K, and 10-Q, which you can find on the Fccs website and Investor Relations section of our website.
For historical non-GAAP financial information disclosed on this call related GAAP measures and reconciliation are available in today's earnings release, but not let me turn the call over now.
Thank you and good afternoon, everyone and thank you for joining us today.
The fourth quarter capped another strong year for visa as we continue to grow our business across a number of dimensions in our time today I'd like to touch on our results then discuss how we're strengthening our network the power of partnerships in a focus on kind of customers and finally provide our initial thoughts on fiscal 2020.
To start a fourth quarter results demonstrate our ability to grow the topline invest thoughtfully in the business to drive future growth and return capital to shareholders, an important indication relative to the health of our network is transaction growth. In this regard Q4 ended strongly with over 47 billion payment transaction an increase.
5.3 billion or 12.6% compared to this quarter last year.
Payments volume grew at 9% globally.
10%, excluding China. We also saw strong growth in payments volume across every region and growth accelerated versus the last quarter in every international region.
Net revenue growth accelerated to 13% or 15% on a constant dollar basis, non-GAAP EPS growth was 21% or 23% on a constant dollar basis.
We also returned $2.7 billion of capital to shareholders in the fourth quarter, consisting of 2.2 billion in share repurchases and a half a billion dollars in dividends.
Our fourth quarter performance, what our full year net revenue growth at 13% on a constant dollar basis, and non-GAAP EPS growth to 20% on a constant dollar basis total capital return for the year was $10.9 billion.
As I reflect on all of 2019 visa has made tremendous progress meeting a dynamic industry and advancing the growth of digital payments.
This is manifested itself in a variety of fronts the store.
Over 180 billion payment transactions leveraged our network in fiscal 2019, which we processed about 75%.
This represented almost nine trillion dollars in commerce on 3.4 billion credentials, all with the security and protection that our customers value.
Relative to growing acceptance, we now have over 61 million physical merchant locations, increasing 14% from 2018.
And again keep in mind that this number is tens of millions higher as partners like paid out strides in square only count as one location each.
In new payment flows cross the one trillion dollar mark for B to B payments volume, representing 12% of our business.
We also continued to grow visa direct which supports P to P to be at PTC in triple digits with over 2 billion transactions.
And on our capabilities and value added services, we acquired for companies that will help extend the reach of our network and enhance our merchant fraud, and Tokenization solutions, our organic revenue growth driven by these capabilities in all value added services exceeded 20% this year.
This growth was fueled by the expansion of our issuer processing and network services.
An increase in our acquire and merchant offerings, including Cybersource.
Greater adoption of our risks and authentication tools and consulting project work.
In fact, we helped more than a thousand clients grow their businesses by leveraging insights from our consultants and data scientists.
Our strategic focus throughout 2019 and going into two Twond 2020 is CLIA drive deeper partnerships with traditional clients expand access with new players, including new sellers Fintechs Neo banks acquirers in Wallace.
Increased customer engagement by enabling a variety of platforms and simplifying the payment experience extending value added capabilities across the ecosystem and enabling new money movement with our network of networks.
Let me elaborate on these focus areas, starting with driving deeper partnerships with traditional clients.
We have significant deals in the pipeline in our efforts have paid off with us completing agreements in the fourth quarter net represent over 15% of our payment volume. This brings our full year number to about 30% of our global payments volume.
That this 30% renewal level is substantially higher than our average of the past five years of 20%.
Let me highlight a few clients from this quarter.
We renewed our partnership with Bank of America in the United States for several years, maintaining our current debit and credit business, while also expanding to capture the new issuance of their cash rewards consumer credit card.
We're excited to continue to collaborate.
Thank you remark on innovations such as path to pay and Tokenization and utilize data analytics and insights to help uncover growth opportunities.
In Central Europe Middle East in Africa, we had a number of large issue or deals this quarter, including our credit and debit business was for a bank and Alfa Bank two of the largest banks in Russia, and the debit business with Emirates NBD what are the largest thanks to the you eight.
We also renewed the debit portfolio with standard chartered bank across all of sub Sahara Africa.
In Latin America, we signed a multiyear agreement to renew our longstanding relationship with Scotiabank, covering 16 countries and territories across Latin America.
In Europe , we're focused on driving growth in the Continental Europe will also deepening our existing partnerships in the UK.
This quarter, we renewed two.
Portfolios with leading UK issuers, one in debit and one in commercial credit.
Continental Europe , we renewed our strategic partnership with VVA in Spain. The next seven years. This agreement will allow be that.
Hey to grow much faster during this period.
Additionally, the rock bank the largest state owned bank in Turkey renewed their consumer credit and debit business and we won new issuance of their commercial credit portfolio.
Now, let me turn to expanding access with new players such as fin techs in wallet, which are critical to expanding credentials and acceptance globally.
We established and deepen relationships with several fintech partners across the globe.
First we're pleased that visa and Europe based revenue reached an agreement naming be then there are leading issuing partner as they seek to expand globally.
In addition to increasing our share of their large European business Resolute will leverage fees as brand scale in global acceptance footprint to bring its product offerings to five new regions, reaching 24, new markets for a total 56 markets globally.
In the United States resigning exclusive five year deal with the consumer debit and credit business with China, a challenger bank that offers its members access to a suite of intuitive banking services.
Also in the U.S., we signed to get the deal and 26, a mobile banking solution, which offers goals. They saving features and early paycheck access.
In India, we're partnering with open Aneel bank, which offers businesses everything from banking to automated bookkeeping.
To watch a suite of innovative products, including a business credit card.
We also continue to expand our financial signing a debit issuance deal with rails bank, our UK fintech.
In Korea, we are announcing a partnership with talks to significantly expand collaboration at the payment business in Korea and globally tosses a major fintech startup in Korea, and Korea is leading the remittance and financial services platform.
We recently deepened our partnership with written rapidly on mobile payment service that utilizes visa direct to enable users to make PDP international money transfers from the United States and they will now issue visa debit cards.
Focusing specifically on merchant acceptance in Mexico, we are expanding access with clip on mobile point of sale solutions provider to enable merchants to accept digital payments were also teaming up with Samsung to allow merchants to accept top cashless payments, we adjusted App download and no harm.
So in essence, the following becomes the terminal.
Finally mobile phone users in India for visa cardholders will be soon will soon be able to use Google pay to make simple and secure and tokenized payments. We are currently the only card networks supported by the supported on Google pay in India.
Over time, we look to build more relationships with the entire ecosystem to grow credentials and acceptance globally.
Now, let me move to the third focus area of increasing customer engagement by enabling a variety of platforms. We are continuing to improve the point of sale experience and reduce friction for the entire ecosystem.
In the card present environment, we continue to see progress in tap the pay in the United States I'm pleased to say the of the top 10 issuers eight are now this market today more than 100 million visa contactless cards have been now issued and we expect 300 million cards by the end of calendar year.
2020.
In the card not present environment, we have spoken before about how secure remote commerce or Src is a way to streamline the digital payment experience across networks offer greater security and improved sales.
Please that this month together with our network peers, we launched quick to play to pay enabled by Src with our number of merchants and acquirers in the United States broader merchant adoption will take place after the holiday season.
We're also enabling a right.
Platforms to bring improvements to the payment experience, whether or not a card is presents.
And the most recent example is with installments in June we announced the launch of an installment solution side, a beta version through our visa next platform, where issuers can offer installments to their visa cardholders directly through participating merchants.
The same time, we're making it possible for third parties like corner in Haiti.
Leverage our assets and offer a variety of installment options as we always say, we're not in the business of picking winners and losers, we enable the ecosystem and let the customer determined success.
In the fourth quarter from converted their virtual issuance to visa and we established a partnership with after pay to support the development of innovative installments solutions in the United States.
We continue to focus on new payment flow opportunities as we expand partnerships to remove friction.
Visa direct continues to grow driven by three baxter's, increasing the volume with existing use cases and markets.
Stepping existing use cases to new geography, and expanding into new use cases.
And our effort to expand PDP payment capabilities in new markets, we teamed up with the platform the dot way in Guatemala utilize visa direct to enable the simple and secure transfer of funds with just a mobile number or E mail address reaching the unbanked.
In Russia taxi payouts and on demand loan disbursements are now available and there's a new use case, enabling tipping capabilities with visa direct so tips hits could be paid directly to waiters electronically.
In B to B this quarter into it and now instant deposit a new feature that enables real time disbursements for small business owners using quickbooks payments directly to the eligible debit cards using visa direct most recently, we announced an oracle ERP customers will be able to make decent direct payments right from their accounts.
Well system, reducing the time and investment needed for companies to adopt new push to card payment technology.
JP Morgan will average commercial clients the ability to more efficiently send digital payments with access to business payments network. A collaboration we have with Dell trough that routes electronic payments from bias to suppliers through their existing a our provider.
We have also opened our visa b to B CNET networks to over 60 markets and added Infosys as the distribution partner to enable financial institutions to send and receive cross border funds using this new fee to be network.
We're also working to integrate the four recent acquisitions to expand our value added capabilities with our fourth we expect to have an integrated visa direct and port offering in the market in the next few months, where clients consent payouts to cards or accounts through a single connection to visa.
For pay works, we're extending our pipeline for omni Commerce solutions beyond merchants to include more acquirers, who can leverage in integrated Cybersource and pay works platform.
With verify as we combined this capability with our traditional just few process, we plan to grow the verify client base through our existing merchant and issuer relationships.
For the rabbits token capabilities, we look to grow in two ways, one by deepening relationships with existing rambus clients through our large portfolio of value added services and two by expanding the tokenization offerings to more alternative payment rails.
And lastly network of networks all of these partnerships and capabilities, we've discussed as well as many others come together in our offering to provide a powerful network of networks for consumers businesses and governments to move money to anyone anywhere.
Each new network endpoint visa card account or a business compound the value of the capabilities, we offered to partners and improves the customer experience through a single these the connection.
To close in 2019, we delivered strong broad based results and we made great progress positioning the business for future growth. We deepened partnerships, we expanded access with new players, we increased customer engagement and value added capabilities and we expanded our acceptance points and our network of net.
Yes.
As we look ahead to next year, we're excited to remain the official payment technology partner, The Tokyo 2020 Olympics and Power Olympics, Andy and the only card acceptance next summer's game as the World third largest economy, Japan is a market that has tremendous growth potential for visa and we havent line fashion.
Interest and expanding digital payments.
While occurring in Japan.
Tokyo 2020 will be a major global media that projected to be the biggest in history with 7000 hours of broadcast programming and 3 billion minutes of stream content in the United States alone.
We will aim to expand this platform to visa clients all over the world and expect to have a record number of sponsorship activations with our partners.
As it relates to the 2020 fiscal year, our financial outlook includes annual revenue relative low double digits and mid teens adjusted EPS growth on a constant dollar basis.
Before I turn it over to facade to go into a lot more details on our results as well as our 2020 outlook.
I want to note that as the look ahead I'm excited about the multiyear journey, we're on to get more involved in all money movement and I can't really took all the time in visas history with so much opportunity ahead.
To that and we want to spend some time with all of you discussing our future growth. So we're going to hosted Investor day on February 11 year in San Francisco with that but more detailed let me turn it over to the soft. Thank you out and good afternoon, everyone Ocala fiscal 2019 fourth quarter and full year result.
Before reviewing our outlook for fiscal 2020.
Moving on the momentum from the third quarter. If you had a strong finish to 2019 fiscal fourth quarter net revenues were up 13% on a nominal dollar business and 15% in constant dollars.
GAAP EPS grew 9%, but excluding this quarter special item related to the MTL litigation as well as a special item in the fourth quarter last year, non-GAAP EPS grew 21% and 23% in constant dollars.
In September 2019, visa recorded a 370 million accrual in connection with Mds 17, 20, depositing an additional $300 million into its litigation escrow and taking into account $70 million of owned interest on existing balances.
The funding of the escrow triggered the conversion rate adjustment of class B common stock shares of class a common stock, which has the same effect on EPS as repurchasing $300 million of class a common stock.
Our strong performance in the fourth quarter reflected growth across all key business drivers.
Payments volume growth in constant dollars was consistent with Q3 at 9%.
Got it was up 7% debit was up 11% growth, excluding China was up possum point better than Q3 at 10%.
As a reminder, Chinese domestic volumes are impacted by dual branded got conversions, which have minimal revenue impact.
US payments volume growth was up 8% with credit growing 7% and debit 10%.
Fuel prices and travel spending the lapping of commercial cloud wins, and some slowdown commercial volume, partially offset by a small benefit from processing did.
International payments volume growth in constant dollars, let's step ascent and 12%, excluding China accelerating approximately one point and one of the half points respectively.
Growth in CEMEA remains strong and accelerated to 25% Latin America accelerated over 2.2, 18% due to win and strong performance at existing clients Asia Pacific, Excluding China grew 11% accelerating one point, mostly due to Japan, Australia and Korea.
Europe , excluding the UK grew 13% up half a point.
Okay remains weak, but growth has now improved for two quarters after hitting a low in March.
Processed transactions grew 11% down about half a point from the third quarter, mostly due to the us.
Constant dollar cross border growth was consistent with the last quarter up 7% and up 9% excluding volumes within Europe , which have similar revenue yields as Europe domestic volumes.
Travel related growth slowed a bit but was offset by a small pickup in e-commerce growth.
I think almost accelerated from Latin America, Southeast Asia and across most of US EMEA region.
Inbound call and listened to Europe continues to grow in the mid teens inbound to the us improve slightly but remains weak and growth into home phone slowed significantly.
Next revenues grew 13% or 15% in constant dollars, but three points of positive impact from it so six.
The assay six so six impact was larger than expected based on the final structural of some of our largest line deals which are the result of how the market has evolved into seven quarters and six so six was adopted by most companies.
The impact of acquisitions on revenue growth was de Minimis.
Strong payments volume growth along with pricing benefits drove service revenue was up 9%.
Data processing revenue grew 16% up three points from last quarter, primarily due to favorable business mix.
International transaction revenue grew 11% also accelerating see points from the third quarter due to a smaller exchange rate drag and highest currency volatility.
Other revenues grew 25% from growth in our value added service as well as FC six all six impacts.
Client incentives with 21.6% of gross revenues as Al mentioned, we signed a number of significant deals this quarter.
Addition to the JP Morgan Chase renewal going into effect.
Although all the deals we expected to get done this quarter look completed a number of them was signed late in the quarter.
As such under assay six so six the full impact of these deals will be reflected in incentive starting in the first quarter fiscal year 20.
GAAP operating expenses were up 18%.
Excluding special items this year and last year expense growth was 11% largely driven by personnel and marketing and some onetime items.
Marketing expenses grew 16% due primarily to the adoption of assay six so six.
General and administrative expenses grew 30% due to several nonrecurring items from lapping the onetime benefit last year.
As well as assay six so six impacts and indirect taxes.
Assay six so six increases reported fourth quarter expense growth by about two and a half point.
The impact of acquisitions on expenses was also minimal.
Non operating expenses once again benefited from investment gains, which were $41 million this quarter.
These gains were partially offset by lower interest income as a result of falling interest rates.
Fourth quarter tax rate was 18.5% on the GAAP basis, an 18.9%, excluding an 83 million dollar tax benefit from the MTO related litigation provision.
We repurchased 2.2 million shares of class a common stock at an average price of $177.28 for $2.2 billion in the quarter.
Including our quarterly dividend when it's up $2.7 billion of capital to shareholders in the fiscal fourth quarter.
Finally, we closed on verify in mid September as well as a token services business of Rambus earlier. This week as you know we had closing on a sporting facebooks earlier in the quarter.
A quick summary of fiscal year 2019.
For fiscal 2019 payments volume grew over 9% in constant dollars and 10%, excluding China processed transaction growth was steady at 11% cross border volume that up 6% on a constant basis and 8% excluding volume within Europe .
For the full year net revenues of $23 billion grew 11% or 13% in constant dollars with over 1.5 points of positive impact from SC six so six.
Slide incentives were lower than we expected a 21.2% of gross revenues, mostly due due to lower incentives from some deals and programs and lower volumes in some parts of the low.
Operating expenses were up 4% on a GAAP basis, but grew 11% excluding special items this year and last.
We continue to invest in our growth program given the large opportunities available to expand new payment flows and provide more value added services to our clients.
Nonoperating expenses, a much lower due to higher interest income on our cash balances lot interest expense as a result of swapping some of our us dollar debt to euro denominated debt and several non recurring investment gains totaling $131 million.
Box rate of just on the 19% was better than expected due to the application of tax reform rules on foreign income related to FDI at GE.
Guilty.
GAAP EPS grew 20%, while non-GAAP EPS increased 18% and 20% in constant dollars.
$10.9 billion and capital to shareholders by repurchasing 56.1 million shares of class a common stock at an average price of $154.25 for $8.6 billion and by paying the dividend of $2.3 billion.
Through October 21st US payments volume growth was 8% with us credits growing 7% and debit 9%.
Processed transactions grew 11%.
Cross border volume on a constant dollar business grew 8% or 10% excluding cross border volume within Europe .
Moving now to our outlook for fiscal year 2020 .
That's quite a bit of speculation that we're heading into a global economic slowdown.
From the numbers, we reported for the last two quarters, you can see that flow trends of all our key business drivers payments volumes processed transactions on cross border volume has been stable.
We do not have you lost sales as economic forecasters.
As such our outlook the view that the trends, which have been lists for the past couple of quarters continue its in fiscal year 2020 .
Let me out of add on something specific that could impact the trend either fiscal year 2020 event or the lapping effect of a fiscal year 19 event, we adjust out of outlook accordingly.
Well net revenues on ultimate because you low double digit growth in constant dollars.
Based on current exchange rates and future expectations currency translation could be a one to 1.5 percentage point drag.
The floor acquisition, we completed in the past four months not expected to add around half a point to net revenue growth.
A significant factor impacting fiscal year 20, net revenue growth will be the unusually high volume of renewal activity thats out of the flow through.
And then average year, new approximately 20% of up payment volume.
In fiscal year 19, when a new at about 30% about the inventory.
With more than 15% renewed in the fourth quarter a little.
This means that the full impact of these renewals will be reflected in fiscal year two mg.
Also our fiscal year 20 renewal activity is front loaded with another 15% to 20% of payments volume expected to be renewed in the first half.
As such we would have renewed about one third of our payments volume over three quarters from the fourth quarter fiscal year 19 through the second quarter fiscal year, 20, which is an unprecedented level of renewal activity.
Between fiscal year at 19 in fiscal year 20, we expect to have renewed four out of October five us clients.
Eight out of our top five top 10 clients in Simion Latin America.
Six of our top 10 European clients five about often clients in Asia.
We are delighted to have renewed all this business for the foreseeable future budgets will cause a much higher levels of incentive growth in fiscal year 20 than we had in fiscal year 19, holding recent deal.
As such we expect our client incentives as a percent of gross revenues declined to the 22 and a half to 23, so the 23 and a half a cent range in fiscal year two entities.
In terms of pricing.
Through the first half of fiscal year 20, we will continue to benefit from find 19 pricing actions.
Fiscal year, 20 pricing action impacts impact on revenue, starting midyear and a smaller in magnitude than fiscal year 19 pricing.
Such as the pricing benefit in service revenue and international transaction revenue will be lower in the second half.
But also because youve core expense growth in the mid to high single digits range in constant dollar.
Based on current exchange rates and future expectations reported expense growth could be one to one into half point lower in nominal dollars.
The four acquisitions will add two to 4.2 expense growth.
In terms of core expense growth as you all know stepped up our level of investment in the past couple of years to capture the exciting opportunities we have to build revenues from new payment flows and value added service.
We will continue these investments into fiscal year, 20, and beyond the sustained double digit revenue growth.
As a reminder, 2020 is also an Olympics.
Spec Tokyo 2020 to be a significant brand building opportunities and we'll invest accordingly.
The three to four additional points of expense growth from acquisitions is driven by their run rate expenses as well as onetime costs to integrate these acquisitions and the impact of purchase accounting.
Intangible amortization.
The non operating income slash expense line in Q3 major items interest expenses to service our outstanding debt interest income from a cash balances and gains or losses from our investments both realized and unrealized since we have to market investments to market each quarter based on observable prices.
In fiscal year 19, we recorded a total of 131 million and investment gains will the four cents a share the bulk of them in the second quarter at $84 million and 41 million in the fourth quarter.
As is our practice, we do not assume any investment gains or losses in our outlook. Since these are neither predictable nonrecurring.
As we have done this year, we will specifically identify the amount of investment gains or losses, if any that weve recorded each quarter in fiscal year two entities.
Interest income and Fytwenty is expected to be significantly lower due to the decline in interest rates as well as somewhat lower cash balances since we used cash on hand to fund all our acquisitions and investments.
Interest expense was will be lower as we get the full year benefit of the swaps we executed in fiscal year 19.
Our expectation is for the tax rate in the range of 1919 into hospice sense for fiscal year 20.
This point, but assuming the rate in the lower half of this range. There's a considerable amount of tax related activity by governments around the world, which we're closely monitoring to assess any impact on our taxes as well as mitigating actions we can tick.
As always we will provide updates if any to our tax rate expectation as the year progresses.
Putting all this together gets us to an adjusted fiscal year 2020 EPS growth in the mid teens in constant dollars.
This adjusted EPS growth excludes the four acquisitions, we just completed and is built office fiscal year 19, EPZ $5 in 40 cents.
Five Doesnt 40 cents is our reported non-GAAP fiscal year 19, EPS is approximately four cents of investment gains excluded.
Exchange rates will reduce reported EPS growth by one to one into off points.
Dilution from acquisitions is expected to be in the five to six cents range of one point drag on EPS growth.
Revenue expense and EPS growth could very modest key from quarter to quarter.
Q1 revenue growth is expected to be weaker than the full year due to lapping higher currency volatility in fiscal year 19, as well as client incentives climbing to the 22.5, 23.5% of gross revenue range.
A few threeq would be our lowest growth quarter as the last fiscal year 19 pricing actions that were larger than what is planned for this year as well as expected heavy plus top renewal activity.
Q4 is likely to be in the highest revenue growth quarter as we lap recent deal activity and potentially low and exchange rate headwinds.
Expense growth will be higher in the first half of the of the year as we continue investment initiatives started in the second half of fiscal year 19, you want expense growth is expected to be in line with this past quarter Q2 expense growth will be higher as marketing expenses ramp up relative to a lower level of spend last year.
The fourth quarter is likely to have the lowest expense growth as the last some onetime items as a result, EPS growth could be lowest in second quarter and highest in the fourth quarter fiscal year 20.
Moving onto capital cash flow dividends and buybacks capital spending in fiscal year 20 is likely to be around 800 million up a little over 10%.
Based on our earnings outlook and capital spending plans free cash flow from operations is anticipated to be in excess of fell billion dollars and we anticipate returning at least 12 billion to shareholders and dividends and stock buybacks. So.
The visa board has authorized a 20% increase in our quarterly dividend to 30 cents for the first quarter fiscal 20 inline with our dividend policy. This splits up sales ratio in the 20% to 25% range.
In summary.
Fiscal year 2019 was another strong growth for visa while delivering in the short term. We have continued to invest significantly in long term growth program in our core seemed to be business in developing a broad range of new payment flows across b to b b to C and b to b as well as on expanding suites.
Value added services.
We acquired for companies that substantially expand our capabilities on multiple fronts.
This is a time of unprecedented opportunity in our business partnerships have always been a force multiplier for us to drive growth in our potential add more points of acceptance and develop more use cases on our rails.
As I will describe the again this quarter, we continue to add exciting new and significant partners globally with amendment propositions for both parties.
As we look ahead, we expect to sustain revenue and EPS growth momentum in the fiscal year 2020, assuming no material change in macro macroeconomic conditions.
We have renewed about 30% of up payments volume in fiscal year 19, with another 20 plus percent slated for renewal in fiscal year 20.
While this will cause a lot jump in incentives in fiscal year 20, we're pleased to have the new and a significant portion of our largest clients for the foreseeable future.
We will also continue to invest at a healthy clip in long term growth initiatives and integrating the floor acquisition is a critical priority.
With that I'll turn this back to Mike.
We're now ready to take questions Jordan.
Well, if you would like to ask a question. Please press star one including record. Your name you will be announced prior to asking your question to ensure questioners I heard we ask you. Please limit yourself to one question once again to ask a question. Please press star one to withdraw your question Press Star too.
My first question comes from David Koning from Baird. Your line is open.
Yes, Hey, guys. Thanks, and I guess just to kind of quick questions first of all incentives growth you kind of mentioned, it's much higher than normal. This year is it high enough than normal with some onetime items kind of with renewals in there that the out year might actually be stable or even down maybe in the second is quick one just on six so six.
Is that all completely now in the past so no no other adjustments kind of in 20.
Yes on the second question, yes, six so six is behind US. So now when you compare 20 219, it's apples to apples and as for the requirements will no longer be reporting numbers without six so six et cetera.
So that that's fairly clean in terms of your question about.
What happens in the future.
Clearly, having all this renewal activity come in from the fourth quarter. It's really you see the full effect and 2020 for the full year.
And then you have the additional renewals in the first half as we lap them I mean, the given that you would have renewed about 50% of our business.
Over the two years, you would expect to see some moderation in the growth in incentives. So that should be expected. Obviously, we don't provide any long term outlook on the trend and incentives. It's a function of marketplace conditions, but there's no question that venue to new let's turn of your business over three quarter period.
That it will have a material impact on the rate of growth.
And then as you lap it it should help.
Great. Thank you.
Our next question comes from Hershey Darla from Bernstein. Your line is now open.
Hi, good afternoon.
My question is on your comment and partnerships a few years ago. Many of the digital wallets and on the was perceived to be risk for you and recently many of them. Instead. It can look more like partners that they ask you to find in line to patient strategy.
So if I look at some of these sort of lingering competitiveness for example, the domestic network.
Can you talk about great Alinda journey that they could look like and better than Monday partners.
Thank you for your comment in providing Netflix agnostic services, such as Doug I think some of these alternative networks there would be great. If you can elaborate on that.
Sure. Thank you operator.
Looked a lot of these.
Players started out in a different business then they realize that.
Because of.
Many cases on banks parts of the population they end up developing wallets and they started off with having them be in assets.
Closed loop.
Network that is within their world and then as.
They they become bigger and we end up having discussions with them.
We can they realize that we can bring a lot of things to them in terms of our our global reach cross border capabilities.
The ability to provide products that can be used to purchase.
Good.
He commerce.
Capabilities increased security like.
Like Tokenization.
And then then by the way can help us grow by the being both a issue or an acquirer for us. So I think that there is as we sit down and we increasingly talk to these providers around the world base, they see and ability to provide a better customer experience.
With greater reach for they are they are clients and the same for.
Yes, and it's just good for both both companies businesses.
Thanks commissions.
Our next question comes from Ramsey El Sir Your line from Barclays Global Your line is now open.
Thanks for taking my question I had a.
Somewhat similar question about your guys moving more into other ancillary business lines to Fintech partnerships in M&A, how do you manage the risk of channel conflict with your existing customers, if you're stepping a little bit more on the terms of folks are in the network businesses in terms of moving money between bank term or maybe people who are.
Acquirers, who are offering Omnichannel solutions like pay works is there a risk that you kind of disrupt the value chain kind of moving into these other areas.
Well to ramp be today, we have 60, 860000, I'm sorry financial services.
Clients around the globe when they come in all kinds of shapes and.
And sizes and the reality is that many of these new new players that are coming into the marketplace are attracting new segments of the market.
And they're bringing new capabilities that.
Our accelerating the growth of digital payments in the acceleration of moving from cash in check to digital forms of payment in many cases.
We in fact, our opening up the capability for our existing traditional clients to get their credentials involved in places that they probably otherwise wouldn't have been able to get them, but for us.
Forming partnerships with some of these new types of players.
So I think in many of the cases it becomes additive for everybody in the payment system becomes additive for.
Our traditional bank partners it becomes additive for the fintech or the wallet or the Neo Bay player and it becomes that additive.
For our.
For visa so.
It is.
Something that.
We certainly remain focused on it but it's.
All about growing the industry for all of the players in the ecosystem. So Ramsey I mean from US standpoint on the question. Your is a question we talk about all the time. This is on the business built on partnerships. This is a business that partnership so very much as I said in my comments a forced multiplier.
In every situation, we have a very explicit conversation around.
Things that.
We partner to do and things that we can do we should do ourselves and to the extent that.
It is it a channel conflict question, we have base.
Big clearly steered clear of those areas and so when we have those kinds of issues, we typically partner and when you don't that's when you might find does actually offering the service ourselves.
Thanks.
Thank you.
Our next question comes from Darrin Peller from Wolfe Research Your line is open.
Hey, guys. Thanks.
Cross border growth looks like it accelerated a bit I think 8% in October and theres been questions around macro trends and potentially slower cross border.
Globally in September October from different parts of the ecosystem and so it looks like you're seeing that so maybe just if you can give us some comment on what youre seeing in cross border trends a bit more granularity in.
And then Hassan it also looks like revenue growth accelerated in the international fees I know there was pricing earlier in the around cross border what FX involved with some of that down last quarter. So are we now seen was that better this quarter, we seeing the full flow through pricing there. Thanks guys.
Yes in the second question, Yes, I mean, the the full impact of pricing is is visible in the second half and it is definitely visible on the international revenues line.
It also is the case that some of it was muted in the third quarter because as you know as that line also includes some of our.
Exchange FX revenues and the third quarter had some of the lowest volatility in five years and the fourth quarter saw some improvement volatility to was still little relatively speaking, but it will improve from the third quarter. So the the benefits of pricing, which were largely washed out by low volatility is.
Third quarter, the little more visible in the fourth quarter, but youre right that pricing is showing up in that international revenues line.
In terms of your first question on cross border trends.
Cross border trends as as I indicated look pretty good all over this lists.
We highlighted some areas that able to stronger.
Like like similar like Southeast Asia.
Inbound into Europe has stayed strong for quite a while in the mid teens. This excludes the what we call the intra Europe cross border transactions in bound to the us which we will.
Which is a sizable business for us improved a bit but it's still quite weak.
So the strong dollars certainly holding down in bound to the US there was spots the weakness.
As you might expect like inbound to Hong Kong in fact, both in and out bound to Hong Kong, but by and large we saw good improvement in Latin America, good improvement in parts of Asia.
You know certainly strong inbound to Europe .
So no real indication that there's any change in trend.
I think there was we said there was some slowdown in travel business more than made up for improvements knee combo. So I'd say stable to improving is probably the best way to describe us.
Next question, Andrew Thanks, guys.
Our next question comes from Dan Perlin from RBC Capital. Your line is open.
Thanks, I had a question about this.
I think your words were unprecedented levels of renewal activity in them.
Im.
Thinking in terms of historically its been 20% sort of been parsed out a little bit more evenly. This is clearly more of a compression cycle and so the question is is it is it driven by competition is it like strategic positioning on your part.
There is an important to like locked down your partners. Today. So you can drive all this new innovation through their distribution assets just trying to think through them. Thank you.
Dan every.
Every year, we go in the year this has.
Just a couple of bad deals that come up that are.
We're not necessarily up.
For Regal that.
Happened during the course of the air and they can occur because their senior discussion about hey, why don't we extended our relationship.
And at the able to focus on.
Growth over the next couple of years and this year with no different than where.
Okay.
A couple of deals that were for early renewals.
Got it happens every year, but they would just a couple of a bigger clients of ours with chase, leading the pack in that category and that's that's really what.
Drove that number up to 30% level from kind of a norm of around 20.
Okay. Thank you and the bunching of it sort of around the fourth quarter and the first half Thats just some.
Timing that happens within the year. So it just so happens that it all is happening over the three quarter period, where we have a third of our business renewing that's a little bit of you know just things moving around a bit.
Bunching around three quarters.
Quality problem. Thank you.
Next question.
Our next question comes from Tim Jane Wong from JP Morgan Your line is open.
I think so most things for the presentation I just want to ask on the outlook for fiscal 20.
Revenue growth guidance looks pretty consistent with what you expected for fiscal 19 here goes so do you see any major differences in.
Sources of growth expected this year I heard the incentives outlook sounds like there is little bit little bit tougher, so what might get better to offset.
Pricing is it higher expectations for certain products or maybe certain geographies.
Sure there thanks show.
We have some benefit in the us because we start to lab deep Cabelas conversion.
Internationally, we have some wins.
And we have.
A couple of our of.
Conversions moving away from us happening so there's I'd say, that's a little bit of of Walsh.
If you look at cross border business.
Second half trends are somewhat better than first half, especially fourth quarter.
And we are sort of assuming the second half trends.
Continue going forward and as you can see that is continuing.
The pricing impact is actually smaller.
2020, we get the benefits of the 19 pricing through the first half, but it is lower in 2020. So the second half pricing benefit is smaller, especially in the service revenue line and in the international transactions line you should see that the other area of growth is our value added services and new payment.
So services like visa direct like me to be Revvy expect you know some strong growth to continue.
We had good growth this year as you saw the expect strong growth to continue next year. So if you wouldn't look at what are the above average growth parts of the business. It's new payment flows and its value added services and that those are clearly helping on the flip side. The higher incentive you know villa will will be something that we have to contend with that we didn't.
Last year.
Unfortunately exchange rates, which even sees a full months ago look like may not be a driver now are looking like could be a drag of roughly the same magnitude as we had in fiscal year 19. So those some of the pluses and minuses and in terms of the underlying macro conditions, we were fairly clear that were assuming.
The trends we've seen in the last two quarters are the ones that will persist the tinge and the only thing I would add to isn't it.
Related to everything that the sound said.
Is that we're going to continue to invest in the business, we think theres a lot of opportunity to invest so.
Continuing to invest in the various.
Levers that we think can grow the business over the next number of years plus these acquisitions, adding three or four points to our expense growth.
We're going to have some we're going to have a healthy level of expense and investment in the business.
Next question.
Our next question comes from Moshe Katri from Wedbush. Your line is open.
Can you talk a bit about the sarsfield rollout what what are you going to do differently. This time because to get better traction maybe you can talk a bit about that and then maybe some more color, but do you play because it seems that based on what you're saying maybe improving on that part of the business. Thanks.
Good morning, I Didnt understand what we don't yet I know Src that what when you said.
What happened this time versus some other timing. This is Don I presume you might be referring to to visa checkout.
At a number of times.
The reality is that we the.
Various network players.
Really have not had that heretofore have done a good job in terms of ecommerce checkout experience it.
In fact that Weve.
Put merchants in a position where.
They have to have.
That connection Egypt for each of the networks and then everybody has their their own.
Version of checkout is.
It's difficult for merchants is confusing for consumers and its leading to.
Unpleasant friction in the e-commerce situation. So all of US now we're going to abandon our.
Our proprietary offerings.
But because those proprietary offerings are out there like visa checkout, it's going to make for a.
Much more.
Streamlined way to get to critical mass fairly quickly as a reminder, indicates a visa we have 52 million visa checkout users.
And we have 350000 merchants on visa checkout.
So we would expect that.
The conversion of those 350000 merchants will be.
Relatively easy, there's a little bit of work, but relatively easy.
Easier than plate people, who are not been signed up for visa checkout or Masterpass for example in hate to Mastercard.
It's just that the timing of the year now as we getting to the end of October .
We'll see it we'll see some more merchants come onboard in the coming weeks, but as we get into the holiday season, most everybody kind you resists putting any kind of change into the payments ecosystem. So I think we'll have it will have.
A period, where we'll have some merchants come on board will get out worked out the kinks with those merchants and then after the holiday season I expect to.
A major pickup in the adoption of the Src.
And again I think we'll have a great head start because of the 52 million users we add on visa checkout have on visa checkout and to 350000 merchants that they're using it up so that's what gives me.
Confidence that we'll get there it's a it's a better user experience to better merchant experience and we plot plus a lot of the capability.
To get this Src button up by the work we did for visa checkout.
Next question.
Our next question comes from Sanjay Sakhrani from KBW. Your line is now open.
Thanks.
I guess the client incentive ranges on the brand generally it's been fairly conservative as we look out to 2020 numbers. We can you just walk us through sort of what's baked into at the upper end and then secondly on the 3% to 4% expense growth related to M&A, how much of it is investments and.
How quickly can we make these invest profitable.
Show.
On the client incentives.
Given that the renewal, 30% of our business was renewed and in fiscal year 19, and more than half of that was in the fourth quarter that's done.
So those incentives out pretty well known.
The only reason they would be different as the volumes are different but otherwise you know.
It should be pretty locked in.
As another unit will be said, 15% to 20% that is slated for renewal in the first half.
And therefore.
We should know above that fairly quickly so I would say.
Yes in the last couple of years, we've ended up being lower than we expected.
Given how much is already renewed and given how front loaded 2020 looks I think you should assume that the range. We've provided you is.
Is the range, where exactly will be in the range.
May depend a little bit on some timing, but not a lot.
And it will get to that range pretty fast as we said on the said in my comments you should see as in the range as early as in the first quarter.
So thats the.
Thats the point of view on incentives in terms of acquisition.
He said to the revenue impact is all about half a point they are all capabilities that buying so essentially we need to know build them up from where they are.
To be able to scale them and so the expenditures we have fall into four categories. One is whatever expenses that came with what the run rate is.
In every case, when making investments to.
And has that capabilities and to get them ready to scale.
So we are certainly making investments in them and 2020.
Then there are some onetime costs and 2020 that are related to integrating them into our system than and especially on the security side. You know we need in most cases to upgrade their security.
Cyber security and then finally as you know in every acquisition, there's going to be some deal amortization. So when you put those altogether, you'll get to that expense number that increases out expenses by as much as C to four points and you get to the dilution of five to six cents. So that's how we get the.
We think it takes a couple of years.
Before we get too.
Getting getting out of the dilutive phase, but we'll keep you posted and how they're progressing.
Thank you.
Our next question comes from Lisa Ellis from Moffettnathanson. Your line is open.
Hi, good afternoon. Thank you.
Well, maybe using reimburses tokenization capabilities and acts as an example can you elaborate on the strategy for selling these types of value added services into domestic account to account networks, meaning how do you envisioning that will work in a way that doesnt just end up turning dose domestic networks into more formidable competitors too.
Thesis owned piece in that.
Yes.
Thank you Lisa.
When we look at.
Value added services.
We think that first of all isn't that the ability to make some of these capabilities available to directly to our customers, but beyond that as you asked the question relative to specific.
Net works, we're going to be awfully.
Our full about what we do it mean that these RTP networks that Mike.
Allow account to account capabilities, obviously is a very local business. They vary from jurisdiction by jurisdiction I think there's probably two examples were added patient offering value added services on RTP networks one is.
On visa branded transactions that run on our network of network. So we may use our other people's rails for the first mile over the last mile of money movement and in those particular cases, if it's a visa branded transaction that is moving regardless of what rails in it touches we would we would want to.
Value added services available to deliver that value to the the clients.
And that's what I think they would expect.
I think the second.
Situation, we envision using it Lisa is where there was we form some kind of partnership with the operator of the alternative.
Alternative rail so.
I think about it right now we will make decisions on a.
On a case by case basis, because they're all of these situations are very very different but those two broad strategic categories that I described is where I would expect us to use and introduce value added services, because we certainly don't want it just you're waiting in every single case to add giveaway value added services.
Could make somebodys else is network, maybe not not as good as visa net but in rich it in a way that could be competitive to us.
Thank you I think let this question.
Our next question comes from Bob Napoli from William Blair. Your line is open.
Thank you.
Just on the.
New payment flows I guess is there way can you comment on like the.
Percentage of your business, our way to track the.
The.
Addition to your growth that would come from new payment flows whether its b to b or.
The.
Or visa direct and also on the contact was cards in the us, which I guess is kind of a new payment flow of sorts and any thoughts that you think the contact with cards would have on growth in the us given your experience globally.
So Bob.
I gave you a little bit insight in our.
My remarks, I think we were over a trillion dollars.
So as I said in my remarks that we had just under nine trillion dollars a payment commerce that ran over our network of that we were over at trillion and beat a base. So is about 12% of our volume. We we know in the car to be to be part of the world, where we're still in the market leader.
In the United States globally and in most markets add we also gave a little bit inside decent directory said that.
We grew in triple digits and we.
Reach that 2 billion transaction Mark so both of those are pretty substantive.
To be being.
The 12% area of all of our volume and visa direct getting to the point, where it's 2 billion transactions. So these are not kind of experimental are in any way shape or form.
In any kind of the pilot mode. At this point point these are kind of full fledged.
New payment flows that.
Where where it continued to invest in and we'll continue to grow around the world and they've reached a point. We're obviously the there they are.
Substantive contributors to our revenue and profit in the case of contact was obviously add we're very excited about getting to the point where.
The U.S. starts to scale up as it relates to.
Contacts I think getting now passed the 100 million card, Mark and getting 80% of the.
The top issuers involved and and and at the same time.
Getting a lot of.
Large part of the merchant network out there plus four.
Tap to pay I think that there's going to be.
Great opportunity to see growth and what we've seen in the markets that are more mature and tap to pay that there is a spillover effect.
In terms of people, who were happy to pay start to increase there.
That their volume overall, and we're going to continue to push one of the that what we think is a very very important use case related to tap the pay which is urban mobility projects, particularly focused on.
Mass transit fits.
Systems.
Just in the last quarter, we launched contact was.
Travel in Edinburgh.
Scotland, Rome's Apollo and now we have over.
Added 60, new metro areas.
Transit systems to our tap to pay network and we've got 180 or so other like projects going on around the world. So I see a combination.
Up driving what I think is one of the great use cases.
Transit and.
Ted and doing to rollout tap to pay around the world.
With a particular emphasis on the U.S., it's been so far behind and then to us.
As you might go in the in the New York.
Subway system, we have it up and going in a pilot I think it's a 70.
Stops on the 456 line from Grand Central station to Atlantic Avenue in Brooklyn, and that.
It's a pampa wheat crop we launched at the beginning of June and in September we reached a 1 billion caps and that's pretty incredible given the fact that.
Where we're still in the very early stages of rolling out the path to pay card. So I feel good about progress, but the last point I think Bob as it typically takes.
The most time to get to the first 5% to 10% penetration and tap to pay and then the growth rate starts to accelerate.
From there and where we're in a 2% to 3% point in the United States. So.
Where we're still in that more formative build it stage, but I think by the end 2020, if we hit the 300 million contact us cards.
And the Mtpa as one example rolled that out to there I think it's about 270 subway stations I think we're going to see.
A real acceleration in the momentum up the growth.
And we'll take one last question.
Okay.
Our last question comes from Ashwin Shirvaikar from Citigroup. Your line is open.
Thanks, Hi.
Good to see you guys sounding more positive.
I want to please turn to cross border if I can.
Can you can you discuss sort of the traction and drill out do you have.
B to B connected notes for post acquisition any metrics on that.
Worldwide in terms of.
Yes.
How much do you expect these.
These offerings to.
Accelerate cross border, perhaps in the coming to 18 months.
So let's separate the two I mean.
Given what I, just said about these interact and that it's.
It's a very established platform that is delivering a substantive.
Contribution to our business now.
Our aim is to have and is fully integrate earthport with visa direct by the ended the year to have.
A.
The seamless.
Platform that allows any card or any accounts to transfer money around the world to at virtually any other Carter account.
And so I think the ability to to see not too distant future.
Well, great opportunity as it relates to cross border.
Payments facilitated by visa direct and by our first part is that is very real and very very exciting.
Fee to be connects a little bit further behind.
But no less exciting.
We now have the ability.
Two approvals to operate in over 60 countries.
We've got three different ways that people can connect through the to connect fee to be connect.
One is coding to our enterprise through our visa developer platform or they can connect through a technology provider and we've got relationships now with F. I ask bottom line in Infosys, and then thirdly, they could connect and interact using a host to host secure file protocol infrastructure the latter being.
Kind of the slowest way to get it up and going using and coating to our guys being that the fastest way. So our focus right now would be to be connect is actually building out.
No.
In the 60 countries and by the way we want to grow the 60 countries too. So we're trying to grow the 60 countries and within the countries, where we have the capability and the permissions and.
Approvals to operate we want to be growing that.
No so.
That's our focus as it relates to be to be connect I think both of them represents.
Enormous opportunity for us to move funds in a.
Frictionless way.
So it taking all the great.
Capabilities of these a net from sanctions controls too.
Brought controls add too.
Management and I think it all cases are our aim is to deliver capabilities that are faster more transparent.
And a simply better user experience for everybody involved so it's exciting times on both those fronts and what it allows us to do is that the beat to lease space. The cross border due to the business. We think is the most attractive pod and look forward slash visa direct will handle hi, hi, volume low low value.
You transactions and B to B connect will handle.
The large enterprise high value low volume between transactions and as Al said there'll be plus very soon to pull all this together.
And with that we'd like to thank you for joining US today you have additional questions. Please feel free to call or email our investor relations team. Thanks, again and have a great evening.