Q1 2020 Earnings Call
Welcome to Vcs fiscal first quarter 2020 earnings conference call. All participants are listen only mode until the question answer session. Today's conference is being recorded.
No objections you may disconnect at this time I would now like to turn the conference over to your host Mr., Mike Military <unk> Senior Vice President Investor Relations Mr. military <unk> you may now begin.
Thank you George.
Good afternoon, everyone and welcome to the since fiscal first quarter 2020 earnings call joining us today, our Kelley These as chairman and Chief Executive Officer, and this on Prabhu resets, Vice Chairman and Chief Financial Officer.
This call is being webcast on the Investor Relations section of our website at Www Dot investor and I'd be stuck on a replay will be archived on our site for 30 days.
Slide deck containing financial and.
Statistical highlights has been posted on our IR website.
Let me also remind you that this presentation include forward looking statements. These statements are not guarantees of future performance and our actual results could differ materially as a result of many factors.
Additional information concerning those factors is available in our most recent reports on Form 10-K in 10-Q, which you can find on the FTC website and the Investor Relations section of our website.
Our historical non-GAAP financial information disclosed in this call the related GAAP measures reconciliation are available in today's earnings release and with that let me turn the call over now.
Mike. Thank you and good afternoon, everyone and thank you for joining US today 2022 off to a strong start with visa first quarter performance.
A reflection of our focus on clients and committed to moving money globally seamlessly and safely.
Talk today, let me first touch on our results and then disconnect older Roe.
For seem to be or consumer payments business and capturing new plant payment flows, which is all part of our network and network strategies.
To start my first quarter results.
We had a terrific quarter when the business is performing well, we reported net revenue growth of 10%, but if you adjust for exchange rate and very low currency volatility our net revenue growth was approximately 13%.
Our EPS growth was 12% or 40% on a constant dollar basis, excluding the impact of acquisitions made after Q1 last year.
Key business drivers were largely consistent with the fourth quarter as we expected.
For the first time in our history total network volume this quarter was over three trillion dollars payment volume grew at 8% globally, 10%, excluding China and the UK Cross border volume rose, 9% on a constant dollar basis, and we processed nearly 38 billion total transactions on our network up less.
1%.
Let me touch briefly on holiday spending starting with the United States, where growth was similar to the 2018 in 2017 holiday season, which were both strong years.
Credit growth was slightly better than last year, and debit growth slowed slightly due to lapping tax reform, which had a positive impact on us debit growth throughout all of last year, including the holiday season.
E Commerce group three to four times faster than non ecommerce.
E Commerce also dropped more than one third of all consumer spend up two percentage points versus last year.
Retail spend growth was stronger than last year fueled mostly by E. Commerce, However that was offset by slower growth in travel and restaurants setting.
To give you a receptor the holiday season in the other major markets, Brazil, and Canada, So a slightly stronger growth than last year. The UK growth was similar to last years levels and growth in Australia slowed slightly.
Now, let's look at the core business overall for the first quarter, we're growing our core payments business in three ways through large clients and markets.
Number two making progress to capture the opportunity in emerging and other markets through new partnerships, including wallets and Fintech and three all while helping the ecosystem remove friction.
We continue to have significant renewals in wins amongst some of our largest financial institutions. These are renewed our issuing agreement with agreement with capital one effective January one of this year. We're very pleased to continue our longstanding relationship with capital one.
We recently renewed our agreement with de Kate Beebe, our largest issuing bank in Germany, and we're looking forward to developing at new services and products within this exclusive innovation partnership.
The Caribbean, we have a renewed a multiyear contract with Royal Bank of Canada for credit and debit. This agreement also include some new debit wins, covering 17 Caribbean countries and territories.
In Latin America, we're pleased to have one the credit and debit business for Saturday in Brazil, Argentina Uruguay.
This leadership position with financial institutions also extends to merchants as we are the leader in co brand with 13 of the top 20 portfolios globally. This quarter, we continue to solidify our leadership position in the United States. We were selected for the New Venmo co brand credit card reflection of.
Our strong partnership with pay Pal.
Opportunity for this product is quite significant as venmo has over 52 million users currently.
We're excited to continue growing our wants Dandy co brand relationships with seizes rewards and Harley Davidson.
Sony relaunched both of their co branded credit cards connected with the Sony Rewards program together, Sony and these are partnering in a number of ways to grow these programs to bring compelling offers to their cardholders.
We already have a strong relationship with Cosco as their co brand provider in the United States, Taiwan, South Korea, and Mexico, and just this quarter secured the China co brand in Europe . These extended our co brand partnerships with Norwegian Shuttle and X group respectively.
In some media, we knew the Emmerich Nbcs credit business and half of that portfolio is represented by the average Skywards co brand for Altria exclusively with visa and the rest of the portfolio its bank branded credit.
Our wins are not limited to just large issuers and merchants as we continued to make progress to capture the opportunity in emerging in other markets through wallets and investments in Africa. We have recently taken several steps to help accelerate the shift to digital payments on the credential side.
Mobile money wallets are already prevalent across Africa, but without a virtual or physical network credential associated with them. Many international online services are unavailable to users.
Solve this problem, we announced a color we announced a collaboration with NFS Africa, which is africa's largest digital payments up connecting through one ipi to more than 180 million mobile wallets on the continent to distribute visa payment credentials across the continent.
In an effort to build acceptance, we recently announced and investment in partnership with Flutter wave a pan African digital payments platform that enables multi payment acceptance and processing together fluctuate will further scale its consumer payment service call BARDA and its merchant acquiring service called rate.
Through visa products, such as visa direct visa QR and virtual cards.
In addition, these and established a strategic partnership and will acquire a minority stake equity stake inter switch a company focused on the digitization of payments that process is more than 80% of domestic transactions in Nigeria and sales payment processing across 23 other countries in Africa.
And to operate the largest domestic debit cards gain on the continent with 23 million cardholders.
Our partnership will help accelerate visa deployments of payment experiences leveraging interest, which is processing and integration capabilities and scale there bill pay services across Africa.
As we grow our business in emerging markets and with new players across the globe were ever focused on improving the point of sale experience and reducing friction for the entire ecosystem in the card present environment. We continue to see meaningful momentum in task to pay what we consider to be the most friction free way to pay in Peru.
Yes.
We have reached a point where one in every three card present transactions that runs over our network is tax versus wanting for a year ago this quarter.
This past year, we doubled the number of countries, who face to face transactions or at least two thirds of contact list.
Transit continues to be a key user Kate and an important way to hit your way tapping behavior.
In New York City on the Mtpa. These across 2 million tap in November from the beginning of the pilot and 3 million in January the FDA recently announced the past the pace they action to their entire system by the end of 2020.
And we are currently pacing at 350000 visa task the weak on the FDA and nearly one in every 10 transactions in the New York Metro area is attached to pay on a visa card.
We also launched Africa's first contact Us transit system in Johannesburg. This quarter. In addition to launches in whole team in city, as well as Taiwan, Sweden and Ukraine.
In the e-commerce environment click to pay for what we once called secure remote commerce seeks to streamline the digital payment experience across networks offering greater security and improved sales.
You May recall, we launched with a select number of merchants in October and by the end of December more than 40 merchants had adopted the new click the pace solution.
Now that the holiday season is over we recently completed the migration of 5500 us merchants to click to pay we expect to complete the migration of the remainder of visa checkout merchants in the United States over the coming months.
Additionally, all 50 million consumers, who are already enrolled with visa checkout were automatically converting to click to pay.
Globally, we continue to make progress on securing the ecosystem with tokens introduced in 2014 tokens have expanded into 107 countries equating to 6 billion Tokenized transactions in 2019, we now have over 750 million tokens globally.
Over the past 18 months visa signed it is now live with the majority of large e-commerce platform for card on file Tokenization, including Adient, Braintree, Cybersource paypass stride as well as some big ecommerce companies, including Amazon and Netflix amount.
To hundreds of millions of new token, which is accelerating the pace of ecommerce transactions now process over the fees and visa token service.
Actively we have secured merchant at Parker commitments for Tokenization in the E com space that will add up to approximately one trillion dollars in visa payment volume.
Putting it together our core business remains strong as we continue to win with traditional players new players and seek to remove friction.
Outside of our traditional seem to be business, we're making progress in capturing new payment flows in the current base.
Space, we had several wins in the first quarter in Singapore, We won the government procurement card for overseas Oversea, Chinese banking corporation, or CBC with the Singapore government mandating the digits to digitize payments by 2023.
C is targeted to capture a significant public sector procurement volume.
Within the CEMEA region. These assigned to partnership with any see payment a digital banking and payments processing platform to expand any sees regional and international issuing business focused on virtual card for b to b payments, such as travel and insurance.
Hi, Tom the party market with need a fintech offerings digital business account services to be an exclusive partner with visa issue virtual commercial cards.
Visa direct served PDP BDC and even the two small business with over 700 million transactions in the first quarter of 2020.
This quarter, we wanted to highlight significant progress into BDP cross border space.
Moneygram announced that is now by enabling international transfers that rely on visa direct the new service, which has been available within the United States in September is starting with transfers to Spain and the Philippines.
Transfer why is the global technology company for International payments will also begin offering its customers the ability to send to receive fund in real time through visa direct.
The integrated capability currently available in six countries, including Spain in Poland will soon be available across more countries in Europe .
Our continued progress with visa direct speaks to our network of network strategy for consumers businesses and governments to move money to anyone anywhere.
Each new network endpoint beat a car to consumer business account worldwide.
Compounds the value of the capabilities, we offer departments and improves the customer experience through a single visa connection.
As I talked about networks, it's hard not to mention plan, although I'm not going to cover into too much detail until the transaction closes.
We see plan has happened to potential to deliver real value to visa in multiple ways. We have received a number of questions on the revenue model. So I thought I would covered quickly similar to ours. They have a usage based revenue model pricing is structured on a pay per apiay call basis and varies by product to test depending on the.
Type of financial data consumed by the customers that the Fintech, which speaks to the power of their network. We are truly excited about the acquisition.
To close we're off to a strong start in the first quarter with much to be excited about as we look forward. We are deepening partnerships with traditional players in markets and expanding assets with new players, we're removing friction in the ecosystem and we're making significant progress to capture new flows. This is all part of our network and network strategy as we continue to focus.
On clients and moving money globally seamlessly and safely.
I want to take a quick moment to mention our Investor day on February 11th here in San Francisco, which will simultaneously. The webcast you will hear from our knowledgeable in deep bench of leaders, who will discuss our view on the evolution of the ecosystem and how we intend to deliver these as future growth through our customer consumer payments business, new flows and value added.
Services the formal presentation should run from about eight am to 230.
Basic time, and we look forward to your participation with that let me turn it over to the thoughts. Thank you out and good afternoon everyone.
We had a strong start to fiscal 2017 with results coming in consistent with our expectations, excluding acquisitions and investment gains constant dollar net revenue and EPS middle of 11% and 14% respectively.
Exchange rates reduced revenue growth by over one point EPS growth by approximately one of the up points.
The four acquisitions completed in the last six months increases reported revenue growth approximately half a point and expense growth approximately three points.
Starting in fiscal 2020 , they're providing adjustments to our GAAP numbers each quarter to help investors better track ongoing business performance.
non-GAAP results will excluding discrete items.
One the impact of equity investment gains and losses.
To amortization of acquired intangible assets or acquisitions completed in fiscal year 2019 unfolded.
Three certain nonrecurring acquisition related costs.
Hi on non-GAAP results, but also adjusted to reflect this change this quarter the impact on non-GAAP adjustments as de Minimis.
In addition, you will find a helpful schedule on the flux line about earnings presentation.
In addition to GAAP and non-GAAP results, we provide the growth rate impacts on exchange rates as well as the inorganic impact of acquisitions in other words, the revenue expense and EPS impact that acquisitions had on our reported numbers. This year, which are not not important numbers in the first quarter last year.
A few highlights from the quarter.
Key business driving growth rates payments volume processed transactions and cross cross border volume, let's stable and consistent with prior quarters.
Net revenue grew 10% however, the underlying growth trend in revenue is marked by two significant drag related to currencies.
First let's stronger dollar renews nominal net revenue growth rates by over one point.
Second currency Volatilities would have the lowest level, we have seen in over five years.
May be expected the sharp decline in currency volatility had a significant impact on international fee revenue.
If you adjust for the drag from unusually low currency volatility on that right from the strong dollar underlying net revenue growth is robust at approximately 13%.
Constant dollar payments volume growth of 8% slowed by one point compared to last quarter.
This trend this change in trend is driven by differences and processing is when compared to the first and fourth quarter than last year.
The processing the impact was one point in the us and several points in Canada.
Excluding the processing the impact Q1 payments volume growth was similar to last quarter.
Second quarter service revenue associated with these volumes there will be inline with our expectations.
Constant dollar cross border growth rates, excluding volumes within Europe , but also stable at 9%.
Got it bolted constant dollar cross border growth rate accelerate at 2.9% as we are now lapping the Pan European E Commerce platform, which reoriented acquiring across countries locascio converting transactions and cross border for domestic.
As we have discussed in the past this shift had minimal revenue impact Anvisa as cross border transactions within Europe revenue yields similar to domestic yields.
We repurchased 13 million shares of class a common stock at an average price of $179.71, but dollars 2.3 billion in the quarter.
Our board has authorized in new 9.5 billion dollar share repurchase program, but this additional authorization and the $1.7 billion. The remaining authorize funds as of December 31st 2019, we have $11.2 billion available shedding purchases.
Including our quarterly dividend of 30 cents per share that it doesn't approximately $3 million of capital to shareholders in the quarter.
Turning now to key business drivers and financial performance.
Payments volume growth in constant dollars was 8% credit was up 6% debit was up 11% growth, excluding China and the UK was 10%.
As a reminder, Chinese domestic volume Unimpacted by dual branded got conversion, which have minimal revenue impact.
US payments volume growth was up 8% when credit growing 7% and debit 9%.
Excluding the processing the in fact I described earlier growth accelerate at almost one point you to a partial lapping of the cabelas conversion and modestly higher fuel prices.
Underlying consumer spending growth largely consistent over the last quarter.
International payments volume growth in constant dollars was 8% at 12% excluding China in the UK.
Growth in CEMEA remain robust, 22% with strong growth across Russia, and the Middle East Latin America also remained strong at 17% driven by some wins and strong performance and existing clients.
Asia Pacific, Excluding China grew 8% decelerating over two points, primarily due to slow growth in Japan, Australia and Hong Kong.
Excluding the UK grew 12% UK growth remains weak and skilled one point of to improving in each of the last two quarters.
Processed transactions continue to grow at 11%.
Constant dollar.
Cross border growth of 9% was up two points from the last quarter, but stable at 9% excluding volumes within Europe .
Traveled let ecommerce growth what inline with the last quarter, excluding volume within Europe .
Bank, almost accelerated from Russia Africa, and across Europe , which was offset by weaker growth out of the U.S. and Asia.
Inbound call month accelerated a bit into the U.S., but decelerated a little into Europe , which is consistent with the weakening dollar compared to the phone in euro.
Growth into China, and Hong Kong remains weak.
Net revenues grew 10% only 11% in constant dollars, excluding acquisitions the impact of our acquisitions on revenue growth was approximately half a point.
Service revenue growth is consistent with the last quarter at 9%.
Data processing revenue growth was also in line with the last quarter at 16%.
International transaction revenue grew 9% decreasing two points from the fourth quarter. Despite its smaller exchange rate drag due to the unusually low currency volatility.
Other revenues grew 22% slowing 13 points from the fourth quarter as we lap ASP six so six impacts from locascio, partially offset by foster growth in our value added services.
Client incentives, what inline with our expectations at 22.4% of gross revenue up 80 basis points from last quarter.
As we told you in October we expect a client incentives to step up from a fiscal 2019 exit percentage the lower end of our full year outlook range in the first quarter due to the level of deal activity this quarter in last year.
GAAP operating expenses were up 14%.
Excluding the amortization of acquired intangible assets and nonrecurring acquisition acquisition related costs from the four acquisition that closed in the last six months non-GAAP expense growth was 13%.
Personnel expense growth is primarily driven by increases in stuff to drive our growth initiatives, which we stepped up in the second half of last year.
Acquisitions, and some nonrecurring expenses also contributed to personnel expense growth.
Marketing expenses decreased 1% due to the timing was some spending as relevant reporting change that shifted some expenses so the general and administrative line.
The impact of acquisitions added two points from non-GAAP expense growth.
Exchange rates reduced reported expense growth approximately one point.
Non operating income Slash expenses include equity investment gain of 13 million, which we are now excluding and on non-GAAP results.
Investment income also includes a small nonrecurring benefit which is exactly offset in personnel expenses, but no impact on earnings.
Excluding these nonrecurring items investment income is lower this year due to falling interest rates and lower cash balances.
Our tax rate of 17.7% was lower due to some items that are unique to our first quarter. Each year. This was anticipated and reflected in our outlook what tax rate this year.
Moving now to our outlook for the second quarter and the folio.
First let me share business revenue growth for the first four weeks over the quarter.
Through January 28.
US payments volume growth was 10% with us credit growing 9% and debit 12%.
Processed transactions grew 13%.
Cross border volume on a constant dollar business grew 8% or 7% excluding cross border volume within Europe .
Just want to volume in the last two weeks on January on negatively impacted by the shift in the Chinese new year with potentially some initial effects of the Corona light as of today.
As we look ahead for the second quarter fiscal year, 2020 vendors, assuming stable growth trends on key business drivers payments volumes processed transactions and cross border volumes.
The exchange rate drag on net revenue in the second quarter would be approximately one point 50 basis points better than our prior outlook and consistent with the first quarter due to some weakness in the dollar since September .
More than offsetting this small benefit could be the unexpected drag from currency volatility.
The unusually low currency volatility so far this fiscal year continues to persist into January .
As many expected as expected client incentives as a percent of gross revenues will climb to the upper half of our outlook range of 22.5% to 20.5%.
Helped by the extra day in a leap year.
Second quarter net revenue growth rates are expected to mean in the low double digits and modestly better than the first quarter.
Our second quarter revenue ultimately does not reflect the potential effects of the recent corona virus outbreak in China, and it's too early to assess this impact.
Second quarter expense growth in also expects to be modestly higher than the first quarter as we get indicated in October expenses will grow at the highest rate for the year in the second quarter as marketing expenses ramp up relative to a low level of spend last year.
Also has a dollar has weakened the exchange rate benefit on deposit expense growth will be about one point 50 basis points lower than we had anticipated in October .
Non operating income flash expense in the first quarter had a run rate of around 65 million. When you exclude the 30 million gained from equity investments and the small nonrecurring benefit I mentioned earlier.
The run rate of nonoperating expenses will be somewhat higher in the second quarter due to lower interest income as little as a result of lower cash balances and lower interest rates.
Our tax rate outlook for the second quarter remains unchanged at 19% to 19.5%.
Overall, we are maintaining our outlook for fiscal year 2020 , Ivan mentioned, a few adjustments and trends that their monitoring.
On the net revenue front, we are still expecting low double digit net revenue growth in constant dollars.
Based on current exchange rates and future expectations. The currency translation drug could be at the low end up our previous one to 1.5 percentage point range at approximately one point.
The four acquisitions, we have completed in the past six months are still expected to add around half a point the net revenue growth.
As we highlighted in October less significant a significant factor impacting fiscal year 20, net revenue growth to the unusually high volume of renewal activity.
In fiscal year, 19, we renewed 30% about payment volume, but 15% renewing in the fourth quarter alone.
And we indicated in fiscal year 20 renewal activity could be front loaded with another 15% to 20% of payment volume renewed in the first half.
Since then it has become a pattern that renewal activity in fiscal year 20 could be even higher material for large unplanned renewals now on a discussion which would bring this field level of renewal activity almost on par with last year.
We are pleased about distance in most of these situations, we will most likely not only renuart existing business, but also gave a larger share on these clients over the tone of our new contracts.
One major client renewal is already complete and the others could get done in the next two or three months.
As such we now expect kind incentives as a percent of gross revenues to be at the high end about outlook range of 22.5% to 23.5% in Fytwenty.
Excluding acquisitions and last year empty out related special item.
You can view or expense growth in the mid to high single digit trends in constant dollars or 7% to 8%.
Clients to low double digit growth when you add into four acquisitions, we have closed on in the past six months, which contribute three to 4.2 expense growth.
Based on current at current exchange rates and future expectations nominal expense growth is likely to benefit by one point.
As such our expense growth for the year is expected to be in the double digits with 50 basis points, which is about 50 basis points higher than we expected in October .
As I indicated earlier non operating expense at a run rate of approximately $65 million in the first quarter.
This expense will move modestly higher need successive quarter. This year due to declining interest income from lower rates.
Our full year outlook for tax rates remained unchanged at 19% to 19.5%.
Q1 tax rates were lower than the full year outlook due to some items that are unique to our first quarter each year and will largely anticipated in our full year outlook.
Excluding the four acquisitions auto outlook for adjusted fiscal year 2020 EPS constant dollar growth remains in the mid teens built off fiscal year 19, as a $5.40.
For acquisitions are expected to diluted EPS by five to six cents, a one point drag on EPS growth.
Based on current exchange rates and future expectations exchange rate could reduce EPS growth by approximately one point.
Including the acquisition and exchange rate impacts of around two points our outlook for adjusted fiscal year 2020 nominal EPS growth would be in the 12% to 14% range.
We still expect for the fourth quarter to be the higher EPS growth quarter.
Our fiscal year 2020 outlook does not include any impact from the flat acquisition.
We'll update our outlook when we have more clarity on the timing for closing on the transaction.
We announced the acquisition and gave you some preliminary estimates on revenue and earnings.
Revenue and earnings implications for fiscal year, 20 and 21.
With that I'll turn this back to Mike.
We're now ready to take questions George.
He was able to ask a question. Please press star one including record. Your name you will be announced prior to asking your question to ensure a question is are heard we ask you. Please limit yourself to one question. Once again ask a question press star one to try your question from start to.
Our first question comes from Jason Kupferberg from Bank of America. Your line is now open.
Hi, good afternoon guys.
So just wanted to start on the incentive side I mean, the guidance change here is really only half a point I mean, if people were previously modeling the middle of the range I'm. Just wondering if you expect to make up for that half a point through better gross revenue or does it feel more like you just may land net revenue slightly lower within that overall unchanged low double digit guidance range, especially.
Since the currency volatility has fallen off as as you guys pointed out.
Yes.
Other things Jason.
Yes, we will see how incentives sales for the up but the way it looks like now the renewal activity will be higher and so we are signaling that it could be at the upper end of the range and as you said if people are in the middle of the range that have pointed out on the other hand.
We are signaling that if exchange rates stay roughly in the range there in on where people are expecting.
That is about the load in the range to sort of you pick up some of it there in terms of currency volatility we were able to absorb most division the first quarter and still get very close to as you saw what our expectations low.
Factoring that into our second quarter outlook, what is going to be for the second half I think we'll wait and see it's not something you can predict further out and the time will tell.
Next question. Our next question comes from Dan Dolev from Macquarie. Your line is now open.
Hey, guys. Thanks for taking my question. So a quick question in cross border it looks like a nice uptick can you maybe.
Talk a little bit about that.
Keith.
Well I guess it remember last year, Dan you had a number of things going on.
Especially at the back ended the quarter with government shutdown, Brexit us China trade offs et cetera. So.
We were expecting some uptick off of some of those factors that had a negative.
Impact our cross border.
At the time and so we're backup and what I think we would expect to be a.
Fairly normal.
Range at this plan.
Next question please.
Our next question comes from Jane Wong from Jpmorgan. Your line is now open.
Thanks, So much everything was really consistent here, but just looking at the regional volumes just a couple questions a clarification on the on the Asia front looks like a slow to the 4%.
I'm curious, what's what's the outlook here based on what you see and then with which Europe .
Pretty stay stable supplement posted the low end of the eight 9% range, but I know you guys have made a lot of investments there what your expectations for Europe can you sort of break out of this.
The zone based on some of the business you've made what do you see there. Thank you.
Yes, I might start to now Im show a lot of in Asia. We highlighted three areas, Japan was really more of a quarter over quarter comparison, there were some changes in consumption taxes in Japan that seem to push comes spending into the period ahead of the tax going up so it was.
It was pushed more into the last quarter and so it's we don't think thats ongoing issue.
The other one was Australia.
Australia, you had some of the wildfire impact.
And that seems to be one of the bigger factors that and losses, Hong Kong and you saw you know what some of those are we have seen impact in Hong Kong from some of the protest going on so that was pretty much it across the rest of Asia. Other trends are very good in Europe , UK is a big chunk of our business and.
And the UK has been very weak and actually slowed through the elections and had a very relatively weak holiday season.
Slowed by a point in the quarter. If you will give you take the UK out.
Growth was a pretty healthy 12%.
In the rest of Europe , the only thing.
Two points engine, one is the consumption tax that decide referred to the now the government has decided to.
Rebate some of that consumption tax when people do contact was transactions in Japan as part of the government's push on.
The cashless going into the 2020 Olympics in Tokyo, So that's actually going to turn out.
With the as a good thing not only to stimulate spending but to stimulate.
Tack to pay spending.
The other point on Europe .
As is the sat rightly pointed out.
The UK that a bit of it attracts right, but we've been extremely focused on the continent and had some we've had some good.
Wins in state taxes are good renewals and those those things are in the pipeline and.
I feel pretty good about where Europe is going to head over the next couple of years in terms of in terms of growth.
Next question.
Our next question comes from Darrin Peller from Wolfe Research. Your line is now open.
Hey, Thanks, guys. Just a couple of quick ones. One is on the looks the permanent volume we're seeing in January seems to really underscore. The comments you made around like nuances in Q calendar Q4 like the processing day, just if you can comment on what you're seeing in terms of the consumer given our these improvements into January just timing or do you and actually you actually see a healthier type.
Spending trend and.
Well just one quick follow up also was around the rebates incentives given so many are being done now can you just comment on the types of returns you're expecting to see for those are these longer contracts and they used to be are they coming with more value add offerings something along those lines would be groups.
So I think darrin other other than in the UK.
Consumer has held up pretty darn well and that.
Our volume in.
This last quarter when you.
Factor in the processing day change, which is kind of.
Good.
And then anomaly, but you look in September at the last day of September in 2018.
With a Sunday and a lot of merchants and acquires hold volume on a on a Sunday.
So what ended up having a bunch of one to one days, where a lot of volume in for one day got pushed into the first quarter up 19, we did not have that same phenomenon. This past quarter because the last day of September this year with a Monday. So we just simply had a dynamic that it was heart.
We had a hard at roll over and so when you actually.
Adjusted for that our growth quarter over.
Quarter was pretty similar so in general I think the consumer has held up quite well and there's no reason to see it.
So down other than again, depending upon where this at Corona virus that ends up going back to who knows at this point.
Just to be clear when the echo rebates and incentives.
The when I was referring to the rebate that was a rebate being given by the Gulf government in Japan, I don't know, whether that's what you referred to but in general.
You know, where we're trying to add obviously strike the right balance in terms of.
Incentives that we doing deals try to make many of them as many of the those incentive dollars growth oriented as possible. So that as as I partners volume picks up their incentive pick up but we're also getting the associated volume with them and as it did AG probably no guarantees we obviously.
The.
Pushed for contracts that are as long as possible.
[music].
There is to some degree most of them kind of fall into five to seven year cycle every once in a wild instantaneous deals and then there's issuers that I'd like to do deals every every couple of.
Yes, and those would tend to be more the.
The issuers that dual issuers.
So it's it's all these.
A bit of a balancing act to try to get to the right level, but I think if we try to structure. These incentives in smart ways, where their growth oriented there initially focused on consumption of different numbers of these are products.
And try to build relationships with.
Issuers that go well beyond just an issue in relationship to ECOMP is.
Visa direct to encompass tokenization.
Cetera.
Next question.
Our next question comes from Bryan Keane from Deutsche Bank. Your line is now open.
Hi, guys wanted to ask about capital one I know Mastercard also announced a renewal with capital. One. So maybe you can help us sort out how that contract rates and if this is a net positive for both networks and then just secondly, the song on expense growth.
I think your comments last quarter was it was expected to be similar to the fourth quarter, which I think was around 11.4% came in a little bit higher was there any pull forward and expenses because I think operating margins at the street, we're expecting or a little higher than they came in thanks much for Brian Let me just quick point on Caf one analyst.
Comment on acquisitions looking.
Caf one has been a classic.
Dual issuer and oil did.
Depends on what portfolios each network happens to have and how they perform at any given point in time, but.
They are at their big terrific Bank with.
A lot of innovative people on your team, we love working with them and so it's a good thing for us and I'm sure that backs hardwood say, it's a good thing for them as well.
Expense growth was a couple of points higher than we might have expected solid as exchange rate. So as you saw the exchange rates was somewhat better.
Then we extended impactful somewhat better than we expected on revenues, which means on the expense sites with somewhat worse I think that was about a point and and as we in as I indicated in my comments that a few other nonrecurring types of things.
That added another point so in general.
They want any real surprises they'll pull forward of investments. It was just a couple of these kinds of items.
Next question please.
Our next question comes from Trevor Williams from Jefferies. Your line is now open.
Hi, Good afternoon, and appreciate you taking the question. This is a little bit higher level, but I'm curious internationally with a couple of government back systems like mirror in Russia, and Troy in Turkey that mandate domestic processing I guess first just how you see your role in the economics you can earn in both of those markets over the longer term and then second more.
Broadly if you're comparing today's backdrop to I don't know five or 10 years ago, just what kind of threat you guys think nationalists payments agenda is could pose to the international business going forward. Thanks.
Right right, we see some of these domestic.
Our processing platforms are domestic scenes or not.
However, we do.
Our objective is to work closely with.
Both regulators to make sure it's uneven playing field and work closely with our clients to make sure that.
We get a fair share of business. Many times are our our processing debt market Visanet actually just plain simple has a lot more richness to its various offerings and.
And people, we've had case where.
Bank see that and wonder and preferred a process with us because of the investment the level of security level of innovation. So we'll we'll continue to.
The up against this kind of this this backdrop.
But.
Yes, I think it's still allowing us to grow it at healthy levels and we're trying to partner.
In a thoughtful way as much as we can.
To your question about the backdrop.
On nationalism today versus.
10 years ago, I think you'd have to say.
It it has become a little bit more pronounced simply because it wasn't that nearly at promenade.
A decade or so ago, but again I think our job is to continue to innovate work closely with regulators and and with our clients.
To.
Have as much of it even playing field as possible and continue to show that processing on on visa ROIC or minimally partnering with these as yours as your scheme has.
Good advantages to it that people want to do want to want to work with us.
Next question please.
Next question comes from our Hershey thoroughly from Bernstein. Your line is now open.
Hi, good afternoon, Thanks for taking my question.
If I look at a long term history.
This is your largest competitor.
Im quite stable most recently, though they lost quantity so you've seen some data to open up between your walking that takes a little beers. So.
Can you talk about the drivers of this and more importantly, if you look out next few years.
Can we expect the gap to not only because of what you Didnt fintechs internationally and also to strengthen the setting.
Thank you actually does look both companies have performed extremely well and a number of dimensions.
At this most recent quarter, we're very pleased with our results and look Mastercard had a great quarter and they've had some good quarters. The last couple of years, that's not wait.
That said a few points first of all volume metrics or don't have any standards attached to them and it's always difficult to do an apples to apples comparison between.
The two companies and really understand what's going on fully in terms of the volumes.
On the revenue side, the revenue deltas has been a bit smaller in a number the recent.
Corridors.
This huge mix differences in our business, we've got to very big position in the United States and we want to trade after the world. It just plain and simple a much more mature market that doesn't have the same.
Hi, double digit mid double digit even over 20% kind of growth prospects to it but we're certainly pleased to have the partnerships with the banks that we have in the position that we have in the United States.
Last point I'd make is I my expectation is based on the investments that we're making.
In value added services in new payment flows in working with big tax working with Neo banks working on engagement with our existing customers building out our acceptance footprint that.
Quite happy that over time over time, we'll close that gap and continued to perform very well for our investors.
Next question please.
Our next question comes from Lisa Ellis from Moffettnathanson. Your line is now open.
Hi, good loans, our coastal NBC direct you mentioned, the greater than 700 million transactions in one Q.
You've highlighted previously the visa direct was growing in the triple digits. I guess question. One is it still growing that rates and then also how are the yields tracking and meet the direct I mean is it sort of comparable to debit I know, there's a lot of cross border in there too.
And last one all related to recent director promise, but you mentioned a few new partnerships as you complete the Earth for integration what are some of the major use cases for visa direct you're seeing rolling it out as we move through 2020. Thank you.
So first of all leaf that.
Growth of visa direct remain.
In the incredible it didn't quite get to triple digit growth this quarter, but it was.
Very very high single digit double digits and close to that level.
Yes.
In terms of yields we really havent talked much about it but to your point.
These are directing is getting increasingly have some five.
Currently we are cross border transactions that will run over that that platform and that are pushed platform.
And.
That that is obviously, a very very good thing for us I think when we talk about use cases, I think they're going to fall into some of the same buckets April onto that today that PDP.
Disbursements.
Remittances and job I think that those businesses will continue to grow and you'll see on investor day that will highlight.
A good number of visa direct use cases with quite a few specific examples. So we look forward to what taking you through on the 11.
Next question please.
Our next question comes from David Togut from Evercore ISI. Your line is now open.
Thank you good afternoon, given the ongoing weakness you're seeing in UK volumes and the incremental one point deceleration you called out could you update us out on your growth pivot moving employees out of London and into some of the higher growth markets since Italy, Poland in Germany, and when might this growth.
That accelerate.
Your your volume growth in Europe .
David We don't have any active plants, you're kind of move people out of the UK were just plain and simple as we grow the business adding employees.
On the continent, and certainly adding.
The vast majority plays where we would add in that region are in in market offices.
On the continent.
First I'd also comment that I am certainly hopeful now that at least there is some clarity.
Around the Brexit.
Outcome that.
We might find a new normal in the UK that would allow their.
Economy to pick up certainly, obviously Davos last week and certainly the.
Officials in the UK that I talked to feel as if that it's on the verge of starting to come back we'll see what what happens in terms of the continent. In many of these markets. We've been we've been behind plain and simple and over the last.
For five quarters, we've been.
After we got the integration behind US we started in investing.
In a fairly significant ways and.
We're winning deals and trying to build our credit business build our acceptance footprint and so.
It takes a little bit of time for the pipeline to work its way into the numbers, but I think over the next couple of years, we'll start to see some real payback for the progress that we're making now in on the continent in Europe .
Next question please.
Our next question comes from Sanjay Sakhrani from KBW. Your line is now open.
Thanks I appreciate your commentary on the krona virus, but I was wondering if you could dimensionalize the cross border.
China business and maybe any impact it may have been sort of how you could address it and then secondly on that three to four unplanned renewals and is there any context as to why it's happening at banks are choosing to renew early thanks.
So.
On Corona virus.
Ill, let me start with its certainly just too early to know.
Well, we look at our numbers, we see some declines but Chinese new year. This year was earlier this week January 20 set.
And last year in 2019, it was February set and spending slows around the holiday. So we're we're.
Given that we're about 12 days earlier this year.
It's hard to know what's really impacting the volumes at this at this stage.
That said, there's nothing going to be impact I mean, when planes are being halted both in and out of China and you probably reading is we are these companies are telling you are poised to stay home. So even for the ecommerce world. It plays are staying home will boost who is picking and whose picking goods and and she.
I think number so I think for sure they will be.
There'll be some.
In impact and.
But we'll have to see how pronounced did get than how long it goes.
Im not into predicting game for that at the moment.
In terms of the early renewals.
What tends to happen is probably about half the time, it's Austin half the time is declining to said.
As we're talking to them about deepening our relationship when we're talking about them to them about all the dynamics that are going on.
In payments.
And are we talking to them about building a deeper relationship by them.
Consuming more and more of these capabilities and solutions.
If a deal is.
Going to be up any year over year to half for two years. It's usually that's a lot in an equity if you're at the deals going to come up and say you would have to two years or less.
One of the two of us costs or the client will say.
Why do we just get our deal done and extended out.
A number of years, so that we can focus on all of these capabilities and we can work together on trying to grow the business versus.
Starting down a path, where we're starting to consume a client is starting to consume more visa product and then we have to halt to everything while our teams on both sides going to negotiation mode and it just it just goes down the wheels of progress and I think what's happening because.
Payments is just more complex than it was four five years ago and the number of offerings is is greater than it was leaving two or three years ago. I think that this is what kind of driving this.
This I want to call it a phenomenon driving.
This occurrences and this year as the Soc said in his remarks.
There are four decent size financial institution that we're not scheduled to be up this year. They were not built into our numbers are incented. One of them is already done I referred to it in my in my remarks, which was not and they are in the deal that we get within South America.
There's three others, where there is like discussion going on right now.
It's too early to tell whether deal definitely gets done or not but my expectation is that more likely than not at least a couple of them that were not plant will get done.
Next question please.
Our next question comes from James Fawcett from Morgan Stanley . Your line is now open.
Thank you very much I wanted to ask about.
The acquisitions, you've been doing and perhaps the changing reporting what that may indicate in in the past.
This is done a lot of investments in companies in Fintechs et cetera, even before fin Tech was coined as a term but seems like you've picked up at least in the last year. The pace of of acquisition is this part of a should we expect more acquisitions and you'd be more active and actually acquiring companies than you have been the past or.
This maybe a little bit anomalous just wondering how you're thinking about incorporating some the development thats happening outside the site into into VSOE proper.
Well I think.
Let me add some more things will talk more about this at Investor day, but just a quick.
Quick response to that question.
I don't think where deliberately stepping up the level of acquisition activity or investment activity in some kind of changed direction.
Approach has always been.
Going to leave rebuild.
Any forward capability.
And if it is faster cheaper all that talent that we can get from the outside that would be valuable then we would consider acquisitions and there's a logic to everyone of those of you did.
On the investment side, it's typically but it's complementary capabilities, we prefer to partner and we do lots and lots of partnerships as you know.
This is built on partnerships occasionally we get into a situation where a company may like us to invest all we want to invest because we do want to enhance our relationship middle of the have a better commercial agreement get some exclusivity and so on the reason the volume has gone up to some degree because as you know there's a there's.
A lot of activity nowadays in terms of companies live.
Business models and capabilities that are very valuable to us either as capabilities photos to own all capabilities to partner with so it reflects what's going on in the marketplace too and it will enter the pace of activity will depend on on exactly applying the criteria I just mentioned.
It could go up if you find more that meet our criteria or I could go down.
Next question please.
Next question comes from Dan Perlin from RBC capital markets. Your line is now open.
Thank you.
You went to a pretty exhaustive list the breakdown core versus new flows and then reduce friction is kind of three big tenants of growth I'm trying to.
Let's parse out is how do you think break those down I mean is core it like 80% of the growth as we think about the next couple of years then layering in these other two to three assets or how should we kind of parse out that as we kind of think through all of these opportunities for you. Thanks.
Well get the add on Investor Day, we'll talk a lot on all three of these Tyler.
Very honest, we don't have.
I see that mix that we're trying to get to across the three items. They decided we're trying to make sure that we do as well as cost we can't against all three to try to make sure that we're delivering sustain good levels of revenue growth and to.
Some of it will depend on what's happening at a particular point in time economies.
Where we end up choosing to put investment dollars.
So there's a lot of factors that go into it but.
We're not getting out too.
Hit some certain mix were setting out to.
You are really good job in our core business, we're doing to try to extend the business.
Through.
New payment flows and and value added services and with the acquisition of flat extend the business and our network in network business even further so.
Thats really what our objective is Dan.
And one last question Jordan.
Our last question comes from Dave Koning from Baird. Your line is now open Oh, Yeah, Hey, guys. Thank you.
When we look at cross border.
Reported volume growth all through last year.
Pretty slow and I know that has to do it just currency right, but the revenue growth was way way above volume growth. This quarter volume growth has gotten better but the disconnect I guess between volume and revenue has gotten smaller like that gap between volume and reported revenue growth has gotten smaller why is that in should it.
Closer should it stay closer like that throughout this year.
Yeah, the deltas between volume growth and revenue growth driven by a variety of factors. The most important up currency related to the right. Most of the time the delta is driven by currency impacts.
Clearly pricing plays aside flare plays a role. So there was some pricing in that that was causing the revenue growth to be faster than volume growth currency effects come then move in one direction or the other and then volatilities move into big way and this quarter, we had a very big move.
If you look at Volatilities that a five year lows no not seen since 2014 historically those have corrected overtime. So that we think is a transients thing, but by the volatility of decline you know the revenues related to those Volatilities and also in that line and this quarter. The those had a big impact if volatility is with the same yoder Leo.
Our revenue growth would have been fairly comparable to last quarter on the international fee line.
Thanks Sharon.
And thank you all for joining US today, if you have any additional questions. Please feel free to call or email our investor relations team. Thanks, again and have a great day.