Q2 2020 Earnings Call
Welcome to these this fiscal second quarter 2020 earnings Conference call. All participants are in a listen only mode until the question answer session. Today's conference is being recorded it didn't have any objections. You may disconnect. At this time I would now let's turn the conference over to your host Mr., Mike Miller.
Senior Vice President Investor.
Once the military.
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Thank you Jordan.
Good afternoon, everyone and welcome to visas fiscal second quarter 2020 earnings call. Joining us today are all Kelly. This is chairman and Chief Executive officer and to solve problems leases, Vice Chairman and Chief Financial Officer.
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This call is being webcast on the Investor Relations section of our website at Www Dot investor Dod decent dot com.
A replay will be archived on our site for 30 days.
Slide deck containing financial assistance statistical highlights has been posted on the IR website.
Let me 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 of many factors.
Additional information concerning those factors is available in our most recent reports on forms 10-K, 10-Q, and AK, which you can find on the Fccs website any investor relations section of our website.
For historical non-GAAP financial information disclosed in this call the related GAAP measures and the reconciliation are available in today's earnings release.
And one last note before we get started given the amount of content. We have today, we want to allow time for Q and agents were likely to run over by a few minutes and with that let me turn the call over it out.
Hey, Mike. Thank you very much and good afternoon, everyone and thanks for joining us today.
First and foremost I hope you and your families are well in safe.
A year that look quite promising after a solid first quarter has been substantially disrupted by cobot 19.
Well the business has been negatively impacted in March and April our focus has been doing on doing the right things for our employees our clients in our communities around the world.
Wise had been affected in unimaginable ways.
We continue to manage our business for the long term, although we are pragmatic and understanding short term circumstances to that end, we've certainly been quite careful about our spending on expense base, where you're pulling back on discretionary spending, especially related to personnel travel professional services and marketing.
Throughout all of this we remain committed to investing into future in product development in technology, our brand and business development.
You may recall that our at our Investor day, we laid out a compelling case for these is growth as we look to be a single point of connection for money movement globally and there are three primary leverage to that growth.
We were payments due flows and value added services.
I want to be absolutely clear that nothing has changed about these opportunities in terms of the medium and long term growth for the company.
On our call today I'm going to cover our results. Our response to cobot 19, and some updates on the underlying business and long term prospects for growth.
To start our second quarter results net revenues in the fiscal second quarter were $5.9 billion, an increase of 7% or 8% in constant dollars. Although cross border volumes were already weakening in February driven by Asia for the most part the business drivers were not meaningfully impacted by cobot.
19 until the latter part of March.
A quick snapshot on a quarterly results are as follows payments volume grew globally, 5% or 7%, excluding China with over 500 million transactions on visa per day for each of the 91 days in the second quarter.
Cross border volume declined 2% on a constant dollar basis, and we processed 34.9 billion transactions on our network an increase of 7% over the prior year.
Our non-GAAP EPS growth was 9% helped by prudent expense management.
We recognize given the environment that the investment community would appreciate as much information on a performance as possible and to that end facade will dive into more detailed unusual when I am finished my remarks.
Since the cobot 19 outbreak, we've been very quotes and regular contact with employees clients partners and governments globally to help them navigate these challenging times.
Our for most priority is the health and wellbeing of our employees and their families to that end I pledge to our 20000 employees that there would be no layoffs in calendar year twentytwenty related to covert 19.
We recognize the critical role visa plays and maintaining the stability security and resiliency of the global payments ecosystem.
Let me state that our network infrastructure and application performance has been unaffected even as we transitioned the vast majority of our in place to work from home status.
Our business operations have comprehensive and coordinated plans in place to address business continuity and recovery needs around the world.
We're working closely with our clients in a number of initiatives starting with tap to pay which has gained even more momentum in the United States with issuers and merchants as they seek to reduce the need for cardholders to make physical contact at the terminal.
Maybe federal recently started issuing tap to pay cards. So now nine of the top 10, U.S. issuers are participating and we have surpassed 175 million tap to pay cards in the United States that have been issued that is more than any other country.
In the call on the goal.
On the merchant side, a large grocery chain recently rolled out have to pay to more than a thousand stores. So now nine of the top 10 grocery stores are enabled for tap the value.
At the ended the second quarter almost 60%.
A face to face transactions, excluding the United States were tap to pay.
And tap to pay transactions grew over 40% year over year.
We've also launched a website, where merchants can request free tap to pay signings for their terminals and large merchants by KFC and pizza hut boarded them for all their stores in the United States.
Globally, we actively engaged with merchants acquired issuers and governments to increase tapped to pay limits in fact over 50 markets in last few weeks have announced increases.
The name a few 26 European countries, including the UK, Poland, and Ireland Ptwenty five countries in the Middle East in Africa.
Including the Ukraine, Georgia in Egypt.
Also Canada, Australia, New Zealand have increased their limits and we expect other countries to follow recognizing the benefits of digital payments.
These is also working closely with governments around the world to respond to the crisis in a number of ways.
For example in the Dominican Republic, we developed a virtual prepaid solution to rapidly expand the government's emergency disbursement program from 800000 to 1.5 million beneficiaries. Likewise, we will be deploying a visa direct solution to support Guatemala's emergency relief program to reach.
2 million households over the next three months.
In the United States Visa supports over two dozen state government programs, including unemployment insurance programs and given the environment. We are seeing a 400% growth in account holders just in the last month.
Data is another area, where these has been able to assist governments during the crisis, we're providing helpful insights into economic performance to nearly 20 government agencies around the world.
These is also helping our communities, we recently announced the commitment by the B The foundation of $210 million to support two programs.
10 million towards charitable organizations on the front lines responded to the cobot 19 pandemic, such as public health and food relief in each of the five geographic regions in which these operates.
At 200 million to support small and micro businesses around the world with a focus on fostering womens economic advancement.
Let me now shift to updates our underlying business, which will be really very good for us in the medium to long term prospects for growth.
Even with Cobot 19, Commerce and innovation continued and our core business had a number of positive developments with several key relationships renewed and new partnerships formed this is all in support of the opportunities for meaningful growth that we seen consumer payments new flows and value added services, let me just highlighted.
Few of them.
In the United States Visa one two notable deals from issuers, who recently completed mergers and previously had contracts with both visa and the competitive network.
We're very pleased to announce the extension in meaningful expansion of our consumer credit consumer debit small business and commercial issuing as well as our dps debit processing partnerships with truest, the sixth largest U.S. issuing bank.
We look forward to working with this bag on a myriad of truest brand building innovation and consumer experience efforts in the years ahead.
Additionally, following the merger of Tcf Bank and chemical bank greet the 27th largest banks in the United States.
The one the existing business and new debit business.
In Europe, we continue to make progress in the U.K., we extended our long standing partnership with Barclays, which process is nearly half of the UK debit and credit transactions, enabling us to jointly focus on innovation and support Barclays growth into new markets.
Also in the UK visa side and extended agreement co-operative bank building on our 30 year relationship to support their 3.4 million retail and small business customers in France visa renewed a 10 year agreement with group BPC, our largest client in continental Europe.
With more than 40 million customers.
These and one of the largest German banks calm direct bank announced an agreement the issue consumer debit cards and grow their consumer credit business.
And I N G Diva extended its relationship with these are for both debit and credit.
A pan European commercial banking selected visa to grow their consumer credit and corporate card business across.
European markets, Austria, the Czech Republic, Slovakia, Slovenia, Bulgaria, and Bosnia and Herzegovina.
In the rest of the world, we renewed and expanded partnerships with some of our largest clients.
We renewed deals with two large debit issue is al Ryoji bank, the largest retail bank in Saudi Arabia and June Horn post the post office in Taiwan.
In Australia, we signed the 10 year exclusive issuing partnership renewal with the bank in Cleveland, One is Australia's leading regional banks to serve their close to 1 million personal and business customers.
In Latin America, and the Caribbean, we extended partnerships with the largest issuers, we have in Panama, Peru, Jamaica and coast Derica.
In Brazil, we were chosen as the preferred brand by Tiatia, the largest banking customers in debit card issuance and XP, a leading investment platform that is moving to issue digital credentials and cards.
We also obtained our license to operate as a clearing house for card payments in Mexico, which will allow these in a provide domestic network processing services. This is a key step for visa to bring innovative solutions as well as world class security and reliability to a very important market.
As you know these as the global co brand leader in this quarter was no exception in terms of sizable wins, we announced the global part co brand partnership with a core hotels as the fourth largest global hotel chain with 39 brands such as <unk> Fairmont Sofitel. This represents the <unk>.
Efficient de Novo co brand opportunity in the travel sector in recent history.
Our partnership will expand the a core lie, but limitless loyalty program to 64 million, while member base and more than 250 million customers globally.
In February United Airlines, Chase, and visa announced an extension our long term credit card partnership into 2029. These as proud we've extended our partnership with United and Chase. We're excited to bring the strength of our brand and network to continue building on the program success to deliver even more value.
And cardholder engagement.
As basis seeks to grow our consumer business wallets remain very important for both new issuance and acceptance and we'd make noteworthy progress this quarter.
Previously mentioned partnership agreements with pay T M in India toss in South Korea are now issuing credentials. In addition, we had new wins with STC pay in Saudi Arabia.
Hoggart in Nigeria, Peco in Korea, and key Ash in Japan.
In China, we signed a five year partnership with Tencent the parent of the we chat platform with more than 1 billion monthly active users. This collaboration with visa marks 10 cents first co brand card with an international card scheme, and we look forward to partnering on innovative cross border solutions.
Ninetys credential holders.
In sub Saharan Africa, we've announced its strategic partnership with Safari calm the largest telecommunications firming, Kenya, and the provider of financial services through and Paisa.
24 million and paisa users and 173 million <unk> hundred 73000, and pace of merchants wallet partnerships like these are paramount to expanding or issuance and acceptance globally.
Collectively with we chat and Safari calm, we now have relationships with wallet providers that give us the potential to embed visa credentials 2 billion wallets.
Shifting to new flows with 185 trillion of opportunity we're focused on moving money end to end for businesses governments and consumers in Europe, we're working with Lydia the number one fintech in France for the younger younger people that.
Below 30 in age and a PDP service with over 3 million users and growing it over 4000 users per day.
In the United States, We recently renewed on important relationship with square for their cash SAP program, including visa direct capabilities and the cash card issuing platform.
These a direct continues to be a powerful capability, especially in the cobot 19 environment.
One specific example, visa direct transactions for workers seeking earned wage access our on demand pay across supermarket quick serve restaurants healthcare and hospitality categories.
Priest, well over 100% year over year this quarter.
We're also working on digitizing cross border PDP.
This quarter relatively large cross border in seven countries Moneygram expanded to 11 addition can additional countries in Kb Kookmin card one of the leading issuers in South Korea also initiated a cross border program all with visa direct.
Cross border also plays a sizable role in the B to B space and we entered into an agreement for the to be virtual cards with ice CBC the largest bank in China, representing our first.
To be partnership with that bank in China.
Visa and Australia, Australia in cross border Fintech Air Wallets and now the new global partnership with the launch of a borderless B to B Cross border card and we continue to look for new ways to drive new flows with unique capabilities and solutions.
Value added services are an extension of our core business and represent a significant opportunity for us to deepen relationships health clients and grow our business. This quarter was no exception in terms of clients looking for assistance in Dps. In addition to truest, we renewed six issuer.
That represent nearly 20% of Dps is annual transaction volume in terms of disputes are recently acquired disputes platform verify.
Signed an agreement with a large E commerce provider to enable the delivery of key transaction details from their CRM systems to issuers in near real time, which helps prevent disputes and reduces charge backs.
In terms of data as you can imagine our clients are very interested in benchmarking their performance throughout the quarter leveraging our visa analytics platform nearly 5000 client users were unable to at the end of the quarter accessing 33% more reports than the first quarter for a total of 90000 report.
Access.
In consulting clients sort consulting in analytics that an increased rate, we delivered approximately 50% more projects that in the second quarter of last year.
The Cybersource business continues to gain momentum globally, and supportive acquirers and merchants around the world with innovative omni commerce gateway and fraud management services.
For example in India Cybersource is now the market leading payments gateway.
In part due to the introduction of our safe quick technology for ecommerce merchants, which allows cardholders to enroll and store card information for quick and secure of checkout.
Merchants also store, a 15% increase in authorization rates when using safe click.
These are just some examples of how during challenging times, our clients look to us.
So in closing you can see that Theres a lot of business momentum yet there is no doubt that our performance will continue to be impacted by cobot 19, we continue to focus our attention on supporting the shift to E commerce, the acceleration path to pay and new digital payments as well as providing our clients with critical value added services.
Although the road ahead, we'll certainly habits challenges for a number of quarters, our business model is resilient and our strategy to enable the movement of money globally is more relevant than ever.
With that let me turn it over to besides.
Thank you out and good afternoon, everyone.
This is an unprecedented dine and you know you all have many questions about liquid 19 impact on our business.
To provide you with up to date data in this fast moving crisis.
I will discuss trends occurring after the quarter ended more than we normally wouldn't.
Dropped precipitously in the second half as much as Lockdowns went into effect across the U.S.
The last week of March payments volumes with declining 28%.
Credit spending was harder hit than debit and declines who've been more than 25% every week in April.
On the other hand that it goes down in the mic teams through the first two weeks of April and spiked into positive territory in both week, three and week for as a first variable economic impact statements when distributed.
It is too early to tell if this uptrend in the second half of April is a sort of a recovery a new plateau, although said in a couple of weeks.
Through April 28th.
Payments, while you are down 19%.
<unk> down, 6% and creditors down 31%.
As maybe expected that is a drastic difference in thought present and cannot press in performance with God not present or eat almost volume, excluding travel up 18% in April and conferences and volume down 45%.
There are also significant differences in how long does that mean impacting spend categories.
One fifth of U.S. payments volume is food and drug stores, along with Walmart costs going target.
This is the only categories still growing up approximately 20 per cent in April.
Essentially all this girl is coming from online spending up over 100% in the last two weeks of April assisted by the adoption of curbside pickup and delivery.
Another one fifth of U.S.T.V. is in categories that are less discretionary like telephone utilities insurance and business supplies and equipment.
These are holding up a relatively well shrinking less than 15% at the end of March and never come up to flat with the pry in April.
A ton of our U.S. payments volume is in categories that are declining between 15% to 50% such as retail automotive healthcare education and government.
There are significant variations in performance within these categories, but more essential purchases showing more resiliency.
For example.
Home improvement, but in retail or hospital and medical equipment that in health care.
Categories are spending can be delayed or is more discretionary are more heavily impacted for example, apparel spending but in retail or dentist and doctor visits with in health care.
About one fourth of our payments volume isn't the hardest hit categories, including travel fuel restaurants, and entertainment all declining or 50 per cent in April.
To travel to decline affects all sub sector and is the deepest at around 80%.
Fuel declines were driven more by falling prices and fuel gallons bunch is which typically off at one another to some degree but not right now.
Within restaurants quick service restaurants are holding up better in part due to being better equipped for this environment, but x. drive through and delivery infrastructures already in place.
We didn't entertainment amusement parks in movie theaters, and especially hard hit.
While gaming a small component of the category is over 200%.
Visiting her activity has slowed a bit but growth remains robust at around 70% in second quarter and in April.
Use Kansas, such as speech, a p. and food delivery disbursements, even accelerated why a ride sharing and much unsettling disbursements negatively impacted.
As economic impact payments have been distributed we have seen significant increases in home improvement automotive healthcare and some retail goods and services categories.
Travel fuel restaurant and engineering categories have not benefits.
International payments volume growth in constant dollars were 4% and almost 7% excluding China in the second quarter.
We also remains strong insomnia, and Latin America, growing 19% and 14% respectively. In fact, you declined friends in both reasons.
Asia Pacific, Excluding China, who 3%.
Celebrating full percentage points from the Los quota as a covert 19 impact the significance stopping in early February for a large part of the region.
You ought to go 6% down two percentage points versus last quarter, but the largest deceleration in central and southern Europe.
Looking across and key international market Reprocess, the majority of transactions.
Major markets in Europe, as well as Canada have friends similar to the U.S., both in terms of the trajectory and adaptive the decline.
Australia, <unk> locked down better with a shallow a decline.
Like the U.S. marriage, and all these markets is outperforming credit and there has been to pick up in the second half of April.
But in Asia variations.
I'm, calling dropped in early February along with the rest of China and appeals to be recovering in April.
Singapore <unk> totally then stabilized and has dropped sharply again under more stringent restrictions <unk>.
Japan is on a downward trend as a lock down goes into effect.
And give it a very rigorous in southern lock down.
It is one of the fastest and deepest declines.
Elsewhere, Brazil is doing relatively better so far.
Across markets performance by category is generally similar to the U.S.
Differences across countries seem to be driven by the quality of the E. commerce infrastructure in place and consumer adoption of digital payments prior to the outbreak.
But the economic stimulus payments and the second half of it real categories benefiting the most are some sectors of retail like home improvement visit supplies and equipment healthcare education and government.
Traveled fuel restaurants, and entertainment generally remain depressed.
In two key markets very do not process transactions Korea, and China, There's some limited data sets.
Data indicates Korea may have been among the least impacted markets.
In April a recovery is well underway in both markets.
Toughest transactions grew 7% for the quota.
With sharp declines in March and our down 25% through April 28th slightly better than levels reach in the last week a much.
Transactions typically grow several points faster than volume as we penetrates multicast transactions in every their spend categories.
In the recent uptrend or stimulus famine that relationship has temporarily changed as consumers have prioritized higher ticket categories like home improvement and automotive overlord tickets categories like restaurants in entertainment.
Constant all across the border volume decline, 2% and the second quarter or 5% excluding volume within your.
One of them grow up a strong and steady in January and started to slow down in Asia by the second week of February.
As the crisis spread around the world. We shall we saw significant recon week William declines in March exiting the month declining, 44% or 51%. Excluding <unk> you want fumes and volume remains down 43% to April 28, or 52% excluding intra you.
The majority of the cross border spend decline has traveled related what God present, and God not present.
All card present and travel related Noncarbs present spend represents roughly two thirds of our cross border volume excluding volume with in Europe.
This band decline over 40% of the month of March and it's down 80 per cent in April in line with the last week of much.
The trajectory and death of cross border travel related declines, it's quite uniform across call the doors and regions.
Grogan Cross border E. commerce spend excluding travel.
Celebrated in March but remain positive led by retail spending.
In April cross border E. Commerce spending is recovering across categories and markets and has grown faster than precrisis levels.
A quick review of our second quarter financial results.
Net revenues grew 7% and the quota or 8% and constant dollars.
As a reminder, service revenue is driven by law squatters payment volume.
Based on current quarter Williams total net revenue growth would've been around two points law.
Second quarter service revenue drew 9% data processing revenues roles, 11% supported by value added services and acquisitions elected revenue.
International transaction revenues drew 2% continuing to benefit from last year's pricing actions other avenues, those 20% over the prior aided by value added services.
Crime crime incentives like 22.6% of gross revenues up slightly from last quarter.
We told you previously they expected Klein incentives to step out you to hiring you will activity, which continued in the second quarter as out of noted.
Jodie applying incentives are tied to overall payments volume growth in the current quarter, but there are contracts with clause a specific to cross border as well as annual on multimedia multi your targets that are adjusted the changes in performance.
God operating expenses were up 4%.
Excluding the amortization Oh acquired intangible assets and non regarding acquisition acquisition related costs Nongaap expense growth was 3%.
This is significantly lower than our original plans for the quota as he moved foster reduce expenses when they saw the widest spreading modern expenses in a few minutes.
Gap nonoperating expense was $95 million for the fiscal second quarter, including 2 million of met equity investment losses.
A gap you to tax rate was 19.4%.
Moving now two <unk> two halko wouldn't 19 might affect the rest of this fiscal year.
This pandemic as global in school very significant its impact and early in this evolution.
There's a high degree of uncertainty about what happened over the next few months.
As a self evident prior outlook for fiscal Twentytwenty is no longer relevant and it is not possible to provide you with any reliable full cost for the second house.
Our revenue trajectory over the near.
And by three critical variables.
Plus the depth of the decline.
Second the time, we stay at trough levels and today the trajectory of the recovery.
It is impossible to reliably forecast for the depth of the decline timing trough and trajectory of recovery are going to be over the near especially since these variables differ across categories in countries.
It will depend on many factors, which bills, which we will be tracking including city county, scared and country decisions on depending how there'd be open.
Staging of the reopening by business type in category.
Permanent the shifting consumer behavior is by category.
Consumer willingness to engage in activities that social distancing may be harder to execute like dining restaurants mass Entertainment hotel stay as an airline travel.
Borders reopened consumer confidence in venturing beyond their geographic zone of comfort.
In the final analysis this was a health crisis.
Such consumer behavior, and the base of normalization there'll be significantly influenced by the availability of testing advancements in therapeutics and ultimately a vaccine.
We have no crystal ball that allows us to reliably focus revenues in this environment.
As it relates to our revenue that is one point to know.
The report so this revenues that one quarter lab.
So then we have a recovery it will take another quarter before it shows up in reported service revenue.
In fiscal year, 2020, or third quarter, there will be helped and the fourth quarter hooked by this lab.
Well only outcomes are hard to predict we can give you more clarity on expense outcomes since we have more control over them.
Early February as we saw the impact of go with 19 in Asia, We moved foster rethink got expense plans.
As a result, we were able to reduce our second call to expenses from my previous expectation of Midteens grow up to the 4% we reported.
In fact, if you exclude the acquisitions be completed in the fourth quarter of fiscal 19, which are not in not expense Ms. In the second quarter lost your expenses were up only 1%.
We have plans in place to hold second half expenses flat compared to last year and excluding acquisitions I'd expenses will be down in the last thing do digits you're over yeah.
But evaluating additional actions to reduce expenses even further.
As you all know ours is a business expenses are largely fixed.
And we want a proposal to the extent possible critical investments that will drive long term growth in new flaws in value added services.
Also as out has indicated we will not laid off employees related to this crisis in calendar twentytwenty.
Operating within this parameter you reduce expenses in the second half by scaling back hiring plans to only the most critical rules.
Deploying existing resources to high priority areas.
Do you sing and redeploying marketing spend that was planned for the now delayed Tokyo Olympics.
Privatizing projects to reduce professional fees and the use of external resources and of course like most companies, they're sitting on traveling meetings for the foreseeable future.
Why don't we expect operating expenses to be flat or down in the second half non operating expenses will be higher.
But the 4 billion indefinitely issued in April Interdictes interest expenses will be higher interest income has dropped sharply but the rate declines.
Expect nonoperating expense to be in the 250 million dollar range in the second house, excluding gains and losses.
148 million in the first off.
Moving on to cash flow liquidity dividends and by Bucks.
Oh free cash flow in the first half of fiscal year 20 has been tracking their head of expectations.
However, given the anticipated revenue decline in the second half a free cash flow this fiscal year there'll be below what we had planned last October.
Despite the corporate 19 impact given the cash characteristics of our business, we still expect to generate a very healthy level of free cash flow they feel under any scenario.
We ended the quarter of it $13 billion of cash cash equivalents and investment securities on hand.
Since the end of the <unk> added to our cash balance with our 4 billion debt issuance.
You should that entry Traunches, 710, and 20 or maturities aggravated average coupon rate of 2.16%.
Mmm liquidity with cash on hand, as well as access to the commercial paper market on favorable terms and a 5 million dollar revolver, which remains on drone.
I live in policy remains unchanged.
In the second quarter be bought by 17.8 million shares for $3.2 billion at an average price or for $180 in 10 cents.
Yesterday, we bought back so he point 9 million shares for $5.6 million at an average price of $179 in 94 cents.
I plan to buy back over 9 billion in stock this fiscal year remains unchanged.
Crises bring with them, both risks and opportunities and this one is no different.
Rocket Foster mitigating the risks that actively working on identifying and capturing the opportunities.
It is very likely that this crisis could accelerate trends that are already under way like the shifted e. commerce and the shift to digital forms of payment.
Speeding up to have to pay adoption driving growth of new flow use cases be highlighted or invest a day.
Using demand for a value added services and offering opportunities to add to our capabilities to <unk> to selective acquisitions.
Why not short term performance will suffer a setback.
I'm confident in the long term growth potential about business.
But I have done this map the Mike.
Thank you, Joe and we're not ready to take questions.
Yeah.
The question Please press start.
Quite your name.
Prior to asking your question.
Questionnaires are heard.
Plenty yourself to one question once again to ask that question.
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Question I start to.
I first question comes from.
Nine or something.
Thanks, Good morning, and I Hope you guys are all staying well unhealthy.
The question out on the structural nature of travel talk about how you feel about cross or travel and the structural impacts that might occur as a result, and when you expect it to rebound. Thanks.
Banks, Dante hope, you're well as as well.
You know right right now I think.
I don't know what percentage, but some huge percentage or countries are hunker down and that's largely driven by government mandates.
I do think that.
Over over time people will <unk>. These I.D.C.D.'s locked down to lose it happen I think the first thing to come back we'll be domestic travel as as people up to stretch their legs and and move around a bit I think cross border of travel will take a little bit longer.
To come back I think we need some dances and as the sock made no doubt that his remarks that they're going to need some advances in terms of testing it therapeutics and ultimately a vaccine will start to make everybody feel a lot more a lot more comfortable but I think it's it's going to come it's going to take some time and it's going to take.
But I.
I think it will come back I think it's possible that there could be some.
Business travel that desert return at the same level given the fact that we're in an environment where people have been working from home for.
Dab in eight 910 weeks, depending upon the market and realize that they can get done what they need to need to get done. So we'll have to see how that ultimately plays out you know offsetting that side J. is the reality of that I think the cast displacement opportunity in the business as well.
Exposure to be commerce are gonna be real structural opportunities that they didn't really exist at the same level before Kobe 19.
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Thing.
Great. So following up actually on that.
Last question and answer could you could you talk a little bit yeah, how about the.
You know that evolution. If you will you know that's e. commerce and cash conversion related perhaps too you know that the elements of.
The the economics to your business those types of transactions and publish it shouldn't be upset glad you're all healthy thanks for the extra data.
You can keep that up to.
Thanks, much appreciate and hope, you're you and your family or well as well.
The you know first of all there isn't a tremendous amount of difference in terms of the economics to.
Bees have whether it's credit or debit or card prize in her car car got not present, there just isn't that much of it the difference I think that's that the main the main point I think beyond that.
We're seeing people during these last.
A couple months start to buy things and E. commerce environment that that they would typically by 80 store whether that's from your chair electronics in some cases apparel and and I think to the degree that they've had good experiences that that that's a really good thing and it's when you remember when you think about E. commerce.
The the reality is that it's it's very very positive thing for us because cash it isn't a competitor in that space. So the reality is that we get a lot higher share from those transactions that go to eat Commerce. Then we then we get in the face to face world.
And I think there are some permanent changes now whether gaining stays up at the level is that as people.
Finding things to do while they're sitting home I I suspect that will come back down a bad but I think in generally commerce, well explode coming out of this.
Yeah, a couple of points you know data points to out to that I mean, you might have noticed that speak almost cross monique almost excluding travelers now trending at a faster growth rate. None of was tied to the prices and a lot of that is what you might call details spending you know more than half of it falls into categories that.
Oh, you know people buying goods and services on across more though you call most format. The other thing.
Perhaps could be permanent changes or that are categories. Now for example, food and drug medal propensity was more towards face to face transactions.
I've had massive shifts to obviously if at this 0.4.
You know reasons, where they have an alternative to to online buying and some of these could could be fairly permanent.
And then be on that even face to face. This sudden you know growing a tendency to not want to use cash and also of course, not even do just to tapioca the aversion to cash could be assistant, which means that even face to face transactions of penetration of legal forms of payment.
Could be growing up in the permanent and structural the foster then it might have prior to the crisis.
Great. Thanks for much.
Hi next question constantly changing one M.J.P. Morgan.
Yeah. Good afternoon. Thanks, so much for all this this data just on the client incentive sad.
Forgive me if I Miss it but did you give us a little bit of an outlook there on on how the second half might look on client incentives with all the winter nights, we posted I I heard the majority is.
Is tied to volume improved but and the other details.
It'd be great and then just as a quick follow up on true.
Can we assume the legacy non visa Suntrust cards will be flip.
Well it would those be reissued that expiration just ones clarify that thanks.
Attention. Thank you hope you're well I'll take the second half of like decide comment on climate.
So you were obviously thrilled with whereas.
D., Okay man came out and you know.
<unk> over time in a certain be some cards sweat, but you know we're gonna we're going to work very hard with truest remember they're building a new brand here, so, but the B.B.N.T. and Sun Trust friends, they're looking to sunset those and get the truest brand out there as soon as possible. So I think given that these cards very on.
Going.
Manifestation of the brand that are shown every time, they get get pulled out of the wall. It I think they're going to want to move fairly quickly, but we're still working through the details.
Recently got done beside you want to comment on the client incentives, yes out sometime incentives I think you want us to questions.
Our expectations in terms of Klein incentives as a percent of gross revenues. We give you a range of the beginning of the I believe it was trained on off too.
<unk> not range has not changed.
So we still expect to be in that range. Even as we've had you know as we told you are very very high level of renewal activity as well as the bins and so on that I went through.
As far as how on incentives might respond to you know what's happening right now.
Incentives are always meant to be linked to performance and especially won't even performing so odd incentives are pretty much linked to William performance and should move it along humes and and you know not to play out over the next few quarters.
Soviet on socio two questions.
No. It does I appreciate it goes the healthy.
Hi next question comes from.
Oh, Thank you and it could happen in everybody.
Follow up I guess on just the growth value added services and what you're seeing the growth rate value added services over the last several weeks and then I guess in line with adding a value added services. The acquisition Plaid is that I still on track and you know.
How was planned performing.
<unk>. Thank you nice to hear your voice.
First in terms of a value added services you know these tend to be you know excellent revenue streams and quite resilient and you know some of them are certainly transaction depended and the volume could go down but I honestly in times like this the value goes up though to our to our.
Clients. So those would include things like Cyprus resources or are or risk products are are are debit issuing about processing products and then obviously we have value added services that really are not ever really tied to volume and they're also extraordinarily valuable in times like this I reference to.
Right remarks, both the credit quality of data to our clients because everybody seen it numbers go down and I want to make sure that they're not way out of whack, where where everybody else's and then obviously salting services. It's also an exciting time for us to be able to introduce other.
New clients to some of our evaluated services that the crisis gives us an opportunity to have dialog and make sure that our clients are using all the tools that they they can from visas or winter continue to make sure that we stay in close contact with our clients throughout this and where appropriate introduce them to evaluate it services.
Offerings that they may not be using.
As it relates to Plaid we're on we're on track as you know we have to go through a regulatory review and we we expect to.
I have had that done by the end of the year. We remain as excited about flat is we did when we talked about it added bastard day in terms of how it's doing you know where you don't own them. So I can't really comment on that at this at this time.
Thanks. Thanks.
Bobby should it.
Hi next question construed Lisa Ellers from Moffettnathanson your line or something.
Hi, good evening and get to hear your voice sense <unk> government involvement in that you get your station of payments. It's been something that you manage buried carefully because it has its pluses and minuses.
You're going through this crisis, how do you anticipate out that governments might act differently.
With respect to digital payments coming coming out of the crisis, meaning any new regulations, you could foreseen new government funded initiatives positive or negative for your business. Thanks.
Well I think we say you first of all you.
Right on that I think that governments are our justice interested in digitization as any other business at this point and it helps with transparency and helps them understand where they're they're funds are going with more accuracy than they might get they might get otherwise.
You know certainly I think it's also possible that governments could or the other hand look at.
Pricing in the marketplace, you know I continue to believe that pricing should be set by market for not by governments I think markets too far better job of doing it then they'd governments do and I would say that specifically as it relates to interchange there's a tremendous amount of value delivered by our bank partner.
He's in terms of the credit they Ah Ah extend to enable by into the services they provide.
Servicing they provide to the fraud they provide today risk services. They they provide and rewards that they provide so there's a tremendous amount of benefit that the economies of countries the and the individual citizens in those <unk> countries say, so and I would also.
Say that any actions that would disrupt or any type of recovery during a pandemic like this would be foolish and potentially very damaging.
Thank you <unk>.
Hi next question concerning Ashwin shoemaker from Citibank.
Thank you <unk> have a sense hope, but you're all healthy and appreciate the in <unk>.
I wanted to ask a boat or just you know price seen the current and wind man, but the ability to exercise price improvements to get like that even other factors.
And his willingness to use it when my parents had not like shape. So that and then didn't click follow up by just on the clarification on on one of the charts. When I look at U.S. payments volume growth, where she is processed kinds actually wrote to me, especially the performance metrics Monday Tuesday, both looked down 30.
Per cent that now ones down 10 and get this down.
<unk> pace has to comedy I was wondering if he could explain that.
I I can take that question on transactions versus payments volumes and now I'm sure we'll take the other one.
I had it in my comments, so you're not encourage you to go back and look at them, but just to repeat that it is we think a temporary shift typically as you know transactions grow old does better than volume growth because we are penetrating more deeply into smaller and smaller transactions. The reason is different than the last two.
Weeks of April is what we have seen is not as some of these stimulus payments have come through people are prioritizing pent up demand in areas like automotive like home improvement and they're not spending it on <unk> ticket categories like entertainment in restaurants.
So what you're seeing as a mix shift in how people are spending money too high a higher ticket items.
BB has has improved more than transactions have so that's what you're seeing and that's probably not for the long term trend is going to be but it's worth a scene right now.
Actually just suddenly first bad too besides commas think about a normal day.
When people actually go to work and they're not working from home you you go and you get some coffee at.
A gas station or they are at mass transportation stop you pay for your your transit.
Pay for your breakfast you pay for your lunch all of those kinda everyday low ticket transactions are not happening in this environment. So in addition to what facade was saying you just you could just that's a huge driver of the change here and why we're seeing you know higher average ticket costs, but.
<unk> lower level of transactions.
The other question you afterwards about about pricing look we're in.
And unprecedented period, certainly not something I witnessed in my life, where the impact of this pandemic is is is truly a global you know our our focus right now is to make sure that we're bringing as much stability to the payments ecosystem as possible, which is why.
We didn't do our major cold release. This this month of April where we normally do and I don't know that we'd never knocked on it before but this is times, where it was called for it and I I think we're gonna you know certainly be very cognizant of the uniqueness. This time in terms of of.
Pricing and us like I think most companies in most industries will you know be reevaluating their plans on all kinds of fronts, including the pricing wherever and how much they pull it given this new reality.
Okay. Thank you very much.
Hi next question comes from <unk> from all Freesheet. Your line is open.
Hey, Thanks, guys I'm glad everybody's doing okay. There like I wanted to start off just if we l. If we had a sort of put all the pieces together longer term.
And assume that some travel maybe wouldn't come back per se, we're not sure yet but.
Yeah, there are enough positive implications of what's happening around contact lists incremental flows more digital and maybe some of your services that you think it actually offset bad. It's just I mean have you done to work to think about whether those can add up to maybe offset and then just one quick followed would be on capital allocation I guess I made and maybe I missed it but I didn't hear anything about changing plans around by.
Backs or anything along those lines you just give us some appeared on that.
Gosh.
Dot tackle the first question, let the soft tacos.
The the question on capital allocation buybacks.
<unk> you know I again, I I think that there are.
And we're still talking about there might be others, but you know I think the the big Big.
Opportunities.
Here are e. commerce and caps displacement you know cash 18 trillion dollar spent on cash and I think people are realizing that currency is is a germ carrying.
Mechanism and people don't want to be subject to it moving from one person to another person potentially catch the germs that way. So I do think cast displacements going to really really take off and we've seen that in terms of the.
Interest of governments to raise contact with limits the interest of merchants to move to contact with the interest of issuers, who we're lagging behind to issue contact lists enabled.
Cards and I hope, we see it as we started to talk to one town now sellers are merchants, who might have here to four hour I resisted jumping into a card acceptance and they'll they'll realize now that they really need to on a going forward basis, if people Sean a cash.
And I. So I think that's a big opportunity I I Likewise, I think he commerce as a big opportunity and I.
I think Brian Mcinerney and his presentation, you know talked about the fact that you know somewhere around 15 or 16 dance on every dollar around the world is spent a visa cards in the face to face world, but when you move into the world. If E. commerce. It you know like 44 45 cents, yeah, and so you know that's that's a big opera.
Attorney for US and then as you said and I mentioned earlier I think they'll there'll be some negative on travels <unk> certainly in the short term and I think that people are gonna be quite rather radisson to leave their country in the short term until there's some advances because they don't want to be there ought to be stuck somewhere they don't want to be for for a long period.
<unk>.
The degree to travel comes back is is is not clear, but I think this <unk>. This world is still.
Ah a world <unk> full of global citizens, who ultimately are gonna feel the urge and and the desire to get back on airplanes and explore that the the vastness of the Earth.
We have not done to work down to say.
How these things off that want another I think at this point.
You know we're more interested in studying the things that facade referred to in his remarks to get a better sense of kinda just the recovery before we get into how this might create some permanent change. Obviously these are things, we're talking about but not things we've we've to manage.
As of yet, but I do think there's some exciting opportunities that will offset or.
Actually you off that are fully upset the the changes in the consumer behavior as it relates to the radical let me ask beside to answer your question a capital allocation Darrin.
So I was an extra capital allocation you know first in line of course, as we want to invest as much as we need to in our business because we still think the long term growth opportunity remains extraordinary and to that and even as he was scaled back expenses. You know we have preserved the investment and critical growth areas like new payments flows into it.
Can be the direct beat to be you know value added services. So that's part one or two is I'm in a.
We have a man you know very focused on adding to our capabilities that it makes sense through acquisitions and they may be some opportunities here over the next month and <unk> Munson Yours, and you know suddenly flat, it's something we're looking forward to closing on as I said, so and they wouldn't be next in line.
<unk>.
In terms of the buttons that hasn't no change and other than policy in fact last week on board approved a regular quarterly dividend.
So those of you want owners of our shows will will guess not soon and finally in terms of buybacks. We have had no changes in plans.
What I mentioned in my comments, we have bought by 3.2 billion a installed in the second fiscal quarter.
So through the first half you bought by 5.6 million. So the little ahead about this.
You know as we.
Since we view this particular crisis as structurally one that does not diminish our business in the long run and most likely enhances it.
We don't see any long term secular trend lines changing.
You know we felt that in period in the month of March I stole frustrating below our views of intrinsic value and therefore, we <unk>.
So there has been no change in our buyback program.
Do have plenty of liquidity, we were watching very closely.
You know as I told you, we had 13 billion and cash in cash like instruments on hand, and then you should 4 billion in debt. So as we speak you know real close to 17 billion in cash on hand.
So we are they you know they focus on ensuring adequate liquidity and that is you know cash on hand, not counting out of all the all even not access to commercial paper market. So hopefully that addresses on your questions.
Yeah. It's helpful. Thanks, guys.
[noise] Hi next question comes from her she said why what Bernstein nine or something.
Good afternoon.
<unk> <unk> comments I.
Good for you Oh gosh extensive not an option I can expand upon I bet his benefits seizing calmer I, sometimes they're crate inside services.
Okay, I see process more secure transactions and then I just follow up based on what you're seeing in the market is the thinking <unk>, it's coming from <unk> are driving they added.
New demographics, and cheers, where else are coming on line, we're starting to me or not.
I think it's trying to figure it out it's near payment habits, and it'd be interesting applied now.
So thanks for the question. So in terms of E. Commerce, certainly it it gives us an opportunity amongst other opportunities to sell our arses cybersource capability is more and more businesses I think are going to seek to be on the channel and in business.
That didn't realize that they paid the price I believe Hassan talk about it in his remarks at one of the differences that we saw from country to country with that countries that did not have which you are e. commerce capabilities are infrastructure definitely have suffered more than company.
Countries that.
Do do habits I think that.
E. commerce relationships can tend to be your sticky as you can get the card front of digital wallet or in front of on on file.
Certainly as we've talked about it a few times the reality is that we can easily.
See that.
E. Commerce <unk> brings new people into the fold that previously wouldn't it wouldn't have spent if if not having the capability for being able to buy online. So I I hope it does it accelerates improvement.
The experience and E. Commerce, I'd <unk> talk the number of times about the fact that we still at work to do because the abandonment rate is not very is still too high authorization race can be too loud and there's a real opportunity to.
Improved hours and improve the experience at S.R.C. is one of the reasons that we want to do that we're also seeing that new users any comments, there's material and materially and segments like food and drug and restaurant and Q.S.R., where E. commerce was never big Big before I as people are looking to.
Have alternatives to just the food they they get from the supermarket. So we're seeing that that that uptick as well.
Lots of questions Jordan.
Hi last question comes from <unk> from U.B.S. your line or something.
[noise] great. Thanks, very much continue hear me alright.
Yes, okay.
Okay, great. So I know, it's a little difficult in the context of of the withdrawn you know revenue guidance and you know as you underscored. There's you know many conflicting dynamics there, but <unk> is there some way that you could help us frame, how we should be thinking about.
Maybe the.
The puts and takes it in a in operating margin, obviously, you've done a lot to.
Contained cost there's it sounds like there's gonna be some yield ships are on the revenue side of course, you've got plaid on the horizon. So there's some way of the time you could help just rain, what what operating margin might might look like or or within some some founded range or something.
Show you know I think you can you can sort of get to it yourself. So you know he gave you a sense of what our second half expensive is gonna be you said it would be flock, including acquisitions it'd be down in the low single digits, excluding acquisitions and you know be hope to do better than that are still working on some you know expense reduction programs. So.
If you have a generalized and and remember on on operating income will be will be higher <unk> operating expense will be higher because of interest expenses going up and interest income going down.
So you sort of know those lines. So it all depends on their revenue comes out. So you can you know you can model revenue declines you know that expenses on who tell you what the you know the margins a little then end up being as the holder said you know we think of this as margins in an outcome on an outcome not an objective.
Functional won't you'll revenue.
Good expense rules, they're expenses are declining in the little single digits.
<unk> more than that as as likely in the third quarter, then we'll have a margin impact.
In terms of modeling revenues I mean, giving you the most up to date information.
As to what the trends are so as as we look at it.
No. It all depends on do you think where we are is the trough.
Do you think you know we will start to recover from that trough.
And then what is the nature of recovery going to be isn't going to be a shark v. shaped recovery isn't going to be more likely you ship recovery is people talk about whether it's a small starting with picks up steam automobile is it fits and starts where you've got some recovery than some stabilization and then another recovery in some most civilization and as you saw I mean this <unk>.
Across categories and it does video cross country. So there's a lot of variables you.
Which is why you know we've chosen not to give you any kind of specific focused.
Latency.
Okay. Thanks, Thanks for the clarity.
And with that like to thank you for joining US today, you have any additional questions. Please feel free to email or call an investor relations thing. So thanks, again and I regret evening.
Thank you for your participation today's conference you May just connect at this time.
[noise].