Visa Inc. (V)
Q1 2009 Earnings Call Transcript
February 4, 2009 5:00 p.m. ET

Executives

Jack Carsky – Head Global Investor Relations
Joseph W. Saunders - Chairman & Chief Executive Officer
Byron H. Pollitt, Jr. - Chief Financial Officer

Analysts

Craig Maurer – Calyon Securities Inc.
Tien-Tsin Huang – J.P. Morgan
Jason Kupferberg – UBS Securities
Adam Frisch - UBS Securities
Julio Quinteros, Jr. - Goldman Sachs & Co.
James Kissane - Banc of America/Merrill Lynch
Andrew Jeffrey - SunTrust Robinson Humphrey
Christopher Brendler - Stifel Nicolaus & Company, Inc.
Christopher Mammone - Deutsche Bank North America
Donald Fandetti – Citigroup
Moshe Katri - Cowen and Co.
Sanjay Sakhrani - Keefe, Bruyette & Woods
Bob Napoli - Piper Jaffray

Presentation

Operator

Welcome to Visa Inc.’s fiscal first quarter 2009 earnings conference call. All participants are in a listen-only mode until the question-and-answer session. Today’s conference is being recorded. If you have any objections you may disconnect at this time. I would now like to turn the conference over to your host, Mr. Jack Carsky, Head of Global Investor Relations. Mr. Carsky, you may begin.

Jack Carsky

Thanks Stacy. Good afternoon and welcome to Visa Inc.’s fiscal first quarter 2009 earnings conference call. Joining us today are Joe Saunders, Visa’s Chairman and Chief Executive Officer and Byron Pollitt, Visa’s Chief Financial Officer. This call is currently being webcast live over the Internet. It can be accessed on the Investor Relations section of our website at www.investorvisa.com. A replay of the webcast will also be archived on our site for the next 30 days. A PowerPoint deck containing highlights of today’s commentary was posted to our website prior to this call.

Let me also remind you that this presentation may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. By their nature forward-looking statements are not guarantees of future performance and as a result of a variety of factors actual results could differ materially from such statements. Additional information concerning these factors is available in the company’s filings with the SEC which can be accessed through their website and the Investor Relations section of the Visa website.

For historical non-GAAP or pro forma related financial information disclosed in this call the related GAAP measures and other information required by Regulation G of the SEC are available in the financial and statistical summary accompanying our fiscal first quarter earnings press release. This release can also be accessed through the Investor Relations section of our website. With that, I’ll turn over the call to Joe.

Joseph W. Saunders

Thank you Jack and thanks to all of you for joining us this afternoon. I’m pleased to report that in spite of the ongoing challenges with the economy we began our fiscal 2009 with solid results across the board keeping in mind that our first quarter service revenue which represents approximately 40% of our total revenue is based on a one quarter lag. Earnings, revenues and payment volumes all came in better than we anticipated going into the year.

The resilience of our business could be seen in the contribution of our debit products in the US as consumers continue to more frequently use debit as a method of payment. In addition, we also saw growth in credit products outside the United States particularly in emerging markets. That said the economic situation across the globe has had and will continue to have an effect on dollar payment volumes in the US and internationally for at least the next two to three quarters.

On the other hand I should point out that Visa continues to benefit from growth in the number of transactions conducted over our network. As a reminder approximately 30% of our revenue is derived from the absolute number of transactions that take place over VisaNet. This volume grew 8% in the December quarter to almost 10 billion transactions demonstrating that even in severe economic times Visa continues to take volume from cash and checks.

Now let me give you a brief overview of the financials for the quarter. Once again with the one quarter service revenue lag in mind net operating revenues in the first quarter were just over $1.7 billion, an increase of 17% over the year ago period and ahead of our guidance. Operating margins which benefited from seasonal impact were strong as well and exceeded our stated full-year guidance of the mid-to-high 40% range.

Adjusted first quarter net income of $599 billion was 35% greater than the year ago period. As I mentioned we are now seeing signs of a more pronounced decline in US payment volume growth and global cross border volumes than we had expected going into our fiscal year. While we began 2009 with the expectation that revenue growth would slow to the high single digits in the back half of the year we are now projecting that growth to be in the low single digits. So our full year fiscal 2009 revenue now looks to be in the high single digits somewhere below our longer term guidance of 11% to 15%. In our next fiscal quarter however we continue to expect revenue growth to be in the middle of the 11% to 15% guidance range as it benefits from a one time $70 million addition to incentives in the prior year. This means that the normalized second quarter growth rate is expected to be in the mid to high single digits further decelerating in the second half of the year to the low single digits.

On the positive side we are reducing expenses which based on the current trends we see for the year will help us meet our objective of 2009 diluted earnings per share growth of greater than 20%. Specifically we have accelerated our previously announced global integration effort. As we continue to integrate our previously independent operating units we are reducing duplication and prioritizing our project funding including our marketing spend which we expect to be somewhat below the level of fiscal 2008. As a result we are reaffirming our 2009 earnings per share and operating margin guidance. But let me be absolutely clear about our operating plan. All of these efforts will be consistent with fully funding our growth initiatives. Byron will provide additional detail on our guidance momentarily.

Looking ahead to fiscal 2010 we are cautiously optimistic that we can regain our 11% to 15% revenue growth target assuming some recovery in the US economy and cross border volumes by early 2010 and the anticipated more favorable year-over-year comparisons on gas prices and foreign exchange rates. On that basis we reaffirm all of our guidance for 2010.