Visa Inc.

Welcome to the Visa's Fiscal Second Quarter 2019 Earnings Conference Call. All participants are in a listen-only mode until the question and answer session of today's conference. 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. Mike Milotic, Senior Vice President of Investor Relations. Mr. Milotic, you may begin.

Thanks, Jordan. Good afternoon, everyone, and welcome to Visa's Fiscal Second Quarter 2019 Earnings Call. Joining us today are Al Kelly, Visa's Chief Executive Officer, and Vasant Prabhu, Visa's Chief Financial Officer. This call is being webcast on the investor relations section of our website at www.investor.visa.com. A replay will be archived on our site for 30 days. A slide deck containing financial and statistical highlights has been posted on our 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 on our most recent reports on Forms 10-K and 10-Q, which you can find on the SEC's website and the investor relations section of our website. For historical non-GAAP financial information disclosed in this call, the related GAAP measures and reconciliation are available in today's earnings release. And with that, let me turn the call over to Al.

Mike, thank you, and good afternoon, everyone, and thanks for joining us today. First, a few highlights related to our financial results, as Basad will go into much more detail later. The company continued to perform well in the second fiscal quarter with approximately 47 billion transactions on the Visa network, driving $2.8 trillion in total volume. Revenue growth was over 8%, slowing versus last quarter, as expected, due to 1.5 points of FX drag, lapping highs currency volatility last year and slower cross-border growth. This was in line with our expectations. Payment volume growth was 8% on a constant dollar basis. However, growth was 10% excluding China and the impact of processing days and U.S. credit conversions. Growth in the U.S., the U.K., and China drove most of the growth difference versus last quarter. As you saw in the numbers reported by the U.S. banks over the last two weeks, Processing days and the shift of Easter impacted the numbers. That said, volume growth in many markets around the world was still quite attractive. Growth in our Samia region was 22 percent, and Latin America grew 14 percent. Also, subregions like India, Southeast Asia, Central Europe, and Eastern Europe all were growing at mid-teens or better. Process transaction growth was 11 percent, consistent with last quarter. Growth remained strong in our large tap-to-pay markets, such as Australia, Canada, and the U.K. Cross-border growth on a constant dollar basis was 4%, slowing three percentage points from last quarter. Adjusting for the e-commerce platform, reorienting acquiring within Europe for cross-border to domestic, and cryptocurrency purchases last year, growth was 6%, and growth improved moderately throughout the quarter. Expense growth was 7 percent, slowing to the mid-single digits as expected. Growth was primarily driven by personnel-related additions focused on critical business-building initiatives. EPS growth was 17 percent. When we look year-to-date, we've had strong performance, posting 11 percent growth in revenue and 19 percent growth in EPS for the first half of the year. We remain focused on investing in multiple growth opportunities, including strategies that both grow the overall pie for payments and funds transfer, as well as enhance our capabilities to ensure we continue to be the preferred partner in payments. Examples include the embedding of Visa credentials into more transaction flows, including those with new partners in the B2B space, P2P, FinTech, digital bank, and wallet space. growing the reach of our digital offerings, such as tokenization and cybersource, and growing our capabilities in areas like risk management, fraud prevention, loyalty, and data products. Combining these solutions with one of the most recognized and strongest brands in the world is compelling for both existing and new partners. We continue to see tremendous long-term growth opportunities in many markets, including continental Europe, Africa, South America, Japan, Mexico, and many parts of Asia. Additionally, we continue expanding our footprint in both mature and emerging markets, and we remain committed to growing access and acceptance until every business and every device in the world is enabled to send and receive funds via the Visa network. With that as backdrop, let me provide a few examples of the progress we made this last quarter. Let me start with Visa Direct, where we continue to integrate Visa Direct into key verticals to enable new and enhanced existing business models, including in the cross-border remittance and P2P space, which represents a $6 to $7 trillion market opportunity. We believe that Visa Direct provides capabilities superior to competing solutions, including pre-authorization, real-time payment capability available 24 by 7, sending money to bank accounts as well as reloadable prepaid and credit credentials, and scale to serve more than 150 countries with one systems integration, including cross-border capabilities. These capabilities are enabled without consumers and businesses needing to share their bank account information with third parties for payments. For remittances, Visa Direct is one of the only cross-border networks that has embedded AML and KYC controls framework and also provides real-time, in-flight sanction screening information. And clients value this assistance with their compliance efforts. We partnered with Remittedly, a digital remittance company that transfers over $6 billion in annualized volume in fast-growing regions, including Africa, Asia, Central Europe, and South America. Remittedly, NVISA plans to provide customers with more optionality through the ability to seamlessly send cross-border money transfers to recipients with a visa credential. Similarly, we partnered with a company called EMQ, a leading cross-border settlement network in Asia Pacific, to offer cross-border remittances across the region. On the P2P opportunity, Apple launched Visa Direct with Apple Pay Cash P2P service in the United States as part of their latest iOS release, which enables their user base to load funds, send money, and instantly withdraw funds using a Visa debit credential. Apple's offering is the first U.S. deployment of a tokenized Visa Direct solution, and Visa Direct now powers seven of the major mobile P2P programs in the United States. We also partnered with PayPal to expand withdrawal cash out capabilities from the PayPal wallet in Canada. Another key area we're expanding our reach is in the B2B payment offerings across both core card and new payment flow solutions. Within our core card business, we continue to partner with established and emerging players to expand the usage of our solutions, including virtual cards. For example, We are excited to have signed a deal with Sabre, a leading technology provider in the global travel industry, operating in 160 countries to enable virtual card payments in their B2B travel platform. Additionally, we have partnered with Divi in enabling an emerging fintech that previously worked with a competitor to enable accounts payable automation and controls for small businesses in North America, again, through the use of Visa virtual cards. In new B2B payment flows, we're gearing up to launch B2B Connect in the coming weeks, which is our cross-border supplier payments platform designed to simplify international B2B transactions through the use of a distributed ledger. FIS, a leading processor, has now signed up as a distribution partner, joining previously announced partners, including Bottom Line. Now let me turn and provide an update on a few regions where we see long-term growth, and that would be Europe and India. In Europe, we see good momentum as we execute our growth plans. As you know, we are well ahead of our financial projections. We continue to believe that Europe represents an excellent long-term growth opportunity for Visa, and we've already made a series of changes that we believe position us to take advantage of these opportunities. In Europe today, our business is heavily concentrated in the UK and Ireland. which represent only 17 percent of personal consumption in Europe, but a significantly higher portion of Visa's payment volume today. And there are 12 other markets in Europe with over $200 billion in consumption expenditures. Of these markets, we're well positioned in some and have plenty of room to grow in others. In terms of the changes we made, it starts with people. Almost all of the leadership team is new since the acquisition of Visa Europe. As I've said on a number of occasions, Payments is a local business, and to that end, we have increased the number of customer-facing employees in the markets by 70% since the acquisition. With VisaNet in place, we continue to increase adoption of our risk capabilities, including risk scoring services, customer alerts, and spending controls. And we are working closely with our clients to develop new authentication solutions that we think will make us a preferred partner to meet PSD2 authentication requirements without introducing new friction, and we expect to have pilots in market in the summer months. We're also rapidly growing our fintech program, signing four fintechs this quarter, including Coinbase in the UK, which enables cardholders to spend their cryptocurrency at any Visa-accepting merchant using a Visa credential linked to their crypto account. As you all know, this is a long-cycle business with long-term contracts. As such, there'll be a lag until the results of our actions become evident, but I feel very good about the progress thus far. Now turning to India, we continue to focus on growing credentials and acceptance in-store and online for both consumers and businesses. On the credential side, Visa continues to be the market leader in both credit and debit payment volume. We have further reinforced our leadership in credit and gained share in the calendar year 2018. The total acceptance points in India have expanded to over 4.5 billion, including over 1 million QR points as of February 2019. A few new developments to share. We are working with Paytm Payments Bank to offer our debit credential solutions to enhance their offerings to their rapidly expanding customer base. Paytm's Payment Bank is also a new Visa acquirer and has launched contactless point-of-sale terminals for merchants who are new to card acceptance. Paytm plans to significantly grow India's PLS acceptance infrastructure in the next few years, which will certainly help power our growth in the market. We are also working on several new digital solutions for the market. We recently received the RBI's approval for our tokenization solution. This will enable us to use our token solutions with global partners operating in India. We recently launched Visa Checkout with faster checkout experience in a two-factor authenticated mandated market. The Visa Checkout merchants are being set up in a way that makes for a smooth migration to secure remote commerce once it's available. India is a market where we're also piloting a network-based solution for installments on Visa And finally, we're excited about the opportunities driven by our partnership and investment in Buildus. Together, we will look to address e-commerce friction caused by two-factor authentication through accelerated adoption of Visa digital products like Visa Checkout in the near term. We're also exploring innovative solutions, including non-card payments and value-added services, such as loyalty and installments. I'd like to now briefly touch on the expansion of our tokenization capabilities and reach in India and P2P with Apple. And let me expand on our broader tokenization efforts. We have enabled tokenization in 100 markets that cover over 90% of our global payments volume. With so much activity, there are a number of proven benefits to clients using tokens. We have seen increased security. a couple of percentage points higher authorization rates and better conversion on payment transactions. Additionally, our card on file API allows issuers to make consumers aware of their tokenized visa credentials and where they're stored on file, offering consumers much better visibility and control. And several large clients around the globe have enabled this service. In terms of secure remote commerce, we will expand tokenization as we roll out this standard later this year. in an effort to improve security and reduce friction from digital payments. We expect to begin migrating Visa checkout to this standard before the end of the summer, starting in the United States. The digital capabilities that we've been enabling over the past several years are recognized by our clients. In this quarter, we signed a long-term deal with Scotiabank in Mexico, where we are dramatically increasing our share of their business. This agreement centers around enabling new innovative payment technologies for Scotiabank Mexico's portfolio to improve the cardholder's experience while improving security and reliability. Similarly, we signed a new partnership agreement with HSBC covering a combination of consumer and commercial payment portfolios in 27 countries across the globe. This agreement gives HSBC access to Visa's value-added services including the Visa consulting and analytics global team, and a number of portfolio enhancing projects are already underway. In Africa and Latin America, we partnered with Branch, the most downloaded financial app in Africa with 3 million users. Branch extends microloans and disperses them into mobile money for cash out by recipients. With the funds being pushed to a Visa credential, that sits on the phone, consumers will be able to shop online or in-store or cash out funds at an ATM. As before, I'd like to provide a brief update on tax to pay, which is now 48% of domestic face-to-face transactions that run over our network, excluding the United States. This is in line with the increases of a few points we have seen quarter over quarter for some time. In the last year, almost 50 countries have seen a 10-point or greater increase in tax-to-pay penetration of all domestic face-to-face transactions. And as you know, tax-to-pay has proven it can displace cash at a more rapid rate, and one of the most effective ways to accelerate the shift from cash to card is to enable acceptance in everyday spend categories. To this end, over the last year alone, Visa has launched tap-to-pay transit solutions in 20 cities across 12 countries with more than 150 projects underway. In London, where tap-to-pay has been live for over four years, we have found that cardholders that tap to ride at transit had a meaningful lift in overall card usage versus non-transit users. Before I close, let me briefly comment on a potential M&A deal and China. We are awaiting the final regulatory approvals for the acquisition of Earthport, and we hope to close this quarter. Given this transaction is governed by the UK Takeover Code, we will not be able to take any questions on Earthport or the potential transaction. In China, we continue active dialogue with regulators and government to understand how to best move forward in the application process, but we have nothing new to share. In the meantime, we continue to expand our business in China, including our recent co-brand win with Carrefour, the third largest supermarket in China. In summary, we had a solid financial quarter and continue to deliver meaningful progress against strategic initiatives that will drive our future growth. We continue to strive to be the preferred partner by embedding these credentials in new transaction flows, growing the reach of our digital capabilities, and adding value to our clients through new, innovative solutions. To share a little bit more on our second quarter results, let me turn it over to Visat.