Visa Inc. (V) Q3 2011 Earnings Report, Transcript and Summary

Welcome to Visa Inc.'s Fiscal Q3 2011 Earnings Conference Call. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect your line. 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.

Thank you, José. Good afternoon, and welcome to Visa's Fiscal 2011 Third Quarter Earnings Conference Call. With 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 over the Internet and can be accessed on the Investor Relations section of our website at www.investor.visa.com. The replay of the webcast will also be archived on our site for 30 days. I will point that 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. These include setbacks in the global economy and the impact of new financial reform regulation. Additional information concerning those factors is available in our last 10-K on file with the SEC. It can be accessed through the SEC website and the Investor Relations section of our website. For historical non-GAAP or pro forma-related financial information disclosed on 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 third quarter earnings press release. This release can also be accessed through the Investor Relations section of our website. With that, I'll turn the call over to Joe.

Thanks, Jack, and as always, thank you all for joining us today. Visa delivered another quarter of strong financial performance, posting net revenues of more than $2.3 billion, a 14% increase over the same period last year. These revenue gains were driven by double-digit payment volume growth around the globe, strong cross-border activity and continued recovery in credit spend worldwide. Adjusted net income for the quarter, which excludes the gain from revaluing the Visa Europe put option was $883 million, a 23% increase over last year. This equates to adjusted diluted earnings per share of $1.26, a 29% increase over the third quarter of 2010. Our performance over the past quarter reaffirms Visa's solid business foundation and strategy, including our diversified product and services offering, our strong client relationships and our commitment to accelerating growth in key markets worldwide. Before turning to the business highlights, I'd like to update you on Visa's activities to adapt to the new United States regulatory environment. As stated during our update call on July 6, overall, I continue to expect the impact resulting from regulation to be dilutive but manageable with fiscal 2012, bearing the majority of the financial impact. It is important to appreciate that we were prepared for a wide range of outcomes. And with the Federal Reserve's final rules in hand, we have the clarity needed to execute on our strategies. We are now moving forward on multiple fronts and with a variety of new offerings for our clients. And today, I'd like to share with you, at a high level, a feel of our areas of focus. We will offer additional detail in the coming quarters once we've had the opportunity to further discuss these strategies with our clients and partners. Regulation has dramatically altered the competitive environment in the United States and given merchants' broad discretion over how transactions will be routed. Recognizing this new dynamic, we are resetting our business approach and implementing a number of new strategies for all products. Specifically for debit, we will continue to focus on maintaining Visa debit issuance through strong partnerships with our issuing clients, thereby positioning Visa to compete for as many transactions as possible. Equally important, we will ensure that Visa is positioned to compete for routing for merchants and acquirers by strengthening these important relationships. We are adapting Visa's business to deliver even more value to all participants in the value chain, while preserving our ability to grow and positioning Visa for continued leadership in the U.S. Our approach is based on multiple actions, which were incorporated into the guidance we provided earlier this month. I'm going to address 2 of them now. First, we are modifying our economics in a way that we expect will result in a reduction in merchant cost in total and on the margin. The modifications include both fixed processing fees and a reduction in variable fees. We expect this will help us win routing decisions and maintain debit volume in the new environment. Specifically, Visa is implementing a new fixed acquirer fee called the network participation fee, which will apply to the acceptance of all Visa products and is based on both the size of the merchant and the number of merchant location. This fee will allow Visa to continue investing in our secure, reliable and interoperable global payments network, a long-standing area of strength for our organization. These attributes are cornerstones of Visa's brand promise, and it is critical that we make ongoing upgrades, innovations and enhancements. In fact, Visa facilitates issuer-standing processing each day for more than 600,000 transactions, minimizing system disruption and ensuring more transactions get completed. In order to reduce fees in the aggregate, Visa will also lower our variable processing fees for all Visa debit products across all merchant segments. That combination of fixed and variable fees offers merchants an even greater incentive throughout more transactions over our network by providing them an opportunity to lower their per unit transaction costs and take advantage of economies of scale that are now more readily available to them. As I said a few moments ago, our 2012 guidance, which incorporates the reductions we expect at Visa's debit, volumes and fees and the fees we charge also reflects our appreciation that regulation has changed the landscape in which we operate. We recognized that we need to focus more than ever on delivering greater value to both issuers and merchants to win debit routing while continuing to grow our successful credit business. In that regard, we are taking multiple actions to ensure we are well-positioned to compete for both issuance and routing. We will extend the merchants of all sizes through direct negotiations and through acquirers the successful partnership programs we have historically offered issuers. We will also increase our engagement with merchant associations to achieve the same goal. Now a broad set of acquirers and merchants can receive incentives from Visa in exchange for routing commitments. The second quarter element of our strategy focuses on additional investment and value-added services aimed at winning routing decisions. These include powerful merchant benchmark analytics, loyalty rewards programs and realtime mobile messaging to drive merchant sales growth. For example, we continue to make progress on our realtime messaging program, including the Gap's recent decision to expand their existing program across more brands in their portfolio as well as new agreements with the Sports Authority and the Kangaroo Express, a leading convenience store operator in the Southeastern United States with more than 1,600 locations. With these actions, we are resetting our baseline economics for debit in the United States and positioning Visa to grow from here. We are 100% prepared. We are fully engaged with our key stakeholders. We are focused on their needs and we are moving forward. Taken together, our strategies will provide Visa with a strong foundation to adapt to the new landscape while also generating sufficient revenue to make the investments needed to drive forward the future of this industry. Of course, while the regulatory process generated headlines over the past 13 months, the overwhelming majority of Visa's revenues are derived from products and geographies that are completely untouched by VisaNet. And in that regard, I'm pleased to say that Visa's employees maintained their focus and continued to advance our growth agenda. In the U.S., we saw a continued strong performance in credit, posting Visa's sixth consecutive quarter of positive growth. Of note, affluent credit posted particularly strong performance, growing 3 times faster than the overall credit category. Building on that success, we announced a multiyear agreement with United Continental Holdings to continue to issue co-branded Mileage Plus Visa cards. The recent merger of the United and Continental Airlines will result in the consolidation of their card portfolios under Mileage Plus, and the combined entity will begin exclusively issuing Mileage Plus Visa cards to all new customers beginning January 1, 2012. An important aspect of this major co-brand program is the proportionally larger number of affluent card carriers, and the greater cross-border volume usage associated with Mileage Plus Visa cards, all big benefits to Visa's overall growth. Another key renewal was with Disney, with whom we have enjoyed an important co-branding and promotional relationship for many years. Outside of the U.S., International markets are increasingly important contributor of Visa's growth, increasing payment volume by 17%, which is driving approximately 60% of the company's overall revenue growth. In line with our strategic aspiration to grow Visa's business outside the U.S., we continue to make progress on our long-standing commitment to invest in key markets that show the greatest potential. In critical markets, including Brazil, Russia, Japan, the GCC, Mexico and Sub Saharan Africa, we have tailored acceleration plans to substantially increase revenue growth over a 5-year horizon. We will continue to target additional countries for our investment in 2012 and beyond. For example, in Russia, one of the fastest-growing countries globally, we are focused on delivering the core Visa product at value proposition and continuing to expand acceptance. We are investing to enhance mass credit and premium credit offerings and delivering products like prepaid and Visa Money Transfer to our Russian issuers and consumers. In Brazil, where the acquiring landscape is changing, Visa is accelerating growth of processed transactions versus new acquirer relationships in renewing issuing partnerships. We continue to differentiate ourselves by delivering superior products across our core portfolio of credit, debit, small business and commercial solutions. We also continue to advance our core product growth in India, establishing new or expanded agreements with several large clients, including the Life Insurance Corporation of India as well as the State Bank of India. As I mentioned earlier in the quarter, we signed a multiyear agreement to support Visa debit products across the State Bank of India franchise. In just a few short months, over 1 million Visa debit cards have been issued as part of this program. In Japan, we are accelerating growth by driving more sophisticated product offerings, such as co-brand programs with major issuers, merchants and commercial card programs that deliver solutions to more mature electronic payments environments. For example, we recently launched a debit program with Resona Bank, Japan's fourth largest financial institution. It's our first traditional debit program in that market, and we are hopeful that it will lead to similar programs with other clients, accelerating the migration towards electronic payments in Japan's traditionally cash-centric economy. And we are partnering with clients and governments and investing in long-term growth in developing markets in Africa, Latin America and South Asia to accelerate efforts to advance financial inclusion and ultimately grow domestic transaction growth. On the innovation front, we have taken several steps to bring new products and solutions to market. We continue to make progress on Visa's next-generation e-commerce and mobile payment solutions announced in May, including a focus on single-click and aliasing capabilities. We believe these elements of the Visa offering will help to differentiate and deliver value to the other NFC-only solutions recently announced. This remains a top priority for the organization, and we are moving full speed ahead towards broad commercial availability. As we've said all along, Visa firmly believes an open approach is the key to success in mobile commerce. So in addition to building Visa's own capability, our strategy must also enable Visa payments on third-party platforms. That's why last week, we announced an agreement with Isis to join their consortium and we continue to engage in productive discussions with other potential partners. Part of our efforts to make mobile a reality in emerging markets, we completed our acquisition of Fundamo, a leading mobile wallet software provider for emerging markets with over 40 programs in more than 25 countries. I can report that the integration is progressing well and we are now focused on building managed services for issuers and mobile operators around the Fundamo platform. Additionally, we are developing capabilities to overlay a virtual Visa prepaid account on the closed loop accounts managed by Fundamo and other wallet platforms. Since our announcement, we have received substantial interest from issuers and mobile operators into Asia and Latin America. We are also taking action to further tap into the creativity and the expertise of the developer community, an increasingly critical participant in the creation and rollout of new payment technology. Today, our existing developer center has more than 6,000 active developers using our tools and resources to build Visa payment functionality into websites for mobile applications, which in turn brings more merchants into the Visa network, ultimately driving transactions and payments growth. Additionally, through the center, Visa helps reduce e-commerce transaction risks, which means even more transactions are approved and flow through the network. This makes Visa a more attractive payment network partner. To accelerate these efforts, we will launch our expanded Visa developer center in the current quarter, combining our existing PlaySpan and CyberSource developer activities into a single platform while also introducing direct connectivity to VisaNet for the first time. By connecting directly to VisaNet, we can offer our merchant partners and financial institution customers faster and easier access to Visa products and services, making them more competitive and ultimately driving incremental revenue growth. On the e-commerce front, CyberSource's business continues to gain traction in the marketplace. During the quarter, billable transactions totaled just over $1 billion, a very strong 38% growth rate over the same period a year ago. We secured a number of new business wins with major merchants, including Twitter and Torno [ph]. We continue to expect solid results in this part of our business, as e-commerce growth remains strong in the United States and internationally. Finally, we continue to deliver on our long-standing commitment to return excess cash to shareholders. Today, we are pleased to announce that our board recently authorized a new $1 billion share repurchase program. This comes on the heels of completing our $1 billion share repurchase program authorized in April. At approximately $77 per share, we retired 13.7 million shares in the quarter. This brings our repurchases in fiscal 2011, including escrow funding actions, to $2.8 billion. In conclusion, as we reorient the U.S. debit business in the wake of the new regulations, we will simultaneously pursue our growth strategies both at home and abroad. Our commitment to our clients, new product rollouts and ongoing innovation combine to make Visa's value proposition more compelling than ever. And we are prepared to use our comprehensive array of products and functionalities to win in the marketplace. Visa remains a strong, globally-oriented growth company as we move ahead. With that, let me turn the call over to Byron.

Thank you, Joe. I'll begin with some overall observations. First, Visa's 14% net revenue growth was once again broad based with solid 9% growth in the U.S. and a very strong 22% growth rate in rest of world. Over 62% of the quarter's revenue growth came from outside the United States. This means the non-U.S. revenue is now 44% of Visa's total, up from 41% in the third quarter of fiscal year 2010. Second, U.S. revenue growth has been supported by 6 consecutive quarters of positive credit payment volume growth. Most recently, the months of May and June comped at 8% and 12%, respectively, which continues the strong growth we have seen all year. We continue to be encouraged by this trend. Third, incentives for the quarter as a percent of growth revenue was 16.2%, down from 16.7% in the second quarter. Through the first 3 quarters of the year, incentives as a percent of gross revenue was 16.1%, in line with the lower end of our guidance. However, as we stated on our update call on July 6, we expect client incentives for the full fiscal year to be at the top end of the 16% to 16.5% range based on the pacing of our contract pipeline and potential Q4 partnership contract that provide merchant incentives aimed at further encouraging Visa routing preference. Fourth, as first discussed back in January, we sold our 10% stake in Visa Vale, a Brazilian prepaid issuer. Though we expect to book the gain as investment income in our second quarter, we actually recorded a gain in Q3 once we received the necessary Brazilian regulatory approval. The net benefit to Visa in the quarter was $85 million pretax and $44 million after tax. Finally, as we did in the fourth fiscal quarter last year, we revalued the Visa Europe put option, which had a positive noncash impact to our earnings this quarter. The $122 million decrease in the value of the option is nontaxable, is reported in other income and is solely due to decline in Visa's TE ratio relative to historical level. It does not reflect any change in the likelihood that Visa Europe will exercise the put. The put option is now valued on our balance sheet at $145 million. Eliminating this impact provides a cleaner picture of our operating performance, and yields an adjusted earnings per share of $1.26 for the quarter. Now let's turn to the numbers. First, I will cover our global payment volume and transaction trends for both the March and June quarters, as well as the results through July 21. I'll then cover the financial highlights of our fiscal third quarter, followed by our guidance outlook for fiscal years 2011 and 2012. Global payment volume growth for the June quarter in constant dollar was 13%, relatively flat from the March quarter. We saw the following breakdowns in the June quarter. In the U.S., payment volume growth was 10%, a slight decrease from the 12% growth we saw in the March quarter. Rest of world payment volume on a constant dollar basis grew at 17%, up 2 points from the 15% growth rate in the March quarter. More recently, through July 21, U.S. payment volume growth came in at 10%. Although not yet available, based on the trends we saw during the third quarter, we expect rest of world payment volume growth to be higher. Global cross-border volume delivered a solid 14% growth rate on a constant dollar basis in the June quarter, up slightly from a 13% rate in the March quarter. We have seen some rebound in inbound travel to Japan, the Middle East and North Africa, but it is still too early to gauge the longer-term trends. Through July 21, cross-border volumes on a constant dollar basis grew 18%. Transactions processed over Visa's network totaled 13 billion in the fiscal third quarter, an 11% increase over the year ago period and modestly behind the 13% growth rate we saw in the March quarter. Through July 21, processed transactions posted growth of 10%. Now turning to the income statement. In our fiscal third quarter, gross revenue of $2.8 billion was up 14% from the similar period in 2010. Net operating revenue in the quarter was $2.3 billion, a 14% increase year-over-year, driven by strong growth in regions outside of the U.S., continued recovery in the U.S. economy, previously enacted pricing changes and solid cross-border transaction growth. Moving to the individual revenue line item. Service revenue was $1.1 billion, up 21% over the prior year period. This is reflective of strong payment volume growth in the March quarter and the impact of pricing adjustments. Data processing revenue was $886 million, up 12% over the prior year's quarter based on strong transaction growth rates for both Visa processed and CyberSource transactions. International transaction revenue was up 15% to $652 million, reflecting continued strength in cross-border volumes during the period. As I mentioned, client incentives as a percent of gross revenue came in at 16.2% and are running at 16.1% fiscal year-to-date, on track with expectations. Total operating expense for the quarter is $977 million, up 10% from the prior year. As a reminder, these results include operating expenses for CyberSource, PlaySpan and Fundamo, none of which were included in Q3 of the prior year. While marketing expense was up, approximately $70 million on a sequential quarter basis, this was due to the timing of planned campaign and is consistent with our full year guidance of less than $900 million. In the U.S., we have continued to rightsize our spend, and refine our marketing focus to put greater investment toward digital media. We have also focused on marketing efforts on driving greater cross-border transaction growth. As a reminder, last October, we announced an earnings neutral change in income statement presentations related to revenue and operating expense associated with certain pass-through activity. Consistent with this announcement, $52 million of revenue and expense, which was booked in Q3 fiscal year 2010, did not reoccur in Q3 fiscal year 2011. In Q3, this represented 3 percentage points of revenue growth. The foreign exchange impact on net revenue in the third fiscal quarter was moderated by our hedging activity, and contributed 2 percentage points of growth. Our operating margin for the quarter was 58%, on target with our expectation for the full year. Capital expenditures were $89 million in the quarter and now total $236 million year-to-date. Given the pace of our investment in technology, infrastructure and growth initiatives, we now expect our full year 2011 capital spending to be moderately above $300 million. On the acquisition front, the PlaySpan acquisition had a dilutive impact to earnings per share of $0.01 for the third quarter. For the full year 2011, we anticipate a dilutive impact to earnings per share of $0.04. The Fundamo acquisition had a dilutive impact to earnings per share of $0.01 for the third quarter. Full year EPS dilution is also expected to be $0.01. Finally, our recorded tax rate for the period was 35%, including the favorable impact from the nontaxable revaluation of the Visa Europe consumption. Adjusting to exclude the put impact, the tax rate would have been 38%. On an as adjusted basis, we continue to expect our full year tax rate to be consistent with our guidance. As we announced on July 6, we completed the $1 billion share repurchase program authorized by our board in April. During the quarter, we spent $1.1 billion to repurchase 13.7 million shares at an average price of $77.36. Year-to-date, Visa has spent $2.8 billion to effectively repurchase 37.8 million shares at an average price of $74.12. At the end of the quarter, we had 691 million shares outstanding on an as converted basis. Visa remains committed to returning excess cash to shareholders. And to this end, as Bill mentioned at the outset, our Board of Directors authorized a new $1 billion repurchase plan through July 20, 2012, which we will execute at prices we feel are attractive, relative to the long-term value of Visa. As to guidance, for the balance of 2011, given results to date, and to reiterate what we told you on the July 6 call, we expect to deliver revenue growth in the 11% to 15% range and EPS growth of better than 20%. Client incentives are expected to come in at the top end of the 16% to 16.5% range. And we are now expecting capital expenditures to be moderately above $300 million for the year, up from our prior range of $250 million to $275 million. Our net revenue outlook for 2012 stands at high single to low double-digit growth, while earnings per share growth is expected to be at the mid- to high teens range. We will have additional guidance metrics for fiscal 2012 when we report our fourth quarter earning in October. And with that, we are ready to take questions.

[Operator Instructions] First question comes from Jason Kupferberg with Jefferies. Jason Kupferberg - Jefferies & Company, Inc.: Just wanted to ask a question on the network participation fee, and thanks for the disclosures around some of your post-Durbin strategies there. Can you talk a little bit about that network participation fee in the context of some of the what sounded like are fee reductions from merchants and merchant acquirers? Just trying to understand from the Visa point of view how do you envision all that netting out on the merchants/acquiring side of your business?

I think that our intention is clear, and that is to affect this change in our infrastructure while at the same time reducing fees to all merchants in every category. So the variable fee reductions are obviously an offset to fixed fee. If you look at our 2012 guidance, it presumes that there will be a deterioration in our debit card revenues for the year. We said that 2012 will be the low point. So that is the net result. The net result is that we won't do as well as we have here for in the debit card business at least in 2012. Hopefully, we can grow off of what we do in 2012 to 2013. But what we have done is, in our opinion, consistent with helping to ensure that Visa will be successful in the long run, and done within the spirit, and the intention of the regulation.

The next question comes from Sanjay Sakhrani with KBW. Sanjay Sakhrani - Keefe, Bruyette, & Woods, Inc.: I was just hoping to get a little bit more color on the expense lines on a go forward basis. The personnel and the admin lines are fairly elevated. I was just wondering, is that the run rate to consider on a go forward basis? And also, just the card service fee margin, that seem a little lighter for this quarter sequentially relevant to past quarter, so I was hoping for some color there.

On the personnel, in particular, the expense line items, no, that would -- at least on a percentage increase, that is not the run rate. So in the personnel line in particular, a little over 55% of the year-over-year increase is due to the personnel costs associated with CyberSource, PlaySpan and Fundamo, none of which were in Q3 of the prior year. So we're -- we will have a lapping for one more quarter for CyberSource, a few more quarters for the other 2. And we will give more color on the run rate with regards to expenses in the context of our margin, operating margin, at the Q4 earnings call. No real call outs on the service fee. We were pretty pleased with the yields, which held pretty firm for -- sequentially over the 2 quarters. So from that vantage point, no call outs.

The next question comes from Don Fandetti with Citigroup.

Joe, I was wondering if you can talk a little bit on the new debit pricing strategy, how the issuers might be thinking about that just given sort of the issuers' fee that you try to balance between the merchant acquirers and the issuers. And also, does that impact your ability to raise pricing in the future?

I don't think that anything that we've done is inconsistent with our commitment to our current clients. In fact, most of what we've done and the restructuring that we've done is to ensure that we can continue to serve them and we can continue to help them run profitable businesses. I think what we've done also reflects our focus on making sure that everyone in the value chain has higher expectations of what they can expect in the future and that that helps regenerate the whole, at least from a debit card point of view, it helps sustain and regenerate the whole process of electronic payments continuing to move forward. I -- what -- there was a second part of the question...

Pricing?

Oh, it doesn't constrain our ability to price. I don't think that we have done anything that constraints our ability to take actions in the future that we deem to be appropriate. I think the key word here is deem to be appropriate. And right now, we don't have any intention of raising any prices in the United States. I think that we're in the position that we're comfortable with, and that's the way we're going to look at it going forward for the time being.

The next question comes from Craig Maurer with CLSA. Craig Maurer - Credit Agricole Securities (USA) Inc.: I was hoping you could help us understand a little more the magnitude of change between the former pricing structure in debit and what's coming perhaps in the context of the 20% of revenue, 20% plus of revenue, that you've discussed as being generated from U.S. debit. Now I'll totally shift the topic. This morning, Cielo down Brazil held their conference call. They discussed that in a very brief time. LOs are already issued over 0.25 million cards, and that growth rate is accelerating. And I'm curious, if you take into account that the bank's pushing LO or mainly Visa issuers, are you seeing any impact to your growth rate of cards enforced down in Brazil?

So Byron. Let me respond to both questions. With regards to a deeper description of the impact on the 20%, I think the way we've chosen to respond to that for now is related to what we described on our last call that in preparing for a new post-Durbin environment, there are a number of ways this can play out competitively. We have run a variety of scenarios. We have used those to inform the revenue range we gave to you all at the July 6 call. And I think you all recognize that there's a lot of market reaction here yet to unfold. Strategies need to play out before we can be more descriptive about these impacts. And as they do, we will update appropriately. Having said that, we do believe that the primary impact of the Durbin legislation will be felt in 2012, and we would expect to regain some revenue growth momentum in this arena in 2013. With regards to Cielo, it was contemplated all along that Cielo would be entering in this market. It is a lower income profile, lower spend-oriented market segment, and that's a segment very different from the one that we currently occupy. And so from that vantage point, we're -- we feel that the enormous growth we're experiencing in Brazil will continue and the developments we're seeing today are not unexpected.

Next question comes from Glenn Fodor, Morgan Stanley.

Regarding your comments on the July 6 call, and this call as well on, that net revenue growth in fiscal '13 can regain momentum. This is a very important nuance for investors in the street. I was wondering if you can provide us with a little roadmap of how you see that occurring. I mean, I appreciate the color you gave today on Russia, Brazil and India, but those are going to take some time. So where is the fiscal '13 reacceleration going to come from? And then given that margins are pretty healthy already, could we still expect the same spread between revenue and earnings growth and why?

Maybe the best way to respond to that, again, I'm going to elevate a little bit and describe some of the high-level baseline assumptions that we -- that informed the 2012 guidance, recognizing that on the fourth quarter earnings call, that is typically when we would provide more metrics to describe '12, and we'll see about '13. So in '12, we are projecting a global payment volume growth off of current trends adjusted for the investments we are making related to our country acceleration strategies. In U.S. debit, in particular, we do expect, as Joe mentioned, a decrease in yield. We expect to lose some routing, weighted more to PIN. We expect some volume shift from Signature to PIN. We expect much of that to play out in '12, therefore becoming part of our base in '12. And so from a revenue standpoint, by the time we run into 2013, we are benefiting from strong growth outside the United States that is accelerated, based on investments we are making in a number of key markets, to amplify the growth in those markets, and with post-Durbin impacts substantially embedded in the 2012 base, with our strategies in place and gaining more traction with each passing quarter. That is the underpinning of why we would expect to see revenue begin regaining momentum in '13.

The next question comes from Rod Bourgeois with Bernstein. Rod Bourgeois - Sanford C. Bernstein & Co., Inc.: So first, a quick clarification and then I guess an easy question. U.S. guys debit payment volume growth decelerated by a couple of points from March to June. And I guess I'm wondering if Durbin potentially had a disrupted impact at all in your opinion on the debit volume growth. And then the meatier question is really about how do you expect your debit competitors might react to the altered debit pricing structure that you're rolling out? It seems desirable to avoid price-based competition, but it seems price-based competition is now somewhat of a certainty given that the other competitors are likely to respond to your altered structure. So do you expect the other networks to be more aggressive on pricing? And to the extent that they are, are you prepared to do something with your financials to try to buffer the impact, such as cutting advertising expenses, or something along those lines? Can you just give us an idea, because I know you run multiple scenarios on how competitors might react. But if those worser scenarios play out, where pricing competition gets more aggressive on a more aggressive side, you have a kind of a plan b to buffer the impact.

So I'll take the first one. So Rod, with regards to the deceleration in debit, which you will also see in the -- that is also the explanation for why processed -- Visa processed transactions dipped a bit in the quarter. What you're seeing is the tail -- the runoff, so to speak, of the Chase/WaMu Conversion and the initial ramp up of the SunTrust change. And the combination of those 2 completely explain the drop in growth rate down to -- the dropping growth rate on Visa processed transaction. So that's the answer to the first question. Joe?

And the -- well, the answer to the second question is, yes. We thought very clearly and gone very deeply into what our notions about what our competition would do. We think we have put ourselves in a position where we are more than capable of responding. We have no intention, nor do we think we have to start a race to the bottom. We do have contingency plans. We are very confident in the guidance that we gave you for 2012. And if you can remember, we withheld giving specific guidance on 2012 for quite some time. And we didn't actually say anything until after the Feb regulations came up, so that we could match what the rules said to what our plans were. We've done that. We're confident we're going to get where we said -- where we say we are going to go. I just would add to what Byron said earlier. He explained to you why 2013 might go up. I will also tell you that I think that 2012 is an extraordinarily achievable objective.

The next question comes from Tien-Tsin Huang with JPMorgan. Tien-Tsin Huang - JP Morgan Chase & Co: I had a couple of quick clarifications tuned in on each question I had as well. Just on the fixed fee versus lower variable fee strategy. I just want to make sure, is this just for debit? Or is it also for other Visa products? And also, just the impact on the P&L, does this -- I'm just trying to reconcile the strategy versus, Byron, the guidance you talked about the fourth quarter and the incentives picking up to win routing decisions. Is that one and the same? Or are they 2 different strategies? And then my primary question was just around the International volume that did accelerate. It looks like, and yes, it did accelerate in every region. So how much of that acceleration is from new programs being launched versus just a pickup in underlying same-store growth? Or is same-store secular growth obviously a lot of focus on the macro today?

Yes, so with -- on the last one, it is same-store growth without question. That's the accelerator; fixed fee, all products and the 2 different strategies. So when we talked about entering into some additional merchant partnerships, trading incentives for routing preference, that is a different strategy. It's all contemplated in the guidance that we've given you for '12. But it's 2 different strategies with the network participation fee and the introduction of lower variable transaction cost being a separate pricing strategy, all contained within the guidance we gave for 2012 .

The next question comes from Jim Kissane with Bank of America Merrill Lynch.

Just another question on the network participation. Do you have a sense on what portion Visa will directly negotiate with merchants and what portion will be negotiated by the acquirers? And will merchants be able to opt out if they don't want to go along with the program and stick with the old variable structure?

I'll leave the financials to Byron, but as it relates to an opt out, they can opt out if they don't want to accept Visa cards.

And yes, we do. It is -- we have a sense as to the proportions. That's part of the scenarios that we have run. For competitive reasons, of course, you wouldn't expect us to be very specific on the call, so I will honor that expectation and not be.

Yes. And let me go back and just remind everyone that this fixed fee that you're talking about is not a fee that sits on top of what merchants are paying. It is part of what we consider to be a reduction in the fees that merchants will pay.

And I...

I think that's extraordinarily important because to mischaracterize it would be a mistake and a disservice.

And I would add, Jim, that the -- when Joe said earlier the strategies in part intended to honor kind of the spirit of the new regs, this will allow merchants to begin realizing more economies of scale on the incremental transactions as they grow their volumes. And we thought that that was an important design element of the pricing structure going forward. And so the notion of introducing a fixed component, having a lower variable and then allowing the variable to be the one in play as merchants grow their volume honors one of the objectives of this regulation.

The next question comes from Julio Quinteros with Goldman Sachs.

Byron, just a clarification. Just a second ago, you said that this would apply to all products. Did you mean credit and debit products? Or did you just mean all debit products?

No, all products. So the fee -- to pay the fee is -- makes you eligible to use -- to accept credit, debit, prepaid, all Visa products.

Got it. Okay, great. And just out of curiosity, in the rollout of India, you talked about 1 million debit cards being issued. I'm just curious on form factor there in terms of choice. Why not having gone to something more like mobile or some alternative technology, I guess, relative to classic at this point?

Yes, there's some history there in the Indian market. We are absolutely going to mobile in India. But there initially, we are solving for cards that are PIN-enabled and that have standardized protocols that will allow broad-based acceptance and it addresses some historical issues in the India market. But this is in no way a substitute for mobile, which we view as a very important form factor to penetrate the vast majority of locations in India since it is very unlikely they would ever be able to support the fiber-optic infrastructure that more developed countries have developed overtime.

Next question comes from Robert Dodd, Morgan Keegan. Robert Dodd - Morgan Keegan & Company, Inc.: Just again seeking on the NCSA, how confident are you in your reporting ability to track the number of locations? If we look at the PCI DSS data you've given us in the past, the number of Tier 1 merchants that you disclosed has always been something of an estimate. I mean, so is there going to be a -- necessitate a change in recording from acquirers or anything like that for you to be able to extract the number of locations to appropriately levy the fee?

The short answer is, yes, but we have researched this significantly, understand what the changes would be, have solutions to make those happen and are comfortable that this can be done in a relatively straightforward way within the timeframe contemplated.

Next question comes from Tim Willi with wells Fargo.

Just a question on sort of thinking about routing preference and minimizing some, I believe, end market share. To what degree do you think that the market share you currently possess and maybe the touch points of data and scale between the Signature business and Interlink affords you a competitive advantage around cost or the data and value that you've talked about in terms of building additional products versus what might be at the disposal of the competition if they decide to employ the same type of strategy?

So I don't think there's any question. With our installed base, we have a highly, highly competitive cost position. With the data that we process, we are very well-positioned in order to add value-added services. And with regards to routing preference, given our market position, we have assumed, as I said earlier in our guidance, that some of the volume is at risk. It's contained in our guidance, more PIN and Signature, and that there is -- and our guidance assumes that there would be some conversion of Signature to PIN. So our guidance is based on those assumptions. Having said that, we feel very well-positioned to compete for transactions. The one change in the environment that we are sensitive to is that 2 unaffiliated networks need to be on those cards. And a meaningful number of our cards today are Visa branded on the front, Interlink on the back. And so we are mindful of that situation, mindful that we will -- that puts us in a different competitive position in the post-Durbin world. And those -- these -- that is the set of circumstances our strategies are aimed to address.

In general, we think that our clients', that our infrastructure, that our recent announcements on e-commerce and the wallet capabilities that we're developing among a number of other things put us in a very, very, very strong position, which is not to say that there won't be competition and it's not to say that we're not mindful of what other people can do. We think that we have the largest market share because we have executed better than anyone else. I think that we have shown an ability to operate in front of the market. I don't see any reason why that should change. We will be diligent in that regard, and we will be mindful of the competition. And we have thought long and hard about all of that in delivering our guidance.

The last question comes from David Hochstim with Buckingham Research.

I was wondering, are you planning to offer a new pricing structure and network participation fee in any markets outside the U.S. at this point?

Not at this point.

And then could you just clarify 2 things? One, what the impact of gasoline prices was on spending in the last quarter and through July; and then just on the United agreement, what happens to the existing Continental cards when they expire? Or after the merger, what happens when somebody grabs a Continental card with another brand on it?

We've asked -- you've asked a number of -- do you want to answer the gasoline one, Byron?

Yes, well, the gasoline -- well, actually, we can get back to you on the actual impacts. We do have a phenomena that, when looking at the payment value -- payment volume trends, that once pricing gets much above, I think $3 approaching $4 a gallon, you begin seeing a switch from debit to credit. And so we're starting to see some of that, and some of that switch may come back the other way if prices drop. But largely, what we're seeing is a somewhat higher percentage on credit and debit to gasoline with no immediate trade out on other expenditures that's particularly noticeable. So that's it on gasoline, and...

It does not, in aggregate, add at least significant amount to our growth.

Yes, and we've made no explicit assumptions with regards to the impact of gasoline plus or minus in next year's -- with regards to next year's guidance. On United Continental, all new cards under the new plan will be issued Visa. And then the existing cards -- well, the way that we articulate this is the deal is focused on the new issuance. And we get 100% of the new issuance given the effective date of the contract going forward.

Cards outstanding will be reissued as they are -- must a consumer, of course.

All right. Thank you all for joining us today. If anybody has nay follow-up questions, feel free to give Victoria or myself a call. Thank you.

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