Welcome to Visa's Fiscal First Quarter 2018 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. Joon Huh, Vice President of Investor Relations. Mr. Huh, you may now begin.

Thanks, Athena. Good morning, everyone, and welcome to Visa Inc.'s fiscal first quarter 2018 earnings conference call. Joining us today are Al Kelly, Visa's Chief Executive Officer; and Vasant Prabhu, Visa's Chief Financial Officer. This call is currently being webcast over the Internet and is accessible on the Investor Relations section of our website at www.investor.visa.com. A replay of the webcast will be archived on our site for 90 days. Our slide deck containing the financial and statistical highlights of today's call have been posted to our IR website. Let me also remind you that this presentation may include forward-looking statements. These statements are not guarantees of future performance, and our actual results could materially differ as the result of a variety of 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 Visa's website. For historical non-GAAP or pro forma related financial information disclosed in this call, the related GAAP measures and other information required by Reg G of the SEC are available in the financial and statistical summary accompanying today's press release. And with that, let me turn the call over to Al.

Joon, thank you, and good afternoon to everybody and thanks for joining us today. As always, Vasant and I are going to make some relatively brief comments on our results and then we'll open up to whatever questions you have on your minds. We're off to a solid start in our fiscal year and I'm pleased with our company's performance this past quarter. Our performance was driven by healthy economies around the world, growth and acceptance in the continue rise and E&M commerce, especially in developed countries. U.S. tax reforms certainly has and will continue to impact our business in positive ways. We have made a few initial decisions about our investments as a direct result of the lower corporate tax rate and we continue to talk about it, analyze additional incremental spending options to both, to our talent, our business, and the communities in which we work; all with the goal of fulfilling our corporate mission of helping individuals, businesses and economies thrive. Looking at our business drivers, payments volume grew 10% on a constant dollar basis as we saw healthy growth around the globe. The Central Europe, Middle East region led the way with 19% growth driven by the Gulf countries of the Middle East. Latin America was up 14% with particular strength coming from Argentina, Canada grew 11%, up 4% sequentially resulting from high gas prices and increased spending in retail and telecom. In the United States payments volume grew 10% driven by increases in consumer credit and holiday spending which I'll spend a few minutes on a bit later. Europe maintained a solid growth rate of 9% with strength coming from Turkey and Southeast Europe, and Asia Pacific grew 8% as we saw improved volumes from Australia and Taiwan. And although we're partially lapping that demand…

Thank you, Al. We had a solid start to fiscal year '18 with GAAP EPS growth of 25% and adjusted EPS growth of 26%. Implementation of the tax cuts and jobs act added approximately 9 percentage points to this adjusted growth rate which I will discuss in more detail in few minutes. Excluding the impact of U.S. tax reform, EPS growth was 17%. Net revenue growth was 9%. Growth of key business drivers, payments volume, cross model volume and process transactions remained strong and stable across the globe. As a reminder, several significant factors have a meaningful impact on year-over-year revenue growth comparisons this quarter. First, and by far the most significant factor, rebates to Visa Europe members ended beginning in the first quarter of fiscal year '17, so this is the first quarter of apples-to-apples revenue growth comparisons for Europe. This affects reported service fees, data processing and international revenue. We are also at apples-to-apples growth comparisons for Costco and USAA credit. The India demonetization impact started in November 2016, so we partially lapped that in Q1 and finally, fiscal year '18 price increases which are smaller in scope than fiscal year '17 increases will go into effect in the second half of the year. In fiscal year '17 our U.S. price increase went into effect in the first quarter and international increases went into effect mostly in the second quarter. A few other items of note; we bought back 15.5 million shares of Class A common stock at an average price of $110.67 or $1.72 billion this quarter. Our board has authorized a new $7.5 billion share repurchase program, including this additional authorization we now have $9.1 million available for share repurchases. In addition, our board has increased the quarterly dividend to $0.21 per share at almost 8%…

And with that Athena, we are ready to take questions.

[Operator Instructions] Our first question will be from the line of Tenjing [ph] of JP Morgan. Your line is now open.

I thought I'd ask on U.S. debit; it looks like growth has settled in pretty nicely actually around 8% the last two quarters. Is this a good clean rate to assume for U.S. debit as we look ahead? And I also wanted to meaning to ask you guys, since your decision too no longer require a signature, a checkout in the U.S.; what's the opportunity there, how does this change the dynamic of pin versus signature and all that good stuff? Any thoughts there would be helpful. Thanks.

On the first question, obviously we're not going to forecast ahead but U.S. debit has been performing quite well and as I said in my remarks, debit as well as credit looked very good in the holiday season. In terms of your second question, the reality is that the vast majority of transactions in United States didn't require a signature anyway because of the number -- especially in debit because the requirements of not having to take signature for under $25 or under $50 transaction. Our decision which -- we took a very thoughtful approach to ended up being at least a little bit different than our competitors where we said that we're going to move to no signature where somebody has set up for EMV. We actually think we need to be continue to encourage adoption of EMV for security reasons and therefore made the requirement that it's no signature as long as your merchant is EMV enabled. And we continue to believe that we've got a good roadmap for debit but I would say these things are unrelated, largely, and the reality is that we think we made a good decision for consumers. I'd also add that I still think there is a place for signature in a number of cases, high ticket items I think -- as we've done a lot of consumer research, consumers want to be able to validate and merchants want to be able to validate that transaction. Also consumers and in situations like keeping [ph] situations where they are adding to the base amount, also prefer to be able to continue to use the signature; so while there is no signature required we do expect that a number of merchants in specific situations will continue to request the signature from consumers and consumers will want to provide that signature.

Next question will be from the line of David [ph] of Evercore. Your line is now open.

Could you update us on your strategy to expand Visa Europe into some of the higher growth markets where you're less well representative, for example, Nordics, Italy and Germany?

Well, I've said in my remarks I've been over there 3 of the last 6 weeks and I think that we have largely built out our leadership team and are very far along on the strategy for Europe. And you're absolutely right, David; if you look at our business in Europe, obviously we have very strong position in the UK, in France, we have a good position in Spain but there are 34 other markets in Europe, at least there is we -- as we establish -- how the way we established Europe and there is a lot of opportunity in the markets. You mentioned plus Italy, plus Germany, and we're in the midst of actually staffing up in a number of markets. In terms of personnel, one of my objectives is to ultimately have less people in the regional hub in London and more out in the markets where the action is. But we -- between bringing our digital products into Europe, Visa Direct, Visa Token Services; as well as adding personnel and building our relationship with issuers, Charlotte Hogg, our new European CEO has spent a tremendous amount of time in the four months she has been with the company out talking to our clients throughout Europe. So I actually -- absolutely believe that Europe, particularly on the continent represents great opportunity for us and the beginnings of what will be a journey to build our business to a much stronger position on the continent.

Just as a quick follow-up, you mentioned launched Visa Direct in Europe; could you talk about your broader strategy for PSD2, at Analyst Day you mentioned keeping your options open, potentially buying a PS [ph] -- I'd be curious for what your thoughts are currently?

I think as we said then and I think we've been consistent, look PSD2 is kind of a long-term play and I think it's going to take a while to see how it's actually going to play out. We actually think we're pretty well positioned as it relates to PSD2 coming into Europe. The strong customer authentication is going to require and put a premium on risk and authorization capabilities which is a strong point of the whole ability to have third-party accessed accounts I think was a premium on -- and outstanding payment experience and that's something that we tried ourselves in working closely what our issues are and this probably new consumer experience is that we'll emerge as a result of the PSD2 legislation and I think -- again, we feel like we're well positioned to work with our issuers partners on it. So I think this is going to be a very slow build overtime but I think we feel like we're well positioned as it relates to this regulation going into place in Europe.

Next question will be from the line of Darrin Peller of Barclays. Your line is now open.

Just starting off, I mean it looks like there is a round of billing in dollar benefit from tax reform that you can see over the course of the year just based on the tax rates you're giving us now. I know you talked about some specific items like retirement contributions and investments in growth; I guess a little more specifics on breaking down that dollar amount in terms of your expectation on categories along with the sustainability beyond this year. And then Al, just when you think about market share here, I just love to hear your thoughts on -- if there is a good pipeline of things up for grabs, I mean just looking at one of your biggest competitors, the growth profile of some of their volumetrics were still higher, I'm just curious if it was anything that you see happening or is it just timing factors?

On the tax one, yes, just too sort of go through it again. The full benefit of the reduction in the U.S. federal tax rate from 35% to 21% on annualized basis is 8 points. We get 6 points this year because we're getting three quarters of benefit. We'll get 2 points from the corporate tax reduction next year, we're just being a little cautious on the two points because of additional provisions that go in next year that we along with others are looking for more guidance on. We have an initial point of view on it but we're assuming it will change through the year. As you know, when you translate that, that is $1 billion after-tax benefit to us in lower cash taxes as a result of that. There are two things -- we can talk about four sort of things around how we want to deploy the cash. One, you've already heard us say that we've already made some decisions that will reinvest about a point of that reduction in taxes, meaning one point of our pretax income in our business in operating expenses, some of which you already heard about, things we're doing for employees, others in terms of adding to some of the investment programs that are already on the way, as well as some new initiatives. That will cause our expenses to grow a little bit more than we had originally anticipated, that expenses are essentially on-track for the year versus prior outlook. We're just with a deliberate strategy increasing it by 2 points as a result of tax reform. The second dimension is commensurate with the higher earnings potential of the company. We are stepping up the dividend, we already have a healthy buyback program with over $7 billion this year, this was reflecting the fact that we were buying back some of the stock issued to Visa Europe owners. Once we get past the $7 billion mark, we need to do more, we will evaluate it at that point. And then finally in terms of M&A and investments, as Al said, our priority is to invest in our business organic growth. The fact the tax rates are lower, certainly improves the ROI you can get on investments and the same on M&A. But we were not cash constraint before, so we're not going to change our posture other than the fact that lower taxes made investments more attractive. So I'm going to turn it back to Al if he wants to add to this and I'm sure he is going to talk about the other question.

Look, we're not the type of company that can deploy capital organically, extraordinarily quickly but we've got a whole set of key investment areas that are driven off of our strategic pillars and we're going to continue to focus on those things, whether it's security in the ecosystem driving contactless expanding access, digital expansion, those will be the areas we focus on. In relationship to your second question on market share; I would say this, in my mind there is tremendous opportunity to grow in the medium and long-term and I think the opportunity is more. We're growing the market, bringing more people into the payments mainstream, expanding access by displacing cash and cheque. I think we've had a very good quarter, MasterCard had an excellent quarter; to me this isn't a quarter-by-quarter contest, we're driven and focused on sustained long-term growth for our investors overtime and I know it's a point out that I think looking at quarter-by-quarter comparisons can be really tricky, there is a whole bunch of factors that are different between us and some of our competitors, there is business mix differences, there is lapping dynamics, there is timing issues, there is wins and renewals and conversions and frankly, there is differential impact of exchange rates. So I look at it and say, I think medium to long-term opportunities are terrific, I think our fundamentals are very good and we feel good about the long-term prospects of the business.

Next question will be from the line of James Schneider of Goldman Sachs. Your line is now open.

Thanks for taking my question, maybe going back to the Europe topic for a second, if you think about your market share position within Europe, across both debit and credit, Al can you maybe opine on where you see opportunities to improve that position in terms of individual countries? And then as you think longer term, do you think that could come at the expense of local processors or more of your traditional peers?

At this stage, I'm reluctant to get into [Technical Difficulty] A rebate structure and I think it's our expectation that we'll get through almost all of this, there might be a few lag or what gets through all of this by the end of this second quarter.

And in terms of pricing I think we've told you earlier that there is pricing but this year there is the pricing goes into effect in the second half. And then we'll evaluate further pricing actions in the future.

Next question will be from the line of Ramsey [ph] of Jefferies & Company. Your line is now open.

Total process transaction growth was really heavy this quarter despite Indian demonetization last year. Can you give us your view on whether the progress made in India in terms of just the general electronification of payment is kind of a permanent inflexion point in that market or do you see the market reverting to cash usage overtime? There seems to be some media report with some consenting -- some kind of conflicting signals there.

I was doing the baseball analogy; we're still in the first -- maybe the beginning of the second inning in India, there is just a long way to go. I've read some of the same reports but I think we have hit an inflexion point. We've seen a huge increase in acceptance points and volume over the course of the last -- I guess now 14 months. The government is very bullishly behind this and while we're through the demonetization period, there is a little bit more of the cash back in circulation. I think that the government is very desirous of having the efficiencies of more electronic digital transactions, as well as ideally getting past the point where they get rid of the grey economy in India and have more transparency from a tax perspective. So my view -- and obviously, you know, I know what I know which isn't everything and I think it is at inflexion point but while I say it's an inflexion point sometimes that -- we're well into the match racing curve of this, there is inflexion point there, there is a long, long way to go; 3 million merchants and the type of volume that we're add as much as the growth rate to very attractive, it is very small compared to where India will ultimately be.

And just in terms of metrics, that would -- going to your question about is this permanent, yes, there is a lot more cash in the economy because cash is back to normal but as Al said, the number of acceptance points has doubled and people are not pulling back the government or the banks or all of us are still pressing hard on building acceptance. There are more people using cards, that's a measurable metric and then there is more people using cards with a higher frequency and that's a measureable metric and the real test will be once we fully lap the demonetization, what is still the growth rate and we'll tell you more next quarter.

Next question will be from the line of [indiscernible]. Your line is now open.

I actually also had a question on India and the terminalization of that market. Al, can you give us a little sense of how much the tax related savings might go into helping terminalize that market?

I don't know that -- first of all, money has become plungable but we're already investing fairly heavily in India, it's one of the markets -- as I look around the world, it's one of our largest markets in terms of deployment of people. And I'm talking about people in the market, I'm not counting the 950 people we have at a technology center in Bangalore. And we were planning to grow our India presence in our plan before tax reform. Look, we've turned back to all of our regional leaders and Vasant and I have been asking people to tell us where they potentially could put money to work in a very smart way that's going to drive growth against the type of areas that we're already investing and in India, certainly one of the main areas of growth is building out acceptance, which might in some cases be physical terminals, in many cases it will be continued use of rolling out QR technology and MVisa apps for consumers. So I think it's safe to assume that India is going to continue to be an area that we're going to look to invest in and it's highly possible but decision not made for sure that we'll -- as a result of facts reform we might put a bit more money into that market.

Next question will be from the line of Chris [ph] of Buckingham. Your line is now open.

Athena, I think we have a bad connection. Can we move to the next question?

Next question will be from the line of James Faucette of Morgan Stanley. Your line is now open.

First, I wanted to dig in really quickly -- can you just talk about cross-border and how you're thinking about getting to your expectations, especially since I've seen to decelerate maybe a little bit at least on [indiscernible]? And then more broadly for -- I think Amir [ph] was mentioning that the Analyst meeting a couple of quarters back that you thought that on there could be acceleration and beat this business over the medium term and in part driven by increasing B2B opportunities. I'm wondering looking out at that medium to long run, where we should be looking for those B2B opportunities to emerge and what are some of the things that we should be tracking, I guess similar to the way we're trying to track the acceptance in places like India, etcetera; what kind of things you would be looking at in B2B to look for that potential acceleration? Thanks.

On cross-border, just a couple of things to point out; that is in fact an improvement in the rate of January and we think that will sustain based on everything we're seeing. One item that is affecting our reported numbers is the shift in Europe, included in our cross-border numbers as it is for others too is intra-European cross-border volume that is cross-border business within the EU. That's different than typical cross-border volume but does get included in the cross-border volume and you do have people moving -- acquiring within Europe, and so when fairly large account decides to acquire in the UK from a non-UK location, it's a sizeable move in the reported numbers with modest revenue impacts. So if you add that back, I mean the real underlying growth rate was quite a bit higher than the reported growth rate. In terms of trends that help that, as we've said before, one of the best things that can happen to our cross-border business in some respects of the weaker dollar, we have a large U.S. acquired business. The good news is we did see the growth rate in that business step-up but it was from very low levels; so our U.S. acquired business which is a very attractive business is growing faster than it was and will most likely continue to grow faster but it's still growing less than the overall growth rate of the cross-border business. So there is one variable that could accelerate cross-border growth further would be the U.S. acquired business, growing faster and going back to double-digit levels like it has been in the past. Beyond that we'll have to watch what happens as European currency strengthened, clearly it will help the acquiring business in Europe as this becomes more attractive for people or rather the issuing business coming out of Europe as it becomes more attractive for Europeans to travel out. So those are couple of trends that can -- that are both watching.

And James on the question about B2B; it really is a large opportunity, we are focused on it, we have a senior person and a team focused on B2B, we think that through the use of Visa Direct we can meet the needs of a lot of the small and medium sized merchants and using things like single use virtual cards in larger verticals like healthcare and travel. That said you raised a good question around how we can give you guys a bit more insight to our progress and let me take that away and maybe the next quarter or some point later this year we'll try to give a little bit more insight in terms of things to watch there and how you can evaluate the progress we're making along the way.

Next question will be from the line of Jason Kupferberg of Bank of America. Your line is now open.

I think you mentioned out that during holiday season in the U.S. ecomm was about 30% of volume. Can you give us some broader ecomm metrics globally -- what percentage of global volume, how fast is it growing? And then, I'm just curious to get your quick take on the contactless initiatives in the U.S.; what's the issuer response so far because it sounds like that would create some new expense for them? So I just wanted to get your perspective there. Thanks.

On the first question, I don't think we're prepared to start giving breakdown on country by country basis on ecommerce versus card -- present type of growth. I think it developed countries that the trends that I talked about in the U.S. are similar in some of the developed countries. Obviously, in less developed countries the mix and the dynamics between the two and different. In terms of contactless, I think in the United States, again -- the pluming is in place to go, we think by the end of the year 50% of the terminals in the U.S. will be contactless enabled on terminal -- virtually every terminal being shipped now is contactless enabled. And I think the U.S. issuers are getting excited about the prospects of the customer experience associated with contactless and I would expect that you're not going to see a massive off-cycle replacement of with NFC -- that are NFC enabled. But I think that you will start to see issuers as they go through their normal card renewal cycles and there is the replaced cards that are lost or stolen, etcetera, that more of those will be replaced with cards that are NFC enabled. So I think this is a multi-year journey but -- again, there will be an inflection point at some point where it will really take off as we reach a certain level of scale and clearly, we're not there yet but I think we're poised to begin the journey.

Our last question is from Bryan Keane of Deutsche Bank. Your line is now open.

I just wanted to ask about the operating margins; they were down I think one point year-over-year and looks about one point short of where street was estimating. So just want to think about personnel and G&A costs which were up a lot, does that continue throughout the year and how much did you take advantage of just lower tax reform in the quarter to maybe crank up the expenses which caused a little bit lower margin? And then just a follow-up on Visa Europe; the technology migration going on, will that have a positive benefit to margins in fiscal year '19 as a result of that and just trying to figure out about how much? Thanks.

On the expense side, you might recall when we talked to you last quarter about outlook we had indicated that you should expect expense growth to be higher in the first half than the second half; a lot of it has to do with year-over-year comparisons. Personnel expenses were unusually low in the first quarter of last year for a variety of reasons, I won't go into all of them, some will have to do with the consultation process that was under Europe, some had to do with the fact that we had also done the global restructuring coming into the quarter. So personnel expenses were off to a fairly slow start and if you looked at our personal expenses last year they climbed through the year; so this rate of growth in personal expenses you should not see continue beyond the first half. So there are year-over-year comparisons. On the G&A side, as I said there were some non-recurring items and some shifts and expenses that make that number higher than it normally would have been. So we did have a number of expenses in the quarter that were of a non-recurring or timing variety but our original outlook for expenses remains unchanged versus what we told you. We have deliberately chosen to reinvest an additional 2 points in expenses as a result of tax reform. I wouldn't say a lot of that was in this quarter, it was more what we expected based on comparisons plus some of these non-recurring and timing related things.

On the second question Bryan, I think we have to see how -- we haven't even begun the migration, as I said we're beginning next quarter. I think we're going to have to see how long it takes, we're going to be measured in deliberate and careful about it. We'll get some benefit from it financially once we're all the way there but I think in terms of timing it's a little bit too early to say and I think in terms of mentioning it, I'm not actually sure we have mentioned it; it's all part of having this transaction continue to be accretive at a level above what we thought it would be when we made the acquisition in the first place.

And with that, we'd like to thank you all for joining us today. Have a great day.

Thank you. And that concludes today's conference. Thank you for joining everyone. You may now disconnect.