Welcome to the Visa Fiscal First Quarter 2019 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. Mike Milotich, Senior Vice President of Investor Relations. Mr. Milotich, you may now begin.

Thank you, Katie. Good afternoon, everyone. And welcome to Visa's fiscal first 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 Web site. Let me also remind you that this presentation includes forward-looking statements. These statements are not guarantees of future performance, and our actual results could differ materially as a result of many factors. Additional information concerning those factors is available in our most recent reports on Forms 10-K and 10-Q, which you can find on the SEC's Web site and the Investor Relations section of our Web site. 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.

Thank you, Mike, and good afternoon to everybody. Thanks for joining us today. Let me start with the financial results before sharing some key highlights for the quarter. The company continued to perform well in the fiscal quarter with approximately 50 billion transactions under Visa network, driving $2.9 trillion in total volume. Revenue growth was 13% and our key business drivers remain strong. Payment volume growth was 11% on a constant dollar basis. But please note that we modified our definition of payments volume this quarter to include all Visa directs use cases involving of Visa payment credentials. For your convenience, the historic growth rates have also been updated, and Vasant will touch on this in a little bit more detail. For us, order growth on a constant dollar basis was 7%, slowing 3 percentage points from last quarter. Adjusting for the cryptocurrency purchases last year and a major e-commerce platform localizing volume within Europe, growth flowed just 1 point. Cross border is an area we’re watching closely. Cross broader volumes flowed through the quarter and into January, and Vasant will provide a little more color on these trends. Process transaction growth was 11%, down 1 percentage point from last quarter; expense growth was 17%, primarily driven by personnel and marketing-related expenses; and EPS growth was 21%. Let me briefly comment on holiday spending, starting in United States. Adjusting for Visa specific factors, spending during the holiday season in the United States was relatively strong. We've shown about the same growth we did last year, which was a strong year. Stronger debit spend growth was offset by weaker credit performance, which slowed later in the holiday season. Retail growth was in line with last year, fueled mostly by e-commerce. E-commerce continues to grow more than 3 times faster than non…

Thank you, Al. We had a strong start to our fiscal year 2019 with EPS growth of 21% and net revenue growth of 13%, exchange rate shift versus prior year but a drag on net revenue and EPS growth of approximately 50 basis points. A few points to note; as Visa business continues to evolve beyond purchases at merchants, we have updated our definition of reported payments volume to account for all new payment flows carrying the Visa brand. To-date, we had included funding or full payment volume related to Visa Direct, but not disbursement or push payment volume. Our payment volume now includes all Visa Direct disbursement volume. Where a transaction is processed straight through, i.e. it includes both a pull and a push in quick succession, the payments volumes is only counted once. All prior periods have been adjusted to reflect the updated definition. This change added a little over half a percentage point to reported payment volume growth in constant dollars this quarter. There is a schedule in the operational performance data that shows the impact from this change on current and prior periods. While growth rate flowed modestly from the prior quarter, payments volume and process transactions continued to grow at double-digit levels globally in the first quarter of fiscal 2019. Cross-border growth rates, however, dipped to 7%. Lapping the spike in crypto currency purchases last year contributed 1 percentage point to the slowdown. The remaining two percentage point slowdown was within Europe or an intra-Europe cross-border transactions. These intra-Europe transactions have yields comparable to domestic transactions rather than a difficult cross-border transaction, hence a small revenue impact. One point of the intra-Europe slowdown reflected general weakness across the EU. The other point was due to a pan-European e-commerce platform reorienting acquiring across countries, converting transactions…

Thank you, Vasant. We are ready to take questions.

Thank you [Operator Instructions]. Our first question comes from David Toget with Evercore ISI. Your line is now open.

Thank you. Appreciate all of the helpful call outs. Could you give us some sense of what some of the positive factors might be for the rest of the year with respect to cross-border? You've definitely called out all the risk factors. What could be possibly in the plus column?

We look at domestic volumes around the world in the last quarter, and they actually were quite good. Three of our regions had double-digit growth. And if you exclude China from Asia Pacific, it also grew double-digits. And Canada and Europe are about 8.5% growth. And domestic volume is seemly holding up quite well. Even in the U.S. where we saw some slow down in face to face retail and gas at the back end of quarter, categories like restaurant and QR continues to hold at very healthy level. So I think that, as Vasant said in his remarks, we’re not exactly sure what the dynamic is with cross-border and whether -- and we practically don’t have enough of a trend volume to really draw any conclusion. But we do think that underlying economics look pretty good, especially when looking domestic performance. But we do think that people have been spooked a bit by all of the different geopolitical factors that we discussed when you look at two of their largest economies in the world, the U.S and the UK, suffering through a shutdown and Brexit, that’s got to add and he said it's for an ongoing period of time. It's got to have some impact on how people think about their travel outside of their domestic country.

I mean the other factor clearly as we've always said exchange rates matter a lot and clearly some stabilization or even weakening of the dollar would be a meaningful tailwind. You saw that last year, we had a weakening trend going into our second fiscal quarter, and we had a sizable impact on our cross border growth rate. So it’s a combination of we think. Some of the uncertainty is that we're all coming to ahead in the next few weeks and at least recent trends in the dollar could be helpful as we look ahead. So we'll wait and see.

Our next question comes from Sanjay Sakhrani with KBW. Your line is now open.

I guess I got two questions on cross-border. One, that gap between the international revenues and the volume growth widened? Can you just call out what specifically that was, and whether or not it sustained sales over the next few quarters? And then secondly, as far as cross-border volume trends, has that ever shown to be an indicator of global macroeconomic trends. What leading indicator has that been by the data that you've seen? Thanks.

In terms of the 11% growth in international revenues relative to the cross border volumes you saw, it all depends on which corridors cross border trends are -- where are the strong corridors and the weaker corridors. As we said in the comments, some of that slowdown 2 points of it was all intra Europe, and in some cases it was linked to e-commerce platform reorienting acquiring. That while its affects we reported volume in that intra-Europe transactions that considered cross border for reporting purposes, the way the economics work from a revenue standpoint, doesn’t really change very much. So those are relatively benign changes that don't have a revenue impact, that’s one part of the reasons. The other is if you look at currency volatility last year in the first quarter versus this year, we did have relatively low volatility last year relative to this year, and that helped a bit in the first quarter. Volatility was higher in the second quarter last year, so it won't help as much in the second quarter. So those are some of the factors.

I would say there's a third factor, which is we said in our remarks that we saw the decline happened through the quarter. So they're at the beginning parts of the quarter. We saw a performance that was more similar and what we had been seeing in the prior quarter. So what we're calling out was a trend that we're starting to see towards the back end of the quarter, and into the first three weeks of January.

And there was a second question.

Around being the cross-border leading indicator?

As Al said, I mean the domestic volumes are quite robust as you saw, and even the three weeks in the U.S. after what was some softening in the second half of December recovered to if you adjust for conversions and gas prices very much to where they were in the first quarter. So there is no evidence in the domestic volume, the broader economic weakness. It is strictly right now in the cross-border trend. So I'm not sure we would be able to tell you that it is a leading indicator of anything other than perhaps uncertainty about certain more recent events that Al referred to.

Our next question comes from Jason Kupferberg with Bank of America. Your line is now open.

I wanted to ask about how you were thinking about U.S. credit volume growth going forward. It sounds like growth moderated towards the end of the quarter. And while it seemed to recover a little bit through the first three weeks of January, it seems to still be a little bit below recent levels. Is there anything in particular to how you are thinking about it going forward for the rest of the quarter and maybe even beyond? Thanks.

The Cabela's conversion started to happen in the latter part of the first fiscal quarter. So if it looks lower than it does, you have to adjust it for conversion, which will impact the full quarter in the second quarter. If you adjust for conversions and you adjust for gas prices, or you leave gas prices in, because the effect is roughly the same as it was in the first fiscal quarter. We are pretty close to where we were running in the first fiscal quarter. So in that sense, the small reduction you see in the growth rate for the first three weeks is more linked to the impact of conversions.

Our next question comes from Tien-Tsin Huang with JPMorgan. Your line is now open.

Just on the given what you talked, and thanks for all of that detail around the changes in consumer confidence. So I'm just curious is the defensiveness of the business is -- can you maybe update us on the ability for Visa and you're willing this maybe to protect the bottom line if macro does take a turn for the worst. I know that business has changed, your investments have changed, etcetera. I just want to know that if you could comment on it?

We will continue to do all we need to do to make sure that we are delivering for both -- for investors both in the year and the out years. So that certainly mean being very, very careful about as appropriate and as we see, whether this is a trend or it's not a trend or it reverses, we don't know. But we certainly do some sales tightening, but it would be balancing act, because it is important that we continue to invest in areas where we think we're going to get sustained good performance in the out year. So we absolutely will look at all of our investments and all of our expense lines to make sure that we’re battening down the hatches where we need to. And I think if you go back historically and look at some past periods, we demonstrated our ability to do just that.

Our next question comes from Harshita Rawat with Bernstein. Your line is now open.

My question is in B2B. So with the last year or so, your peers have accelerated your partnership and investments in the states of Billtrust, the Bottomline partnerships, B2B Connect rollout and your Virtual Card business still be growing very nicely. So my question is, what has changed in the market place and your approach to B2B in the last few years to trigger your investments in this space? And my follow up to that is, has this lead to the rethink of your strategy and buy versus build to grow after this enormous market?

I think what really more happened is that, we made a concerted effort, probably starting 18 months or so, now maybe a little bit longer than that to really double down and invest in B2B and really run as a business unit. We have a head of B2B as of 18 or so months ago that reports to Ryan McInerney, our President. We actually built in entire team, focused on it. We are fully confident and thinking about the three different segments that exit within B2B small businesses, big side business and large multi nations. As you know in this space, it is not homogenous. Each, industry vertical is different with different needs and we’re increasingly conscious of that. We’re certainly looking to build more partnership and I think that we made to your question around build versus buy. I think we’re in the mode of -- we’re very committed to this business and where we will look at every opportunity to both build, capabilities and products that we think our clients would value and that would help digitize more payments and move them away from cash and check and wire transfers. But we will also be both opportunistic as growth is pro active if necessary and looking at potential acquisitions.

As you know, there are new capabilities that Visa Direct has offered us that apply to the B2B space. There are new capabilities that B2B Connect offers us that we applying to B2B space. And then as Al said, some important partnership in the last few months has also added to our capabilities. So, it’s a continuous focus that we had for a few years, but as technologies evolved our capabilities have expanded.

Next question comes from Lisa Ellis with MoffettNathanson. Your line is now open.

I had a Visa Direct related question. I mean the growth rate there over a 100% is pretty extraordinary within Visa World, and I think we were looking at U.S debit volume as now sequentially accelerated for five straight quarters which I think is heavily Visa Direct driven. So just a more sort of strategic or positioning question, can you compare and confess the functionality of Visa Direct verses Fast ACH meeting in which ways is Visa Direct better or different? And what's prohibiting Visa Direct from being applied into used cases like bill pay or payroll or electronic checks that are heavily ACH today?

So Visa Bank, it will be -- now, Visa Direct is definitely going to contributing to debit growth in the U.S. and even outside of the U.S. Looks, it is not exactly the same as real time payments types of capabilities would probably two gaps. One is around the ability to reach as all bank accounts in the world. And the second is kind of the packet of information that's it travels with it. But Visa Direct is operational today, it can deliver most of that again cross-border transactions to this 2 billion Visa debit cards are around the world, and many of those are enabled for fed funds. It's global it's been able to over 70 countries and this last time we said Visa Direct and we send funds through Visa Direct over a 150 countries. Things like ACH are market specifics so somebody would have to stream together a group of countries at partnership for acquisitions, which certainly can be both tricky and time consuming. Visa Direct runs on as part of this and that sort of has the leverage of all of our AML KYC types of capabilities as well as our cyber security types of capabilities that were able to leverage all of that. So I'd say that Visa Direct is a great example of strategy to continue to improve and use VisaNet, our core authorizations process -- authorizations clearing and settlements, but that doesn’t mean that as warranted, we will be looking to get involved in adding value and planning in the real time payments space as well.

Our next question comes from Mike Del Grosso with Jefferies. Your line is now open.

Similar to the previous caller on Visa Direct, can you comment on some of the growth drivers and use cases within that? Is it still to P2P that's the predominant used case? Are you starting to see uptake in healthcare and disbursements et cetera?

So as a reminder, at least that as a moment, there is a number of used cases, P2P is one, disbursement is another. Bill pay is other and payments to largest is four. I think as we initially got into and powered things like Venmo and Square Cash and Zelle and other P2P platforms around the world. P2P was the first scale used case of Visa Direct, but increasing flushing this gig economy. There is a lot of applications that have been developed to facilitate end of shift, end of day, end of week kind of real-time payments to the people working in the gig economy. We're certainly seeing some growth in the Bill Pay and we've got a whole sales force out else looking for other used cases and signing of it partnership. So I think that as we continue on, you're going to have a wider range -- array, I should say of used cases that are contributing significant levels of growth to Visa Direct and we’re continuing. We’re already seeing that expansion and the growing of the breath of new stages for the product.

Our next question comes from Dave Koning with Baird. Your line is now open.

Just two quick things. I guess cross-borders have slowdown in the last, I guess, few weeks and last quarter. Was at more travel related or was that more e-com? And then the second question, was the ASC 606 impacting the other revenue segment?

Yes, the ASC 606 impact in total was about a point on revenue growth and the biggest chunk of it would be the other revenue line. That’s where most of it should show up and then some of it on the incentives line. So it's mostly between the other revenue line and the incentives line. So, it's higher other revenue due to this and somewhat lower incentives because they are reclassified due to this and I explained most of it. In terms of the cross-border growth, we gave you a fair amount of color in the comments. And by and large, it’s a cross-border segment but perhaps a little more on the face-to-face segment than in the card, not present segment. Other than that it's along the line of the things we described.

Our next question comes from Craig Maurer with Autonomous Research. Your line is now open.

Two quick questions. First, could you comment on corporate card or business spend, is that can be a leading indicator for the consumer economy? And secondly, what was the -- what is the specific capabilities you’re targeting by going after Earthport? Just to understand what might or might not come Visa's way depending on actions you take?

Craig, on the latter as I said, given that we're governed by the U.K takeover code, we're just not able to response to any question or anything to do with Earthport at this point in time.

In terms of over card spend, at least first fiscal quarter, there were no indications in the corporate card spend to suggest a change in trend.

Our next question comes from Bob Napoli with William Blair. Your line is now open.

Question on just on cross-border and I guess the trends there and the battle I guess over your M&A offer to acquire Earthport and your competitor going after the same. What is -- are you seeing -- do you expect to see more market share shifts in cross-border? And are the stakes being raised from a technology perspective? What are you going after? What do you need to really build that business and make that a consistent growth business that's obviously a very profitable business for you?

Bob, I will just add through this, inside of more of a strategic level. The cross-border is important to us. We look at many partnerships and any at all technology that would where we can get value and participate in the movement of funds from one geography to another geography. So in short I would, I'd be safe to say that, we certainly wouldn’t leave any rock unturned. And that said, we were doing that in Q1 of '18. We're going to do it in Q1 of '19 and we're going to do going forward. We did it in the last quarter. If that's all related to this very recent trend that we've seen in terms of cross-border performance, so we are not running through anything differently because of what we're seeing in terms of attacking and being committed to cross-border, nothing is going to change. But we saw the slowdown just as if it accelerates. There is nothing we would change. We would be continuing to be very, very focused on it.

Our next question comes from Don Fandetti with Wells Fargo. Your line is open.

So, Vasant, on the '19 guidance for reve growth, I guess what's the most sort of important factor you are looking at? Is it the cross-border I mean your overall volumes were relatively solid? And are you -- do you have a little bit of wiggle room? How close are you -- can you just dig in a bit on that?

So I don’t think there is much more we would add to what we said in the comments. We have started the year with 13% revenue growth and that was better than we might have expected. Yes, we've seen some cross-border slowdown in the last few weeks. It is, as we said in the comments, it's too early to tell whether this trend is going to moderate or turnaround. Fundamentally, all other dimensions of business really are tracking as we expected, when you look at same volumes transactions growth et cetera. There really wasn’t any meaningful change in trend. So, based on all that, as we said in the comments, don't see any reasons to adjust our full-year outlook at this stage as again. The one change kind of been in one particular area and it's too early to know what happen there.

Our next question comes from Darrin Peller with Wolfe Research. Your line is open.

Just a little more clarification on the spread between revenue growth and the volume growth in cross-border, I know you touched a bit on Europe being a contribution to that. I think you said it was couple of hundred basis points. Was there other variables on maybe pricing or anything else? And then just thinking about keeping that gap bridged going through the year assuming cross-border where to say and the range it is now on the revenue side, is that sustainable? And then actually just quickly on e-com contribution to cross-border today versus where it's been in the past?

In terms of the delta, I mean, they real move from quarter-to-quarter between volume and revenue growth. In terms of pricing, we told you what kind of pricing we are doing this year and most of the pricing will become effective in the second half of the year. So, yes, it will impact the international revenue line to some extent and that could have an impact in terms of the delta between volume growth reported and revenue growth reported. On the margin, levels of volatility, differences within one year to another would have some impact. The biggest impact really is which corridor is a most effective, which one is a strong, which one is weak. And all those factors go into whether as a delta between volume growth and of course exchange rate of course, big factor. You've seen areas there that gap is really widened one way or another if it anyone exchange rate, so of all the factors I mentioned exchange rates is probably the most significant variable that drives the difference between volume growth and revenue growth on the international revenue line.

Our next question today comes from James Faucette with Morgan Stanley. Your line is now open.

I wanted to ask a higher level question and that’s around ongoing investment in FinTechs by some of the market participants from China et cetera. Have you seen any change or potential disruption from around the world in some of the places that AliPay and Tencent and another are investing, as they try to also get into the payments area outside of China? I know we heard about investment in places like India and Latin America et cetera. And so I’m wondering, if you're seeing any change in opportunity set or competitive environment from that perspective?

I think, outside of China, I think it's early days to comment. And in fact as you probably know, there has been a lot of changes inside of China that both AliPay and WeChat obviously deal with in terms of the PBOC pretty much for description and on then forcing processing through a local Chinese switch. They're in fact making them hold to our capital related to the balances in the stage wallet. So they are putting some changes on the yield, they can offer under mutual fund. So, there is whole bunch of changes as they might be somewhat preoccupied with in terms of the deal with from a change prospective in China itself. That said, I still expect them to continue to look to grow outside of China mostly in Asia. I will tell you that our business in India was up over 30 points in the last quarter and we’re continuing to -- we're continuing to be the market leaders in India. We're continuing to grow acceptance point, as you heard in my remarks, we saw, renewed two deals with two of the very large banks in India. So, certainly, we’re very pleased with the fact that our business is still moving along and growing at a very healthy pace in one of the market that at least prevailing wisdom is. That is the target for basically FinTechs players AliPay and WeChat.

And with that, we'd like to thank you for joining us today. If you have additional questions, please feel free to call or e-mail our Investor Relations team. Thanks again and have a great evening.

That concludes today's conference. Thank you for your participation. You may disconnect at this time.