Apr 29, 2009
Executives
Jack Carsky – Head Global Investor Relations Joseph W. Saunders - Chairman of the Board & Chief Executive Officer Byron H.
Pollitt, Jr. - Chief Financial Officer
Analysts
Jason Kupferberg – UBS Securities Julio Quinteros, Jr. - Goldman Sachs & Co.
James Kissane - Banc of America Securities Craig Maurer – Calyon Securities Tien-Tsin Huang – J.P. Morgan Donald Fendetti – Citigroup Christopher Brendler - Stifel Nicolaus & Company, Inc.
John Williams – Macquarie Sanjay Sakhrani - Keefe, Bruyette and Woods Bob Napoli - Piper Jaffray Dan Perlin – RBC Capital Markets
Operator
Welcome to Visa Inc.’ s fiscal second quarter 2009 earnings conference call.
All participants are in a listen only mode until the question-and-answer session. Today’s conference is being recorded.
If you have any objections you may disconnect at this time. I would now like to turn the conference over to your host, Mr.
Jack Carsky, Head of Global Investor Relations. Mr.
Carsky, you may begin.
Jack Carsky
Good afternoon and welcome to Visa Inc.’ s fiscal second quarter 2009 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 web cast live over the Internet.
It can be accessed on the Investor Relations section of our website at www.InvestorVisa.com. A replay of the web cast will also be archived on our site for 30 days.
A PowerPoint deck containing highlights of today’s commentary was posted to our website prior to this call. Let me also remind you that this presentation may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
By their nature forward-looking statements are not guarantees of future performance and as a result of a variety of factors actual results could differ materially from such statements. Additional information concerning these factors is available in the company’s filings with the SEC which can be accessed through their website and the Investor Relations section of the Visa website.
For historical non-GAAP or pro forma related financial information disclosed in this call the related GAAP measures and other information required by Regulation G of the SEC are available in the financial and statistical summary accompanying our fiscal second quarter earnings press release. This release can also be accessed through the Investor Relations section of our website.
With that, I’ll turn over the call to Joe.
Joseph Saunders
Thanks Jack. Thanks to all of you for joining us this afternoon.
To begin with I am very pleased to report that our fiscal second quarter results were consistent with the guidance and expectations we provided in our last quarter’s earnings call. Despite the challenging global economy, Visa delivered strong operational and financial performance benefiting from its diverse product set, our intense focus on expense management and the underlying worldwide secular shift from cash and checks to electronic forms of payment which continues unabated.
Our operating net revenues in the second quarter were over $1.6 billion, an increase over 13% over the year-ago period and right in line with our guidance this quarter. Our adjusted operating margin of 55% which benefited from our ongoing efficiency drive was solid as well and exceeded our stated full-year guidance of the mid to high 40% range.
Finally, adjusted second quarter net income of $553 million was 38% greater than the year-ago period. Looking forward from a macro standpoint the world economy continues to slow and while Visa is resilient it is not immune.
Aggregate payment volume growth in our international regions in the December quarter were a positive mid double digit rate and preliminary volume trends through March suggest only a modest decline since then. This of course will be reflected in our fiscal third quarter service revenues.
There continues to be regional bright spots around the globe where the trends are holding up even more substantially. In the U.S.
specifically, payment growth declined to approximately a 1% negative rate to the December quarter and we saw little change through the March quarter. We are encouraged that in aggregate over the five month period through April we have seen some stabilization in U.S.
payment volumes. Of course the more than 30% rate of decline in the year-over-year price of gasoline has resulted in difficult year-over-year comparables which will continue for the next few months before finally abating as we move into fiscal 2010.
Importantly, all of the results we have achieved today are in spite of foreign currency headwinds which we also expect to abate by the beginning of fiscal 2010. The underlying resilience of our business was evident from the contribution of debit credits in the U.S.
which Visa pioneered in the mid 1990’s. Debit in the U.S.
posted growth in each month of the March quarter as well as through the month of April. The continued strength of debt is attributable in part to that product’s strong correlation with non-discretionary spending categories which are holding up relatively well in the face of a tough economy.
In fact, in the quarter ended in December for the first time in Visa’s history the U.S. debit payment volumes eclipsed that of credit, an important milestone in the history of our business and a testament to the diversity of our product.
Process transaction growth was resilient as well, posting gains of 6% through the end of March with even better performance through this point in the month of April. Before touching on our near term outlook let me underscore several important things that I think you should take away from this call.
Our financial performance in fiscal 2009 is holding consistent with our expectations and guidance and reflects appropriate funding of all of our growth initiatives. Our business model has proven resilient in the face of today’s economic challenges.
Transaction growth led by debit has continued unabated in part driven by the secular shift from cash and checks to electronic forms of payment. This global shift in spending behavior is also being driven by Visa whose product innovation, expansion of payment categories and focused global advertising that moves consumers to want to transact at point of sale with Visa products.
With the global economy having some impact on revenue growth, Visa’s management team remains focused on delivering margins and adjusted earnings per share growth outlined during our IPO road show. We have therefore accelerated merger related cost efficiencies which have fully offset the shortfalls in revenue growth.
In the near-term the continuing challenge in cross-border payment volumes, foreign exchange and gas price headwinds and lapping price increases will have a negative effect on the back half of our fiscal year. For this reason, we still expect low single digit revenue growth in our fiscal third quarter although the fourth quarter should now be higher based on several factors including planned strategic pricing actions recently announced.
With this in mind we are confident in achieving the high single digit revenue range for all of fiscal 2009. With the anticipated contribution from expense savings we are on target to meet our 2009 diluted earnings per share growth guidance of greater than 20%.
Given the fiscal year-to-date results and our adjusted operating margin we are taking the full year 2009 guidance up modestly from currently mid to high 40’s range to the low 50’s range. Additionally, we are taking 2010 adjusted operating margins to the high 40’s to low 50% range.
Byron will touch on this further in a moment. Looking ahead to fiscal 2010 we are not changing the outlook we shared with you last quarter.
We continue to be cautiously optimistic we can regain our 11-15% revenue growth target assuming some recovery in the U.S. economy and cross-border volumes by early 2010 and we expect more favorable year-over-year comparison on gas prices and foreign exchange rates.
We expect to achieve or earnings per share and adjusted operating margin targets even if revenue growth is somewhat below our guidance range. Finally, we continue to focus on fine service given the historic times in the banking sector and the broader economy.
Consolidations in the banking industry may continue and Visa expects to be the beneficiary of this activity. We will do so by remaining committed to providing our clients with products and programs that move their businesses forward and add value to their customers.
Debit and our prepaid platform as well a money transfer and new technologies for payment at the point of sale will continue to differentiate Visa from the rest of the payments industry. With that let me turn the call over to Byron who will take you through the financial results and our current thinking on the financial guidance.
Byron Pollitt
Thank you Joe. As is now our custom let me begin with the financial highlights of our fiscal second quarter and then I will touch on trends we are seeing for the quarter ending in March as well as some early results for April.
As Joe mentioned it was a solid fiscal second quarter with strong revenue and earnings growth remembering that service revenues which represent 41% of our gross revenue are reported on a one-quarter lag. Total payment volume growth for Visa, Inc.
through the end of December 2008 in nominal dollars was a negative 1% falling to $675 billion over the same quarter in 2007. In the U.S.
debit delivered a solid 6% growth while credit was a negative 7%. In the December quarter for the first time in our history U.S.
debit payment volume eclipsed that of credit volume although credit still remains the payment vehicle of choice internationally. On a constant dollar basis, rest of world payment volume grew at 14% moderating from the 22% growth exhibited in the September quarter but still solidly positive, a further recognition of the secular resiliency of plastic in many emerging and developing economies.
As a reminder, cross-border volume growth in the December ending quarter slowed to zero on a constant dollar basis, down from low double digits in the prior period. The slow down was broad based.
Through the end of March it continued its decline and ended the period at a negative 6% constant dollar growth rate. Excluding Visa Europe, globally total cards outstanding for the period ending December grew 8% with just over 1.7 billion cards carrying the Visa brand.
Credit cards grew 2% to 813 million cards while debit rose 14% to 905 million cards. Debit card growth, primarily in the United States was positively affected by prepaid gift card programs that are obviously very popular around the December holidays.
International card growth of 13% remains very healthy as well. Overall credit card growth in the U.S.
has slowed as the result of re-trenchment in credit card marketing programs but this slow down is being more than offset by gains internationally. Transactions processed over Visa’s network which are reported on a real-time basis totaled $9.4 billion in the fiscal second quarter, an increase of 6% over the similar period a year ago.
It is important to reiterate a point we made last quarter and Joe touched on earlier. While payment volume and average ticket sizes have continued to moderate, our processed transactions which represent approximately 28% of our gross revenue continue to post solid growth as the underlying secular shift to electronic payments and more precisely to Visa continues.
Turning to the income statement, in the second quarter gross revenues of $1.9 billion were up 8% from the similar period in 2008. Volume and support incentives decreased by $43 million to $295 million representing 15% of gross revenue, in line with our full-year expectation with a range of 14-16% of gross revenue.
As you know, volume and support incentives are recognized based on current quarter results. The year-over-year decline was the result of lower 2009 fiscal second quarter payment volume growth as well as the effect of a one-time $70 million non-recurring charge in last year’s quarter partially offset by new contractual adjustments in the current quarter.
Net operating revenues were just over $1.6 billion, a 13% increase over the operating revenues reported for the second fiscal quarter 2008 and right in line with the guidance we gave last quarter. Moving to the individual revenue line items, service revenue was $804 million, up 2% over the prior year period and reflective of moderating year-over-year payment volumes in all regions for the quarter ending December 31.
Data processing revenue, reported on a current quarter basis was $544 million, up 10% over the prior year as processed transaction growth remains solid. International transaction revenue, also reported on a current quarter basis, were up 18% to $446 million as moderating cross-border volumes in the period were offset by competitive pricing modifications enacted during the fiscal third quarter of 2008.
Our adjusted operating margin was approximately 55%, above our stated mid to high 40% guidance as Joe mentioned. The increase in margin was due to lower volume and support incentives which are recognized in the current quarter as well as certain expenses shifting from our second fiscal quarter into the back half of the year.
I will provide additional color on our future margin expectations in a moment. On an adjusted basis, operating expenses for the second quarter declined $38 million or 5% year-over-year driven by lower costs across the board with the exception of network and EDT.
Our focus one expense reduction is broad-based and is driven by merger related efficiencies. All of our long-term product investments are being prudently funded.
While some expenses will increase in the back half of the year such as marketing, these are anticipated and are fully consistent with our guidance. Capital expenditures were $68 million in the quarter, approximately $33 million of which were dedicated to the build out of our new data center.
The center was partially brought on line in March and will be fully operational by the end of our fiscal fourth quarter. We anticipate the associated depreciation and amortization costs in the second half of the year to be about $12 million.
Moving on to the balance sheet, we ended the second quarter in excellent shape with very little debt and cash, cash equivalents, investments and restricted cash of $5.8 billion. Of this total, $2.1 billion is restricted cash which represents amounts sufficient to fully pay out the American Express and Discover settlements.
We also recently announced our intent to unlock up to 30% of the outstanding Class C shareholdings which will help alleviate some of the share overhang as we approach the ultimate unlock date of March 25, 2011. Conversion and sale of these shares will increase our public float but will have no dilutive impact on our shares outstanding.
As mentioned in our press release we are filing a shelf registration that will allow us the flexibility to quickly access the capital markets with either equity or debt instruments. The proceeds of any future transaction could be used for a variety of reasons but at this point in time we have no plans or reasons to go to market.
This action is nothing more than proactive capital structure planning. Now let me comment on the trends we are seeing that will impact our results in the coming quarter and fiscal 2009.
As we said last quarter we expect the back half of 2009 to be more challenging from a revenue standpoint and this continues to be our view. Specifically here in the U.S., payment volume growth has declined from a negative 1% growth rate in the December quarter to a negative 2% growth in the March quarter.
Deconstructing this further, credit volume growth ended the period at a negative 10% while debit volume growth continued in positive territory posting a 5% gain. More recently through the 28th of April aggregate U.S.
payment volume growth has trended back to a negative 1% growth rate. Credit growth continues at a negative 10% while debit growth has regained some momentum rising from a positive 5% in the March period to a positive 7% April month to date.
Regardless of the potential impact of an Easter shift, these growth trends are encouraging and consistent with performance we have seen over the past four months. As further perspective, certain categories of spend like gasoline, airlines and lodging continue to be challenged especially as they relate to credit volumes.
On the other hand, recurring bill pay, quick serving restaurants, healthcare and super markets continue to grow very nicely. These categories tend to favor debit over credit, even more so in this environment which is the foundation of some of the resilience of that product.
On balance, as Joe mentioned earlier, over the past several months we are seeing in aggregate some stabilization in the U.S. payment volume growth trends.
Having said that we do not know for certain whether we are seeing an inflection point. Outside the U.S.
for the quarter ending March 2009 we expect constant dollar payment volume growth rates to be solidly positive but to decline modestly from their levels at the end of December. As mentioned earlier, cross-border volumes in constant volumes were flat in the December ending quarter and in the March ending quarter have declined to negative mid single digits.
Month to date in April we have seen similar results. Processed transaction growth ended the March period at 6% while month to date in April has reached 9% also a testament to the strength and resilience of debit as a greater percentage of processed transactions are debit based.
Now let me comment on what we see over the coming year as far as our operating performance is concerned and how it may affect our current guidance. Based on our second quarter results and our improved balance of year outlook we are confident about delivering net revenue growth in the high single digits and as Joe said we continue to expect revenue growth in the third quarter in the low single digits while the fourth is projected to be modestly higher.
Also as a reminder, this second half outlook encompasses a more pronounced negative foreign exchange impact which on a year-over-year basis is now expected to reduce revenue growth by about 4 percentage points in each quarter. Given the strong adjusted operating margin exhibited this quarter we are adjusting up our 2009 guidance to the low 50% range.
For 2010 recognizing the general uncertainty around the economy, our attention to continuing investing for future growth and the impact of higher depreciation and amortization expenses we are moving our guidance from mid to high 40’s to the high 40’s low 50’s range. Most importantly, and to reiterate Joe’s statement, we remain on track to deliver our guidance of annual adjusted diluted earnings per share growth of greater than 20% for 2009.
Looking to 2010 given the scenario that includes some recovery in the U.S. economy and in cross-border travel, combined with more favorable comparisons in gas prices and foreign exchange rates we would expect to exceed 20% earnings per share growth.
That concludes my comments so I will turn the call back over to Joe.
Joseph Saunders
Let me conclude by saying that while the economy continues to present challenges, Visa remains in a strong position to weather the storm and more importantly realize operating advantages when the economy does finally turn around. We have and continue to lay the ground work for an effective and efficient expense structure, we are making the proper investments in products and processes to drive incremental growth in the future and most importantly we continue to work with our clients to provide them the best possible credit and debit products and processing solutions to meet their business needs.
Over the longer term, the success of these initiatives will be recognized in the strength of our relationships with our clients and the growth of our business with each of them wherever they are located around the world. Thank you all.
Of course thanks Jack for introducing me. With that we will take any questions.
Operator
(Operator Instructions) The first question comes from the line of Jason Kupferberg – UBS Securities.
Jason Kupferberg – UBS Securities
I wanted to start with a question on the margins. Obviously nice to see the raise in the outlook there.
I guess it begs the question of thinking sort of longer term beyond 2010, how high can the margins in this business theoretically go understanding that obviously the business scales very well, you have accomplished some very significant structural cost take out which should be even more beneficial when volumes reaccelerate but at the same time people shouldn’t expect huge pricing power to prevail indefinitely and you are continuing to invest in the long-term growth of the business. How should investors think about the longer term margin potential of this business in your opinion?
Joseph Saunders
I don’t think we are ready to predict that at this particular point in time. I think that in the current situation in the current environment and the current economy there are things that we probably are doing somewhat less aggressively because they simply aren’t things that would gain traction right now.
It certainly doesn’t make sense to over-advertise in an environment where there is going to be less credit usage for instance, as an example. There is a lot of other things.
I think we have to carefully consider that but we are obviously focused on expense control and efficiency and we will never stop focusing on that in the future. So we will see.
Jason Kupferberg – UBS Securities
How are you guys thinking about the broad impact on the card industry potentially if some of the currently proposed legislation on non-interchange ends up becoming law especially if this ends up including some of the more restrictive elements that potentially go beyond the Fed’s UDAP regulations that were approved in late 2008? Is some of that factoring into your thinking as you are outlining the top line outlook for us into fiscal 2010?
Joseph Saunders
Anything that affects our clients ultimately affects us. We are as concerned as they are that whatever transpires is done thoughtfully and in collaboration.
We think that we do not believe that what is happening and what will happen will mark the end of the credit or debit card business in the United States and reasonably certain that we will continue to see increasing volumes as the economy recovers. But these are troublesome times and there are many issues out there and while we are not directly affected by UDAP or some of the proposed regulations and bills that are attached to it or some of the opinions that our President has, we are concerned and ultimately impacted.
So we are going to keep our eye on that and as I said try to help make sure it gets thoughtfully enacted.
Operator
The next question comes from Julio Quinteros, Jr. - Goldman Sachs & Co.
Julio Quinteros, Jr. - Goldman Sachs & Co.
Can I start with you real quick just on trying to reconcile the commentary for cross-border volumes in the March quarter relative to the revenue growth you posted there. I think it was roughly 18%.
I think you said it was flat but revenue growth was 18%. Is the delta between that zero and 18% purely pricing and some of the adjustments you are making there?
Joseph Saunders
That’s right. We are annualizing out, this will be the last quarter of annualizing price adjustments that we are taking in the third fiscal quarter of 2008.
So you are seeing the last impacts of that annualization.
Julio Quinteros, Jr. - Goldman Sachs & Co.
There was another price commentary you made that would have kicked in April as well?
Joseph Saunders
April of?
Julio Quinteros, Jr. - Goldman Sachs & Co.
2009 I guess.
Joseph Saunders
Not international. No.
Julio Quinteros, Jr. - Goldman Sachs & Co.
I’m sorry on North America. Excuse me.
Joseph Saunders
I’m not familiar with what you are referring to. The last substantive adjustment we made that would have been impacting this quarter would have been the international adjustment third quarter fiscal year 2008.
Julio Quinteros, Jr. - Goldman Sachs & Co.
Nothing else you are expecting going forward in fiscal 2009 at this point?
Joseph Saunders
Say that last part again?
Julio Quinteros, Jr. - Goldman Sachs & Co.
You are not expecting anything else from the international side or domestically going forward?
Joseph Saunders
That is correct. As you move into the current quarter you should expect that the impact of that annualization to be felt or the absence thereof.
Operator
The next question comes from James Kissane - Banc of America Securities.
James Kissane - Banc of America Securities
Just following up on that question, in the release you talked about right sizing the pricing structure. Can you put a little more color around that?
Joseph Saunders
I think that we have said that from the beginning in the road show and our guidance we have always suggested a modest amount of growth for the time being is going to come from pricing changes and indeed it has. Indeed I think it will although I think on a somewhat reduced basis.
As Byron just said there are no pricing changes that we made in the third quarter that are going to impact our earnings as I said there are some modest adjustments that were made that will affect us and have a positive effect in the fourth quarter.
James Kissane - Banc of America Securities
Is that like 1-2%? Can you put a range around it?
Joseph Saunders
It is a little too soon to call.
James Kissane - Banc of America Securities
You also touched on consolidation. Any update on timing of contract renegotiations as a result of the consolidations like Chase and Wamu?
Joseph Saunders
I would certainly like to give you some definitive information and you can rest assured that I will as soon as I can.
James Kissane - Banc of America Securities
Is it a 2009 event?
Joseph Saunders
We will let you know as soon as we can.
Operator
The next question comes from Craig Maurer – Calyon Securities.
Craig Maurer – Calyon Securities
I wanted to as you if you could discuss what your planning looks like or your thought process looks like around if the current swine flu was to expand to SARS-like proportions.
Joseph Saunders
Well we have looked at that obviously and we at this exact point in time based on what we know right now and of course this is something that is unfolding but as we look at it and we look at SARS this would not cause us to back off of the guidance we just gave you. We would still be looking for high single digit revenue growth for the year.
Obviously if something happened it might be a little bit less than if it doesn’t but nevertheless we are talking the same range. One thing that you should keep in mind and everybody should keep in mind, when SARS occurred the cross-border volume was pretty robust and growing pretty rapidly and then it subsided from that.
There was only one really bad quarter during the SARS epidemic and then it was totally back within four quarters and actually after the one bad quarter it went back up about 50%. Now nothing says this is going to be the same kind of activity but the other very important thing to remember is a considerable number of people as we have continued to remind everybody in our quarterly reports have already stopped traveling.
You don’t have the same base of leisure travel that is going on today as there was when SARS occurred. They didn’t need the flu epidemic to stay off the airplanes.
Craig Maurer – Calyon Securities
So that is purely from an economic pressure point of view that people have stopped traveling.
Joseph Saunders
Obviously they have. Our cross-border volume has gone down.
Craig Maurer – Calyon Securities
Another question on cross-border. Would you be able to tell me around what percentage of cross-border transactions occur in the United States from people outside the U.S.
versus the other way around?
Byron Pollitt
We haven’t commented on that level of break down. We were prepared to be a little more specific around Mexico if that question was targeted but we haven’t made a decision yet to regularly disclose that level of detail.
We will take that under advisement though and consider that going forward.
Craig Maurer – Calyon Securities
So how are you doing in Mexico?
Byron Pollitt
If we were to isolate Mexico the impact on revenue or the contribution to revenue as it relates to cross-border travel is less than 1%. That is primarily reflected in the international fees.
Even if it turned out to be a significant impact on cross-border related to Mexico as Joe mentioned earlier we are still very comfortable reaffirming the high single digit revenue guidance for the year.
Joseph Saunders
When Byron says less than 1% he is saying about 1% of gross revenues.
Operator
The next question comes from Tien-Tsin Huang – J.P. Morgan.
Tien-Tsin Huang – J.P. Morgan
I just wanted to ask a couple of questions on the March/April trends. It was nice to hear the stabilization in the U.S.
did better than what we expected. Can you detail again what you are seeing outside the U.S.
in terms of more recent trends? Maybe more detail across the four international regions?
Some flavor?
Joseph Saunders
With regard to payment volume trends which I think you are referring to, remember that we report them on a one quarter lag. We don’t have that complete data yet.
What we did say was that with regards to payment volume growth on a constant dollar basis, rest of world in the December ending quarter which was the basis for our service revenue in the current quarter grew at 14% and we would expect preliminary results suggest that the payment volume growth rest of world in constant dollars will remain solidly profitable but at a modestly lower level than what we experienced in the prior quarters.
Tien-Tsin Huang – J.P. Morgan
[discuss] some of the preliminary discussions with some of the international banks. You can come to that conclusion right?
Joseph Saunders
Yes.
Tien-Tsin Huang – J.P. Morgan
The process transactions, Byron, glad to hear that up 9% I believe in the April month. Can you break that out as well for us between the U.S.
and rest of world if possible or is that not available?
Byron Pollitt
What I can give you, first of all the 9% was month to date through the 28th for April. We only have that for the moment at an ink level but if we were to go back to the prior quarter for the March ending quarter growth rates were mid single digits for both the U.S.
and rest of world.
Tien-Tsin Huang – J.P. Morgan
Last a housekeeping question. Just this accelerated Class C release program, can you give us some detail on how that might get executed?
Byron Pollitt
Recall that each Class C share represents a one for one conversion ratio into our publicly traded A shares. Today we have 151 million of C shares or A share equivalents all of which are locked up.
That represents about 20% of our outstanding shares. All of those shares today unlock on March 25, 2011 which was not a situation that we wanted to allow to happen.
Therefore, proactively we wanted to begin unlocking those shares early to release some of the pressure that otherwise would have occurred in 2011. 30% or roughly 45 million C shares have the opportunity to unlock between July 1 of this year through September 30.
When we say unlock that means that the banks that own them have the opportunity to sell them. It doesn’t mean they will sell them.
It means they have the opportunity to sell them. So we will be ready by July 1 to make a request from our member banks, our non-U.S.
banks, all C shareholders are non-U.S. banks.
We will be prepared to process requests for them to unlock shares and make them available for sale. Once a C share sells it automatically becomes an A share and is added to our float.
As a further matter of perspective we currently trade about 9.5 million shares a day. So 30% of the 151 million is roughly 45 million shares or about five days worth of trading.
So we would expect that the unlock would occur during the course of that window, July 1 to September 30, with very little disruption to our trading volume or price.
Tien-Tsin Huang – J.P. Morgan
So you will get the description level and that will probably dribble out so there is not necessarily a secondary there or direct share purchase program at this stage.
Byron Pollitt
That is exactly right. We expect requests to come in during the course of the window.
We will unlock promptly so there would be no secondary or any one day or several days that we would expect to have significant transactions.
Operator
The next question comes from Donald Fendetti – Citigroup.
Donald Fendetti – Citigroup
I was wondering if you could provide an update on the regulatory environment in the U.S. and outside if there are any hot spots.
I know there was a little bit of talk about interchange on the pending TARP bill but it looks very unlikely. If you could provide some color that would be great.
Joseph Saunders
I don’t know that I’m in the business of predicting what Congress will do in this environment but we feel quite good about any interchange legislation not being in UDAP for loaning or [Welsh] or any other bill for the time being. We seem to be making some progress, although I do not have an official announcement for you, in Australia.
Maybe New Zealand. There has been some things that are going on in Europe which don’t directly affect us.
I think generally we are in pretty good shape other than the comments I made earlier about UDAP and how it affects us.
Operator
The next question comes from Christopher Brendler - Stifel Nicolaus & Company, Inc.
Christopher Brendler - Stifel Nicolaus & Company, Inc.
Can you talk about your guidance for fiscal 2010? I think it includes a re-acceleration of revenue growth but yet the operating margin guidance includes the high 40’s.
Why would the operating margin fall back into the 40’s on that forecast in your mind?
Joseph Saunders
We said the high 40’s to low 50’s. Under the current circumstance you can tell we are running in the low to mid 50’s and before doing all of our formal planning or anything we are saying it will likely be in that neighborhood next year.
Byron Pollitt
I would just reiterate something Joe said earlier which is this is an unusually difficult time for many of our clients. There has been re-trenching in card marketing programs.
There is a more limited expectation that were we to invest in growth initiatives there would be the same level of traction today as there would be if the environment were more favorable. So we are just being cautious about expressing margin expectations, recognizing there is a lot of growth runway with this company and with this industry and once the economy improves we want to be positioned to take advantage of it.
Christopher Brendler - Stifel Nicolaus & Company, Inc.
As a follow-up Byron, are you talking about helping your customers does that mean increased incentives and rebates? Increased marketing spend?
Both? Are we at a depressed level right now?
Will this rebound in 2010?
Byron Pollitt
Good question. As the autonomy improves as payment volume growth improves for our clients we would expect the way our incent formulas work we would pay out more incentives because more would be earned and we would be thrilled to do so by the way.
With regard to marketing that was something Joe specifically called out as an example of an expense that were the environment more favorable and we believe that there would be more traction and response to marketing we would be fully prepared to accelerate our ability to grow payment volumes and revenues.
Joseph Saunders
The short answer is I think not necessarily to expect operating margins to go over there now at any time in the near future.
Christopher Brendler - Stifel Nicolaus & Company, Inc.
A separate question, is the C class release and the subsequent increase in flow give you additional capacity to do share purchase and any thoughts on excess capital or what your plans are to do with it?
Byron Pollitt
The answer is yes to the first question. When a C share converts it becomes an A.
What that means as an A share it is not owned by any of our member banks. Therefore, the amount of float that would be available for us to repurchase and keep public ownership above 50% would increase.
So the answer to your first question is absolutely yes. With regard to the second question, we have continually reaffirmed our intent to use excess cash to pay dividends and to repurchase shares under a strong belief that excess cash should be returned to shareholders.
So we remain very committed to that principle.
Operator
The next question comes from John Williams – Macquarie.
John Williams – Macquarie
I was hoping you could provide a little bit more color on what you are seeing from your bank customers in terms of their appetite for things like debit products and prepaid and money transfer particularly when you look at advanced credit type products in this environment?
Joseph Saunders
I think that I’m not sure it is an appetite issue with our clients. I think it is a function of the economy and what people are willing to do and what they are capable of doing and how the banks assess that, how financial institutions assess their capabilities so in other words how much credit are they going to give anybody in this particular environment.
So, as we said, we are getting a lot more traction off of our debit volume and our debit transactions both in dollars and in numbers of transactions. I would expect that to continue in the moderate run.
I don’t think that the credit card business is going to go away but I think we are operating in some relatively troubled times. I think that our clients are pretty smart about their businesses.
I think they know what they are doing and I think they will promote those things they think will resonate at a particular point in time and we are going to have to wait and see what happens in the economy before I can accurately or totally predict exactly what they are going to do.
John Williams – Macquarie
How about on money transfer? Is there any specific commentary you can offer?
Joseph Saunders
I don’t have anything specific to say about it but we have talked about it as one of our initiatives. We have not abandoned that notion at all.
We did make an announcement I believe last quarter about an arrangement we have with MoneyGram where people can transfer money between Visa accounts at any MoneyGram location. That is not the end of what we are going to do.
It is barely the beginning and we will bring you up to date on it when we have firmer and more specific news.
Operator
The next question comes from Sanjay Sakhrani - Keefe, Bruyette and Woods.
Sanjay Sakhrani - Keefe, Bruyette and Woods
I guess I was hoping you could help me with the two larger expense lines a little bit more. I guess on marketing could you help us think about how much discretion you have to pull if needed on that line and some of the deflationary pressures you are seeing in that market?
Then on the personnel line could you just talk about kind of where we are as far as headcount rationalization is concerned and how we should think about that line going forward?
Joseph Saunders
I’ll talk about the marketing and I will let Byron talk about the people. As far as the marketing goes, we have an ROI model.
We pay attention to the return that we get. We are focusing all of our advertising and all of our marketing expense right now on increasing usage so we are trying to keep that transfer of attitude from cash and checks to plastic alive and we keep it alive with our advertising.
If you look at our new Go campaign in the United States it is totally debit card focused. It is totally talking about using a debit card to buy a pizza, to go to the aquarium, to get a song on your iPod and any one of a number of things instead of using a check or instead of using cash.
So we measure the effectiveness of that. We will continue to spend the amount of money we feel is appropriate as it relates to helping us increase the volume and therefore increase our revenue and I think we have done a pretty good job of being disciplined.
Of course we can ratchet back on the category for a period of time without getting substantially harmed. We will do what is appropriate to do in the environment we are in so that we can continue to deliver what we promised we would deliver.
Byron Pollitt
On the personnel side if we were to elevate for a moment and take you back to our road show commitment we had a commitment to reduce $300 million of costs associated with the merging of the six businesses that currently comprise Visa, Inc. that took place in October 2007.
What we have said, and rationalizing personnel costs were an important component of that, we would expect that to be largely complete, the merger related synergies by the end of this year and at that point as you can appreciate with a company that is now continuing to assimilate six different companies we have opportunity to re-engineer our processes so they are less regional based and more global based reflective we are now operating as a global enterprise. So the productivity improvement opportunities that are always present with every company become more of a routine opportunity for us also translates that it is heavier sledding to get those because you are re-engineering processes, you are standardizing a systems platform so it takes some investment often to get those gains.
As Joe said we are a business that is maniacally focused on delivering expense improvement as a part of our value proposition and we will continue that focus unrelenting.
Sanjay Sakhrani - Keefe, Bruyette and Woods
One quick follow-up, in the guidance you talk about certain economic recovery functions. What exactly are those?
Are you expecting like a decelerating rate of deterioration or are there any specific data points you guys are talking to?
Joseph Saunders
What we said were four things. First that in early fiscal year 2010 there would be some recovery in U.S.
payment volume or the U.S. economy and cross-border travel.
Recovery means that we are starting to see some year-over-year growth. Recovery is not a lower decelerating.
Recovery is some year-over-year growth. We know that in the first fiscal quarter, the quarter beginning in October we know that was the quarter where gas prices took a significant reduction from where the had been through most of 2008 and we also know that during that quarter is when the U.S.
dollar strengthened considerably against an array of currencies. So once we get into that October/November time frame we are now lapping those two situations.
So from that standpoint we feel pretty confident those two will happen. What it really depends on is some recovery in U.S.
payment volumes and in cross-border travel.
Operator
The next question comes from Bob Napoli - Piper Jaffray.
Bob Napoli - Piper Jaffray
There were some discussions I guess reported in some newspapers I guess that Visa was looking at an acquisition of a processing division of a large bank here in Ohio not too long ago. I just wondered what your thoughts are on acquisitions in the U.S.
or internationally in the processing market and the merchant acquiring side of that business or otherwise.
Joseph Saunders
That is a good question. There was something in the paper and it was about a processing operation in Ohio and we obviously didn’t do it and decided we didn’t want to do it.
We also purchased, as you know, YCS which is a processing system that we use outside of the United States. It is multi-currency and multi-lingual and it is easier to deploy than the Visa Net would be and so we made that transaction.
We are looking at other transactions that would put us at the center of the payments business in other regions around the world, particularly emerging regions. It is not clear to me there is anything in the offing tomorrow or the next day but we are alert to what is going on and we are paying attention to it and we will make moves that we think are strategically appropriate.
Bob Napoli - Piper Jaffray
You are talking about merchant acquiring businesses and related?
Joseph Saunders
In the end we are not a merchant acquirer. We own 10% of an acquiring business in Brazil which people have talked about potentially being IPO’d.
We own small practicing entities in several other Latin American countries. We may participate in an acquiring business in an emerging economy but if we did it would essentially be to speed up the terminalization of that region and we would not ultimately desire to be in the acquiring business.
But it may or not may be necessary to get something going.
Bob Napoli - Piper Jaffray
On the percentage, do you know what percentage of your credit card payment volume is on cards that do not revolve? No borrowing.
Approximately?
Byron Pollitt
I think the way we have tried to approach that is if you take, we can answer it from the U.S. perspective.
If you take our total U.S. consumer payment volume, recognizing that a little over 50% is now on debit which by definition doesn’t revolve and then you add into that those credit card accounts where during the course of the year less than half the credit line renews and you add those two together we have a little over 90-95% of our U.S.
consumer payment volume would fit that definition. We view saying that less than half the credit line is used throughout the year is basically saying that is an account that generally doesn’t revolve for most of the year.
Operator
The final question comes from Dan Perlin – RBC Capital Markets.
Dan Perlin – RBC Capital Markets
With this corresponding shelf registration and I understand you are kind of saying it is just good capital management but I am just wondering can you give us an update on this Visa put. I suspect you would want to issue some debt for whatever reason you would want to handle that.
Joseph Saunders
On the put there is no update. We have no reason whatsoever to believe that Visa Europe is interested in the put.
Were they to put we would of course look at that as a possible source of financing but that has absolutely nothing to do with the shelf registration. As we were approaching the December time period for replenishing our escrow account we decided in the end to do a direct purchase of the shares, the permission for which was required by our shareholders in the event that permission which required a super majority voting provision was not given we had a back up course of action to do a follow-on underwriting.
We prepared for that in parallel. With what we found since we had the favorable vote to do it directly in December we had basically done all the work for a shelf registration and therefore decided to go ahead and file it.
Dan Perlin – RBC Capital Markets
Does the new data center provide you any near-term opportunity to lower your unit costs and is there a corresponding data center that is closing as a result? I forget how that is.
Joseph Saunders
The answer is yes to both questions. So this replaces an existing data center and with that replacement it brings in a significant capacity increase to our existing network and leveraging that capacity increase will allow us to bring down per transaction charges.
Dan Perlin – RBC Capital Markets
Is that part of the embedded numbers thinking about 2010 or is that part of the embedded number as we think about back of 2009?
Joseph Saunders
2010 and beyond.
Dan Perlin – RBC Capital Markets
Would you be willing to keep incent fees moderately higher than what the volume would suggest to take opportunities to get some greater market share?
Byron Pollitt
We deal with each of our clients on a basis that advantages both the client and Visa. That is about all I…
Dan Perlin – RBC Capital Markets
Care to say about that. Understood.
Jack Carsky
Thank you all very much. If anybody has follow-up questions feel free to call Investor Relations.
Operator
Thank you for participating in today’s conference call. The call has concluded.
You may go ahead and disconnect at this time.