Oct 27, 2009
Executives
Jack Carsky - Investor Relations Joseph W. Saunders - Chief Executive Officer Byron H.
Pollitt, Jr. - Chief Financial Officer
Analysts
Jason Kupferberg - UBS Securities Craig Maurer - Calyon Securities David Hochstem - Buckingham Research Tien-Tsin Huang - J.P. Morgan Thomas McCrohan - Janney Montgomery Scott Robert Napoli – Piper Jaffray Christopher Brendler - Stifel Nicolaus Moshe Orenbuch - Credit Suisse Greg Smith - Duncan-Williams Christopher Mammone - Deutsche Bank James Friedman - Susquehanna Financial Group
Operator
Welcome to Visa Inc.’ s fiscal fourth quarter and full year 2009 earnings conference call.
(Operator Instructions) I would now like to turn the conference over to your host, Mr. Jack Carsky, Head of Global Investor Relations.
Jack Carsky
Good afternoon and welcome to Visa Inc.’ s fiscal fourth quarter and full year 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 webcast over the Internet.
It can be accessed on the Investor Relations section of our Web site at www.investor.visa.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 Web site 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 those factors is available in the company’s filings with the SEC, which can be accessed through the SEC's Web site and the Investor Relations section of the Visa Web site.
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 fourth quarter earnings press release. This release can also be accessed through the Investor Relations section of our Web site.
With that, I’ll turn over the call to Joe.
Joseph W. Saunders
Thank you all for joining us. I am pleased to report that our fiscal fourth quarter results were once again consistent with the guidance and expectations we provided during our last earnings call.
Several metrics even exceeded our expectations. While the U.S.
and the rest of the world were still picking themselves up from the economic storm of the past year, we are beginning to see some very early signs of stabilization and some positive trends in aggregate [inaudible] . Earnings for the fourth quarter on an adjusted basis were $0.74 per diluted share.
For all of 2009, adjusted earnings were $3.23 and were positively impacted by the sale of our nearly 10% equity ownership in Visa Net de Brazil last quarter. On an adjusted pro forma basis that excludes this gain, Visa earned $2.92 per diluted share, a 30% increase over 2008 and well above our stated earnings goal.
Net operating revenues in the fourth quarter were almost $1.9 billion, a 10% increase over the year-ago period and above our guidance of mid-single digit growth due to the better than expected processed transaction growth, cross-border volumes, and our previously announced pricing modification on domestic processed transactions. Net operating revenues for fiscal 2009 were $6.9 billion, a 10% increase over 2008 and moderately higher than we had re-forecast earlier this year.
Our adjusted operating margin was 49% for the fourth quarter, modestly diluted due to the reorganization charges and marketing investments related to creative development for the Olympics, the FIFA World Cup, and our recently announced Courtesy of Progress campaign. For full year 2009 our adjusted operating margin was 53%, consistent with our guidance of low 50s.
For fiscal 2010 we are increasing our margin guidance to the mid-50% range. Byron will speak to this further momentarily.
Adjusted fourth quarter income was $552.0 million, a 23% increase over the year-ago period. For the full fiscal year 2009, adjusted net income was $2.4 billion, excluding Visa Net de Brazil, pro forma adjusted net income was $2.2 billion, representing a 26% increase over the adjusted 2008 period.
I will let Byron get into the specifics on payment volume trends but in general we are beginning to see some very early signs of improvement, domestically and internationally. While we cannot predict the ultimate speed or size of the economic recovery, or if the flu pandemic will have any meaningful effect on cross-border volumes, we are feeling more positive about trends for the first time in a long while.
Another clear sign of progress is in processed transactions. For the September quarter we reported processing $10.5 billion transactions, a 9% increase over the prior-year period as the migration to electronic payments continues on a global basis.
Just in the month of September, the growth rate expanded to 10% and that has been the trend through the 18th of October. From a marketing and advertising perspective, we have made immeasurable strides over the past year founded on an hour-wide-based analysis of our marketing spend.
We began, and will continue, to move away from brand advertising towards more specific product line initiatives like debit, foreign credit, prepaid, and mobile. We are devoting more of our marketing dollars to the digital space globally and we are focusing more of our spending on key growth markets like Brazil, Russia, and the GSCC.
We expect to maintain a similar, or slightly elevated, level of marketing spend in 2010 over that of 2009, given the importance of staying ahead of the curve as key economies across the globe begin to rebound. All in all, our financial performance in fiscal 2009 was solid, especially given the economic environment we are operating in.
We delivered on all of our financial goals and even exceeded them in several metrics while investing in all of our growth initiatives and executing very effectively on our efficiency programs. This led to record free cash flow in fiscal 2009 of $3.3 billion, inclusive of the Visa Net de Brazil sale, which allowed us to return over $2.1 billion of excess cash to our shareholders over the course of the year.
In this same vein, last week we announced an increase to our annual dividend of 19% and today announced the authorization of a share repurchase program totaling $1.0 billion. We are extremely pleased that Visa is able to continue to build on our success in driving total return to our shareholders and today's buyback announcement and the recent dividend increase are evidence of our continued commitment to our shareholders in 2010.
In addition to the mid-50s operating margins mentioned earlier, as we look ahead we are increasingly confident that we can regain the low end of our 11% to 15% annual net growth target and deliver another year of better than 20% adjusted EPS growth. We are also establishing a similar EPS growth target for 2011.
We believe that we have positioned areas of our business to take full advantage of the economic rebound as it materializes. We will provide additional information around our future expectations in early March at what will be our inaugural investor day.
From an investment standpoint we have identified those opportunities that will result in the greatest return on investment over the near term and will continue to be a critical part of our longer-term growth, both domestically and globally. These include acceptance, debit and prepaid, global processing, and of course, enhancing our presence on the Internet.
I will speak to these further at the end of the call. We have continued to make good progress in Washington and believe that the interchange debate increasingly is viewed as a business-to-business issue that it is, not the consumer issue the merchants' lobby has attempted to portray it as.
We are focusing our resources on educating the proper constituencies to the facts with the debate rather than allow rhetoric and misinformation frame the discussion, and to that end we look forward to the completion of the GAO study later this year. In concert with our Washington efforts, earlier this month we launched a marketing program designed to better define Visa's role as a payments network and articulate the powerful ways that digital currency advances economic empowerment and business efficiencies globally.
Titled the Currency of Progress, the initiative uses real-life stories to demonstrate how the migration from cash and checks to electronic payments has helped individuals access their money more securely and conveniently, build stronger more efficient businesses, and enabled governments to be more cost-effective and responsive to their citizens. The reliability and speed of Visa digital currency is often taken for granted and not enough people understand that Visa is a global payments technology company that enables financial institutions and merchants to deliver the value of electronic payments to the world.
Finally, earlier today we issued a press release announcing the renewal of our sponsorship of the Olympics games for an additional eight years, through 2020. This contract renewal is a testament to a long history of working relationship with the International Olympic Committee and really speaks to the global nature and reach of Visa's business.
We also recently resigned our sponsorship of the NFL through 2014, and along with our sponsorship of the FIFA world cup, these three premier properties keep the Visa brand and promise in front and center to global audiences. With that, let me turn the call over to Bryon, who will take you through the details of our financial results, and then I'll be back to share my views for the coming year.
Byron H. Pollitt, Jr.
Let me begin with the financial highlights for our fiscal fourth quarter and full year 2009, then I will touch on payment volume trends we are seeing for the September quarter, as well as some early volume and transaction results for October. As Joe previously mentioned, it was another solid quarter with better than expected revenue growth and earnings growth in line with our guidance.
As you may recall, service revenue for the September quarter is based on payment volumes realized during the June quarter. Accordingly, total payment volume growth for Visa Inc.
through the end of June, in nominal dollars, was a negative 2% over the same quarter in 2008, an improvement over the negative 5% recorded in the March quarter. On a constant dollar basis payment volume grew a positive 2% in the June quarter, unchanged from the March period.
In the U.S. payment volume in the June quarter was a negative 3% over the prior year, unchanged from the March period.
Debit delivered a positive 5% growth, while credit growth was a negative 10%, both unchanged from the March quarter. Debit payment volume continues to account for an every greater percentage of total U.S.
volume, although credit remains the prevailing choice in the rest of our regions. On a constant dollar basis, rest of world payment volume grew at 8% in the June quarter, moderating from the 10% growth exhibited in the March quarter, but still solidly positive, a continuing recognition of the secular resiliency of plastic in many emerging and developing economies.
Cross-border volume growth remained negative in the June quarter, posting an 8% decline on a constant dollar basis over the prior-year period. This represented a moderate decline from the negative 6% reported in the March period.
As in the previous quarters, the slowdown remained broad-based. Transactions processed over Visa's networks, which are reported on a real-time basis, totaled $10.5 billion in the fiscal fourth quarter, an increase of 9% over the similar period a year ago and up slightly from the 8% growth rate we saw in the June quarter, an encouraging sign.
Turning to the income statement, in our fiscal fourth quarter, gross revenues of $2.2 billion were up 10% from the similar period in 2008. Volume and support incentives, as a percentage of gross revenues, came in at 15%, down from the third quarter's elevated level of 17%.
For fiscal 2009, gross revenues were $8.1 billion, up 10% over fiscal 2008. Volume and support incentives rose only 6% as a result of the lower payment volume we experienced over the course of the period.
Volume and support incentives represented 15% of gross revenue for the year. Based on our expectation for increased volumes and revenue in 2010, we are expecting volume and support incentives to increase modestly to the 16% to 17% range of gross revenue.
Net operating revenues in the quarter were almost $1.9 billion, a 10% increase over the operating revenues reported for the fourth fiscal quarter of 2008. This was ahead of the revenue guidance we provided last quarter, due to better than anticipated processed transaction growth and cross-border volume, as well as previously disclosed pricing actions.
As noted earlier, full fiscal year net operating revenues were $6.9 billion, a 10% increase over 2008 and a little above our expectations. Moving to the individual revenue line items for the fourth quarter, service revenue was $808.0 million, up 3% over the prior year period and reflective of still relatively depressed payment volumes in all regions for the quarter ending June.
Data processing revenue, reported on a current quarter basis, was $727.0 million, up 33% over the prior-year period, based on strong processed transaction growth of 9% and the effect of recently announced pricing actions. International transaction revenues, also reported on a current quarter basis, were down 1%, to $507.0 million, due to moderating cross-border volumes in the period.
Our adjusted operating margin was 49%, slightly below our quarter guidance of low-50s. For the entire fiscal year, the adjusted operating margin was 53%, in line with our yearly guidance.
I will provide additional color on our future margin expectations in a moment. On an adjusted basis, total operating expenses for the fourth quarter were $960.0 million, an increase of $17.0 million, or 2% year-over-year, primarily driven by higher personnel costs.
For all of 2009, adjusted total operating expenses were $3.2 billion, a 4% decline from the level of fiscal 2008. While our focus on efficiency gains will continue into 2010, our expectation is that with the majoring restructuring initiatives behind us, expenses for the coming year will generally be flat to those of 2009.
On a sequentially quarter basis, we saw higher expenses in several line items, including personnel and marketing. The higher personnel spend was primarily due to reorganization charges, as well as some incentive-based costs that we do not expect to recur on a go-forward basis.
Marketing costs were sequentially higher as we continued to support our Internet advertising initiatives, our Gold advertising campaign, and the Currency of Progress initiative. Additionally, we incurred creative and production costs associated with the upcoming Winter Olympics and FIFA World Cup.
Overall, in 2010, we anticipate spending less than $1.0 billion on marketing and advertising. In aggregate, our total expenses in the first fiscal quarter of 2010 should look more like the third quarter of fiscal 2009 rather than the fourth fiscal quarter.
Capital expenditures were $101.0 million in the quarter, which substantially completes the spending on our new data center that is now completely online. For all of fiscal 2009 capital expenditures were $306.0 million, at the low end of our expectations going into the year.
For fiscal 2010 we expect capital expenditures to be in a range of $200.0 million to $250.0 million. Having fully brought the new data center online, we will be realizing a higher level of depreciation and amortization in 2010 and beyond.
As a point of reference, we expect that depreciation and amortization will incrementally rise by approximately $30.0 million for all of fiscal 2010. Moving on to the balance sheet, we ended the fourth quarter and the year in very strong shape with negligible debt and cash, cash equivalents, investments, and restricted cash of $6.6 billion.
Of this total, $1.7 billion is restricted cash, which represents amounts sufficient to fully pay out the American Express settlement, with another $1.0 billion that is currently uncommitted. During the fourth quarter, we made the final Discover payment under the terms of our settlement.
As we discussed in our last earnings call on July 1, we began the process of unlocking up to 30% of the outstanding Class C share holdings which will help alleviate some of the share overhang as we approach the ultimate unlock date of March 25, 2011. The results of this action exceeded our expectations with 89% of the potential shares unlocked by September 30 and more than half of those shares converted into Class A shares.
Now, let me comment on the trends we saw through the end of September and through the first three weeks of October. On a real-time basis, U.S.
payment volume growth showed some positive signs of life during the September quarter with the overall growth rate coming in at a negative 1%, a solid improvement from the negative 3% of the June quarter. The individual month of September came in at a positive 1%, the first positive growth in a year, which was due in part to the lateness of the Labor Day holiday weekend versus the prior year.
More recently, through the 21st of October, aggregate U.S. payment volume growth was a positive 3%.
We are also seeing the benefits of receding headwinds in the year-over-year gasoline comparables, which will continue to unfold as we move through our first fiscal quarter of 2010. While we draw some encouragement from this data, it is still not enough for us to call an inflection point in the U.S.
economy. Deconstructing the U.S.
payment volume results on a real-time basis, credit volume growth ended the September quarter at a negative 9%, a slight improvement from the negative 10% posted in the June quarter. For the individual month of September, credit payment volume improved to a negative 7% rate, and through the 21st of October, improved to a negative 4%.
Debit payment volume growth ended the September quarter in positive territory, posting a 7% gain, up from 5% in the June quarter. The month of September improved to a positive 9% and through October 21 has improved further to a positive 11%.
Again, very encouraging trends but too early to call an inflection point. On a real-time basis, cross-border volume growth also showed some signs of improvement in the September quarter, with payment volume on a constant-dollar basis moving from June's 8% decline to a negative 5% decline.
Through the 21st of October this improved further to a negative 2%. The improvement was led by North America.
We have seen improvement on a nominal basis as the dollar has weakened recently in key geographies. September's monthly rate on a nominal basis was a negative 3% and improvement from the negative 15% reported in the June quarter through October 21, this has improved further to a positive 3% level of growth.
As we have repeatedly stated, this is an encouraging trend, but it is still too early to call an inflection point. To give some context to the foreign exchange impacts on revenue in fiscal 2009, we believe that unfavorable foreign exchange rates reduced gross revenue growth by about 3%.
Our expectation for 2010 is for a relatively neutral impact to revenue growth, given our hedging activities. Processed transaction growth ended the September quarter at 9%, an improvement over the 8% we recorded in the June quarter.
In the month of September that rate was a positive 10%. October to date has maintained that same level of growth and continues to be a barometer of the strength and resilience of plastic.
Now let me comment on our expectations over the coming fiscal year for operating performance and the resulting impacts on our guidance. As Joe mentioned earlier, we are increasingly comfortable with achieving the low end of our 11% to 15% net revenue growth target in 2010 and delivering better than 20% earnings per share growth in 2010, excluding the Visa Net de Brazil gain in 2009.
We are establishing a 2011 earnings per share growth goal of better than 20% and we will provide additional color at our March investor meeting. We expect our full year 2010 operating margin to be in the mid-50s, up slightly from the low-50s we achieved this year.
Given economic uncertainties it is always possible that we could see an individual quarter where the margins dipped to the low-50%. Our projection for free cash flow for the year is north of $2.0 billion, which is net of the $682.0 million prepayment we made this month on the previously settled retailers' litigation.
We expect our 2010 tax rates to be in a range of 38% to 39%. Finally, on a go-forward basis, we will no longer use the adjusted format for our earnings releases and instead will rely on GAAP results.
We will, of course, call out material, one-time items or other extraordinary events. With our IPO now six quarters behind us, we feel that the original objective of reporting on an adjusted basis has now been met.
That concludes my comments so I will turn the call back over to Joe.
Joseph W. Saunders
Before we move on to Q&A I wanted to provide a brief update on some of the opportunities we are focused on as we move into 2010 and we will be providing more in-depth detail at our inaugural investor day this March. We have talked a lot about these in the recent past and we remain excited about the near-term contribution of each of them.
As I mentioned earlier, these include acceptance, debit and prepaid, global processing, and of course, enhancing our presence on the Internet. With acceptance we have identified four strategic objectives, which include expanding merchant acceptance, optimizing the performance of all Visa's products at the point of sale, increasing the Visa share of total sales with merchants, and finally, building sustainable partnerships with our clients through programs like co-branding.
Both domestically and internationally we will continue to expand the categories of spend on plastic, both debit and credit, as well as better penetrate existing successful categories. In the U.S.
that means focusing on key growth channels like transportation and bill pay and micro payment categories such as vending. In the rest of the world, we are focused on replicating the early category successes we had here in the U.S.
in grocery, QSRs, fuel, and bill pay. We talked a lot about debit, and more specifically prepaid, and continue to make a lot of progress on both fronts as some of the metrics we have spoken to in this call will attest.
Our overall global debit strategy is built on expanding acceptance in everyday segments, encouraging use of the debit card at the point of sale, demonstrating acceptance benefits to merchants, improving the consumer awareness of debit via advertising, and protecting and growing our issuance. As far as prepaid is concerned, we view this as a product platform for which we will focus on specific segments to fuel continued growth.
The key categories remain government disbursement, employee benefits, incentives and rebates, healthcare, and payroll. The keys to continued success in this space are expanding penetration, which is quite good in the U.S.
much more nascent internationally, creating consumer preference, and most importantly, improving performance. While many of the issuance programs currently in place generate millions of cards and good payment volumes, others result in issuance of cards by little volume at the point of sale in favor of cash withdrawals of ATMs.
As part and parcel of our overall debit and prepaid strategies, we are implementing programs to boost conversion rates for these programs as we have done and are doing in the U.S. In processing, we continue our focus on growing our domestic network processing, not just in the U.S.
but more important, globally. To this end, we recently expanded our relationship with Wells Fargo to include a long-term debit processing agreement.
We are also exploring expanding our ability to offer issuer and acquirer processing in key foreign markets where we believe we could accelerate our success by making investments in, or working with, domestic entities willing to form partnerships. Lastly, on the Internet, we continue to make progress in developing our new ecommerce solution.
This solution, called Right Click by Visa, is an online shopping tool targeted to consumers that assists online shoppers by offering the ability to browse multiple merchants and select items consumers are interested in looking at in one central location, making comparison shopping easier, auto-sell capabilities that instantly populate the consumer's shipping and payment details for faster checkout, and exclusive offers for Visa cardholders and the ability to solicit feedback from friends on items the user is considering to buy. Finally, we are working on an aliasing capability that will make the safest way to pay on the Internet even better.
We expect rolling out his feature by the summer of 2010. Extensive testing of Right Click has been completed and we are conducting tests with users and a limited number of U.S.-based issuers in the coming weeks.
Based on user feedback, we are continuing to refine features and functionalities. We expect version 1.1 of Right Click to roll out next calendar year.
With that, we are ready to take questions.
Operator
(Operator Instructions) Your first question comes from Jason Kupferberg - UBS Securities.
Jason Kupferberg - UBS Securities
Nice to see the top-line upside here and we appreciate the initial look at fiscal 2011. Just a quick question and a follow-up.
First of all, with regard to the fiscal 2010 net revenue growth guidance, can you talk about the amount of pricing list that's assumed in there? I recognize you're going to have the U.S.
acquirer price increase continue to help you for the first three quarters of fiscal 2010. If you can help us get an understanding of how much pricing is assumed in the low end of the 11% to 15% range, that would be great.
Byron H. Pollitt, Jr.
The amount of pricing impact, we would describe as modest, less than what we experienced in 2009, but a little higher than the long-term steady rate, normalized rate, of 1% to 2% that we have described earlier. The particular pricing action that you mentioned was initiated at the beginning of fiscal 2009's fourth quarter and will anniversary through the third quarter of fiscal year 2010.
Jason Kupferberg - UBS Securities
And a follow-up on volumes, really good to hear that things seem to be turning around, not that one month makes a trend, but nonetheless, if you put gas prices aside here and currency, which folks know are starting to help you here in the first quarter of fiscal 2010, are there certain spending categories that you guys are starting to see a little bit of a recovery in first, in terms of how it's driving some of the better year-over-year volume growth comps?
Byron H. Pollitt, Jr.
We would say at this point there is no call out there and that you have outlined the two bigger drivers that are moving the needle, the removal of FX that was headwind. In the first fiscal quarter of 2010 we should start to see that neutral impact that we talked about during the call, and then the same phenomena exists for gasoline prices.
Sometime in this quarter, potentially in the month of November we ought to be at the same average price for gas and we should see that headwind pretty much go to neutral as well.
Operator
Your next question comes from Craig Maurer - Calyon Securities.
Craig Maurer - Calyon Securities
One comment, Joe, that you made at the end of your remarks that caught my attention was the discussion of investing in merchant acquiring outside the market, outside the U.S., as I always that that was a perfect fit for both the major U.S. networks outside the U.S., so I was hoping you can expand on that a little bit.
Joseph W. Saunders
I think I told you what we are looking at or thinking about doing but as it relates to specifics I really don't think I can get into this at this particular point in time. The only thing that I will add is that when we, assuming we are looking at acquiring, we are simply looking at places in the world where doing that will accelerate the distribution of terminals and therefore accelerate our opportunities in those regions.
Craig Maurer - Calyon Securities
And on the personnel costs, they were up quite a bit. Was that related to the opening of the data center?
Joseph W. Saunders
No, I would say it was what we said, it was appropriate reorganization accounting and some one-time incentives. So we'll be back to normal in the first quarter.
Operator
Your next question comes from David Hochstem - Buckingham Research.
David Hochstem - Buckingham Research
I just wondered if you can talk about how the organizational structure has changed with John Partridge becoming president. [inaudible] does it make any difference?
And from the acquirer fee, the change in process of transactions of sort of 1.0% and 1.5% and the sequential increase in the fee was about 20%, is all that related to the price change?
Byron H. Pollitt, Jr.
Let me start with the transaction fee, so the way we would look at it, the transaction fee, or data processing fees, for the quarter, year-over-year, were up 33% and we would put that, we would break that apart in two segments. The first is that we had very strong transaction growth of in the 9% range for the quarter, year-over-year and then the acquiring fee does have an amplified impact on data processing fees.
So think of the balance as pricing actions, in combination with strong transaction growth.
David Hochstem - Buckingham Research
So the $100.0 million sequential increase, roughly, or over that from Q3 to Q4 is kind of a—Q4 is kind of run rate and it should go up as volumes go up then?
Byron H. Pollitt, Jr.
It directly relates to volumes. There is a mix—no, there really isn't a mix.
It should have a correlation to volume and then of course we have got to let the pricing actions run their course.
David Hochstem - Buckingham Research
And with respect to John?
Joseph W. Saunders
Well, John is the President, he's no longer the Chief Operating Officer because he is the President. But in reorganizing, the title is more appropriate given the responsibilities he has.
But we won't be hiring a COO.
Operator
Your next question comes from Tien-Tsin Huang - J.P. Morgan.
Tien-Tsin Huang - J.P. Morgan
The revenues came in nicely, ahead of our view, but certain expense lines came in a bit higher than we forecast. You talked about personnel, I was wondering, was there any pro-forward of discretionary spending, particularly in the professional, the consulting fee line?
I think the admin and other lines, those also looked like they stepped up a bit sequentially.
Joseph W. Saunders
The professional fees were consistent with the strategic projects that we're investing in. There was an extraordinary expenditure in marketing that really wasn't, even though our guidance suggested that the marketing spend would go up, it wasn't really part of it.
We accelerated the creation of the creative for the Currency of Progress for the Winter Olympics and to some extent for FIFA. So we spent some money on creative development and marketing that we didn't necessarily intend to or didn't guide to, I guess is a better word.
And as it relates to the personnel expenses, as I said before, there were some reorganization and incentive expenses that were extraordinary and are now behind us.
Tien-Tsin Huang - J.P. Morgan
So just to make sure, the flat comment on operating expense growth, is the right base line the adjusted expense number of $3.238 billion in fiscal 2009? Is that the right base line?
Byron H. Pollitt, Jr.
No. Remember, I said on the earnings call, we are moving to a GAAP comparison.
So from this point forward everything should be looked at on a GAAP-to-GAAP basis. We are excluding any impact from Visa Net Brazil.
Other than that, starting with the first quarter, and this was consistent with our guidance, flat expense, GAAP result, year-over-year.
Tien-Tsin Huang - J.P. Morgan
Just the buybacks. Nice to see that.
What's the general philosophy for buying back stock?
Joseph W. Saunders
When you say general philosophy, the general philosophy is that we return excess cash to shareholders in the form of dividends or buyback. Can you be a little more specific?
Tien-Tsin Huang - J.P. Morgan
I was wondering if you are going to utilize the buyback opportunistically, or will there be some kind of systemic approach to retiring the shares?
Joseph W. Saunders
Yes, it will be systematically opportunistic. With the emphasis on the latter.
Very disciplined, very disciplined opportunistic buyback. We will use open market and 10b5-1s and we have a 12-month life on the program.
Operator
Your next question comes from Thomas McCrohan - Janney Montgomery Scott.
Thomas McCrohan - Janney Montgomery Scott
I have a question on volume and support and sense of guidance of 16% to 17% for fiscal 2010. What's baked into that in regards to expectations around payment volumes, so if volumes pick up a little above your expectations, should we expect that guidance to move a little bit, i.e.
go down or how fixed is that guidance, 16% to 17%?
Byron H. Pollitt, Jr.
If we go back to our original IPO guidance, we said we expected volume and support incentives as a percent of gross revenues to be in that 16% to 18% range, so the first thing I would say, this is very consistent with how we thought about this at the time of the IPO and at the time of the IPO we thought of incentives moving up for two reasons, one of which is that it is a very specific strategy of Visa to enter into more multi-year contracts with our client and it is through a multi-year contract that you actually create incentives, because that's the quid pro quo for more than annual commitment to the card processor. So more companies, more clients, under multi-year contract as time progresses.
And then second, as the economies begin to recover, as our clients' credit portfolios in particular, begin to recover and grow over the preceding year, we would expect a higher rate of incentives to be earned. And if you blend those two together, our outlook, which supports payment volumes that would get us into the low end of the 11% to 15% revenue growth range, would get you incentives in that 16% to 17% range.
Joseph W. Saunders
But as you ask and as we have consistently said, to some extent those incentives are based on volumes and anticipate that there will be some increase in volumes.
Thomas McCrohan - Janney Montgomery Scott
Are there any plans to publish the operating metrics on kind of a real-time basis in 2010?
Byron H. Pollitt, Jr.
I'm not quite sure what you're referring to. We do regularly publish operational data that would have—just been issued, we do it on a quarterly basis, which is reasonably extensive on debit and credit, and is done on a global basis.
It excludes, of course, Visa Europe, which is not part of Visa Inc. Is there something beyond you're asking about?
Thomas McCrohan - Janney Montgomery Scott
Yes, the operational performance data that is published in connection with the [inaudible] on a one-quarter lag.
Byron H. Pollitt, Jr.
We expect to address that in fiscal year 2010, specifically the removement of the lag on reporting service fee revenues.
Operator
Your next question comes from Robert Napoli – Piper Jaffray.
Robert Napoli – Piper Jaffray
The marketing spend in 2010, talking about less than $1.0 billion, which is kind of what we expected but it's still below what you spent in 2008 and 2007. Can you give a little color, if you're actually—I know you have some synergies or consolidations—but are you actually marketing less than you did in 2007 and 2008 or are you marketing more?
Joseph W. Saunders
I think that the effect of what we're doing is the same effect that we had a couple of years ago. It's just that we're doing it smarter.
And I mean, you have a lot of things going on. We have more digital advertising that's supported by print.
We have a little less TV, particularly in the United States and frankly, television rates in the United States are down. They're a little bit more expensive outside the U.S.
but I would say the mix between TV and print and digital and the consolidation of our marketing efforts in a single buying entity, a single creative thrust, I mean, all of that put together, we're getting to the same number of people in a more effective manner.
Robert Napoli – Piper Jaffray
You talked about prepaids, any chance you will give us feel for how much spending? Prepaid is all in the debit category, correct?
Joseph W. Saunders
Yes.
Robert Napoli – Piper Jaffray
Can you give us any feel for the size of that business?
Joseph W. Saunders
I think that we will be able to do a much better job of talking about prepaid and some of these other things at our investor day, so that's a good lead in. I look forward to seeing you in March.
Robert Napoli – Piper Jaffray
Corporate spend, any pick up in corporate spend? Corporate card.
Joseph W. Saunders
It's something that we're aggressively pursuing, and obviously we need to pursue that through financial institutions, but you will see us more after the net market.
Operator
Your next question comes from Christopher Brendler - Stifel Nicolaus.
Christopher Brendler - Stifel Nicolaus
One clarification, the depreciation and amortization guidance, up $30.0 million throughout fiscal 2010, was that included in your total expense number being flattish?
Byron H. Pollitt, Jr.
Yes.
Christopher Brendler - Stifel Nicolaus
And a broader question for you, Joe. I sort of share your interchange views that you shared with us on the call, but I wanted to know, just hypothetically, do you feel like the Welch Bill and some of the restrictions and issues like that, is that more of a threat than some of the [inaudible] and driven approach, in your opinion.
Joseph W. Saunders
No, not at all. I mean, that may sound like the simple answer but it's the right answer.
Christopher Brendler - Stifel Nicolaus
Can you explain why?
Joseph W. Saunders
Fewer people embrace it and it has less traction than anything else that's out there and it's starting at a place that's way in back of where a lot of other things began and just the history of this entire dialogue would suggest that my answer is appropriate.
Christopher Brendler - Stifel Nicolaus
You mentioned that the brand spending is no longer as big a part of your marketing budget, but then you also talked about renewing with the NFL and FIFA and the Olympics. Can you give us an idea at all how much of your marketing budget is brand spend?
Joseph W. Saunders
I think probably, when everything is said and done, it's around 30%. But remember, even with the NFL, and when you see the Olympic ads, these are going to be more action-oriented ads.
These are going to be ads that ask people to spend. The NFL ads will have use your Visa card and go to the Super Bowl.
The Olympic ads will have a usage component associated with them. So even these sponsorships are not going to be entirely aspirationally brand driven.
Operator
Your next question comes from Moshe Orenbuch - Credit Suisse.
Moshe Orenbuch - Credit Suisse
I notice in the context of a pretty large revenue beat, the card service fees was actually a little below our expectations in the rate, as a percent of volume was down, partially offset I guess by less incentives. But is there anything going on there in terms of customer mix or something like that that you could highlight?
Byron H. Pollitt, Jr.
In service fees, remember this is on a one-quarter lag, so service revenues were up 3% and if you look at the [inaudible] volume growth on a constant dollar basis, it's a plus 2. And on a nominal basis it's a minus 2.
So it's a beat but it's in the same zip code. And I would say it's a combination of pricing adjustments and of mix shifts.
Operator
Your next question comes from Greg Smith - Duncan-Williams.
Greg Smith - Duncan-Williams
You quantified, in the personnel expense, the $33.0 million of restructuring, but correct me if I'm wrong, you said in addition to that there was some one-time incentive payments. If that's correct, what was the actual—can you quantify that at all?
Joseph W. Saunders
They're both part of the same thing. They're not additive.
Greg Smith - Duncan-Williams
That's all in the $33.0 million?
Byron H. Pollitt, Jr.
There is a restructuring charge that is related to activities that are tied to the merger of the five businesses that occurred back in October of 2007. This is the last quarter that we will be calling out restructuring charges and that's the $30.0-something million that is below the adjusted line.
In the personnel costs that are included in our adjusted results, as Joe mentioned earlier, there are some reorganization costs and some incentive costs that we do not expect to reoccur and therefore the first quarter 2010 personnel costs, or all in costs, should be much closer to say, what you saw in Q3 as opposed to Q4.
Greg Smith - Duncan-Williams
And can you talk a little bit about launching debit in Canada? Do you have a specific time table for rolling that out?
And is there anything you need to do from a merchant acceptance standpoint to accept a Visa debit in Canada?
Joseph W. Saunders
We are making progress in that regard and we expect to gain traction and begin issuing cards. I would say that the build-up of the merchants' acceptance will take some time but I believe that the die is cast and that the effort is underway.
And I think over the moderate term it will be quite successful. The first cards that come out in Canada, the first debit cards, with Visa logos, which will come out in the first quarter of 2010, will be dual-branded cards.
So it will carry the traditional Canadian debit logo along with the Visa logo. I think it will be a great product.
I think it will be a big win and we're excited about it and looking forward to it.
Greg Smith - Duncan-Williams
And one last clarification. So going forward, Byron, you're only going to report GAAP so for example, the $17.0 million this quarter of step-up amortization, you won't be adding that back, you'll just be reporting GAAP?
Byron H. Pollitt, Jr.
Yes, that's correct.
Operator
Your next question comes from Christopher Mammone - Deutsche Bank.
Christopher Mammone - Deutsche Bank
Just going back to your comments about pricing being somewhat higher than the normalized 1% to 2% contribution for fiscal 2010, is that all—is that solely related to the new pricing or is there anything else in there sort of contemplated and maybe give us a timing?
Byron H. Pollitt, Jr.
It's primarily related to the acquirers fee that we took starting the fourth fiscal quarter of 2009.
Christopher Mammone - Deutsche Bank
Could you comment on what you're seeing early on or expectations for holiday spending trends, particularly in light of the [inaudible] consumer confidence numbers today?
Byron H. Pollitt, Jr.
To be helpful, what we've done is giving you our real-time spending trends through October 21 and we will let you extrapolate from there.
Joseph W. Saunders
It's not the traditional holiday season although there are a lot of Christmas trees around already.
Christopher Mammone - Deutsche Bank
You made some positive comments on anticipating the results of GAO. Has the GAO approached you directly for input?
Joseph W. Saunders
Oh, absolutely. There is absolutely no question about that.
We have had quite a bit of communication with the GAO, which is not to say that they haven't had conversations with other people, but absolutely. We had conversations with them when they are in the midst of doing the previous study that they did and our relationship with them has continued.
Operator
Your final question comes from James Friedman - Susquehanna Financial Group.
James Friedman - Susquehanna Financial Group
I'm just trying to test the cyclical versus secular for credit versus debit. As we move through the cycle and economies potentially recover, would you expect debit will continue to grow as a percentage of transaction volume in 2010?
Joseph W. Saunders
Yes, in 2010. Absolutely.
I don't think there is any question about that for a lot of reasons, not all of them being secular, but secular is certainly part of it.
Jack Carsky
Thank you all again for joining us today. If anybody has further follow-up questions, feel free to give myself or Victoria a call.
Operator
This concludes today’s conference call.