Oct 30, 2013
Executives
Jack Carsky - Head, Global Investor Relations Charlie Scharf - Chief Executive Officer Byron Pollitt - Chief Financial Officer
Analysts
Jason Kupferberg - Jefferies Craig Maurer - CLSA Tien-Tsin Huang - JPMC Dan Perlin - RBC Capital Darrin Peller - Barclays Glenn Fodor - Autonomous Research Sanjay Sakhrani - KBW Rod Bourgeois - Bernstein Smittipon Srethapramote - Morgan Stanley David Hochstim - Buckingham Research Bill Carache - Nomura Securities Arvind Ramnani - BNP
Operator
Welcome to Visa Inc.’ s Fiscal Q4 2013 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
Thank you, Brad. Good afternoon.
And welcome to Visa Inc.’ s fiscal fourth quarter and full year 2013 earnings conference call.
With us today are Charlie Scharf, Visa’s 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 website at investor.visa.com. A replay of the webcast will also be archived on our site for the 30 days.
A PowerPoint deck containing financial and statistical 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.
These statements aren’t guarantees of future performance and are actual results could materially differ as a result of variety of factors. Additional information concerning these factors is available in our most reports on Forms 10-K and Q, which you can find on the SEC's website and the IR section of our website.
For historical non-GAAP or pro forma related financial information disclosed in this call, related GAAP measures and other information required by Regulation G of the SEC are available in the Financial and Statistical Summary accompanying today’s press release. This release can also be accessed through the IR section of our website.
With that, I'll now turn the call over to Byron.
Byron Pollitt
Thank you, Jack. Let me begin with my usual call outs and observations.
First, some color on the fourth quarter’s net revenue growth. As reported, net revenue grew 9%, three call outs, starting with gross revenue.
For the quarter, we grew at a healthy 11% rate. Turning to the incentive line, during the quarter, we closed 73 major deals, compared to a quarterly average of 53 for the 2013 fiscal year.
This resulted in an incentive rate of 18.6% for Q4, which is well within the neighborhood we signaled on our Q3 earnings call. When combined with the first three fiscal quarters, incentives as a percent of gross revenues came in at 16.5%, right in the middle of our 16% to 17% guidance range for the full year.
Finally, the FX headwind, which has accelerated in the second half of the year, reached about 1.5 percentage points of drag on revenue growth in Q4. The full year FX headwind was just under 1% for fiscal 2013.
We expect this headwind to continue to grow in fiscal 2014 to about 2 percentage points of drag on reported revenue growth net of our hedges. Second callout relates to full-year revenue growth.
We began fiscal '13 with revenue guidance of low double-digits and refined the guidance to around 13% on the Q3 call. We end the year with revenue growth up 13% after absorbing the impact of heightened deal activity in Q4 and a growing unfavorable FX impact.
Third callout relates to the most recent U.S. payment volume trends.
While rest of world payment volume and global cross-border trends remained in double-digit growth territory for the September ending quarter, U.S. domestic payment volume dropped from 11% growth in August to 8% in the month of September.
While October's first three weeks have upticked slightly to 9%, there has currently been some constraint in U.S. consumer spend, showing up in our numbers in both debit and credit.
Our guidance encompasses what we are seeing in September and October and presumes that a tepid recovery in U.S. economic growth continues.
Fourth callout relates to operating income and EPS, which grew 15% and 20% respectively, versus fiscal 2012 adjusted results. Included in our Q4 results was a restructuring reserve of $44 million, representing about $0.04 of EPS.
This restructuring reserve reflects a streamlining of our cost structure, aimed at achieving greater alignment between our costs and our strategic priorities, and capturing organizational efficiencies as we adapt to changes in our management structure. Finally, fifth callout -- we remain committed to returning excess cash to our shareholders.
Three highlights: First, as announced last week, we raised our quarterly dividend per share by 21% to $0.40. Second, during Q4, we repurchased over 7 million shares at an average price of $177 per share, returning $1.3 billion to shareholders.
Finally third, we announced a new $5 billion share repurchase program, our largest ever. Please note this buyback program has no expiration date and is in addition to $251 million, still remaining under our prior authorization.
This means purchases could take place throughout fiscal 2014 and in 2015 as well. Now let's turn to the numbers.
As is my practice, I will cover our global payment volume and process transaction trends for the fiscal fourth quarter, followed by our results through October 21. I will then cover the financial highlights of our fiscal fourth quarter and conclude with our guidance outlook for fiscal 2014.
Global payment volume growth for the September quarter in constant dollars was 13% on par with the June quarter's 13%. This was driven by a sustained growth in all of our regions.
More recently in the U.S., through October 21, payment volume growth was 9% compared with 10% in the September ending quarter. Drilling down further, U.S.
credit growth was 9% through October 21, compared to 11% in Q4. Similarly, debit growth at 8% in October compared to 10% in Q4.
While a decline in U.S. gas prices is part of the story, there is also a modest down shift in other retail segments.
Global cross-border volume delivered a solid 11% constant dollar growth rate in the September quarter on par with the 11% rate in the June quarter. The U.S.
grew 10% and the rest of world 11%. Through October 21st, cross-border volume on a constant dollar basis grew 13% with the U.S.
growth rate of 10% and the rest of world at 14%. Transactions processed over Visa's network totaled $15.5 billion in the fiscal fourth quarter, a 14% increase over the prior-year period.
U.S. grew 10% while the rest of world delivered 28% growth.
Through October 21st, processed transaction growth was 13%. Now turning to the income statement.
Net operating revenue in the quarter was $3 billion, a 9% increase year-over-year driven by solid growth globally in both domestic and international transactions and as mentioned earlier, we strained by a significant increase in incentives tied to deal activity and a growing FX headwind. For the full fiscal year, net operating revenue was $11.8 billion, up 13% over the prior year and at the high end of our beginning of the year guidance of low double digits.
Moving to the individual revenue line items; service revenue was $1.4 billion up 10% over the prior year and was driven by solid global payment volume growth. Data processing revenue was $1.2 billion, up 12% over the prior year's quarter based on solid growth rates in Visa processed transactions inside and outside the U.S.
and continuing strong CyberSource transaction growth. As we signaled last quarter, we have fully lapped the implementation of U.S.
debit regulation, resulting in revenue growth that more closely approximates growth in process transactions. International transaction revenue was up 13% to $899 million reflecting solid strength in cross-border volumes and a continuing benefit from higher currency volatility.
Total operating expenses for the quarter were $1.2 billion, up only 1% from the prior year results. Personnel costs were up 6% for the quarter and 12% year-over-year in support of our gross strategies around the globe, which heavily emphasized the investments in our country teams outside the U.S.
along with our newer product initiatives. That said, in Q4, we also took a $44 million restructuring reserves for the reasons discussed earlier.
This callout is important when considering a run rate for personnel cost as we move into fiscal year 2014. Marketing expenses were flat from the prior year and declined 6% sequentially primarily as a result of lower media spend.
Operating margin was 59% for the fourth quarter and 61% for the full fiscal year, both in line with our guidance of around 60%. Our effective tax rate for Q4 was 32.5% and well higher than our full-year guidance of 30% to 32%, the full year figure of 31.4% was within our guidance range.
Capital expenditures were $138 million in the quarter and totaled $471 million for the full year. This was at the top end of our expected range going into the year.
At the end of the fiscal quarter, we had 638 million shares of class A common stock outstanding on as converted basis. The weighted average number of fully diluted share is outstanding for the quarter, totaled $644 million and for the year totaled $656 million.
Finally, in terms of guidance, we have previously provided fiscal $2014 metrics around revenues, EPS and free cash flow. Let’s start there.
Given our expectation for our significant FX headwind in 2014. We are reframing our revenue growth guidance going forward, leading with a constant dollar growth rate, which is consistent with the payment volume metrics we provide each quarter and better represents the underlying growth and health of our business.
Then we will provide the expected FX impact for the year. So, for fiscal year 2014, we expect constant dollar revenue growth of low-double-digits and an FX headwind of around two percentage points.
A little further color on revenue. Given the continued slow pace of global economic recovery, combined with the growing impact of a strong U.S.
dollar, our expectations today are slightly lower than they were in June on Investor Day. That said, our expectations for diluted earnings per share remains the same and continues to be mid to high-teens.
Free cash flow guidance of about $5 billion reflects the partial reversal of a 2013 tax deduction associated with the eventual return of Visa's share of the multi-district litigation cash payment, as a result of merchants opting out of the multi-district litigation class settlement. As I mentioned in June at Investor Day, this event, combined with the non-recurring deduction in fiscal 2013 associated with our multi-district litigation settlement payment, will lower free cash flow from $6.9 billion in fiscal 2013 to about $5 billion in fiscal 2014.
New guidance metrics for the full year 2014 include the following. Client incentive, as a percentage of gross revenue, will move up modestly next year within an expected range of 16.5% to 17.5%.
Our annual operating margin is expected to show a very modest improvement over the past couple of years, which means we expect it to remain in the low 60s. Finally, we have made the decision to discontinue providing quantitative guidance on marketing expense, capital expenditures and tax rate.
We are moving in this direction because of the track record we have established since our IPO in 2008. Given the progress we have made with, and now the stability of these metrics, we deem them right for retirement.
However, having said that, and to provide some parting color, we would view marketing and CapEx as likely increasing over time, commensurate with overall growth but at manageable rate. While we'll always seek opportunities to optimize our tax rate, we are not going to see the same magnitude of sustained improvement that we were able to drive in the first five years of our public life.
We expect to see more modest incremental improvement only. And with that, I will turn the call over to Charlie.
Charlie Scharf
Thanks very much, Byron and good afternoon to everyone. I thought I would start with just a few comments about the fourth quarter and then move on to some other topics.
First of all, we feel very good about the continued strong financial performance that Visa has exhibited with no surprises to speak of. As Byron mentioned, our revenue growth of 9% and on a gross basis at 11%, was reflective of heavy incentives during the quarter as we anticipated, and we just think of those as a good thing.
That is getting more long-term deals signed with our clients, is clearly a positive for us. Global payment volume growth of 13%, consistent with the prior quarter, expense growth of 1%, as we talked about including $44 million of severance, 50% net income growth while we bought back 7 million shares for about $1.3 billion.
All this contributed to EPS growth of 20%, again including the effect of those incentives during the quarter and restructuring. All that added into the 2013 full year performance of 13% revenue growth, 8% expense growth, translating to 23% EPS growth all in line with the guidance that we've been giving.
Let me turn now and just give a couple of updates on other topics. And I'll start with litigation and regulation.
First, I will start here in the United States. As I think most of you are aware, we are waiting final ruling on the MDL, the multi-district litigation case.
A decision is expected at anytime. We continue to remain confident that the court will approve the agreement as we’ve said in the past.
Also within the United States, again I think most people do know that U.S. District Court Judge, Richard Leon ruled on July 31st that the Federal Reserve implement certain parts of the Durbin provision of Dodd-Frank in properly, specifically related to the level of interchange and at the networking provisions.
Just a couple of comments on the judge Leon ruling. First of all, we are pleased that the Federal Reserve filed the notice of the appeal in August and that the Fed was granted a stay in July, pending the result of its appeal.
Our review of the appeal papers filed by the Federal Reserve leads us to believe that the government has got a strong case on appeal relative to the timing as best as we know there is no timeline proposed for when the case will be argued or decided. However, the briefings are expected to be completed by the December 4th of this year.
Over in Europe, we’ve talked about a series of things there. In the past, there is really no new news with anything that we’ve discussed, including the Visa Europe push.
Let move on now and talk about tokenization for a minute. On the last quarterly call I spoke at length about our thoughts on tokenization and where we viewed our role.
We made a significant announcement this quarter, which I hope you saw. We, along with our partners in the industry, MasterCard and American Express announced the set of standards to move toward a newly tokenized payment environment.
This will serve several purposes. First of all, as we all know it’s just good for security, removing sensitive information, crossing the payment system is good for every network participant.
But probably more importantly for the long-term it creates a framework, as new network participants emerge to ensure the security and the integrity of the payment system is in fact maintained. And when I talk about the integrity of the payment system, I’m including protecting the position that we have and our clients have in the value chain and that’s something that’s obviously very important to us.
It’s early days, they are just standards as they have been defined but we are working both on the technical implementation of this, as well as the practical implications with more to come in the future. But we think this could lead to some exciting things.
Next update, I will turn to V.me for a second. We’ve spoken before about the convergence of physical point-of-sale, e-commerce and mobile.
You hear everywhere you go. Our objective is simple with V.me.
It’s, people talk about wallet sometimes is if they are very confusing to us and what our goals are, they are very, very simple and straight forward. We want to replicate the simplicity, the speed and the security of a transaction just like people have today when they swipe, dip or tap a card.
It’s that simple. We’ve learned a great deal since I arrived at Visa through discussions with issuers, acquirers and merchants relative to our own development of V.me, and we are in the process of simplifying our product, becoming targeted towards the goal of creating the simple, fast and secure online and mobile acceptance.
The feedback has been hugely valuable. Our product is going to be issuer, acquirer and merchant focused that’s relative to the blending and the data flow.
We are working to make it easier to integrate into merchant websites and into mobile applications and we’ve done this in collaboration with our clients and the feedback has been positive and we are optimistic. Having said that, we have made significant progress, we have over a 150 financial institutions and about 60 e-commerce retailers offering V.me within United States, Canada and Australia today and we have an additional 300 merchants signed and are in various stages of integration.
We move on now and just talk for a second about network security. In my year here as I’ve gotten the opportunity to talk to many of you and read many things that gets sent across about what's going on in our industry, there is a great deal discussed about the potential disintermediation of existing payment systems.
And just relative to network security I just -- I want to make clear that I don’t think people should underestimate the value existing payment networks have regarding security. Criminals across the globe are becoming, they are more of them, they are becoming smarter, they are better funded and they are becoming more vault.
Their tax are becoming more frequent and much, much more complex. We as a company and the established people in the marketplace here have been dealing with these risks for years, in our case 40 to 50 years.
We've invested billions of dollars to secure our network. And you just have to remind yourself, people use networks because they trust them and they will use them until they don't trust them anymore.
And then when they don't, those networks won't exist. We understand that and work every day to protect our environment and just keep in mind that risk takes several forms.
The first is just practical day-to-day fraud. We spend an awful lot of energy working on our data analytics as our clients do despite (inaudible) just a common everyday fraud.
Our transactions are screened by us and our financial partners on a real-time basis. The modeling to do this has been developed over 40 to 50 years and we have driven fraud rates down to historic lows, at the point where they are less than $0.06 for every $100 transacted over our network or actually lost to fraud.
The second risk is the scary one and it's perpetrators getting access to the network. Just remind everyone that we have a centralized processing architecture that allows us to scan, evaluate, protect, and react to any risk that we see as necessary.
As a company as I said, huge resources, huge amount of our time as a management team and we have some of the most talented people and sophisticated technology to combat threats and are committed to continue investing in this. As we think about these risks, again I just wanted to point out these risks are very real.
These aren’t things that are people are concerned about that might never come to fruition, they will go to the weakest link in the system. As I think most of you know the White House is directly engaged in this as is the President himself and we certainly feel that having secure environment like our established payments network is a great place to be as these risks continue to increase.
Now let me just turn and just talk for a second about almost a year that I have spent at Visa and just share a few of my thoughts. And some of these -- many of these don't relate to anything that I've done but relate to the broader team at Visa.
First of all, this company has delivered growth consistently and delivered on what it said it would do since the IPO. I personally remain confident in our ability to continue to grow the franchise over the long term.
The opportunities are hugely significant; they are global, they are technology driven, and they are based on partnerships that we have and we will continue to strengthen across the globe. First of all on Globality.
Again I had the opportunity since I have joined the company to spend a lot of time overseas. I visited over a dozen countries, I probably met with 40 to 50 financial institutions from the very largest to some of the very smallest, met with two dozen acquirers, met with many merchants and government officials in five countries.
You all know and I think we talked about this that our business outside the U.S. is growing at a rate much faster than inside the U.S., but the opportunities within both are still hugely significant.
We talked at Investor Day that the displacement of cash is still the big opportunity for us. 41% of transactions in the developed world are still cash and check.
62% in the emerging markets that translates to over 11 trillion of cash and check in our geographies, which excludes Visa Europe and those numbers are growing. What's been most striking to me as I have had the opportunity to travel across the world is the extent to which governments understand the huge benefits of moving payments to electronic means and the desired to partner with us to bring about this change and that's in fact what we're doing.
As I just alluded to technology is also a huge driver of the opportunity we have in front of us. Cash is in fact the enemy.
Electronic solutions just are far superior, they are safer, they are more secure. We have some of the best products in the world.
Our products are accepted to include mobile point of acceptance between 36 million and 40 million locations across the globe. We have over 2.1 billion cards outstanding, a full set of products and again a tradition of safety, security and soundness.
We all know data and mobile create the opportunity to accelerate that electronification and we have continued and will continue to build out our capabilities here. We've also talked a lot about partnership.
Our clients are much more than clients, they are partners. Our issuers have always looked at us that way that we are strategic partner for them in building their business.
When we talk to a lot of people on the outside, they like to talk about the price of our network. When we talk to most of our issuers, absolutely they're concerned about price but they are equally concerned about the ideas and the assets that we can bring to help them grow their client relationships and that’s what we spend our time inside the company working to develop, it’s what we’ve been -- it's what been done for years.
The same is true for the acquirers. And I have said we are building the DNA in these capabilities to create those kinds of merchant partnerships that we do have in some parts of the world but we need certainly here in the United States and elsewhere.
We have a long way to go. We know it’s critical for our success but we do want to be viewed as a partner to grow their business at a fair price, and we will be flexible.
We will customize our efforts here as long as we preserve the things that I talked about. They are important to us and the network.
And in short, we feel great about the future. So everything we’ve been talking about -- about our future is still in fact the same.
Let me just shift gears now and just talk for a second about capital. Since our IPO, we’ve been consistent about how we have thought about capital management.
And since I’ve come on board, I have reaffirmed the same principles that have existed within the company. To date, the company has repurchased the equivalent of about 151 million shares or about 20% of the company’s shares outstanding.
We’ve returned nearly 17 billion of capital for shareholders. Let me just walk through a couple of principles which I laid out on our prior call but let me just do it again.
We believe the highest and best use of our excess capital is reinvesting it first organically in our business, then through acquisitions to further our growth. After supporting that growth, we believe in continuing to grow our dividend and we think about targeting a 20% payout ratio of prior year net income.
The final use is buying back our stock, just a few notes for a second. We treat decisions to invest our capital for both organic and acquisition purposes of series independent discrete decisions.
And we conduct vigorous analysis on all of those. And so we get excited when we find investments whether they are organic investments or acquisitions that has those tests and we are constantly searching for ways to grow those things.
We also understand the value of the consistent and fair dividend to our investors. So our goal is to grow the dividend as our net income grows.
And our stated goal has been and continues to be to return the majority of excess free cash flow through our investors. We’ve done this through aggressive buybacks and we will continue to do this always with an eye towards valuation.
We understand that when we buy our stock back we are making an investment decision and to the extent that we are buying the stock back that tells you what we believe the future of this company is like. As you’ve seen, we continued that practice through this quarter.
We announced the 21% increase in our dividend from $0.33 per share per quarter to $0.40 per share. This equates to 20% of that prior year net income as I alluded to earlier and that’s the way we think about it.
We also announced our tenth and most significant share repurchase authorization to date, about -- which was $5 billion. Both of these decisions, as I said reflects our belief in returning excess capital to shareholders and in our confidence of our future.
And speaking of the future, just a few last words, before we open it up for questions. Byron commented that through August 21st, we’ve seen solid payment in transaction growth across the world, some weakness here in the U.S.
with some strong growth elsewhere. As we said, the recovery had not accelerated and certainly continues as you look across the world and our financial guidance reflects this tepid global growth and volatility in the foreign exchange markets.
We do expect one day to benefit from stronger economic growth, we just don’t know when yet. Looking ahead to 2014 and beyond, I continue to remain excited and energized about Visa and the opportunity that we had to continue growing the business from the topline.
We continue to focus on the same initiatives that we outlined at the Investor Day. The secular opportunity to penetrate cash and check, PCE remains healthy across the globe.
We are working hard to expand the value of VisaNet. We are continuing to invest in our future and we continue to think about being more flexible and adapted to the business needs of our customers as we seek to become closer partners with them.
So on closing, I would just like to thank the 9,500 global employees of Visa who are all working hard every single day to build a better company for all of our shareholders. And with that operator, Byron and I would love to take some questions.
Operator
(Operator Instructions) Our first question will come from Jason Kupferberg of Jefferies.
Jason Kupferberg - Jefferies
So just on the currency, I know it's unusual if you guys have a callout of this magnitude. Is it mostly the volatility in the Brazilian real or are there some other specific currencies and you simply didn't enough hedging in place?
And then just as a follow on to that, does the top-line impact that we saw in Q4 and that we are projecting for fiscal '14, is that similar impact on the bottom line?
Byron Pollitt
So, let me respond to that. So on currency, I'll just remind everyone, we hedge one year out on a rolling basis.
So literally every month, we put hedges on, hedges come off. So we'll never be perfectly matched with regards to our foreign exchange exposure, unless literally there is no volatility whatsoever in the rate.
We hedge 14 currencies, we do business in 180. The impact does include the Brazilian reais but it is more than that.
It includes the Aussie dollar, the yen, the Canadian dollar. So there are a handful of currencies that have -- that are causing this impact, not just limited to Brazil.
The primary impact is revenue. There is a more modest offset in expenses.
Obviously, expenses incurred in other currencies that are brought back to the U.S. dollar actually translate at a lower level.
So the impact on the bottom line is moderated by the expense benefit but it doesn't moderate it all that much.
Operator
Our next question will come from Craig Maurer of CLSA.
Craig Maurer - CLSA
Couple of questions. First, the high deal volume in the fiscal fourth quarter.
Could you please discuss, if you can, the pricing trajectory and high level for those deals versus what you were seeing during the rest of 2013? And secondly just thinking about growth outside the U.S.
we're hearing that the Mexican banks are lobbying hard for Visa and MasterCard to be allowed to process locally. Any thoughts on those discussions or the timeline for that?
Byron Pollitt
Let me take the first one. When we gave our guidance on the Q3 call, when we guided to 16% to 17% incentives for the year, the incentive rate that we ended up incurring in Q4 is very, very consistent with that guidance and very consistent with how we expected deals to sort out.
And as it relates to pricing, I would say there is no major callout here on pricing. I think the perspective we would leave you with is we were pretty much spot on in the end of year and Q4 incentive guidance, which should give you some comfort around how we anticipated those deals to be priced.
The reason as I alluded to in my remarks -- the reason that the incentives are so high is because we did a significantly higher number of important deals in that quarter -- something that's not unusual. So our incentives are lumpy and we don't guide by quarter, we guide on the full year.
And so that's the perspective we would offer on that front. Charlie, do you want to pick Mexico?
Charlie Scharf
Sure, on Mexico, certainly and I think if you think back to the Investor Day, Bill Sheedy talked a great deal about what we believe as the opportunity outside of the United States to increasing our processing penetration. Mexico is certainly one of those markets.
I've been there and we’ve had the conversation about the value that we think our processing capabilities can bring to the banks. And so we are hopeful and trying to be helpful that our processing capabilities will be useful in that marketplace.
Just unrelated note on Mexico because I didn't cover it in my remarks but I do think it's an exciting thing for us. We announced today that we’ve signed an agreement with the joint venture between Grupo Bimbo, which is the largest Mexican owned baking company and Blue Label Telecoms Limited, which is a leading provider of prepaid airtime.
The significance is we’ve also talked a great deal about the opportunity to increase acceptance in the markets that aren’t as developed as United States. This is an opportunity for us to work with the capacity that Bimbo has and potentially add up to a 150,000 point-of-sale terminals using their distribution capabilities.
So it’s something that we are very excited about and when we think about increasing acceptance, we think about processing. It’s certainly one of the bigger opportunities for us.
Operator
Our next question will come from -- yes, so the next question comes from Tien-Tsin Huang of JPMC. Your line is open.
Tien-Tsin Huang - JPMC
Great. Thanks.
Just on the incentive line, the 73 major deals, how many of these were new deals for Visa versus renewals? And then I guess, looking at ’14, should we expect a more normal year for deal activity?
Byron Pollitt
Well, I don’t have it immediately handy, how many were new versus renewals. What I can provide is additional color is the majority of those were outside the United States with a heavy focus on the Asia-Pacific and CEMEA region.
With regards to ’14, I’m not quite sure what a normal year would be, but we are giving you our guidance relative to incentives. And what I can say is that if you look at it, say from the perspective of our top 10 global clients, none of those are scheduled for exploration or renewals in the upcoming year ’14.
Charlie Scharf
And I just wanted to add to that, what Byron said earlier, which is again, we don’t guide quarterly on incentives because we know it’s going to be lumpy and this -- while it’s a large number, not a surprise to us. And again to the extent that we are signing up people either earlier or more of them, we think those are good things.
And over the course of the year, those things tend to balance out, which is why we provided the guidance that we provided for 2014.
Operator
Our next question comes from Dan Perlin of RBC Capital. You may go ahead.
Dan Perlin - RBC Capital
Thanks. So as we think about ’14, little bit more on the incremental investment side, you mentioned a lot of things going on here.
But you did highlight previously that about 80% of your investments incrementally up to this point have been on products, technology and infrastructure and the remaining 20% was kind of on international markets. And I’m just wondering it sounds like it might be tilting more towards international markets and should we expect kind of the incremental margins from that to be similar, better or worse because your margin guidance for me seem like it was biased to the upside?
Thanks.
Byron Pollitt
See, how do we respond to that? I think that if you were to -- I think those ratios continued to work.
I would say that when we talk about 80% of investment going into product, a lot of that is capital. When you think of the investment that goes into rest of world and in countries outside other than the United States and we think of headcount, a lot of that is going into our country teams and we consider those investments because more people were at our best when we are present locally serving clients locally.
And so the margins are highest when we are leveraging transactions over the network in our core businesses. And they are less when we are investing in products and services that begin to move away from the network.
They extend the network but they don't directly -- they are transactions that require additional investment and additional costs in order to drive the transactions to the network. And so the way we talked about it, I think on Investor Day is probably a good way of continuing to think about it over -- in '14 and '15.
Charlie, do you want to add anything?
Charlie Scharf
The only color I’d add is where you round up which is -- as we sit here today and we obviously -- we have our plans for next year and all the glorious detail that you would expect, we don't look at the distribution of those investments as being at all significantly different than we thought at investor day. It's still the same set of opportunities, the growth opportunities outside the U.S.
have been hugely significant for this company. It's where the majority of the headcount growth has been over a period of time.
So we would expect where we invest to look very similar as we develop the products and services that we talked about.
Operator
Our next question is from Darrin Peller of Barclays.
Darrin Peller - Barclays
Just when we look at the volume trends through September and October, first of all, I mean just comment on some of the moving parts here in terms of maybe the government shutdown impact thing or any other variables? And then when you think about your '14 guidance, is that inclusive of this kind of a run rate for the U.S.
trending maybe in the 8% range versus the 9% range versus what you have seen in past few months?
Byron Pollitt
So on the U.S. side, I would say it is continuation -- as we said in the remarks, it is the continuation of a tepid recovery.
And so somewhere in the zip code of what we have been seeing is what we would expect to see going forward. And I'm sorry the first part of your question was the government?
Charlie Scharf
Yes, so I'll just repeat what Byron said. He also said this in his opening remarks, which is that our guidance encompasses what we are seeing in September and October.
And as Byron said that our guidance presumes that we do have this tepid recovery of the U.S. economy.
And then what’s relative to the government, it certainly appears from our -- looking at our information that the government shutdown certainly has an impact, very hard to prove, very hard to understand exactly what the impact is. So it's more guess than anything else.
And certainly to the extent that the U.S. government can get its act together on the debt limit and on the budget, we would expect that to change the trajectory of what we would see for consumer spend.
Operator
Our next question is from Glenn Fodor of Autonomous Research.
Glenn Fodor - Autonomous Research
Charlie, given your experience at a place that was impacted by Dodd-Frank's debit regulation and the looming second round of potential actions here, can you just put your bank hat on and share with us your views as, if this does go through how issuers may approach their response to further debit interchange reductions and/or loss of exclusivity on signature and how could that impact the networks?
Charlie Scharf
Sure. I'll answer the question relative to in my current job conversations that we have had with issuers and our sense for the way people are thinking about it.
Listen I think; first of all relative to the level of interchange, it certainly depends on where the rule ultimately comes out. When issuers first were dealing with the Durbin reduction down to $0.22, there was a lot of talk that went into people's desire to support the product and the $0.22, while people don't make much money on the product, the consumers like the product.
And they still felt the need to support it and we see strong debit growth at that point. As the number drops, if the number drops significantly below that, people do have to rethink what that means.
We always have to remind ourselves that we can sit around and talk about what we like and our issuers can do the same. But there are customers on the other end that are using these products.
And consumers like debit cards, they like to segregate their money. They like to have control over what they spend relative to the amount of money that’s in their bank account and all of the safeguards, checks, alerts and all the things that go along with that.
And forcing consumer behavior to change is a very hard and very dangerous thing to do and not one, that I think -- at least if I could tell banks take it lightly. So we’re still depending on where the numbers come out confident that the support will still be there and for some reason, people chose to look another way.
There are very good prepaid products in the market place which are -- could be important drivers of their business and our business as is the case with credit cards. And we just remind ourselves, the credit card business is very different than it was 10 years ago.
Credit card companies are predominantly controlled by banks that look at the entirety of the relationship. And the entirety of that relationship allows them to make credit decisions that they wouldn’t have felt comfortable making years and years ago and to the extent that they can make those credit decisions, put controls and alert some parameters around that, that consumers like, that certainly an option.
So lots of things unfolding here. Obviously it depends on where the appeal turn itself up.
And then just relative to network routing, I guess, the only thing I’d say on that one is, that one is very complicated. It’s not clear that the system is capable of handling that today.
The system, we thought about broadly whether it’s physical devices, whether its networks, whether its acquirers, processors or anything like that. And so that one, I think we will -- we will wait and see what happens in the appeal scored and go forward from there.
Operator
Our next question is from Sanjay Sakhrani of KBW. Your line is open.
Sanjay Sakhrani - KBW
Thank you. Just a question back on the U.S.
spending trends. I was wondering if there was more elaboration around the trends.
Byron, you mentioned certain verticals being impact as well. I was wondering maybe what those verticals were and maybe what consumer segments you might have seen the impact.
And then just one data point question, when I look at the card service, the purchase volume ratio that declined a lot more in the fourth quarter than it did in the third quarter. And I was just wondering if you could just help me with what might have attributed to that.
Thank you.
Byron Pollitt
With regards to the softening in the U.S. retail spend, clearly gas is important.
We are looking in an average price per gallon in October of $3.36 which for us is 12% below where it was at the same time a year ago. And that shows up in a significant way in the shortfall, I would say other verticals that show up, supermarkets, various elements of travel, a number of categories that we would traditionally associate with small business.
And when you look at the spread, its pretty broad based with and I would almost say after gas that what -- I think what struck us with how many categories you would naturally associate with small business. With regards to the second part of your question, I’m not familiar with the ratio that you’re enquiring about.
Could you rephrase that real quick?
Sanjay Sakhrani - KBW
I guess, I look at card service revenues to purchase volume. Card service fees to purchase volume and that ratio is kind of in the -- it was like 12.67% relative to the 12.
-- like 12.75 last quarter. And when I look at the year-over-year decline, that decline was a little bit more than what we saw last quarter?
Byron Pollitt
Yes. It’s a metric we don’t typically look at -- so this is service fee over PV.
If that’s what you’re looking at to the extent that we have been adjusting our pricing so that more of what we book ends up in data processing versus service fees as well as the case with a major U.S. bank that recently signed up for 10 years.
That would impact that ratio but beyond that, I don't really have a comment. But we will look at that and see whether there is some additional insight that we can address in our future call.
Operator
Our next question is from Rod Bourgeois of Bernstein.
Rod Bourgeois - Bernstein
Yes. I just wanted to inquire more about the restructuring actions.
Can you just provide more specifics on what the restructuring actions were and what prompted them? And also whether there is more to come.
And then I guess related to this on a more strategic level, does the need for some restructuring recently -- meaning you’re needing more levers to keep your margin trajectory, it seems that given the inherent operating leverage in your business, you probably don't need significant restructuring to hit your margin target at this point but I wanted to enquire about that in case we are missing something.
Charlie Scharf
I mean just -- let me start -- we don't believe in using restructuring to manage margins. We use restructuring, if there are things that we want to do to right-size different parts of the company.
This is not expected to continue, doesn't mean that we won't learn things as time goes on and decide to move resources around the company but that's exactly what this is. The majority of this restructuring comes from a sharpened focus on what we are doing in our global products area.
As you know we have had some leadership changes there over the past couple of months. We spent a lot of time, I referenced in my remarks, talking with our clients about what we are doing, what they want from us and where they want us to focus.
And that has directed us to reorient our activities and I think of that by the way as just those activities as normal practice. If we are innovating enough, if we are doing enough things, some of those things will turn out not to be to have all of the opportunity in them and we will course correct and that's what we've done here.
So, I think that answers all of your sub-questions. Byron, did I cover everything?
Byron Pollitt
Yes. I think that's good.
Operator
Our next question is from Smitti Srethapramote of Morgan Stanley.
Smittipon Srethapramote - Morgan Stanley
Just a quick follow-up to the tokenization discussion that you talked about earlier. Just wondering what is the process timeline for it to move from being a proposal to being a standard and can you talk about the timing on when these standards could potentially get implemented?
Charlie Scharf
That is a good question. I would be less than accurate if I was too specific.
The standards have been published. We have continued to put out some guidelines to our clients as to what fields will have to be available in releases that will come out next year, because this tokenization work requires work of acquirers and processors.
And we would hope that some of these solutions would be in the marketplace by the second half of the calendar year, next year.
Operator
Our next question comes from David Hochstim of Buckingham Research. Your line is open.
David Hochstim - Buckingham Research
I just want to -- could you expand again on the spending changes that you see changes in signature, on your high end credit cards, you talked about affluent consumers driving a lot of the spending in the past. Did that change in September, October as well?
And I wondered could you just give us an update at the end of the period in terms of what signature debit contribution is to volume revenue and the earnings?
Byron Pollitt
We don't typically break it down between signature or what we refer to now as Visa Debit versus Interlink. I think the important callout here is that we are now lapping the full implementation of Durbin where we had a year where there was a significant and a permanent loss of debit share as a result of the routing.
And that's now in our base and so as we begin to lap that, the debit numbers are going to look a whole lot healthier growth numbers than they did a year ago. With regards to specific reference to the affluent, I would -- as we have articulated previously, this remains an affluent led recovery.
To the extent that there maybe some lift on debit, at least in the U.S. that would partially be do to a shift from credit to debit as a result of a drop in gasoline pricing.
As the price of the fill up gets more within range of immediately accessible fund, it has been our -- it has been our experience that we will see some shift from credit to debit. But that’s a result of the drop in oil prices and since they are in drop mode, that something we wouldn’t surprise, if we saw at the next three [quarters].
Operator
Our next question is from Bill Carache of Nomura Securities. Your line is open.
Bill Carache - Nomura Securities
Thank you. Charlie, some investors have expressed concern over the inevitability of slower growth at some point, say, the next few years, given that just mathematically you are growing up such a large base?
Can you talk about, your confidence and the sustainability of the current mid to high-teens growth as you look to the future? And perhaps comment on whether an eventual slowdown is something that you worry about or is the runaway for growth so large that is not even something that crosses your mind?
Charlie Scharf
Well, I think, when you show, when you are new at a company that is growing like this. It’s something that you think a lot about and you look a lot about.
So, absolutely, it’s something that as I gotten here, I’ve -- I don’t know whether worry is the right word, but certainly spent a lot of time on. Listen, I don’t think that the opportunities for this company are significantly different than they were four, five years ago.
In fact we believe that there are things going on in the marketplace that would suggest that that both -- that the opportunities are broader. And I am speaking out, I am not, and again I said this, I know, we are -- well, we are concerned about our quarters and we are concerned about our years.
We give guidance. We understand the importance of that.
But here we are talking about, our belief that this company can continue to grow for the long-term. The dynamics that exist with cash and check across the globe is a gigantic opportunity.
It will take us. I know -- I don’t even know how long it will take us to actually conquer cash and check across the globe.
But it’s a very, very long period of time. We also look at all the things that are going on in the world of technology that people initially get concerned about relative to our position.
The majority of them we look at and believe there are hugely valuable to us. The network that we have, as I’ve said, it is really, really, really hard to duplicate what we have.
A couple of people have networks like this. There always going to be niche players out there, but to tackle the global opportunity that exists in growing payments.
You need to have the size and the scale that some of us have. And so this is, one of, the world’s great platform to be able do that.
And I don’t feel any worse. In fact, I probably feel better about the long-term growth opportunities from a revenue perspective of the company today than when I first joined and that’s consistent with what I thought at Investor Day.
Jack Carsky
Brad, at this point, we have time for one last question.
Operator
Your last question comes from Arvind Ramnani of BNP. Your line is open.
Arvind Ramnani - BNP
Hi. Just one final question, if the Visa believe in kind of being a partner with the issuers, merchants and acquirers, then why there are so many groups out there kind of putting hundreds of millions of dollars into finding a way on Visa?
Why is Visa not offering them what they want anyway so badly?
Charlie Scharf
All right. Well, we’ll just spend some time with you offline because we’ve talked a lot about and I think, I have been very, very open and honest about our need to do business somewhat differently in some parts of the world than we have done it in the past.
So there is no question that the participants in the network have to do a better job of balancing out the role of the issuers, the acquirers and merchants. We have not treated them as partners as much as we possibly could, especially in the United States, again other parts of the world we get a very, very different story.
And at the heart of a lot of the disagreements that we had, I -- we certainly believe that we have got the opportunity to change the nature of that relationship and that’s why we formed the group under Elizabeth Buse called Global Solution were dedicated to showing up with solutions to help them, grow their business over period of time. I have also said, this is not going to take one month, one quarter or even a couple of quarters.
It is going to take a period of time. But, listen, we have the tools, we have the assets and we have the desire to do that.
And it’s on us to change nature of those relationships. We started those conversations and overtime, it will be very easy to judge our success.
But it’s certainly something that we are excited about because we know that we can add a great deal of value to merchant community. So, with that, I guess, I’ll just wrap up it and thank everyone for taking the time and for the effort and following our stock.
Jack Carsky
That concludes today’s call. Thank you all very much and if you have any follow up questions feel free to give myself or Victoria a call.
Operator
Thank you for your participation on today’s conference call. At this time, all parties may disconnect.