Visa CEO Discusses F4Q2010 Results - Earnings Call Transcript

Oct.27.10 | About: Visa Inc. (V)

Visa (NYSE:V)

Q4 2010 Earnings Call

October 27, 2010 5:00 pm ET

Executives

Joseph Saunders - Executive Chairman and Chief Executive Officer

Jack Carsky -

Byron Pollitt - Chief Financial Officer and Principal Accounting Officer

Analysts

James Friedman - Susquehanna Financial Group, LLLP

Adam Frisch - Morgan Stanley

Sanjay Sakhrani - Keefe, Bruyette, & Woods, Inc.

Craig Maurer - Credit Agricole Securities (NYSE:USA) Inc.

Drew Dampier

Julio Quinteros - Goldman Sachs Group Inc.

Thomas McCrohan - Janney Montgomery Scott LLC

Bryan Keane - Crédit Suisse AG

David Parker - Lazard Capital Markets LLC

Tien-Tsin Huang - JP Morgan Chase & Co

Donald Fandetti - Citigroup Inc

Bruce Harting - Barclays Capital

Andrew Jeffrey - SunTrust Robinson Humphrey Capital Markets

Moshe Katri - Cowen and Company, LLC

David Hochstim - Buckingham Research Group, Inc.

Christopher Brendler - Stifel, Nicolaus & Co., Inc.

Daniel Perlin - RBC Capital Markets Corporation

James Kissane - BofA Merrill Lynch

Glenn Greene - Oppenheimer & Co. Inc.

Operator

Welcome to Visa Inc.'s Fiscal Q4 2010 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. Mr. Carsky, you may begin.

Jack Carsky

Thank you. Good afternoon, and welcome to Visa Inc.'s Fiscal Fourth Quarter and Full Year 2010 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 from the Investor Relations section of our website at www.investor.visa.com. A replay of the webcast will also be archived on our site for 30 days. A PowerPoint deck containing highlights of today's commentary was posted to our website prior to this call.

Let me also remind you that this presentation may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. By their nature, forward-looking statements are not guarantees of future performance, and as a result of a variety of factors, actual results could differ materially from such statements. These include setbacks in the global economy and the impact of new financial reform regulations. Additional information concerning these factors is available on the company's filings with the SEC, which can be accessed through the SEC's website and the Investor Relations section of the Visa website.

For historical non-GAAP or pro forma related financial information disclosed in this call, the related GAAP measures and other information required by Regulation G of the SEC are available in the financial and statistical summary accompanying our fiscal fourth quarter and full year earnings press release. This release can also be accessed through the Investor Relations section of our website.

With that, I'll turn the call over to Joe.

Joseph Saunders

Thanks, Jack, and as always, thank you all for joining us today. Visa closed out our fiscal 2010 with another solid quarter, delivering net operating revenues of over $2.1 billion, which was a 13% increase over last year. These revenue gains were driven by double-digit growth in payment volume, cross-border volume and Visa processed transactions coming from all areas of the globe.

For all of fiscal 2010, net revenue was a record $8.1 billion, a 17% increase over 2009. Adjusted net income for the quarter, which excludes the gain from revaluing the Visa Europe put was $695 million, a 35% increase over prior year. This equates the diluted earnings per share of $0.95, a 38% increase over the fourth quarter of 2009.

For the full year 2010, adjusted net income was $2.9 billion, a 23% increase over 2009. Full year adjusted diluted earnings per share came in at $3.91, 26% ahead of last year. Importantly, we delivered on all of the guidance we laid out at the start of our fiscal year.

On a separate front, we completed the repurchase of $800 million worth of Class B stock earlier this month or approximately 11 million shares on an as converted basis. And today, we announced the authorization of the new $1 billion share repurchase program for fiscal 2011. Well, last week, we raised our quarterly dividend by 20% over the prior year.

All of these actions reaffirmed our commitment to return excess cash to our shareholders, a commitment that we initially wait out almost three years ago. But of course we will only do this after all appropriate investment and opportunities to fuel future growth have been funded.

We continue to take steps to solidify our foundation for long-term growth. We successfully renewed several client contracts during the quarter. Importantly, this includes securing the early renewal of a major relationship that now leaves us with no major renewals until the beginning of fiscal 2013.

While there are challenges to address, we remain confident in our ability to adapt to the changing environment and we remain committed to being a growth company. Well, Byron will discuss in greater detail our overall guidance for 2011, and the new once as therein. I'm pleased to report that we will continue to target 11% to 15% net revenue growth, greater than 20% earnings per share growth, and are raising our free cash flow guidance to greater than $3 billion.

Our current guidance takes into account a step up in our global investments. This also includes resources to respond effectively to any changes in the U.S. debit landscape. Visa will remain focused on maintaining its industry leadership through growth and innovation. Backstopping that leadership has been a willingness to apply the necessary investment dollars behind new initiatives, expansion and defending our position in the U.S. market.

We recognize that we must remain adaptable and innovative appropriately addressing the economic, regulatory or legal challenges before us. We believe we have made good progress in working with the U.S. government to bring clarity to two important issues that directly impact our business. First, we resolve the Department of Justice. And second, we have met with the Federal Reserve staff on multiple occasion to discuss Visa's place in the payments industry and the industry in general. We are encouraged by the open and inclusive process that has been adopted.

As we have been saying, we have to wait until the rules were finalized to provide you with more detail regarding the financial impact this year and in ensuing years. With that being said, we are not setting idly buy. We have had a team in place for several months focusing on how we will evolve our U.S. debit strategy based on potential outcomes of the Fed's rulemaking process. As a result, we have developed a range of strategy options that we will choose from when the time comes. It's very important to keep financial reform and perspective. Our foundation remains solid. We are diversified global business and a growth industry, and we will continue to invest to develop our acquired products and services that drive long-term growth.

There's been a lot written of late [ph] about Visa's prospects with the U.S. debit market given recent legislative developments. Let me give you my perspective about this. There is a reason we have a strong leadership position in this market. We have the best processing technology, value-added services and brand in the business. We will continue to use those assets to win in the marketplace.

Let me now turn the call over to Byron to take you through the details of our financial results, and then I'll be back to provide some context on what we are thinking about from a global investment and opportunity perspective.

Byron Pollitt

Thank you, Joe. In today's call, I'm going to cover first our global payment volume and transaction trends for both the June and September quarter, as well as payment and transaction results for the first three weeks of October. Remember, the June quarter in forms are fiscal fourth quarter service revenue. Please note that we have also included CyberSource payment volume statistics to our operational performance data supplement beginning this quarter. Following the review of our revenue drivers, I'll cover the financial highlights of our fiscal fourth quarter and full year, followed by guidance for fiscal year 2011.

Given yesterday's informational call on CyberSource revenue impact, changes in income state presentation related to our Visa Extras business and non-Visa processed transactions and the revaluation of the Visa Europe put, I will not today specifically address these topics. If you missed the call, the webcast, the replay and associated PowerPoint presentation is on our website, and you can reach out to our IR team for any additional clarification.

Global payment volume growth for the June quarter, in constant dollar, was 14% flat from the March period. Meaningful growth was sustained in every region of the globe. In the U.S., payment volume growth was 14% in the June quarter, up from 13% in the March quarter. Rest of world payment volume, on a constant dollar basis, was 14% in the June quarter, essentially flat to the 15% rate delivered in the March quarter. These results recognized continued secular growth and a strong and healthy diversified country base outside the U.S.

Turning to the most recent quarter, September global payment volume growth, in constant dollar, was 14%, same as the June quarter. In the U.S., payment billion growth was 13% in the September quarter, down slightly from 14% in the June quarter. Rest of world payment volume on a constant dollar basis grew at 14% in the September quarter, flat from a 14% rate in the June quarter.

More recently, through the 21st of October, U.S. payment volume growth held steady at 13%. Global cross-border volume growth accelerated considerably in the June quarter, posting a 17% growth rate on a constant dollar basis from the 12% rate in the March period. In the September quarter, global cross-border volume growth delivered a strong 16% growth as the world economy continues to mend. October cross-border volume growth on a constant dollar basis sustained the momentum we saw in the September quarter, posting a 17% rate of growth through the 21st of the month.

Transactions processed over Visa's network totaled $12.1 billion in the fiscal fourth quarter, an increase of 16% over the similar period a year ago and ahead of the 14% growth rate we saw in the June quarter. Processed transactions through the 21st of October continued their growth at 16% over the prior year period. CyberSource billable transactions on a pro forma basis totaled $829 million for the quarter, a very strong 36% growth rate and $3 billion for the year, an equally impressive 32% rate of growth. We expect continued strength in this part of our business as e-commerce activity continues to grow both in the U.S. and internationally. Please see our operational performance data supplement for a history of CyberSource's billable transactions.

Now turning to the income statement. In our fiscal fourth quarter, gross revenues of $2.5 billion were up 15% from a similar period in 2009. For all of 2010, gross revenues were $9.6 billion or up 18% over the prior year. Net operating revenues in the quarter were $2.1 billion, a 13% increase over 2009, driven by a sustained economic recovery, ongoing secular growth and the two months of revenue contributed by CyberSource, which totaled $41 million. Visa, without CyberSource, grew 11% in the quarter. For the full fiscal year 2010, net revenues were $8.1 billion, a 17% increase over the prior year.

Moving to the individual revenue line item. Service revenues was $912 million, up 13% over the prior year period and reflective of strong payment volume growth in the quarter ending June. Keep in mind that our previously announced price adjustment enacted in July will not manifest itself until our fiscal first quarter of 2011.

Data processing revenue was $840 million, up 15% over the prior year's quarter based on a similarly strong processed transaction growth rate. Also influencing this quarter's revenue was a $37 million contribution from the CyberSource acquisition.

As I mentioned in our call yesterday, the majority of CyberSource's revenues flow through the decline. International transaction revenue were up 22% to $619 million due to the sustained improvement in cross-border volumes during the period. We have not seen any signs of protracted slowdown in cross-border volumes suggesting a continued healthy global travel outlook.

Volume and support incentive as a percentage of gross revenue came in at 17%, a little higher than the run rate in our first three quarters due to the successful signing of certain contract renewals during the quarter, which carried a high-level of one-time contra-revenue incentive. As Joe already mentioned, we are quite pleased that we were able to re-sign these issuers.

Total operating expenses for the fourth fiscal quarter were $1 million, flat to the year ago period despite the incremental addition of approximately $50 million in expense from the CyberSource acquisition. Absent this impact, the year-over-year quarterly decline was driven primarily by lower marketing and advertising spend. For the full fiscal year 2010, expenses were also flat, coming in at $3.5 billion versus $3.4 billion in 2009 and in line with our guidance going into this year.

For the quarter, our operating margin was 53% as a result of slightly higher expenses and the two-month impact of CyberSource, which were all of 2010, the operating margin was 57% in line with our guidance of mid- to high-50s. The foreign exchange impact on net revenue in the fourth fiscal quarter and full year was a positive 1% as a result of continued weakness of the U.S. dollar in combination with our currency hedges. The CyberSource acquisition added an incremental $60 million to operating expenses this quarter, including $15 million of depreciation and amortization, as well as some minor stock compensation expense.

Set against the $41 million of incremental revenue, the two months of CyberSource on the book were approximately $0.02 diluted to the quarter. As we telegraphed on last quarters call, we expected an elevated tax rate this quarter due to the impact of the CyberSource acquisition, the true up of our estate tax rate and the related adjustments to our deferred tax liabilities recorded as part of our October 2007 reorganization.

In the end, it was not as impactful as we had expected, though the rate still approach 38%, excluding the revaluation of the Visa Europe put option. This resulted in a full year tax rate of 37%, excluding again the revaluation of the Visa Europe put option.

As discussed on yesterday's call, we have decreased the value of the Visa Europe put by $79 million, primarily reflecting a contraction in Visa Inc.'s P/E ratio [Price/Earnings ratio]. This nonrecurring, nontaxable event was flowed through the fourth quarter income statement, resulting in a reported EPS of $1.6 for the quarter and $4.1 for the year removing the put $0.11 impact yields and adjusted EPS of $0.95 for the quarter and $3.91 for the full year, which equates to 26% growth for the year. Capital expenditures were $97 million in the quarter and totaled $241 million for all of 2010. This represents ongoing investments in technology, infrastructure and growth initiative.

Moving on to the balance sheet. We ended the fourth quarter and the year in the same strong position in which we began, negligible debt and cash, cash equivalents, restricted cash and available-for-sale investment of $6 billion. Of this total, $1.9 billion is restricted cash, which represents an amount sufficient to fully pay out the balance of the American Express settlement over the next six quarters with $1.5 billion that's currently uncommitted.

As of the end of fiscal Q4, Visa's outstanding share count was $727 million on an as converted basis. Earlier this month, we placed $800 million into the litigation escrow, which had the effect of an 11 million share buyback. On a pro forma basis, this will reduce the share count to $716 million.

As Joe mentioned earlier, our Board recently authorized another $1 billion repurchase program beyond the $800 million repurchase just completed. We are now on track to return to shareholders $1.8 billion via share buybacks plus over $400 million in dividends in fiscal 2011.

As perspective, during the past two fiscal years, Visa has repurchased $3.3 billion in stock and paid $0.7 billion in dividend, returning in total $4 billion to shareholders. Fiscal year 2011 is on track to add $2.2 billion to that total.

Now let me cover our expectations for fiscal 2011 and beyond. We are currently targeting net revenue growth to be in the same 11% to 15% range that we have guided to since our IPO. Our underlying assumptions for setting this include continued global economic recovery and a steady contribution from cross-border volume. Also, as we are substantially hedged through the end of our fiscal 2011, we expect no significant impact from currency fluctuations. We have assumed impact from the financial reform act, primarily in our fiscal fourth quarter.

In addition as discussed on yesterday's call, please note that our revenue growth expectations for 2011 reflect 12 months of CyberSource operations in 2011 versus two months in fiscal year 2010; $89 million of Visa Extras revenue recorded in fiscal year 2010 that will not repeat in fiscal year 2011; and $140 million of non-Visa processed transaction revenue recorded in fiscal year 2010 that will also not repeat in fiscal year 2011.

With the early renewal of a major relationship in Q4 and with no major contracts up for renewal for the next two years, volume and support incentives should be in the range of 16% to 16½% for the year. Our expectation for full year 2011 operating margin is about 60% based on the reduction in Visa Extras expense and a lower media costs due to the absence of the major Olympic or World Cup event, marketing spend should come in at under $900 million.

Our full fiscal year 2011 tax rate should be in the range of 36½% to 37%. We continue to target better than 20% earnings per share growth in 2011 on an adjusted basis, inclusive of the addition of CyberSource to both years, but excluding the impact from revaluing the Visa Europe put. Capital expenditures are slated to be in a range of $250 million to $275 million, reflecting additional investment over 2010 in several key growth initiatives, including e-commerce and CyberSource. And lastly, we are projecting free cash flow for the year to exceed $3 billion, reflective of our solid earnings trend.

That concludes my comments, so I'll turn the call back over to Joe.

Joseph Saunders

Thanks, Byron. Earlier, I noted my confidence in the future of Visa. Over more than 50 years, our organization has established a track record of adapting and flourishing during times of change by driving unique intangible value to clients, consumers, merchants and economy. So as we close the prepared portion of this call, I want to leave you with one important theme: Investment. Visa is today and will remain tomorrow a growth company. To extend that position, we are focused on strategically deploying our substantial capital to invest in areas of opportunities with significant long-term growth potential.

Our two biggest areas of investment will continue to be international expansion and innovation, both of which are key accelerants to growing Visa share of the secular trend. At the same time, we will come you to protect our position globally in all aspects of our business.

Regarding international expansion, earlier this year we stated our strategic aspiration to drive 50% of our revenues from outside the United States by fiscal year 2015. Our strategic plan for fiscal year 2011 and beyond includes several initiatives that will help us achieve this goal. First and foremost, we have developed and began investing in aggressive programs to accelerate growth in key markets around the world beginning with Brazil, Russia and the Middle East. We are also shifting market resources to place increased emphasis on key nine U.S. geographies.

In fiscal 2011, we will invest upwards of 60% of Visa's marketing spend on markets outside the United States, where we are focused on driving growth in the affluent segment and debit as a point-of-sale. And importantly, we are investing significant resources to engage directly with local governments in key markets around the world, highlighting our Visa's network, products and services can help meet their needs and spur economic growth. I can tell you that many of these conversations are leading to more productive relationships that will help grow our local business. Because the fact is the scale, reach and sophistication of our network delivers a compelling value proposition, particularly in emerging markets.

Innovation is also a top growth priority in investment focus. I'm pleased to say we have made progress on a number of fronts this quarter to deliver tangible consumer facing innovations to market. For instance, as the global leader in developing mobile payment, we now stand on the threshold of bringing this new technology to consumers in the United States. As we speak, we are working with many of our largest banks in the country to pile it and commercialize mobile payment programs, including JPMorgan, Wells Fargo, Bank of America and U.S. Bank. What excites us the most about our mobile contact of solutions is that it's scalable, it allows customers to use existing bank accounts and it works with most smart phones in the United States today.

We've also seen excellent traction with money transfer. Just last week, in addition to several other initiatives in which we are engaged in India, the Reserve Bank of India granted us permission to begin offering inbound cross-border remittances to eligible Visa debit and Visa prepaid card holders issued in India and allows the Visa clients in India to promote our money transfer capability. This service is up and running and generating revenue today.

And of course, our investment in CyberSource is already paying off. You may have seen that on Monday, we took a major step forward in enhancing and opening the authorized .NET development center to independent developers. Put simply, we recognize that innovative ideas come from many people and places. By combining the power of our flexible and secure network, with the community of developers creating new payment applications, we are paving the way for the next generation of payment innovations to come to market quickly and for the benefit of all stakeholders. I look forward to reporting out on the progress of this and our other key investments over the coming fiscal year.

Finally, speaking of CyberSource, I want to close by welcoming CyberSource employees to the Visa fold and thanking our entire employee base for their contributions to our success in fiscal 2010. We delivered a stellar year amidst much changed, thanks to their collective effort.

And with that, we're ready to take questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question does come from Bryan Keane - Crédit Suisse.

Bryan Keane - Crédit Suisse AG

I guess, Byron, I would just hoping you could quantify the financial reform impact in the fourth quarter that you guys are taking into account?

Byron Pollitt

We have, I presume, that you mean the fourth quarter of next year, fiscal year '11? So we have accounted for that with certain assumptions, which will be more forthcoming about once we actually see the rules written. So I think the key takeaway here is that management is very comfortable with the guidance that we have given, recognizing that what impact there might be would be limited to the largely limited to the fourth quarter. And we are comfortable with our guidance, reflecting that period for the upcoming year end when the Fed is more explicit about rulemaking, then we'll be able to have a more informed discussion and more informed guidance with regards to fiscal year, frankly fiscal year '11, but more importantly, beyond fiscal year '11.

Operator

The next question comes from Tien-Tsin Huang - JPMC [JPMorgan].

Tien-Tsin Huang - JP Morgan Chase & Co

I wanted to ask about the incentives and the large renewal. The incentives came in a little bit better than we expected but I just wanted to clarify, did the large renewal require any unusual term or pricing concession? And I'm curious, did this renewal get captured in the quarter in terms of incentives or is that something will -- the end of coming quarters?

Byron Pollitt

The incentives that were a part of the renewal were very much in line with the guidance we had given earlier. It did have an impact in the fourth quarter as we anticipated. There are no specific call outs, and it is fully embedded in our guidance for 2011.

Operator

Next question comes from Moshe Katri - Cowen.

Moshe Katri - Cowen and Company, LLC

Byron, looking at fiscal year 2011, how should we think about the quarterly revenue progression and then EBIT margins? And also for the first time since you went public, I guess advertising and marketing expenses as a percentage of sales declined sequentially, and we're also expecting advertising and marketing to be below $900 million in fiscal year 2011. That's also below the $1 billion bar that you've had since you went public. Maybe you can give us some color on some of these trends?

Byron Pollitt

We don't comment on a quarterly progression. We wait for the earnings calls to do that to try and be helpful. What we particularly since that we have some unevenness in the progression of the quarters. We prefer to guide at the annual level and with giving you both guidance and margin. Clearly, if you were to look at fiscal year 2010, it was a recovery year. So the comps that we are lapping in 2011 are going to get progressively tougher as you move through the year. And I think that's the perspective, which suggests you view the course of the year. And then of course, to the extent that we have factored in some impact from the Durbin, that's largely a fourth quarter event. So those, from that standpoint, that's a perspective on the quarterly. With regards to marketing, you're right. We, up to this point, our guidance has been under $1 billion based on the change in income statement, presentation that we will be making with regards to Visa Extras, which is one of the topics that was in yesterday's pre-earnings call. There will be $89 million worth of marketing expense that will have been booked in fiscal year 2010 that will not repeat in fiscal year 2011. And so that gets you along way towards moving from under $1 billion to under $900 million.

Operator

Next question comes from Chris Brendler - Stifel Nicolaus.

Christopher Brendler - Stifel, Nicolaus & Co., Inc.

Just a quick question regarding the outlook, you mentioned the October trends looking relatively in line with what you saw in the September quarter,, but it appears to me that the comparisons will get tougher as you head deeper into the calendar fourth quarter and as early as you head into 2011. Do you expect a material slowdown in volume growth embedded in your guidance? Or are there other offsets that will keep volume growing at double digits?

Byron Pollitt

We have assumed that there is a continuing modest recovery through the course of the year, and so that would be a positive growth in volumes in each of the quarters year-over-year.

Operator

The next question comes from Tom McCrohan - Janney Montgomery Scott.

Thomas McCrohan - Janney Montgomery Scott LLC

Byron, in terms of composition from a different revenue categories, should we be thinking about data processing and related fees becoming increasingly more a big of a proportion of overall fees over the next two to three years?

Byron Pollitt

Because the CyberSource revenue is largely going to be booked to data processing, you should expect that that, that will have a lift in data processing revenue, certainly initially as a portion of our mix and then we'll just have to see how we grow the other categories to see how it sorts out. But near term, there will be a lift because roughly, 90% of the CyberSource revenues will be booked to data processing fees. And that is also a subject that was covered in yesterday's pre-earnings call for those that would like to explore that a bit further.

Operator

The next question comes from Dan Perlin - RBC.

Daniel Perlin - RBC Capital Markets Corporation

I just wanted to explore incentive fees combined with the marketing spending, as we think about next year. And the 16% to 16½% incentive fees are a little bit lower than I would've thought, given in fact that you have been using that product or I guess incentive line to drive kind of that global acceptance. So have you changed the way you're thinking about that going forward? And then secondly, when you put those two categories together meaning marketing, spending and total incentives, because the market is seeing a reduction in Interchange and therefore, not funding much loyalty points, is that also having an effect and is that part of what you're talking about in terms of adjusting for this financial reformat?

Byron Pollitt

Let me give you the three drivers that are impacting incentives and holding it into that 16% to 16½% range. First, many of our incentive arrangements are tied to year-over-year growth. And when you have growth in a given year, that resets the base of which incentives are paid the following year. And so with fiscal year 2010 being a recovery year, we had an unusually large bump in incentives because there was a steeper recovery in 2010 versus 2009 versus what we would expect in '11 versus '10. So that in effect acts as a dampener. Number two, there are no major contract renewals scheduled for 2011. And so this will be a much more normalized year as it relates to incentives. And then finally, third, we will be adding in the CyberSource revenue into our total and the CyberSource revenue typically doesn't carry with it incentives. So you put those three together and that's the principal reason why we are settling in at a 16% to 16½% rate.

Operator

The next question comes from Jim Kissane - Bank of America Merrill Lynch.

James Kissane - BofA Merrill Lynch

Byron, in the past you've given longer term guidance say you're going out two years, tonight you're only going out to F11. Is it primarily due to the Durbin uncertainty or are there other factors involved?

Byron Pollitt

It is our custom to give detailed guidance when you're out, which is what we're observing this year. And it would be our expectation that once we have a more definitive clarification from the Fed for the rules going forward, that we would then be in a position to give a much more informed and thoughtful guidance for 2012. So we're going to wait until we can talk about 2012 with that context.

Operator

The next question comes from Andrew Jeffrey with SunTrust.

Andrew Jeffrey - SunTrust Robinson Humphrey Capital Markets

PayPal has become increasingly vocal and aggressive competitively, especially in mobile and gateway solutions. And I just wonder, I know it's been a big partner of CyberSource over the years. I'm wondering if you could just give sort of a competitive commentary in terms of how you view PayPal in a lot of ways? They're no friends of your customers as they sort of SAP interchange revenue. So I just wonder, kind of what you think the long-term relationship is between PayPal and CyberSource?

Joseph Saunders

A lot of the transactions on PayPal are Visa transactions, and I don't necessarily expect that to change in the matter in front [ph]. As it relates to whether we consider PayPal to be a competitor, the answer is, of course, we do. And there are a number of things that we have done and are doing that some of which we talked about on this call, some of which we talked about at our Investor Day, but we are doing to compete not just with PayPal but other emerging payment schemes. And we are focused on investing in and promoting those things that we do best and fit in best with our business. We're going to continue to do that and that's pretty much where Visa is.

Byron Pollitt

Yes, and I would just add that in the way that CyberSource deploys, we have the larger enterprise customers and then we have the much smaller businesses that do business in e-commerce are Authorize.net brand under CyberSource is the one that competes successfully in that space. And so that's to the extent that there is more, that PayPal is an alternative or Authorize.net is an alternative, it would be more in that space. Otherwise, transactions, as Joe said, transactions carried across PayPal automatically offer Visa as an alternative and we have a big role to play as in supporting PayPal in their payment system in that regard.

Operator

The next question comes from Adam Frisch with Morgan Stanley.

Adam Frisch - Morgan Stanley

Just wanted to address the incentives with the renewal. It was called out, obviously, it was one of your largest issuers and I'm presuming they issued debit cards. And if incentives didn't jump and there was no unusual call outs from the time where I guess you could say banks have some incremental leverage given the Durbin uncertainty, should we assume that similar discussions are happening with other banks? And maybe the concerns about them coming after you for a concessions maybe overdone or is just one bank that should be taken as a standalone incident?

Joseph Saunders

We completed a transaction with a large client this quarter and it was a standalone transaction, period. And it included the Credit Card business, the Debit Card business and the Prepaid business. And so and that's about all I can say about it. I don't think that is anything we did or have done with that or others is particularly inconsistent. I don't think that there's anything about this that is highly unusual in comparison to other contracts that we signed.

Byron Pollitt

Yes, let me just emphasis that point, if I could, Adam, so that my earlier comments were not misinterpreted. Incentives were higher in the quarter. They were 17%. That's high for us. A more normalized level is a 16% to 16½%. We had a number of major contracts with one large contract in particular that came together and was consummated in this quarter. We had telegraphed several quarters ago that this was a situation that was likely to happen and that it was important to interpret our guidance on a full-year basis, not what happens in a particular quarter. And so those, the deals that we anticipated were brought to resolution in the quarter. Incentives came in at roughly 17% and are baked into our guidance for next year in terms of the full-year impact.

Operator

The next question comes from Craig Maurer - CLSA.

Craig Maurer - Credit Agricole Securities (USA) Inc.

I was hoping you could add some color around your thoughts on Brazil? I was wondering if you've seen any increase in your growth trajectory following the dissolution of exclusivity and acquiring market, which I know has increased competition for new merchants there dramatically?

Byron Pollitt

I think it's too early. First of all, our growth in Brazil is very attractive. It's a robust economy and our business in Brazil is very strong. We think it's still a bit early to attribute any growth to the restructured arrangement that is in Brazil. Hard to differentiate given that economies are recovering from a recession. I think it's safe to say that Brazil is very attractive, high-priority market for us and we expect great things from that country still to come.

Operator

The next question comes from Bruce Harting - Barclays.

Bruce Harting - Barclays Capital

In the discussions that you described as open and cooperative, is there any news on having a tech solution for differentiating banks below $10 billion, for example? And any color input you might have on differentiation between signature in pen and the way they said is looking at that issue? And then if I may, just on the mobile, is one of the things as you described working with the banks on rollout of pilot programs and things like that, how is the cost of that research split? And is that one of the embedded benefits you give to your clients as you explore new payment technologies that's a key part of your pricing scheme?

Joseph Saunders

Well, as it relates to the first part of your question relating to the Fed, our conversations with the Fed have been focused on the competitive landscape in the Debit business, the substantial investments and ongoing investments that are required to keep the global payment system running securably and reliably. We talk to them why we believe cardholders should have the right to choose which payment networks throughout their transactions on and why consumers are making network choice expect to receive benefits of their selection fraud benefits, chargeback benefits, rewards and promotions, things like that. But so that's the kind of dialogue that we've had with the Fed. As it relates to how the Fed interprets it and as it relates to how the Fed interprets the question of signature versus pen and how many issuers they have to have, we continue to believe that there would be a single signature issuer and at least two pen issuers. Now that doesn't mean that that's going to happen. But we don't know what's going to happen until we see what they come out with. I think that to say that our meeting with them is open and constructive. It's open in the sense that they are curious about the business, curious about what's going on, interested in knowing what our thoughts are and I think we've done it in a way that they at least trust the data that we're giving them. As it relates to how they digest that data and what they do with it or what they feel that they can do with it, that remains to be seen.

Byron Pollitt

On the mobile front, much of what we do is you would consider R&D spending, and we do the investment. We incur costs, but we don't try and cover the full gamut. And so where we have other -- where there's other expertise required, we might, for example, do a joint venture with another technology company, which is exactly the case with the joint venture we have with Monetize. So they are another capability that we blend with ours in order to provide a more turnkey mobile payment platform for our clients. So hopefully, that addresses your question.

Joseph Saunders

I think, Bruce also mentioned the under $10 billion financial institutions in the call out [ph]. And look, as we have said consistently and we said prior to the law being past, that's a very, very difficult thing to get to that requires a number of different entities to do things in order to achieve that out. Having said that, it's the law and if it continues to be the law, and I have no reason to expect that well [ph], then we will do our darndest to make sure that we adhere to the law. And as it relates to how that can be done, I can't give -- Visa cannot give you the blueprint to do it without the cooperation of other in these.

Operator

The next question comes from David Parker - Lazard Capital Markets.

David Parker - Lazard Capital Markets LLC

A few weeks ago, you launched your first debit card in Canada, and it appears that you can only do -- it's limited to certain transaction like online and over the phone, and so forth. Can you just update us on the opportunity that you see for that market and when you feel that you might be able to do all types of transactions, including the face to face point-of-sale?

Joseph Saunders

Some of the rules put forward by the competition committee in Canada make viewing a full-blown debit product somewhat problematic. And so I don't know exactly when or if we'll get to an ultimate end state. I mean, I think we have to see how things unfold again. But we remain excited about rolling out of debit product a couple weeks ago, and we think that there's a place in the market for the product and we have been very encouraged by what's happened since we introduced it. And the activity was some institutions that aren't currently part of the process, but are now looking forward to join in. So we'll see.

Operator

The next question comes from Julio Quinteros - Goldman Sachs.

Julio Quinteros - Goldman Sachs Group Inc.

Just really quickly on the contract renewals that you guys assigned through fiscal 2013, what is the specifics around financial reform coming through in regards to that? So in other words, once you guys see the final ruling, can those contracts we renewed? Can it be forced open? Would you guys be forced to do anything that isn't already sort of built into the contract? How do you guys have that sort of structure? It'd be helpful.

Joseph Saunders

All of our contracts are with individual financial institutions. They all have different nuances and none which am I going to publicly discuss since they are confidential.

Operator

The next question comes from Don Fandetti - Citigroup.

Donald Fandetti - Citigroup Inc

Joe, there's been a little bit of talk in Washington about maybe reference to tweak Durbin or even sort of push for a longer implementation time period. Do think that's a possible scenario? And then also just want to get your sense and your comfort on the non-U.S. regulatory environment?

Joseph Saunders

Well, I mean, an answer to your first question, I mean that, that conversation does exist. And from our point of view, we'll do whatever we can to make the ultimate outcome as plowable to us as we possibly can. So I wouldn't count on anything happening, but there is conversation there. There's possibilities and we pursue those possibilities. As it relates to regulation outside the United States, I mean, we mentioned in the talking points today that we've made a considerable amount of progress, particularly in those countries that we're most interested in doing business in. And I think that, that who's on that front is generally pretty good news. I'm talking about Russia, I'm talking about Brazil. Even to some extent China, where our business is, I think, we have almost the largest revenue increased for any country outside the United States in China, where we get the share and business continues to be robust there. So I see this being a continuing situation. I don't think that government interest or government regulation is necessarily going to go away anywhere in the world. But from our point of view, we are learning to adapt and use our technology to everyone's benefit. And so far, it's working quite well.

Operator

The next question comes from Drew Dampier - Meredith Whitney Advisory Group.

Drew Dampier

Byron, I believe that a month ago at Barclay's conference, you gave some guidance on how much you said that contributes to your overall revenues. I think you said about 16%. I know MasterCard said it's up 15% of their revenues. I know you can't really comment directly on their pricing, but can you just help me to understand why those ratios to be so similar given your transaction mix? I just would've thought yours would be a bit higher?

Byron Pollitt

So let me correct that. If you -- what we tried to do was narrow the debit revenue that we thought would be potentially impacted by Durbin. And that's a little over 20% of our total global revenue. So a little over 20%. We actually have more revenue in debit than that, but the increment above that level, we don't see that as being impacted by the Durbin Legislation. So it's a little over 20%. And then within that, we had a breakdown between pen and signature. But I think the key thing here relative to the statistic you had was it's a little over 20% that would of domestic U.S. debit revenue that could potentially be impacted by Durbin.

Operator

The next question comes from Glenn Greene - Oppenheimer.

Glenn Greene - Oppenheimer & Co. Inc.

I guess just the first the question might be pricing benefits that might be embedded in 11% to 15% net revenue growth guidance, are there any specific call outs other than sort of the assessment fee increase that I think I heard was going to be effect in the first quarter?

Byron Pollitt

So on pricing, let me first restate our longer term perspective, which is one to two percentage points. In the revenue guidance that we gave specifically for fiscal year 2011, we have not assumed any pricing lift in that revenue guidance. If we do have any pricing realized, then it would be an upside to the projection.

Operator

The next question comes from Sanjay Sakhrani with KBW.

Sanjay Sakhrani - Keefe, Bruyette, & Woods, Inc.

Just have a quick question on the card service fee revenue line. One of the metrics I look at is just card service fees revenues relative to payments volume, and that margin has contracted quite a bit year-over-year. And I was just wondering how should we should think about it going forward, understanding that I think the pricing change affects that line as well?

Byron Pollitt

On card service fees -- give me one moment here. So if we were to look at what occurred in the fourth quarter, the pricing as you bridge from Q3 to Q4, some of that is due to the contract renewals, multiple that we had during the quarter. And then we have a mix issue here, it's not really an issue, it's just a phenomena. We have outside the United States, we are experiencing faster growth in geographies that do not have as high a service fee yield. And so the combination of a shift in the geographic origin of where the revenue, the payment volume is coming from, relative to the service fee yield and the impact in the fourth quarter of contract renewal together explain most of the shift.

Operator

The next question comes from David Hochstim - Buckingham Research Group.

David Hochstim - Buckingham Research Group, Inc.

I wonder if you could just talk about the personnel expense of what we might expect in 2011? There are a lot of hiring to do outside U.S. and should we expect the same kind of seasonality next year in that number?

Byron Pollitt

Yes, so in personnel, I think, first of all, the principal driver, the personnel expense for next year will be the fact that fiscal year 2010 had only two months of CyberSource with the addition -- as we move into 2011, we're obviously going to have 10 months of comparables for which there was no CyberSource. In addition, I'd be cautious about projecting personnel expense off the fourth quarter because the fourth quarter of the year is always subject to an above average number of accruals. And so the way that we try to be helpful here was to give you an operating margin based on the entire revenue for the year and to give you some guidance on where we thought marketing would come in. With regards to hiring, we do expect to be hiring next year and a disproportionate amount of that hiring to be outside the United States as we focus aggressively on growing our revenue and developing our markets outside the U.S. It's a significant component of getting that done that requires boots on the ground and we're committed to getting those boots in the countries where the opportunity is significant.

Operator

The last question does come from Jamie Friedman - Susquehanna.

James Friedman - Susquehanna Financial Group, LLLP

I wanted to ask about mobile payments. Joe, your commentary about mobile payments had some noticeable enthusiasm in your voice. I was wondering, without getting into the details of the financial structures in mobile payments, is Visa better off or worse off in a world with high mobile payments penetration?

Joseph Saunders

And I would have to tell you that everything that we've done and the money that we've invested in the mobile payments would suggest to me that we're better off with that, not worse off. And I think that the other part of the answer is better or worse, it's occurring. It's going to happen. And I mean, it's incredible, the number of people in the world that own a cell phone. And I don't -- and the usage is mind blowing. And so I think that it's something that you have to be involved in, and what I'm particularly excited about is where we are in terms of putting infrastructure together that works with our Visa infrastructure. We aren't starting out by saying, why don't you just slap a sticker on a cell phone and swipe it? We have an integrated mobile network that we've been working on for a number of years. And the monetized entity that we bought that helps connect the mobile technology to the banking systems. I mean, I think we're just in a terrific position and I think it is both offensive in terms of having the ability to increase our volume and defensive in that it is with what we have, I don't think we will lose [indiscernible]. I hope that answers your question. And thank you, everybody, for attending the call.

Jack Carsky

Thank you all very much. If anybody has any follow up, please feel free to call myself or Victoria.

Operator

Thank you for your participation in today's conference call. The call has concluded. You may go ahead and disconnect at this time.

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