This management's discussion and analysis provides a review of the results of operations, financial condition and the liquidity and capital resources ofVisa Inc. and its subsidiaries ("Visa ," "we," "us," "our" or the "Company") on a historical basis and outlines the factors that have affected recent earnings, as well as those factors that may affect future earnings. The following discussion and analysis should be read in conjunction with our unaudited consolidated financial statements and related notes included elsewhere in this report. Forward-Looking Statements This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of theU.S. Private Securities Litigation Reform Act of 1995 that relate to, among other things, our future operations, prospects, developments, strategies and growth of our business; anticipated expansion of our products in certain countries; industry developments; anticipated benefits of our acquisitions; expectations regarding litigation matters, investigations and proceedings; timing and amount of stock repurchases; sufficiency of sources of liquidity and funding; effectiveness of our risk management programs; and expectations regarding the impact of recent accounting pronouncements on our consolidated financial statements. Forward-looking statements generally are identified by words such as "believes," "estimates," "expects," "intends," "may," "projects," "could," "should," "will," "continue" and other similar expressions. All statements other than statements of historical fact could be forward-looking statements, which speak only as of the date they are made, are not guarantees of future performance and are subject to certain risks, uncertainties and other factors, many of which are beyond our control and are difficult to predict. We describe risks and uncertainties that could cause actual results to differ materially from those expressed in, or implied by, any of these forward-looking statements in ourSEC filings, including our Annual Report on Form 10-K, for the year endedSeptember 30, 2019 and our subsequent reports on Forms 10-Q and 8-K. Except as required by law, we do not intend to update or revise any forward-looking statements as a result of new information, future events or otherwise. 24
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Overview
Visa is a global payments technology company that enables fast, secure and reliable electronic payments across more than 200 countries and territories. We facilitate global commerce through the transfer of value and information among a global network of consumers, merchants, financial institutions, businesses, strategic partners and government entities. Our advanced transaction processing network, VisaNet, enables authorization, clearing and settlement of payment transactions and allows us to provide our financial institution and merchant clients a wide range of products, platforms and value-added services. Financial overview. Our as-reportedU.S. GAAP and non-GAAP net income and diluted earnings per share are as follows: Three Months Ended December 31, 2019 vs 2018 % 2019 2018 Change(1) (in millions, except percentages and per share data) Net income, as reported $ 3,272$ 2,977 10 % Diluted earnings per share, as reported $ 1.46$ 1.30 12 % Non-GAAP net income(2) $ 3,272$ 2,980 10 % Non-GAAP diluted earnings per share(2) $ 1.46$ 1.30 12 %
(1) Figures in the table may not recalculate exactly due to rounding. Percentage
changes are calculated based on unrounded numbers.
(2) For a full reconciliation of our non-GAAP financial results, see tables in
Non-GAAP financial results below.
Highlights for the first quarter of fiscal 2020. Our business is affected by overall economic conditions and consumer spending. Our business performance during the three months endedDecember 31, 2019 reflects continued global consumer spending growth amidst uneven global economic conditions. We recorded net revenues of$6.1 billion for the three months endedDecember 31, 2019 , an increase of 10% over the prior-year comparable period, reflecting continued growth in nominal payments volume, nominal cross-border volume and processed transactions. Exchange rate movements in the three months endedDecember 31, 2019 , as partially mitigated by our hedging program, negatively impacted our net revenues growth by approximately one percentage point. Total operating expenses were$2.0 billion for the three months endedDecember 31, 2019 , an increase of 14% on a GAAP and an increase of 13% on a non-GAAP basis, respectively, over the prior-year comparable period. The increase was primarily due to higher personnel, professional fees, depreciation and amortization and general and administrative expenses, as we continue to invest in our business growth. Non-GAAP financial results. We use non-GAAP financial measures of our performance which exclude certain items which we believe are not representative of our continuing operations and may distort our longer-term operating trends. We consider non-GAAP measures useful to investors because they provide greater transparency into management's view and assessment of our ongoing operating performance. Starting in fiscal 2020, we revised our non-GAAP methodology to exclude the impact of gains and losses on our equity investments, amortization of acquired intangible assets and acquisition-related costs for acquisitions that closed in fiscal 2019 and subsequent periods. Prior year amounts have been restated to conform to our current presentation. • Gains and losses on equity investments. Gains and losses on equity
investments include periodic non-cash fair value adjustments and gains and
losses upon sale of an investment. These long-term investments are
strategic in nature and are primarily private company investments. Gains
and losses and the related tax impacts associated with these investments
are tied to the performance of the companies that we invest in and
therefore do not correlate to the underlying performance of our business.
During the three months ended
realized and unrealized gains of
respectively, and related tax expense of$3 million and tax benefit of$1 million , respectively.
• Amortization of acquired intangible assets. Amortization of acquired
intangible assets consists of amortization of intangible assets such as developed technology, customer relationships and brands acquired in connection with business combinations executed beginning in fiscal 2019. Amortization charges for our acquired intangible assets are non-cash and are significantly affected by the timing, frequency and size of our
acquisitions, rather than our core operations. As such, we have excluded
this amount and the related tax impact to facilitate an evaluation of our
current operating performance and comparison to our past operating
performance. During the three months ended
amortization of acquired intangible assets of$11 25
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million and related tax benefit of$3 million . There were no comparable amounts during the three months endedDecember 31, 2018 since we are only adjusting for transactions that closed in fiscal 2019 and subsequent periods. • Acquisition-related costs. Acquisition-related costs consist primarily of
one-time transaction and integration costs associated with our business
combinations. These costs include professional fees, technology
integration fees, restructuring activities and other direct costs related
to the purchase and integration of acquired entities. It also includes
retention equity and deferred equity compensation when they are agreed
upon as part of the purchase price of the transaction but are required to
be recognized as expense post-combination. We have excluded these amounts
and the related tax impacts as the expenses are recognized for a limited
duration and do not reflect the underlying performance of our business.
During the three months ended
acquisition-related costs of
during the three months endedDecember 31, 2018 since we are only adjusting for transactions that closed in fiscal 2019 and subsequent periods. Non-GAAP operating expense, non-operating income (expense), income tax provision, effective income tax rate, net income and diluted earnings per share should not be relied upon as substitutes for, or considered in isolation from, measures calculated in accordance withU.S. GAAP. The following tables reconcile our as-reported financial measures, calculated in accordance withU.S. GAAP, to our respective non-GAAP financial measures for the three months endedDecember 31, 2019 and 2018.
Three Months Ended
Effective Operating Non-operating Income Income Tax Income Tax Diluted Earnings Expenses (Expense) Provision Rate(1) Net Income Per Share(1) (in millions, except percentages and per share data) As reported$ 2,038 $ (42 )$ 702 17.7 %$ 3,272 $ 1.46 (Gains) Losses on equity investments, net - (13 ) (3 ) (10 ) - Amortization of acquired intangible assets (11 ) - 3 8 - Acquisition-related costs (2 ) - - 2 - Non-GAAP$ 2,025 $ (55 )$ 702 17.7 %$ 3,272 $ 1.46 Three
Months Ended
Effective Operating Non-operating Income Income Tax Income Tax Diluted Earnings Expenses (Expense) Provision Rate(1) Net Income Per Share(1) (in millions, except percentages and per share data) As reported$ 1,789 $ (87 ) $ 653 18.0 %$ 2,977 $ 1.30 (Gains) Losses on equity investments, net - 4 1 3 - Non-GAAP$ 1,789 $ (83 ) $ 654 18.0 %$ 2,980 $ 1.30
(1) Figures in the table may not recalculate exactly due to rounding. Effective
income tax rate, diluted earnings per share and their respective totals are
calculated based on unrounded numbers.
Common stock repurchases. During the three months endedDecember 31, 2019 , we repurchased 13 million shares of our class A common stock in the open market using$2.4 billion of cash on hand. As ofDecember 31, 2019 , we had remaining authorized funds of$1.7 billion for share repurchase. InJanuary 2020 , our board of directors authorized an additional$9.5 billion share repurchase program. See Note 9-Stockholders' Equity to our unaudited consolidated financial statements. Acquisition. OnJanuary 13, 2020 , we entered into a definitive agreement to acquirePlaid, Inc. for$5.3 billion . We will pay approximately$4.9 billion of cash and$0.4 billion of retention equity and deferred equity consideration. This acquisition is subject to customary closing conditions, including certain regulatory approvals, and is expected to close in the next three to six months. 26
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Payments volume and transaction counts. Payments volume is the primary driver for our service revenues, and the number of processed transactions is the primary driver for our data processing revenues. Nominal payments volume inthe United States posted high single-digit growth for the three months endedSeptember 30, 2019 (1), driven mainly by consumer debit and commercial. Nominal international payments volume growth was negatively impacted by movements inU.S. dollar exchange rates. On a constant-dollar basis, which excludes the impact of exchange rate movements, our international payments volume growth rate for the three months endedSeptember 30, 2019 was 10%. Growth in processed transactions reflects the ongoing worldwide shift to electronic payments. The following table presents nominal payments and cash volume: United States International Visa Inc. Three Months Ended September 30,(1) Three Months Ended September 30,(1) Three Months Ended September 30,(1) % % % 2019 2018 Change(2) 2019 2018 Change(2) 2019 2018 Change(2) (in billions, except percentages) Nominal payments volume Consumer credit$ 404 $ 382 6 % $ 646$ 616 5 %$ 1,050 $ 997 5 % Consumer debit(3) 448 408 10 % 500 458 9 % 948 867 9 % Commercial(4) 170 155 10 % 101 93 9 % 271 248 10 % Total nominal payments volume(2)$ 1,023 $ 945 8 %$ 1,247 $ 1,167 7 %$ 2,270 $ 2,112 7 % Cash volume 148 145 2 % 565 578 (2 )% 712 723 (1 )% Total nominal volume(2),(5)$ 1,170 $ 1,090 7 %$ 1,812 $ 1,745 4 %$ 2,982 $ 2,834 5 % The following table presents nominal and constant payments and cash volume growth: International Visa Inc. Three Months Three Months Ended September 30, Ended September 30, 2019 vs. 2018(1) 2019 vs. 2018(1) Nominal(2) Constant(2),(6) Nominal Constant(2),(6) Payments volume growth Consumer credit growth 5 % 7 % 5 % 7 % Consumer debit growth(3) 9 % 13 % 9 % 11 % Commercial growth(4) 9 % 12 % 10 % 11 % Total payments volume growth(2) 7 % 10 % 7 % 9 % Cash volume growth (2 )% (1 )% (1 )% - % Total volume growth(2) 4 % 6 % 5 % 7 %
(1) Service revenues in a given quarter are assessed based on nominal payments
volume in the prior quarter. Therefore, service revenues reported for the
three months ended
volume reported by our financial institution clients for the three months
ended
(2) Figures in the table may not recalculate exactly due to rounding. Percentage
changes and totals are calculated based on unrounded numbers.
(3) Includes consumer prepaid volume and Interlink volume.
(4) Includes large, medium and small business credit and debit, as well as
commercial prepaid volume.
(5) Total nominal volume is the sum of total nominal payments volume and cash
volume. Total nominal payments volume is the total monetary value of
transactions for goods and services that are purchased on cards and other
form factors carrying the
Cash volume generally consists of cash access transactions, balance access
transactions, balance transfers and convenience checks. Total nominal volume
is provided by our financial institution clients, subject to review by
On occasion, previously presented volume information may be updated. Prior-period updates, other than the change to the payments volume definition, are not material.
(6) Growth on a constant-dollar basis excludes the impact of foreign currency
fluctuations against the
The following table provides the number of transactions involving cards and
other form factors carrying the
Three Months Ended December 31, % 2019 2018 Change(1) (in millions, except percentages) Visa processed transactions 37,775 33,931 11 %
(1) Figures in the table may not recalculate exactly due to rounding. Percentage
change is calculated based on unrounded numbers. 27
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Results of OperationsNet Revenues The following table sets forth our net revenues earned in theU.S. and internationally: Three Months Ended December 31, 2019 vs. 2018 $ % 2019 2018 Change Change(1) (in millions, except percentages) U.S.$ 2,717 $ 2,508 $ 209 8 % International 3,337 2,998 339 11 % Net revenues$ 6,054 $ 5,506 $ 548 10 %
(1) Figures in the table may not recalculate exactly due to rounding. Percentage
changes are calculated based on unrounded numbers.
The increase in net revenues reflects the continued growth in nominal payments volume, nominal cross-border volume and processed transactions. The increase in revenues was partially offset by the increase in client incentives. Our net revenues are impacted by the overall strengthening or weakening of theU.S. dollar as payments volume and related revenues denominated in local currencies are converted toU.S. dollars. Exchange rate movements in the three months endedDecember 31, 2019 , as partially mitigated by our hedging program, negatively impacted our net revenues growth by approximately one percentage point. The following table sets forth the components of our net revenues: Three Months Ended December 31, 2019 vs. 2018 $ % 2019 2018 Change Change(1) (in millions, except percentages) Service revenues$ 2,555 $ 2,342 $ 213 9 % Data processing revenues 2,864 2,470 394 16 % International transaction revenues 2,018 1,851 167 9 % Other revenues 365 299 66 22 % Client incentives (1,748 ) (1,456 ) (292 ) 20 % Net revenues$ 6,054 $ 5,506 $ 548 10 %
(1) Figures in the table may not recalculate exactly due to rounding. Percentage
changes are calculated based on unrounded numbers.
• Service revenues increased primarily due to 7% growth in nominal payments
volume as well as select pricing modifications effective in 2019. • Data processing revenues increased mainly due to overall growth in
processed transactions of 11%, select pricing modifications effective in
2019, as well as faster growth of our value-added services, favorable
business mix and acquisition-related revenue.
• International transaction revenues increased due to a 7% growth in nominal
cross-border volumes and select pricing modifications effective in 2019. These increases were partially offset by lower volatility in a broad range of currencies.
• Other revenues increased primarily due to higher revenues from value-added
services. • Client incentives increased mainly due to incentives recognized on long-term customer contracts that were initiated or renewed in 2019 and
overall growth in global payments volume. The amount of client incentives
we record in future periods will vary based on changes in performance
expectations, actual client performance, amendments to existing contracts
or execution of new contracts. 28
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Operating Expenses The following table sets forth components of our total operating expenses: Three Months Ended December 31, 2019 vs. 2018 $ % 2019 2018 Change Change(1) (in millions, except percentages) Personnel$ 982 $ 807 $ 175 22 % Marketing 274 276 (2 ) (1 )% Network and processing 181 173 8 5 % Professional fees 106 91 15 16 % Depreciation and amortization 182 159 23 15 % General and administrative 313 276 37 13 % Litigation provision - 7 (7 ) (94 )% Total operating expenses$ 2,038 $ 1,789 $ 249 14 %
(1) Figures in the table may not recalculate exactly due to rounding. Percentage
changes are calculated based on unrounded numbers. • Personnel expenses increased primarily due to continued increase in headcount and higher incentive compensation, reflecting our strategy to invest in future growth. • Professional fees expenses increased mainly due to costs incurred in connection with our merger and acquisition activities. • Depreciation and amortization expenses increased primarily due to additional depreciation from our on-going investments, including acquisitions.
• General and administrative expenses increased mainly due to higher product
enhancements costs in support of our business growth and higher indirect
taxes.
Non-operating Income (Expense) The following table sets forth the components of our non-operating income (expense): Three Months Ended December 31, 2019 vs. 2018 $ % 2019 2018 Change Change(1) (in millions, except percentages) Interest expense, net$ (111 ) $ (145 ) $ 34 (23 )% Investment income and other 69 58 11 19 % Total non-operating income (expense)$ (42 ) $ (87 ) $ 45
(52 )%
(1) Figures in the table may not recalculate exactly due to rounding. Percentage
changes are calculated based on unrounded numbers.
• Interest expense, net decreased primarily as a result of entering into derivative instruments in 2019 that lowered the cost of borrowing on a portion of our outstanding debt.
• Investment income and other increased primarily due to gains on our equity
investments. 29
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Liquidity and Capital Resources Cash Flow Data The following table summarizes our cash flow activity for the periods presented: Three Months Ended December 31, 2019 2018 (in millions) Total cash provided by (used in): Operating activities$ 3,875 $ 3,294 Investing activities 562 (70 ) Financing activities (3,133 ) (3,018 ) Effect of exchange rate changes on cash and cash equivalents 127
(68 ) Increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents
$ 1,431
Operating activities. Cash provided by operating activities for the three months endedDecember 31, 2019 was higher than the prior-year comparable period due to continued growth in our underlying business and receipt of the$467 million takedown payment associated with the Interchange Multidistrict Litigation. See Note 13-Legal Matters to our unaudited consolidated financial statements. Investing activities. Cash provided by investing activities for the three months endedDecember 31, 2019 increased primarily due to fewer purchases of investment securities as compared to the prior-year period. Financing activities. Cash used in financing activities for the three months endedDecember 31, 2019 was slightly higher than the prior-year comparable period primarily due to higher dividends paid. See Note 9-Stockholders' Equity to our unaudited consolidated financial statements. Sources of Liquidity Our primary sources of liquidity are cash on hand, cash flow from operations, our investment portfolio and access to various equity and borrowing arrangements. Funds from operations are maintained in cash and cash equivalents and short-term or long-term available-for-sale investment securities based upon our funding requirements, access to liquidity from these holdings and the returns that these holdings provide. Based on our current cash flow forecasts of our short-term and long-term liquidity needs, we believe that our current and projected sources of liquidity will be sufficient to meet our projected liquidity needs for more than the next 12 months. We will continue to assess our liquidity position and potential sources of supplemental liquidity in view of our operating performance, current economic and capital market conditions and other relevant circumstances. Uses of Liquidity There has been no significant change to our primary uses of liquidity sinceSeptember 30, 2019 , except as discussed below. Common stock repurchases. During the three months endedDecember 31, 2019 , we repurchased 13 million shares of our class A common stock using$2.4 billion of cash on hand. As ofDecember 31, 2019 , we had remaining authorized funds of$1.7 billion for share repurchase. InJanuary 2020 , our board of directors authorized an additional$9.5 billion share repurchase program. See Note 9-Stockholders' Equity to our unaudited consolidated financial statements. Dividends. During the three months endedDecember 31, 2019 , we declared and paid$0.7 billion in dividends to holders of our common and preferred stock. OnJanuary 28, 2020 , our board of directors declared a cash dividend in the amount of$0.30 per share of class A common stock (determined in the case of class B and C common stock and UK&I andEurope preferred stock on an as-converted basis), which will be paid onMarch 3, 2020 , to all holders of record as ofFebruary 14, 2020 . See Note 9-Stockholders' Equity to our unaudited consolidated financial statements. We expect to continue paying quarterly dividends in cash, subject to approval by the board of directors. All three series of preferred stock and class B and C common stock will share ratably on an as-converted basis in such future dividends. 30
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Senior Notes. InDecember 2015 , we issued fixed-rate senior notes in an aggregate principal amount of$16.0 billion , with maturities ranging between 2 and 30 years. A principal payment of$3.0 billion is due onDecember 14, 2020 , for which we have sufficient liquidity. See Note 7-Debt to our unaudited consolidated financial statements. Acquisition. OnJanuary 13, 2020 , we entered into a definitive agreement to acquirePlaid, Inc. for$5.3 billion . We will pay approximately$4.9 billion of cash and$0.4 billion of retention equity and deferred equity consideration. This acquisition is subject to customary closing conditions, including certain regulatory approvals, and is expected to close in the next three to six months. We intend to fund the acquisition with cash, cash equivalents and investments, as well as through the issuance of new indebtedness. ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no significant changes to our market risks since
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