Visa Inc. — Fiscal 2023 First Quarter 10-Q
Reporting period: Three months ended December 31, 2022. Visa operates a global payments technology network and provides transaction processing and related services; it generally does not issue cards or extend credit. Figures are unaudited and in U.S. dollars.
Financial results
| Metric | Q1 FY2023 | Q1 FY2022 | Change |
|---|---|---|---|
| Net revenues | $7.936 billion | $7.059 billion | +12% |
| Operating expenses | $2.846 billion | $2.283 billion | +25% |
| Operating income | $5.090 billion | $4.776 billion | +7% |
| Net income | $4.179 billion | $3.959 billion | +6% |
| Diluted Class A EPS | $1.99 | $1.83 | +8% |
| Non-GAAP diluted EPS | $2.18 | $1.81 | +21% |
| Cash provided by operations | $4.171 billion | $4.232 billion | Down $61 million |
Reported operating margin was approximately 64.1%, versus 67.7% a year earlier; net margin was approximately 52.7%, versus 56.1%. These ratios are calculated from reported figures. Non-GAAP measures exclude specified items and should not be viewed as substitutes for GAAP results.
- Revenue by category: service $3.511 billion (+10%); data processing $3.827 billion (+6%); international transactions $2.797 billion (+29%); other $587 million (+31%). Client incentives, deducted from revenue, were $2.786 billion, up 18%.
- Visa processed 52.512 billion transactions, up 10%. Management cited nominal cross-border volume growth of 22%, excluding transactions within Europe, and nominal payments volume growth of 5% as revenue drivers. Foreign exchange movements reduced revenue growth by about 3 percentage points.
- Cash used in investing activities was $510 million; cash used in financing was $6.347 billion. Cash, cash equivalents and restricted cash totaled $18.383 billion at quarter-end, down $1.994 billion from the beginning of the period.
- At December 31, total debt carrying value was $20.487 billion, down from $22.450 billion at September 30, following repayment of $2.25 billion of notes at maturity. Long-term debt was $20.487 billion, with no current maturities reported. The filing estimates debt fair value at $18.4 billion.
- Total assets were $85.387 billion and total liabilities $48.463 billion at quarter-end. Management said current and projected liquidity sources are expected to cover projected needs for more than 12 months.
Changes and notable items
- Revenue growth reflected higher cross-border activity, processed transactions and payments volume, partly offset by increased client incentives. Operating expenses rose primarily with personnel costs and litigation provision.
- The $341 million litigation provision for U.S. interchange multidistrict litigation was higher than the $145 million recorded a year earlier. The company also deposited $350 million into its U.S. litigation escrow account; its balance reached $1.705 billion.
- Investment income and other fell to $24 million from $255 million, primarily due to equity investment losses, versus gains in the prior-year quarter. The company reported a $102 million net unrealized loss on marketable and non-marketable equity investments still held at quarter-end, compared with a $172 million net unrealized gain in the prior-year period.
- The effective tax rate declined to 16% from 19%, primarily due to a $142 million tax benefit related to reassessment of a prior-year uncertain tax position during an ongoing examination.
- Visa repurchased 16 million Class A shares for $3.115 billion and paid $945 million in dividends. Repurchase programs had $14.1 billion of remaining authorized funds at quarter-end.
Outlook, risks and contingencies
- The filing provides no numerical earnings or revenue guidance. Management stated liquidity is expected to be sufficient for more than the next 12 months and expects to continue quarterly cash dividends, subject to board approval.
- Visa said the war in Ukraine and related sanctions, ongoing pandemic effects, border reopening and international travel trends create uncertainty. Visa suspended operations in Russia in March 2022 and no longer generates revenue from Russian domestic or cross-border activities; Russia had represented approximately 4% of consolidated net revenue in the December 2021 quarter.
- Legal exposure remains a key contingency. Visa said the potential loss or range of loss at trial in the U.S. interchange litigation cannot be estimated. It had settled with merchants representing approximately 62% of Visa-branded payment-card sales volume among merchants that opted out of a damages-class settlement. Approximately 700 merchants had outstanding claims in European merchant litigation.
- Other legal and regulatory matters include a further U.S. Department of Justice information demand regarding U.S. debit competition, a European Commission preliminary investigation into client incentive agreements, and a California consumer interchange class action. Outcomes and potential financial effects are uncertain.
- Visa guarantees client settlement obligations if another client fails to fund. Maximum daily settlement exposure during the quarter was $123.5 billion and average daily exposure was $76.0 billion; the company reported historically minimal losses but said future obligations could be material. Collateral held to manage settlement risk totaled $5.489 billion.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Developments in U.S. interchange litigation, adequacy of the $1.681 billion covered-litigation accrual, escrow funding and any settlements or judgments.
- Whether transaction, payments and cross-border growth can offset higher client incentives, operating costs and foreign-exchange effects.
- How recurring operating performance compares with non-GAAP results, including the effects of litigation, equity investment marks and the one-time tax benefit.
- Progress and potential outcomes of DOJ, European Commission, consumer and European merchant proceedings.
- Cash deployment, debt levels and the pace of share repurchases and dividends relative to operating cash flow and liquidity needs.