Visa Inc. 10-Q Summary — Fiscal Q2 2022
Business context and reporting period
Visa is a global payments technology company operating VisaNet across more than 200 countries and territories. This unaudited Form 10-Q covers the three and six months ended March 31, 2022; comparisons are with the same periods in 2021. Visa facilitates payment processing but generally does not issue cards, extend credit, or set cardholder and merchant rates and fees.
Financial performance
| Metric | Three months ended March 31 | Six months ended March 31 |
|---|---|---|
| Net revenue | $7.189 billion, +25% | $14.248 billion, +25% |
| Operating income | $4.802 billion, +34% | $9.578 billion, +29% |
| Net income | $3.647 billion, +21% | $7.606 billion, +24% |
| Diluted Class A EPS | $1.70, +23% | $3.54, +26% |
| Operating margin | Approximately 66.8% (prior year 62.5%) | Approximately 67.2% (prior year 65.1%) |
Revenue growth reflected higher payments volume, processed transactions and cross-border volume, partly offset by increased client incentives. In Q2, service revenue rose 24%, data processing revenue 16%, and international transaction revenue 48%. Processed transactions grew 19% in Q2 and 20% for the half year. Nominal payments volume rose 20% for the six months; cross-border volume growth excluding transactions within Europe was 45% for that period. Foreign exchange movements and hedging reduced revenue growth by about one percentage point.
Operating expenses increased 11% in Q2 and 17% for the half, including higher personnel and marketing costs. The half-year included a $145 million litigation provision. Q2 net income growth was below operating income growth, with non-operating results moving from $47 million of income to $260 million of expense, primarily reflecting equity investment losses; the effective tax rate was 20%, versus 17% in the prior-year quarter. Non-GAAP diluted EPS was $1.79 for Q2 and $3.60 for the half, compared with $1.38 and $2.80, respectively; these measures exclude specified items and should be considered alongside GAAP results.
Cash flow, debt, and liquidity
For the six months, operating cash flow was $7.721 billion, versus $6.842 billion. Investing activities used $2.332 billion, including $1.945 billion for acquisitions; financing activities used $8.367 billion, including $7.053 billion of share repurchases and $1.611 billion of dividends. Cash, cash equivalents and restricted cash totaled $16.516 billion at March 31, 2022, down from $19.799 billion at September 30, 2021; unrestricted cash and cash equivalents were $12.299 billion.
Total debt carrying value was $21.027 billion, compared with $20.977 billion at September 30, 2021. Current maturities were $3.548 billion, including $1.0 billion due September 2022 and $2.25 billion due December 2022; Visa stated it had sufficient liquidity for these maturities. The $300 million of commercial paper outstanding at quarter-end was repaid in April. Management said current and projected liquidity sources should cover needs for more than 12 months.
Material changes, outlook, and risks
- Russia: Visa suspended Russian operations in March and deconsolidated its Russian subsidiary, recording a $35 million pre-tax loss. Russia represented approximately 4% of consolidated net revenue for the first half of fiscal 2022 and fiscal 2021. Visa said it no longer generates revenue from Russian domestic and cross-border activity. The company also incurred $25 million of personnel costs to support employees in Russia and Ukraine.
- Acquisitions: Visa acquired Currencycloud for $893 million in December 2021 and Tink for $1.9 billion in cash in March 2022. Tink’s results were not included because their effect through quarter-end was immaterial. Tink purchase accounting included $1.577 billion of goodwill.
- Litigation: Visa accrued an additional $145 million for U.S. interchange litigation and deposited $250 million into its litigation escrow during the half year. It had settled with merchants representing approximately 50% of Visa-branded sales volume of merchants opting out of the class settlement. The company says the ultimate litigation loss could differ materially and cannot estimate a potential trial loss if negotiations fail. More than 650 European merchant claims remained outstanding; other proceedings include German ATM claims and U.S. litigation.
- Capital returns: Visa repurchased $7.053 billion of shares in the half year. Its repurchase authorization had $9.8 billion remaining at March 31. The board declared a $0.375-per-share quarterly dividend payable June 1, 2022, and management expects quarterly cash dividends to continue subject to board approval.
- Other risks and commentary: Management cited uncertainty from the Russia-Ukraine conflict, sanctions, COVID-19 and the pace of international travel recovery. Risks include reduced consumer and business spending, lower cross-border activity, currency volatility, cyber threats, regulatory pricing caps, and potential settlement defaults. No formal financial guidance was provided in the supplied filing text. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether payments, processed transactions and cross-border activity sustain their growth, and how much revenue growth is offset by client incentives, currency effects and Russia’s exit.
- Progress and integration costs or benefits from Currencycloud and Tink, including final purchase accounting for Tink.
- Developments in U.S. interchange and European merchant litigation, related accruals, escrow funding and potential additional exposure.
- Cash generation and capital allocation relative to upcoming debt maturities, repurchases, dividends and acquisition spending.
- Whether geopolitical, economic, pandemic, regulatory and cyber risks affect volumes, cross-border travel, client activity or Visa’s ability to operate across markets.