Visa Inc. — Form 10-Q Summary
Business context and reporting period
Global payments technology company operating VisaNet across more than 200 countries and territories; Visa does not issue cards or extend credit. This unaudited report covers the fiscal quarter and nine months ended June 30, 2019 (fiscal Q3 and year to date), compared with the periods ended June 30, 2018. Amounts below are U.S. dollars.
Key financial metrics
| Metric | Three months ended June 30 | Nine months ended June 30 |
|---|---|---|
| Net revenue | $5.84B, up 11% | $16.84B, up 11% |
| Operating income | $3.91B vs. $2.89B | $11.27B vs. $9.55B |
| Operating margin | 66.9% vs. 55.1% reported | 66.9% vs. 62.9% reported |
| Net income | $3.10B, up 33% | $9.06B, up 21% |
| Diluted Class A EPS | $1.37 vs. $1.00 | $3.97 vs. $3.19 |
| Cash from operations | Not presented for the quarter | $8.74B vs. $9.47B |
Prior-year reported results included a $600M litigation provision in both the three- and nine-month comparisons, plus significant Tax Act items in the nine-month period. Excluding the disclosed prior-year adjustments, diluted EPS increased 14% for the quarter and 17% year to date; adjusted net income increased 11% and 14%, respectively. These are non-GAAP comparisons.
At June 30, cash and cash equivalents were $7.91B; total cash, cash equivalents and restricted cash were $10.67B. Investment securities totaled about $6.18B. Long-term debt was $16.69B. Total assets were $70.25B and total liabilities $35.25B. Visa repurchased $6.48B of shares and paid $1.71B in dividends during the nine months.
Material changes and operating performance
- Revenue growth reflected higher payments volume, cross-border volume and processed transactions. Visa processed 35.4B transactions in the quarter, up 12%; year-to-date transactions were 101.9B, up 11%.
- For the nine months ended March 31, nominal payments volume rose 6% overall and 10% on a constant-dollar basis. The company said foreign-exchange movements reduced revenue growth by about two percentage points for the quarter and 1.5 points year to date.
- Operating expenses were $1.93B for the quarter, down 18% as reported, and $5.57B year to date, down 1%. The reported comparisons benefit from the absence of the prior-year $600M litigation provision. Excluding that provision, adjusted operating expenses increased 10% and 11%, respectively, primarily due to personnel, marketing and general and administrative costs.
- Operating cash flow declined year over year, partly due to litigation-escrow payments and a transition-tax installment, offset in part by business growth. Investing activities provided $413M; financing activities used $9.40B.
Visa adopted a new revenue standard on October 1, 2018; 2018 comparative amounts were not restated. For 2019, the standard reduced reported revenue by $88M for the quarter and $179M year to date versus the prior standard, with net income lower by $33M and $40M, respectively. This limits direct comparability.
Outlook, commentary, risks and unusual items
- Management cited continued global consumer-spending growth amid uneven economic conditions and said current and projected liquidity sources should meet needs for more than 12 months. No specific earnings or revenue guidance is provided in the filing.
- On July 25, 2019, after quarter-end, Visa extended and increased its unsecured revolving credit facility to $5.0B, expiring in July 2024; it is no longer subject to financial covenants.
- Material legal matters include U.S. interchange litigation, with final approval of an amended settlement pending; more than 350 outstanding UK merchant claims; and an Australian Competition and Consumer Commission investigation opened in July 2019. The European Commission made Visa’s proposed inter-regional interchange-rate commitments binding from October 19, 2019 through November 1, 2024.
- Visa’s settlement guarantee exposure is variable: maximum exposure was $92.0B and average daily exposure $56.4B during the nine-month period. The company held $3.99B of collateral at June 30. Potential obligations depend on future events.
- Foreign exchange, transaction and payment-volume trends, regulatory actions, litigation outcomes and client-incentive estimates may affect results. A new interest-rate and cross-currency swap program reduces some borrowing costs but exposes Visa to market-rate movements.
Most important facts for investors to verify
- Whether transaction, payments-volume and cross-border growth continue, including the impact of currency movements.
- How client-incentive growth and adoption of the new revenue standard affect reported revenue and margins.
- Developments in U.S. and European interchange litigation, the pending U.S. settlement approval, and the Australian investigation.
- Cash generation and capital allocation, including buybacks, dividends, debt and the deferred Visa Europe consideration paid in June 2019.
- Whether reported results are being compared with prior-year figures that include the $600M litigation provision and unusual Tax Act effects.