Visa Inc. — FY2020 Form 10-K
Business context and reporting period. Visa operates a global payments technology network, processing payments and providing related services; it does not issue cards or extend credit. The filing covers the fiscal year ended September 30, 2020. Fiscal Q4 refers to the quarter ended September 30, 2020. Visa reported one segment: Payment Services.
Key financial results
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Net revenue | $21.846 billion | $22.977 billion | Down 5% |
| Operating income | $14.081 billion | $15.001 billion | Down 6% |
| Operating margin | 64.5% | 65.3% | Down about 0.8 percentage points |
| Net income | $10.866 billion | $12.080 billion | Down 10% |
| Diluted Class A EPS | $4.89 | $5.32 | Down 8% |
| Operating cash flow | $10.440 billion | $12.784 billion | Down 18% |
FY2020 net margin was approximately 49.7%, versus 52.6% in FY2019. Non-GAAP net income was $11.193 billion and non-GAAP diluted EPS was $5.04, down 9% and 7%, respectively; these measures exclude specified items and should be considered alongside GAAP results.
- Revenue mix: service revenue rose 1% to $9.804 billion; data processing revenue rose 6% to $10.975 billion; international transaction revenue fell 19% to $6.299 billion; other revenue rose 9% to $1.432 billion. Client incentives, recorded mainly as a revenue reduction, increased 8% to $6.664 billion.
- FY2020 volume and activity: total payments and cash volume was $11.3 trillion, down 1% nominally for the 12 months ended June 30, 2020. Visa processed 140.8 billion transactions, up 2%.
- Fiscal Q4 revenue was $5.101 billion versus $6.137 billion a year earlier; operating income was $3.142 billion versus $3.735 billion, and net income was $2.137 billion versus $3.025 billion.
- At September 30, 2020, cash and cash equivalents were $16.289 billion, investment securities totaled $3.983 billion, and total assets were $80.919 billion. Total debt carrying value was $24.070 billion, including $2.999 billion current maturities; total equity was $36.210 billion.
- Visa generated $10.440 billion of operating cash flow. It repurchased 44 million shares for $8.114 billion and paid $2.664 billion in dividends. The board declared a subsequent quarterly dividend of $0.32 per share.
Material changes and management commentary
- COVID-19 weakened spending, transaction activity and cross-border business, particularly travel-related activity, beginning in the latter half of the fiscal year. International transaction revenue fell 19%, reflecting a 23% decline in nominal cross-border volumes excluding transactions within Europe.
- Management said domestic spending growth was stable to positive in most countries in Q4 and results improved toward year-end, while cross-border volume remained depressed. Ecommerce and contactless adoption accelerated; contactless reached 43% of global face-to-face transactions.
- Operating expenses declined 3% to $7.765 billion, mainly due to lower litigation provision and cost controls, partly offset by personnel and depreciation and amortization increases. Personnel expense rose 10%; marketing expense fell 12%.
- FY2020 GAAP net income included a $329 million non-cash tax expense from remeasurement of UK deferred tax liabilities and a $28 million one-time tax charge from resolution of a long-standing tax matter. The effective tax rate was 21%, versus 19% in FY2019.
- Visa issued $7.3 billion of fixed-rate senior notes during FY2020. It had a $5.0 billion undrawn revolving credit facility and no commercial paper outstanding at year-end. Management said projected liquidity was sufficient for needs beyond the next 12 months.
Outlook, risks and contingencies
- The filing provides no specific numerical revenue or earnings guidance. Management said the duration and financial effects of COVID-19 remained highly uncertain, with continued risks from reduced travel, spending, client health, fraud, cyber threats and possible payment-fee restrictions.
- Visa agreed to acquire Plaid for $5.3 billion, but the U.S. Department of Justice filed suit on November 5, 2020 to block the transaction. Visa said it intended to defend the case.
- Accrued litigation was $914 million at year-end. The interchange litigation remains significant: the damages-class settlement was appealed, opt-out merchant actions continued, and settlement discussions with the putative injunctive-relief class were ongoing. A UK Supreme Court ruling found Visa’s UK domestic interchange restricted competition; further proceedings will determine lawful rates and any damages. The filing does not provide a clear total estimate of potential exposure.
- Visa indemnifies clients for certain settlement failures. Maximum settlement exposure during FY2020 was $97.3 billion; average daily exposure was $55.6 billion. Collateral held to manage settlement exposure was $4.101 billion. A major client default or systemic failure could cause losses or liquidity pressure.
- Other principal risks include intensifying competition and disintermediation, regulation of interchange and routing, domestic payment systems and processing mandates, privacy and cybersecurity requirements, foreign exchange and macroeconomic volatility, and tax examinations. Two clients each accounted for 11% and 10% of FY2020 net revenue.
Important facts for investors to verify
- Track recovery in cross-border spending and international transaction revenue, and whether domestic growth and transaction processing offset continued travel weakness.
- Review the Plaid litigation and acquisition status, including any effect on strategy, costs or timing.
- Follow interchange and merchant litigation outcomes, potential business-practice changes, and the adequacy of the $914 million litigation accrual and $901 million U.S. litigation escrow.
- Assess client incentive commitments, which totaled $4.4 billion as a recorded liability, and customer concentration against future revenue growth.
- Monitor debt maturities, capital returns and liquidity: $3.0 billion principal was due in December 2020, while the $5.0 billion revolving facility was undrawn at year-end.
- Consider GAAP results alongside non-GAAP measures and the disclosed exclusions. The auditor issued an unqualified opinion, and management and the auditor reported effective internal control over financial reporting.