Visa Inc. — Fiscal 2022 First-Quarter 10-Q
Reporting period: Three months ended December 31, 2021. Visa operates a global payments technology network and provides transaction processing; it does not issue cards or extend credit. Comparisons below are with the three months ended December 31, 2020 unless noted.
Financial performance
| Metric | Q1 FY2022 | Prior year | Change |
|---|---|---|---|
| Net revenues | $7.059 billion | $5.687 billion | +24% |
| Operating income | $4.776 billion | $3.844 billion | +24% |
| Operating margin | 67.7% | 67.6% | Up slightly |
| Net income | $3.959 billion | $3.126 billion | +27% |
| Net margin | 56.1% | 55.0% | Up 1.1 percentage points |
| Diluted Class A EPS | $1.83 | $1.42 | +29% |
| Operating cash flow | $4.232 billion | $3.513 billion | +20% |
| Capital expenditure | $173 million | $160 million | — |
Operating cash flow less property, equipment and technology purchases was approximately $4.059 billion. Net revenues benefited from higher payments volume, processed transactions and cross-border volume, partly offset by higher client incentives. Service, data processing and international transaction revenues rose 19%, 19% and 50%, respectively; international revenue growth was 28%, versus 19% in the U.S. Currency movements and hedging reduced revenue growth by about one percentage point.
Visa reported non-GAAP net income of $3.901 billion and diluted EPS of $1.81, increases of 25% and 27%, respectively. These measures exclude specified items, including equity investment gains and the litigation provision, and should be considered alongside GAAP results. Investment income and other was $255 million, primarily reflecting higher equity investment gains.
Balance sheet, cash and capital allocation
- At December 31, 2021, cash and cash equivalents were $14.720 billion; total cash, cash equivalents and restricted cash was $18.323 billion. Total current assets were $25.906 billion and current liabilities were $18.568 billion.
- Debt carrying value was $20.920 billion, including $3.247 billion classified as current maturities; $3.25 billion of principal was due in 2022. Management said it had sufficient liquidity for these maturities and expected available sources to meet needs for more than 12 months.
- Cash used in investing activities was $547 million, including $832 million of acquisitions, net of cash acquired. Financing activities used $4.967 billion, including $4.104 billion of share repurchases and $809 million of dividends.
- Visa repurchased 19 million Class A shares for $4.1 billion and authorized a new $12 billion repurchase program in December. Remaining authorized repurchase funds were reported as $12.7 billion at quarter-end.
Material changes, outlook and risks
- Processed transactions increased 21% to 47.558 billion. Nominal payments volume for the quarter ended September 30, 2021, which informs the reported quarter’s service revenue, increased 18% overall year over year; international volume rose 16% and U.S. volume 21%.
- Operating expenses rose 24% to $2.283 billion. The increase reflected a $145 million additional accrual for U.S. covered litigation, increased personnel costs as Visa invested for growth, and higher marketing spending after prior-year reductions. The effective tax rate was 19%, compared with 17%.
- Visa acquired Currencycloud on December 20, 2021, for total consideration of $893 million, including the fair value of its previously held interest. Purchase accounting was provisional, with $683 million allocated to goodwill. The proposed €1.8 billion Tink acquisition remained subject to customary conditions, including regulatory approvals.
- The filing provides no quantified revenue or earnings guidance. Management described the COVID-19 outlook, economic recovery, reopening of borders and international travel as uncertain, and said it would continue assessing pandemic effects. It stated that current and projected liquidity should be sufficient for more than 12 months.
- Litigation remains a significant contingency. The quarter-end accrued litigation balance was $1.027 billion, including $1.026 billion for U.S. covered litigation; Visa said the ultimate loss could materially vary and could not estimate a potential trial loss if negotiated resolutions fail. More than 650 European merchant claims remained outstanding, and German savings banks brought new ATM-rule claims. The company also disclosed a foreign-exchange-rate class action.
- Visa guarantees client settlement losses if another client fails to fund settlement obligations. Maximum daily settlement exposure during the quarter was $112.7 billion and average exposure was $72.4 billion; the filing notes potential obligations could be material, although historical losses have been minimal. COVID-19 effects, litigation, foreign exchange, investment valuations and acquisition approvals are additional uncertainties.
Key facts for investors to verify
- Whether revenue and transaction growth remain strong, particularly cross-border activity, and how client incentives and foreign-exchange effects develop.
- Developments in U.S. interchange litigation, the adequacy of litigation accruals and escrow funding, and outcomes in European and other legal proceedings.
- Completion, regulatory status and integration costs or benefits of the Tink acquisition, alongside Currencycloud’s finalized purchase-price allocation and performance.
- Cash generation and liquidity after share repurchases, dividends and upcoming 2022 debt maturities; also distinguish unrestricted cash from restricted balances.
- The contribution and volatility of equity investment gains to reported results, and the sustainability of GAAP versus non-GAAP earnings growth.