Visa Inc. — Q1 FY2021 Form 10-Q
Reporting period: Three months ended December 31, 2020; comparative period is the three months ended December 31, 2019. Visa operates a global electronic payments network across more than 200 countries and territories. The unaudited statements are prepared under U.S. GAAP.
Financial results
| Metric | Q1 FY2021 | Prior-year quarter | Change |
|---|---|---|---|
| Net revenues | $5.687 billion | $6.054 billion | Down 6% |
| Operating expenses | $1.843 billion | $2.038 billion | Down 10% |
| Operating income | $3.844 billion | $4.016 billion | Down 4% |
| Net income | $3.126 billion | $3.272 billion | Down 4% |
| Diluted Class A EPS | $1.42 | $1.46 | Down 3% |
| Operating margin | 67.6% | 66.3% | Up 1.3 percentage points |
| Net cash from operations | $3.513 billion | $3.875 billion | Down $362 million |
Margins are calculated from reported revenue and income figures. Operating cash flow less purchases of property, equipment and technology was approximately $3.35 billion, versus $3.68 billion a year earlier.
- Revenue mix: Service revenue rose 5% to $2.677 billion and data-processing revenue rose 6% to $3.033 billion. International transaction revenue fell 28% to $1.451 billion; client incentives increased to $1.858 billion from $1.748 billion.
- Geography and activity: U.S. revenue declined 2% to $2.667 billion; international revenue declined 9% to $3.020 billion. Processed transactions increased 4% to 39.2 billion. Payments volume growth cited in the filing reflects the prior quarter: global nominal payments volume rose 4% in the quarter ended September 30, 2020.
- Balance sheet and liquidity: At December 31, Visa reported $15.032 billion of cash and cash equivalents, $18.055 billion including restricted cash and cash equivalents, and $3.009 billion of current investment securities. Total debt carrying value was $21.055 billion, down from $24.070 billion at September 30, following repayment of $3.0 billion of notes at maturity. Total assets were $80.426 billion and total liabilities were $42.747 billion.
- Capital returns: Visa repurchased 9 million Class A shares for $1.796 billion and paid $703 million in dividends. The board authorized an additional $8.0 billion share-repurchase program in January 2021; the January 2020 program had $3.7 billion remaining at quarter-end. A $0.32-per-share quarterly dividend was declared after quarter-end.
Changes, outlook and risks
- Management attributed lower revenue chiefly to COVID-19-related weakness in cross-border activity and higher client incentives. International transaction revenue was particularly affected: nominal cross-border volumes excluding transactions within Europe declined 32% year over year. Payments volume and processed transactions nevertheless grew.
- Operating costs fell, mainly reflecting cost controls, reduced travel and marketing, lower external-resource use, and other expense-management measures. Interest expense increased to $136 million from $111 million, while investment income and other declined to $40 million from $69 million.
- The effective tax rate was 17%, versus 18%; the current-quarter rate benefited from an $81 million tax benefit following the conclusion of tax audits.
- Management said the duration and ultimate effect of COVID-19 remain highly uncertain; most employees were working remotely, and the company was taking a measured approach to returning employees to offices. The filing provides no quantified revenue or earnings guidance. Management said projected liquidity sources should cover needs for more than 12 months.
- Visa’s settlement guarantee creates exposure to client funding failures. Maximum and average daily settlement exposure during the quarter were $97.5 billion and $61.2 billion, respectively; collateral held to manage exposure totaled $4.366 billion at quarter-end. Future obligations depend on events and are not determinable.
- Legal matters include U.S. interchange litigation and more than 500 outstanding European merchant claims, among other proceedings. Management cautions that judgments, fines or settlements could materially affect results, financial position or cash flows; many potential losses are not currently estimable. Accrued litigation was $909 million at quarter-end.
- On January 12, 2021, Visa and Plaid mutually terminated their merger agreement. The filing also reports ongoing German ATM-rule challenges and other litigation developments.
Key facts for investors to verify
- Whether cross-border volumes and international transaction revenue recover as travel and border restrictions change.
- How payments growth, client incentives and cost reductions affect revenue and operating margins in subsequent quarters.
- Developments and potential financial exposure in interchange, European merchant and other legal proceedings.
- Whether settlement exposures, liquidity and capital returns remain consistent with management’s assessment of funding needs.
- The financial and strategic implications of the Plaid transaction termination and any related developments.