Visa Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and first half ended March 31, 2020; comparatives are the three and six months ended March 31, 2019. Unaudited results are presented in U.S. dollars.
Business context and results
Visa operates a global electronic payments network and provides payment processing and related services. It does not issue cards, extend credit, or set cardholder and merchant rates and fees. COVID-19 began affecting spending and transactions late in March, so the reported quarter captures only the early impact.
| Metric | Quarter | First half |
|---|---|---|
| Net revenue | $5.854 billion, +7% | $11.908 billion, +8% |
| Operating income | $3.924 billion, +8% | $7.940 billion, +8% |
| Net income | $3.084 billion, +4% | $6.356 billion, +7% |
| Diluted Class A EPS | $1.38, +6% | $2.85, +9% |
| Operating margin | 67.0%, versus 66.3% | 66.7%, versus 66.9% |
| Net margin | 52.7%, versus 54.2% | 53.4%, versus 54.1% |
Revenue growth reflected higher payments volume, processed transactions, pricing changes, and value-added services, partly offset by greater client incentives and unfavorable currency movements. Foreign exchange reduced revenue growth by about one percentage point. Quarterly service revenue was based on prior-quarter volume and was not significantly affected by COVID-19; data processing and international transaction revenue were affected late in March.
Cash flow, liquidity, and debt
- First-half operating cash flow was $5.342 billion, compared with $5.358 billion a year earlier; investing cash flow was $2.441 billion, versus an outflow of $396 million; financing cash flow was an outflow of $5.887 billion.
- Cash and cash equivalents were $9.740 billion at March 31, 2020; cash, cash equivalents, and restricted cash totaled $12.816 billion. Management said projected liquidity was sufficient for more than the next 12 months.
- Debt carrying value was $17.892 billion, including $1.002 billion of commercial paper. The balance sheet classified $3.999 billion as current maturities and $13.893 billion as long-term debt. A $3.0 billion senior-note principal payment was due in December 2020.
- Visa issued $4.0 billion of senior notes in April 2020, after quarter-end, with maturities from 2027 to 2040; proceeds were intended for general corporate purposes.
- Visa repurchased 31 million Class A shares for $5.503 billion and paid $1.339 billion in dividends in the first half. A quarterly dividend of $0.30 per Class A share was declared in April.
Changes, outlook, and key risks
- COVID-19 drove sharp late-March declines in travel, restaurants, entertainment, and fuel spending, as well as lower cross-border volume and processed transactions. Management said the duration and ultimate financial impact were highly uncertain; no specific financial guidance was provided in the filing.
- For the quarter, processed transactions grew 7%; for the first half, they grew 9%. Nominal cross-border volume declined 4% in the quarter but grew 2% in the first half. Visa reported payment-volume data through December 31, 2019 for the relevant revenue comparisons.
- Visa agreed to acquire Plaid for $5.3 billion, mainly cash, subject to regulatory reviews and other closing conditions; closing was expected by year-end 2020. The company intended to fund it with cash, investments, and new debt.
- Operating expenses rose 4% in the quarter and 9% in the first half, with personnel, depreciation and amortization, and technology/network investment among the drivers. Investment income and other fell substantially year over year, contributing to net income growing more slowly than operating income.
- Litigation remains significant. Visa recorded a $467 million reestablishment of an accrual for opt-out claims related to U.S. interchange litigation after receiving a corresponding takedown payment into its litigation escrow. More than 400 European merchants had outstanding claims. Outcomes and potential losses in certain proceedings were not reasonably estimable.
- Other disclosed risks include settlement guarantees for client failures, potential client or merchant distress, cyber and fraud risks, network or supplier disruptions, and possible regulatory action during the pandemic. Visa reported effective disclosure controls and no material change to internal control over financial reporting.
Important facts for investors to verify
- Subsequent-quarter payment volumes, cross-border activity, and revenue effects as the pandemic’s impact broadened beyond late March.
- Whether Visa’s liquidity assessment remains adequate, including funding the Plaid transaction and the December 2020 $3.0 billion debt maturity.
- Regulatory approval, final cost, and financing for the proposed Plaid acquisition.
- Developments in U.S. and European interchange litigation, including opt-out claims, settlement accruals, and potential cash or equity effects.
- Changes in share repurchases, dividends, and client incentives as operating conditions evolve.