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pww.comVisa, Inc., Q2 2009 Earnings Call, Apr-29-2009 - NYSE:V

NYSE:V

Joseph Saunders [Executives] 💬

Joseph Saunders, Visa’s Chairman and Chief Executive Officer, provided the following comments during the Visa Inc. fiscal second quarter 2009 earnings conference call:

  1. Opening Remarks:

    • Visa delivered strong operational and financial performance despite the challenging global economy.
    • Visa benefits from its diverse product set, intense focus on expense management, and the global shift from cash and checks to electronic payments.

  2. Financial Performance:

    • Operating net revenues in the second quarter were over $1.6 billion, an increase of over 13% compared to the year-ago period.
    • Adjusted operating margin of 55% exceeded the full-year guidance of the mid to high 40% range.
    • Adjusted second quarter net income of $553 million was 38% greater than the year-ago period.

  3. Macro Environment and Volume Trends:

    • Aggregate payment volume growth in international regions in the December quarter was positive mid-double-digit, with a modest decline since then.
    • Payment volume growth in the U.S. declined to approximately a 1% negative rate in the December quarter, with little change through the March quarter.
    • There has been some stabilization in U.S. payment volumes over the five-month period through April.
    • Gasoline price declines have resulted in difficult year-over-year comparables, which will continue for the next few months.

  4. Product Resilience:

    • Debit in the U.S. posted growth in each month of the March quarter and through April.
    • For the first time in Visa's history, U.S. debit payment volumes exceeded credit volumes in the December quarter.
    • Debit's strength is attributed to its correlation with non-discretionary spending categories that are holding up relatively well.

  5. Transaction Growth:

    • Processed transaction growth was resilient, posting gains of 6% through the end of March, with even better performance through April.

  6. Near-Term Outlook:

    • Continuing challenges in cross-border payment volumes, foreign exchange, and gas price headwinds will negatively affect the back half of the fiscal year.
    • Low single-digit revenue growth is expected in the fiscal third quarter, with the fourth quarter projected to be modestly higher.
    • High single-digit revenue growth is expected for all of fiscal 2009.
    • Diluted earnings per share growth guidance of greater than 20% for 2009 remains on track.

  7. Long-Term Guidance:

    • Cautiously optimistic about regaining 11-15% revenue growth target in fiscal 2010, assuming recovery in the U.S. economy and cross-border volumes.
    • Expectation to achieve earnings per share and adjusted operating margin targets even if revenue growth is somewhat below guidance range.

  8. Strategic Focus:

    • Visa remains focused on providing clients with products and programs that move their businesses forward and add value to their customers.
    • Debit, prepaid platforms, money transfer, and new technologies for payment at the point of sale will differentiate Visa from the rest of the payments industry.

  9. Q&A Session:

    • On margins: Visa is focused on expense control and efficiency but is not ready to predict long-term margin potential.
    • On proposed legislation: Visa is concerned about the impact of legislation on its clients and is working collaboratively to ensure thoughtful enactment.
    • On cross-border volumes: The impact of annualized price adjustments is being felt in the current quarter.
    • On swine flu: Visa has considered the potential impact of swine flu and believes it would not significantly alter the guidance provided.
    • On Mexico: The impact on revenue related to cross-border travel in Mexico is less than 1%.
    • On international trends: Payment volume growth on a constant dollar basis in the rest of the world will remain solidly positive but at a modestly lower level than previous quarters.
    • On marketing and personnel expenses: Visa is disciplined in its marketing spend, focusing on increasing usage, and is maniacally focused on delivering expense improvement.
    • On economic recovery: Visa expects some recovery in U.S. payment volumes and cross-border travel in early fiscal 2010.
    • On acquisitions: Visa is alert to potential acquisitions, particularly in emerging regions, that would put it at the center of the payments business.
    • On merchant acquiring: Visa may participate in an acquiring business in an emerging economy to speed up terminalization but does not ultimately desire to be in the acquiring business.

  10. Closing Remarks:

    • Visa is in a strong position to weather the economic challenges and realize operating advantages when the economy turns around.

    • Visa is focused on an effective and efficient expense structure, making the proper investments in products and processes, and working with clients to provide the best possible credit and debit products and processing solutions.

Jack Carsky [Executives] 💬

Here is a detailed summary of what Jack Carsky said during the Visa, Inc. Q2 2009 Earnings Call:

  1. Introduction:

    • Welcomed everyone to Visa Inc.’s fiscal second quarter 2009 earnings conference call.
    • Introduced the executives present: Joe Saunders, Visa’s Chairman and CEO, and Byron Pollitt, Visa’s CFO.
    • Noted that the call is being webcast live over the internet and can be accessed on the Investor Relations section of the company's website.
    • Mentioned that a PowerPoint deck containing highlights of the commentary was posted to the website prior to the call.

  2. Disclaimer:

    • Reminded listeners that the presentation may include forward-looking statements, which are not guarantees of future performance and actual results could differ materially.
    • Directed listeners to the company’s filings with the SEC for additional information concerning factors that could affect future results.

  3. Guidance on Financial Information:

    • Noted that historical non-GAAP or pro forma related financial information disclosed in the call is accompanied by the related GAAP measures and other information required by Regulation G of the SEC.
    • Indicated that this information is available in the financial and statistical summary accompanying the fiscal second quarter earnings press release, which can be accessed through the Investor Relations section of the website.

  4. Transition to CEO Remarks:

    • Turned over the call to Joe Saunders, Visa’s Chairman and CEO, to begin the formal remarks.

  5. Conclusion:

    • Thanked everyone for attending the call.

    • Invited listeners to contact Investor Relations for any follow-up questions.

Byron Pollitt [Executives] 💬

Here is a detailed summary of what Byron Pollitt, Visa's Chief Financial Officer, discussed during the Q2 2009 Earnings Call:

Key Points by Byron Pollitt:

  1. Financial Highlights:

    • Solid fiscal second quarter with strong revenue and earnings growth.
    • Service revenues, which represent 41% of gross revenue, are reported on a one-quarter lag.
    • Total payment volume growth for Visa, Inc. through the end of December 2008 was a negative 1%, falling to $675 billion.
    • U.S. debit delivered a solid 6% growth while credit was a negative 7%.
    • Cross-border volume growth in the December ending quarter slowed to zero on a constant dollar basis, down from low double digits in the prior period.

  2. Cards Outstanding:

    • Globally, total cards outstanding for the period ending December grew 8% with just over 1.7 billion cards carrying the Visa brand.
    • Credit cards grew 2% to 813 million cards while debit rose 14% to 905 million cards.

  3. Processed Transactions:

    • Transactions processed over Visa’s network totaled $9.4 billion in the fiscal second quarter, an increase of 6% over the similar period a year ago.

  4. Revenue Line Items:

    • Gross revenues of $1.9 billion were up 8% from the similar period in 2008.
    • Service revenue was $804 million, up 2% over the prior year period.
    • Data processing revenue was $544 million, up 10% over the prior year.
    • International transaction revenue were up 18% to $446 million.

  5. Adjusted Operating Margin:

    • Adjusted operating margin was approximately 55%, above the stated mid to high 40% guidance.
    • The increase in margin was due to lower volume and support incentives and certain expenses shifting from the second fiscal quarter into the back half of the year.

  6. Operating Expenses:

    • On an adjusted basis, operating expenses for the second quarter declined $38 million or 5% year-over-year.
    • Focus on expense reduction is broad-based and driven by merger-related efficiencies.

  7. Capital Expenditures:

    • Capital expenditures were $68 million in the quarter, with approximately $33 million dedicated to the build-out of a new data center.
    • The center was partially brought online in March and will be fully operational by the end of the fiscal fourth quarter.

  8. Balance Sheet:

    • Ended the second quarter with very little debt and cash, cash equivalents, investments, and restricted cash of $5.8 billion.
    • $2.1 billion is restricted cash which represents amounts sufficient to fully pay out the American Express and Discover settlements.

  9. Outlook:

    • Expect the back half of 2009 to be more challenging from a revenue standpoint.
    • Expect net revenue growth in the high single digits for fiscal 2009.
    • Expect revenue growth in the third quarter in the low single digits while the fourth quarter is projected to be modestly higher.
    • Adjusting up 2009 guidance to the low 50% range for adjusted operating margins.
    • For 2010, recognizing the general uncertainty around the economy, attention to continuing to invest for future growth, and the impact of higher depreciation and amortization expenses, moving guidance from mid to high 40’s to the high 40’s to low 50’s range.

  10. Data Center:

    • New data center will bring in significant capacity increase to the existing network and leverage that capacity increase to bring down per transaction charges.

  11. Class C Shareholdings:

    • Intent to unlock up to 30% of the outstanding Class C shareholdings to help alleviate some of the share overhang.
    • Conversion and sale of these shares will increase public float but will have no dilutive impact on shares outstanding.

  12. Capital Structure Planning:

    • Filed a shelf registration that will allow flexibility to quickly access the capital markets with either equity or debt instruments.
    • At this point in time, there are no plans or reasons to go to market; this action is proactive capital structure planning.

  13. Q&A Session:

    • Provided details on the accelerated Class C release program, explaining that 30% or roughly 45 million C shares have the opportunity to unlock between July 1 of this year through September 30.

    • Explained that the unlock would occur during the course of the window with very little disruption to trading volume or price.

    • Discussed the impact of the new data center on unit costs, indicating that it would provide an opportunity to lower unit costs starting in 2010 and beyond.

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