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pww.comVisa Inc., Q1 2024 Earnings Call, Jan 25, 2024 - NYSE:V

NYSE:V

Jennifer Como [Head of Investor Relations] 💬

Jennifer Como, the Senior Vice President and Global Head of Investor Relations at Visa Inc., made the following statements during the Fiscal First Quarter 2024 Earnings Conference Call:

  1. Opening Remarks:

    • Welcomed everyone to Visa's Fiscal First Quarter 2024 Earnings Call.
    • Introduced Ryan McInerney, Visa's Chief Executive Officer, and Chris Suh, Visa's Chief Financial Officer.
    • Noted that the call was being webcast on the Investor Relations section of Visa's website and that a replay would be archived for 30 days.
    • Mentioned that a slide deck containing financial and statistical highlights had been posted on Visa's IR website.
    • Reminded listeners that the presentation included forward-looking statements and referred them to Visa's SEC filings for additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements.
    • Noted that non-GAAP financial information disclosed in the call, along with the related GAAP measures and reconciliations, were available in the earnings release and related materials on Visa's IR website.

  2. Transition to CEO:

    • Turned the call over to Ryan McInerney, Visa's CEO, after providing the introductory remarks.

  3. Closing Remarks:

    • Thanked everyone for joining the call.
    • Invited listeners to contact or email Visa's Investor Relations team for additional questions.
    • Concluded the call by thanking participants and wishing them a great day.

These statements encompass Jennifer Como's contributions to the call.

Ryan M. McInerney [President, CEO & Director] 💬

Ryan M. McInerney, Visa's President, CEO & Director, provided insights and updates during the Q1 2024 Earnings Call. Here’s a detailed summary of his statements:

Opening Remarks

  • Overview: Visa started 2024 solidly, with year-over-year payments volume growth at 8%.
  • U.S. Payments Volume: Grew 5% year-over-year.
  • International Payments Volume: Grew 11% year-over-year.
  • Cross-Border Volume: Excluding intra-Europe, rose 16% year-over-year in constant dollars.
  • Processed Transactions: Rose 9%.
  • Net Revenues: Increased 9% with GAAP EPS up 20% and non-GAAP EPS up 11%.

Strategy Execution Highlights

  • Customer Focus: Visa remains dedicated to serving its customers, including traditional bank partners, neobanks, fintechs, wallets, sellers, acquirers, and more.
  • Partnerships and Use Cases: Visa continues to seek new partnerships and use cases to drive business forward, with a focus on cross-border transactions.
  • Network of Networks: Visa is going to market with innovative solutions across its network of networks, aiming to add value to all transactions regardless of the network.
  • Brand Amplification: Visa is constantly looking for innovative ways to amplify its brand in service of its partners.

Consumer Payments

  • Credentials Growth: Credentials grew 6%.
  • Token Usage: Network tokens surpassed 8.7 billion, up 55%.
  • Acceptance Locations: Grew 17%.
  • Expansion Examples:
    • Brazil: Partnership with Caixa for cash conversion at over 10,000 lottery branches.
    • Asia Pacific: Agreement with bKash in Bangladesh, enabling Visa cardholders to use in-app QR codes at over 550,000 bKash merchants.
  • Tap to Pay: Grew 5 percentage points to 77% of face-to-face transactions globally (excluding the U.S.), reaching 45% penetration in the U.S.
  • Lowe’s Adoption: Lowe’s enabled tap to pay acceptance.

Noteworthy Updates

  • Renewed Agreements:
    • Europe: Renewal with Isbank, the largest private bank in Turkey, including the first Olympic and Paralympic Games credit card in Europe.
    • Poland: New issuing agreement with PKO Bank Polski.
    • Greece: Expanded partnership with Piraeus Bank.
    • Japan: Expanded credit issuance partnership with EPOS.
    • Korea: Renewed and expanded partnership with Shinhan Card.
    • Mexico: Renewed agreement with BBVA.
    • U.S.: Extended agreement with Bank of America for multiple value-added services.
  • Fintech Partnerships:
    • U.S.: Renewed with fintech Shine.
    • Latin America: Renewed debit and credit contracts with Rappi.
    • Global: New partnership with HSBC for their fintech initiative Zing.

New Flows

  • Opportunity Size: Excluding Russia and China, sees $200 trillion annually in new flows opportunity.
  • Visa Direct Transactions: Grew 20% to 2.2 billion.
  • P2P Cross-Border Transactions: Grew more than 65% year-over-year.
  • Partnership Expansions:
    • Meta: Expanded Visa Direct relationship, allowing content creators on Meta's apps to cash out earnings to a debit card.
    • Western Union: Signed a long-term global partnership covering issuance, Visa Direct, and other services.
    • Remitly: Expanded relationship to enable cross-border payments to eligible debit cards and bank accounts globally.
    • Canada: Announced agreement with CIBC and Simpli for money transfers to digital wallets in key remittance destinations.

Commercial Side

  • Total Payments Volume: Grew 8% in constant dollars.
  • New Verticals:
    • Cross-Border Travel: Expanded agreement with Singapore-based B2B platform Nium.
    • B2B Travel: Signed a new virtual card agreement with Worldline.
    • Contractor Vertical: Signed an agreement with United Overseas Bank and Doxa.

Value-Added Services

  • Network of Networks Strategy Components:
    • Moving money to all endpoints and form factors.
    • Using all available networks and being a single connection point for partners.
    • Providing value-added services on all transactions, regardless of the network.
  • Examples:
    • FedNow Service Provider: Enabled the ability to send funds through the FedNow service.
    • Pismo Acquisition: Closed the acquisition, enhancing Visa's ability to provide cloud-native issuer processing and core banking solutions.
    • Prosa Investment: Announced the acquisition of a majority interest in Prosa, a payments processor in Mexico.
    • ServiceNow Partnership: Announced an agreement to build and distribute Visa's products and solutions, starting with an end-to-end disputes management solution for issuers.

Brand Amplification

  • FIFA Partnership Renewal: Powerful opportunity to drive business and improve brand lift.
  • Red Bull Formula One Teams Sponsorship: Visa's first new global sports sponsorship in over 15 years.

Closing Remarks

  • Annual Meeting: All proposals passed, including the exchange offer program proposal.
  • Al Kelly Retirement: Thanked Al Kelly for his exceptional leadership and impact on Visa.

Q&A Session

  • U.S. Volume Growth: Addressed questions regarding U.S. volume growth and its relation to PCE growth.

  • Value-Added Services Partnerships: Discussed the significance of partnerships like ServiceNow in expanding Visa's value-added services.

  • Reg II Impact: Commented on the impact of Regulation II on volume growth and Visa's strategy in response.

  • Weather Impact: Addressed the impact of severe weather on spending in January.

  • Pismo Ambitions: Explained the ambitions and potential of Pismo in the context of core conversions and the movement toward modern cores.

Christopher Suh [Chief Financial Officer] 💬

Christopher Suh, the Chief Financial Officer of Visa Inc., provided financial details and analysis during the Q1 2024 Earnings Call. Below is a detailed summary of his statements:

Presentation

  • Net Revenues: Up 9% in nominal and constant dollars, which was at the high end of expectations due to lower-than-expected incentives and less foreign exchange (FX) drag.
  • GAAP EPS: Up 20%.
  • Non-GAAP EPS: Up 11% in nominal and 10% in constant dollars.

U.S. Market

  • Payments Volume Growth: 5% year-over-year, with credit growing 6% and debit growing 5%.
  • Card-Present Spend: Grew 3%.
  • Card-Not-Present Volume: Grew 7%.
  • Monthly Growth Rates: Low in October, peak in November, with December in between.
  • Holiday Spend: Mid-single-digit year-over-year growth, similar to the previous year, but stronger on key shopping days (Thanksgiving to Cyber Monday).
  • E-commerce: Increased share of retail spending compared to the previous year.

International Markets

  • Total Payments Volume Growth: Up 11% in constant dollars, stable compared to Q4.
  • Strong Growth Regions: Latin America, Central and Eastern Europe, Middle East, and Africa (CEMEA), and Europe ex UK, each growing about 20% in constant dollars.

Cross-Border Transactions

  • Cross-Border Volume Growth: Up 16% year-over-year in constant dollars, excluding intra-Europe transactions.
  • Travel-Related Spend: Grew 19% year-over-year.
  • Travel Volume Index: Increased from 139% in Q4 to 142% in Q1, compared to 2019 levels.

Revenue Components

  • Service Revenues: Grew 11% year-over-year.
  • Data Processing Revenues: Grew 14%.
  • International Transaction Revenues: Up 8%.
  • Other Revenues: Grew 18%.
  • Client Incentives: Grew 20% but were lower than expected due to client performance and deal timing.

Growth Engines

  • Consumer Payments Growth: Driven by stable payments volume growth and processed transactions, as well as strong cross-border volume growth.
  • New Flows: Underlying drivers remained stable, with commercial volumes rising 8% year-over-year in constant dollars and Visa Direct transactions growing 20%.

Value-Added Services

  • Revenue Growth: 20% in constant dollars, with strength in issuing and acceptance solutions.

Expenses

  • GAAP Operating Expenses: Declined 6% due to a decrease in litigation provision, offset by an increase in personnel expenses.
  • Non-GAAP Operating Expenses: Grew 7% primarily due to an increase in personnel expenses.

Financial Results

  • Non-GAAP Nonoperating Income: $84 million, excluding net gains from equity investments of $4 million.
  • GAAP Tax Rate: 19.1%.
  • Non-GAAP Tax Rate: 19%, helped by larger-than-expected tax benefits.
  • GAAP EPS: $2.39.
  • Non-GAAP EPS: $2.41, up 11% over the previous year.

Stock Buybacks and Dividends

  • Stock Buybacks: Approximately $3.4 billion in stock.
  • Dividends: Over $1 billion distributed to stockholders.
  • Buyback Authorization: $26.4 billion remaining at the end of December.

January Performance

  • U.S. Payment Volume: Up 4% year-over-year, with debit up 3% and credit up 4%, down from December due to severe weather conditions.
  • Processed Transactions: Grew 8% year-over-year.
  • Cross-Border Volume: Grew 16% year-over-year, excluding transactions within Europe.

Outlook

  • Full Year Expectations:
    • No material changes to prior outlook for drivers, adjusted net revenues, or EPS growth.
    • Pismo is expected to have minimal benefit to full-year net revenues growth and an approximate 0.5-point headwind to non-GAAP operating expense and EPS growth.
    • FX is expected to have an approximate 0.5-point drag to net revenues growth and approximately 1-point benefit to non-GAAP operating expense growth and a minimal drag to non-GAAP EPS growth.
    • Non-GAAP nonoperating income is expected to be between $350 million and $400 million, with nearly half in Q2 due to the resolution of some non-U.S. tax matters.
    • Adjusted net revenues growth is unchanged at low double digits.
    • Adjusted operating expense growth is updated to low double digits.
    • Adjusted EPS growth is unchanged at low teens.

Second Quarter Expectations

  • Pismo Impact: Minimal benefit to net revenues growth and an approximate 0.5-point headwind to non-GAAP operating expense and EPS growth.
  • FX Impact: Minimal drag to net revenues growth and an approximate 0.5-point benefit to non-GAAP operating expense growth and minimal benefit to non-GAAP EPS growth.
  • Adjusted Net Revenues Growth: Upper mid- to high single digits.
  • Adjusted Operating Expense Growth: Low double digits, north of 10%.
  • Nonoperating Income: Expected to be highest in Q2 due to the resolution of some tax matters.
  • Tax Rate: Expected to be between 16% and 16.5% in Q2.
  • Adjusted EPS Growth: High teens.

Response to Questions

  • New Flows Revenue: Impacted by business mix, with cross-border volume growth slowing as travel normalized, and a few onetime items.

  • Regulation II Impact: Modest impact in the U.S. payment volumes growth, with no meaningful changes to volumes being routed away since October.

  • Weather Impact: Direct correlation between extreme cold weather and slowdown in growth, with expectations for smoothing out over the quarter.

  • EPS Growth Outlook: Specific to Q2, with a mid-single-digit decline in the share count quarter-over-quarter, due to tax matters resolved outside the U.S. that brought the tax rate down.

  • Value-Added Services Composition: Generated about $7 billion in revenue last year, with $2 billion in Q1, up 20% in constant dollars.

  • Second Half of Fiscal 2024: Drivers expected to tick up slightly due to improved average ticket sizes and continued execution of growth initiatives.

  • Pismo Ambitions: Global platform with ambitions to be the preferred provider for banks worldwide, including medium-sized banks in the U.S. for core banking platforms.

  • Incentive Guidance: No change in outlook for the full year, with a focus on managing the business to net revenue growth.

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