Visa Inc., Q1 2020 Earnings Call, Jan 30, 2020 - NYSE:V

NYSE:V

Vasant M. Prabhu, the Former Chief Financial Officer of Visa Inc., provided detailed insights into the company’s financial performance and outlook during the Q1 2020 Earnings Call. Here is a summary of his statements:

Key Points from Vasant M. Prabhu

1. Financial Performance Overview:

   • Visa had a strong start to fiscal 2020, with results consistent with expectations.
   • Excluding acquisitions and investment gains, constant dollar net revenue and EPS growth were 11% and 14%, respectively.
   • Exchange rates reduced revenue growth by over 1 point and EPS growth by approximately 1.5 points.
   • The four acquisitions completed in the last six months increased reported revenue growth by approximately 0.5 point and expense growth by approximately 3 points.

2. Non-GAAP Adjustments:

   • Starting in fiscal 2020, Visa is providing adjustments to its GAAP numbers each quarter to help investors better track ongoing business performance.
   • Non-GAAP results will exclude the impact of equity investment gains and losses, amortization of acquired intangible assets from acquisitions completed in fiscal year 2019 and forward, and certain nonrecurring acquisition-related costs.
   • Prior non-GAAP results were also adjusted to reflect this change.

3. Revenue and Expense Growth:

   • Net revenue grew 10%, but the underlying growth trend in revenues is masked by two significant drags related to currencies: a stronger dollar and unusually low currency volatility.
   • If adjusted for these factors, underlying net revenue growth is robust at approximately 13%.
   • Payments volume growth in constant dollars was 8%, with credit up 6% and debit up 11%.
   • International payments volume growth in constant dollars was 8%, and 12% excluding China and the U.K.
   • Processed transactions continued to grow at 11%.

4. Cross-Border Growth:

   • Constant dollar cross-border growth of 9% was up 2 points from the last quarter but stable at 9%, excluding volumes within Europe.
   • Both travel and e-commerce growth were in line with the last quarter, excluding volumes within Europe.

5. Revenue Breakdown:

   • Service revenue growth was consistent with the last quarter at 9%.
   • Data processing revenue growth was also in line with the last quarter at 16%.
   • International transaction revenue grew 9%, decreasing 2 points from the fourth quarter due to unusually low currency volatility.

6. Client Incentives:

   • Client incentives were in line with expectations at 22.4% of gross revenue, up 80 basis points from the last quarter.
   • Visa expected client incentives to step up from fiscal 2019 exit percentage to the lower end of the full-year outlook range in the first quarter due to the level of deal activity this quarter and last year.

7. Operating Expenses:

   • GAAP operating expenses were up 14%.
   • Excluding the amortization of acquired intangible assets and nonrecurring acquisition-related costs, non-GAAP expense growth was 13%.
   • Personnel expense growth was primarily driven by increases in staff to drive growth initiatives.
   • Marketing expenses decreased 1% due to the timing of some spending and a reporting change that shifted some expenses to the general and administrative line.

8. Nonoperating Income/Expenses:

   • Nonoperating income/expenses included equity investment gains of $13 million, which are now excluded in non-GAAP results.
   • Investment income is lower this year due to falling interest rates and lower cash balances.

9. Tax Rate:

   • The tax rate of 17.7% was lower due to some items unique to the first quarter each year, which was anticipated and reflected in the outlook for tax rates this year.

10. Outlook:

    • Business driver growth for the first 4 weeks of the quarter: U.S. payments volume growth was 10%, processed transactions grew 13%, and cross-border volume on a constant dollar basis grew 8% or 7% excluding cross-border volume within Europe.
    • Exchange rate drag on net revenues in the second quarter could be approximately 1 point.
    • Client incentives as a percent of gross revenues will climb to the upper half of the outlook range of 22.5% to 23.5%.
    • Second quarter net revenue growth rates are expected to be in the low double digits and modestly better than the first quarter.
    • Second quarter expense growth is also expected to be modestly higher than the first quarter.
    • Nonoperating expenses will be somewhat higher in the second quarter due to lower interest income resulting from lower cash balances and lower interest rates.
    • Tax rate outlook for the second quarter remains unchanged at 19% to 19.5%.

11. Full-Year Outlook:

    • Visa is maintaining its outlook for fiscal year 2020.
    • Low double-digit net revenue growth in constant dollars is still expected.
    • The currency translation drag could be at the lower end of the previous 1 to 1.5 percentage point range at approximately 1 point.
    • Renewal activity in fiscal year 2020 could be even higher with 3 to 4 large unplanned renewals now under discussion, bringing this year's level of renewal activity almost on par with last year.
    • Client incentives as a percent of gross revenues are expected to be at the high end of the outlook range of 22.5% to 23.5% in FY '20.
    • Core expense growth is expected to be in the mid- to high single-digit range in constant dollars or 7% to 8%, climbing to low double-digit growth when adding in the four acquisitions.
    • Nominal expense growth is likely to benefit by 1 point based on current exchange rates and future expectations.
    • The expense growth for the year is expected to be in the double digits, which is about 50 basis points higher than previously expected.
    • Nonoperating expense had a run rate of approximately $65 million in the first quarter and will move modestly higher in each successive quarter this year due to declining interest income from lower rates.
    • The full-year outlook for tax rates remains unchanged at 19% to 19.5%.
    • Adjusted fiscal year 2020 EPS constant dollar growth remains in the mid-teens built off fiscal year '19 EPS of $5.40.
    • The four acquisitions are expected to dilute EPS by $0.05 to $0.06, a 1 point drag on EPS growth.
    • The outlook for adjusted fiscal year 2020 nominal EPS growth would be in the 12% to 14% range, including the acquisition and exchange rate impacts of around 2 points.

12. Plaid Acquisition:

    • The fiscal year 2020 outlook does not include any impact from the Plaid acquisition.
    • Visa will update its outlook when there is more clarity on the timing for closing the transaction.

13. Response to Questions:

    • Addressed questions regarding incentives, cross-border growth, regional volumes, and expense growth.
    • Explained the impact of currency volatility and exchange rates on revenue growth.
    • Discussed the outlook for the second quarter and full year, including the potential effects of the recent coronavirus outbreak in China.

Vasant M. Prabhu provided detailed financial insights and outlook, addressing the various factors impacting Visa's performance and the company's strategic approach to managing expenses and revenue growth.

Michael Milotich, the Senior Vice President of Investor Relations at Visa Inc., made the following statements during the Q1 2020 Earnings Call:

1. Opening Remarks:

   • Thanked the operator and welcomed everyone to Visa's Fiscal First Quarter 2020 Earnings Call.
   • Introduced Al Kelly, Visa's Chairman and CEO, and Vasant Prabhu, Visa's Vice Chairman and CFO.

2. Webcast and Presentation Materials:

   • Noted that the call was being webcast on the Investor Relations section of Visa's website at www.investor.visa.com.
   • Mentioned that a replay would be archived on the site for 30 days.
   • Informed that a slide deck containing financial and statistical highlights had been posted on the IR website.

3. Forward-Looking Statements Disclaimer:

   • Reminded listeners that the presentation included forward-looking statements which are not guarantees of future performance.
   • Stated that actual results could differ materially due to various factors, and directed listeners to Visa's most recent reports on Forms 10-K and 10-Q for additional information.
   • Noted that historical non-GAAP financial information disclosed in the call was accompanied by the related GAAP measures and reconciliation in the earnings release.

4. Introduction of Al Kelly:

   • Turned the call over to Al Kelly, Visa's Chairman and CEO, to begin the presentation.

5. Closing Remarks:

   • Thanked the operator and all participants for joining the call.

   • Invited listeners to contact Visa's Investor Relations team for any additional questions.

   • Ended the call by thanking everyone and wishing them a great day.

Alfred Francis Kelly, the Former Executive Chairman of Visa Inc., provided the following information and insights during the Q1 2020 Earnings Call:

1. Q1 2020 Performance Overview:

   • Visa had a strong start to 2020, reflecting the company's focus on clients and commitment to moving money globally, seamlessly, and safely.
   • Net revenue growth was 10%, but adjusting for exchange rates and low currency volatility, the growth was approximately 13%.
   • EPS growth was 12% or 14% on a constant dollar basis, excluding the impact of acquisitions made after Q1 last year.
   • Total network volume exceeded $3 trillion for the first time in history.
   • Payment volume grew 8% globally, 10% excluding China and the UK.
   • Cross-border volume rose 9% on a constant dollar basis.
   • Visa processed nearly 38 billion total transactions, up 11%.

2. Holiday Spending Analysis:

   • In the US, growth was similar to the 2018 and 2017 holiday seasons, which were both strong years.
   • Credit growth was slightly better than the previous year, while debit growth slowed slightly due to lapping tax reform.
   • E-commerce grew 3 to 4 times faster than non-e-commerce and drove more than one-third of all consumer spend, up 2 percentage points versus the previous year.
   • Retail spend growth was stronger than the previous year, fueled by e-commerce, but offset by slower growth in travel and restaurant spending.
   • Brazil and Canada saw slightly stronger growth than the previous year, while the UK's growth was similar, and growth in Australia slowed slightly.

3. Core Business Growth Strategies:

   • Visa is growing its core payments business through large clients and markets, making progress in emerging markets through new partnerships, and helping the ecosystem remove friction.
   • Visa renewed its issuing agreement with Capital One, effective January 1, 2020.
   • Visa renewed its agreement with DKB, its largest issuing bank in Germany.
   • Visa renewed a multiyear contract with Royal Bank of Canada for credit and debit in the Caribbean, including new debit wins covering 17 Caribbean countries and territories.
   • Visa won the credit and debit business for Santander in Brazil, Argentina, and Uruguay.
   • Visa was selected for the new Venmo co-brand credit card, reflecting its strong partnership with PayPal.
   • Visa extended its co-brand partnerships with Norwegian Air Shuttle and S Group in Europe.
   • Visa secured the China co-brand with Costco.
   • Visa established a strategic partnership and acquired a minority stake in Interswitch, a company focused on the digitization of payments in Africa.

4. Emerging Markets and Digital Payments:

   • Visa is making progress in Africa through partnerships and investments to accelerate the shift to digital payments.
   • Visa announced a collaboration with MFS Africa to distribute Visa payment credentials across the continent.
   • Visa invested in Flutterwave, a pan-African digital payments platform, to scale its consumer payments service and merchant acquiring service through Visa products.
   • Visa's partnership with Interswitch will help accelerate Visa deployments of payment experiences leveraging Interswitch's processing and integration capabilities.

5. Improving Point-of-Sale Experience:

   • Visa continues to see meaningful momentum in tap-to-pay, with one in every three card-present transactions being tapped.
   • Visa launched Africa's first contactless transit system in Johannesburg and expanded tap-to-pay on the New York City MTA.
   • Visa launched click-to-pay, which streamlines the digital payment experience across networks, offering greater security and improved sales.
   • Visa completed the migration of 5,500 U.S. merchants to click-to-pay and expects to complete the migration of the remainder of Visa Checkout merchants in the United States over the coming months.

6. Securing the Ecosystem with Tokens:

   • Visa continues to make progress on securing the ecosystem with tokens, which have expanded into 107 countries and equate to 6 billion tokenized transactions in 2019.
   • Visa signed and is now live with the majority of large e-commerce platforms for card-on-file tokenizations, including Adyen, Braintree, CyberSource, PayPal, Stripe, Amazon, and Netflix.

7. New Payment Flows:

   • Visa made progress in capturing new payment flows, particularly in the card-based B2B space, with several wins in the first quarter.
   • Visa partnered with NEC Payments to expand its regional and international issuing business focused on virtual cards for B2B payments.
   • Visa partnered with Neat, a fintech offering digital business account services, to issue virtual commercial cards.
   • Visa Direct served P2P, B2C, and B2-small business with over 700 million transactions in the first quarter of 2020.

8. Plaid Acquisition:

   • Visa sees Plaid as having the potential to deliver real value in multiple ways, with a usage-based revenue model structured on a pay-per-API call basis.

9. Investor Day:

   • Visa will hold an Investor Day on February 11 in San Francisco, which will be webcast. The event will feature discussions on the evolution of the ecosystem and how Visa intends to deliver future growth through its customer consumer payments business, new flows, and value-added services.