Visa Inc., Q3 2020 Earnings Call, Jul 28, 2020 - NYSE:V

NYSE:V

Vasant M. Prabhu, the Former Chief Financial Officer of Visa Inc., provided detailed insights into the company's performance during the fiscal third quarter of 2020. Below is a summary of his comments:

Key Business Drivers and Financial Results

• U.S. Payments Volume: Declined 7% in the quarter, showing a sharp decline in mid-April followed by a V-shaped domestic spending recovery. Volumes declined 18% in April before returning to positive territory in June.
• Debit vs. Credit Performance: Debit outperformed credit by almost 30 points. Debit spending was up 8%, while credit spending declined 21% in the quarter. The outperformance of debit is driven by several factors, including direct deposits of government payments into consumers’ checking accounts, a shift towards spending with available funds rather than borrowed funds, and a significant shift to online purchases.
• E-commerce Trends: Card-not-present spend, excluding travel, has grown over 25% every week since mid-April, which is twice the pre-COVID growth rate. Card-present spending improved steadily through the quarter, from declining almost 50% in early April to declining in the high single digits by late June.
• International Payments Volume: Declined over 12% in constant dollars in the third quarter. Similar to the U.S., debit significantly outperformed credit, with debit down only 3% and credit down 20%.
• Cross-Border Volume: Constant dollar cross-border volume, excluding volume within Europe, declined 47% in the third quarter. Volumes declined 51% in April and improved marginally in May to decline 45%, but there has been little improvement since.
• Financial Results:
  • Net revenues declined 17% in the quarter or 16% in constant dollars.
  • Service revenues were flat with the prior year and reflect last quarter's volumes.
  • Data processing revenues declined 5%, supported by strong value-added services growth.
  • International transaction revenues decreased 44%, in line with the decline in cross-border volumes excluding volume within Europe.
  • Client incentives declined 2% versus last year and were 23.8% of gross revenue.
  • GAAP and non-GAAP operating expenses declined 5%.

Perspectives on the Fourth Quarter

• Forecasting revenues remains challenging due to uncertainties such as the reopening of borders and the trajectory of the cross-border travel recovery.
• Continued recovery in domestic payments volumes and transactions will improve the data processing revenue trend but not reported service revenues.
• The most important variable that would improve the fourth quarter net revenue growth rate is cross-border volume excluding intra-Europe.

Other Financial Details

• Had Visa reported service revenues without a lag, third quarter net revenue would have declined an additional 4.5 points.
• Non-GAAP non-operating expense was $118 million for the fiscal third quarter.
• Non-GAAP tax rate was 19%.
• Non-GAAP operating expenses in the fourth quarter are expected to decline roughly in line with the reductions delivered in the third quarter.

Summary of Financial Trends

• Vasant provided details on the U.S. debit performance, highlighting the reasons for the outperformance of debit over credit, including the direct deposit of government payments, a shift towards spending with available funds, and the significant shift to online purchases.
• He discussed the impact of the service fee lag on the company's reported net revenue growth and the expected impact in the next quarter.
• Vasant also commented on the trends in international payments volume and cross-border volume, emphasizing the significant decline in cross-border travel-related spend and the factors impacting cross-border recovery.
• He explained the components of value-added services revenue and the impact of the pandemic on various revenue streams, including lower use of travel-related card benefits and marketing services.

Outlook

• Vasant provided guidance on the fourth quarter, noting the challenges in forecasting revenues due to uncertainties surrounding border reopenings and the cross-border travel recovery.

• He discussed the expected impact of the service fee lag and the expected decline in non-GAAP operating expenses in the fourth quarter.

• He concluded by emphasizing Visa’s resilience and the company’s ability to maintain a healthy level of free cash flow despite the significant impact of COVID-19.

Michael Milotich, the Senior Vice President of Investor Relations, made the following statements during the Visa Inc. Q3 2020 Earnings Call:

1. Opening Remarks:

   • "Thank you, Jordanne. Good afternoon, everyone, and welcome to Visa's Fiscal Third Quarter 2020 Earnings Call."
   • He introduced Al Kelly, Visa's Chairman and CEO, and Vasant Prabhu, Visa's Vice Chairman and CFO.
   • Mentioned that the call is being webcast on the Investor Relations section of Visa's website and that a replay will be archived on the site for 30 days.
   • Noted that a slide deck with financial and statistical highlights has been posted on the IR website.

2. Forward-Looking Statements Disclaimer:

   • Reminded listeners that the presentation included forward-looking statements that are not guarantees of future performance and that actual results could differ materially.
   • Directed listeners to Visa's most recent reports on Forms 10-K, 10-Q, and 8-K for additional information concerning factors that could affect the company's performance.

3. GAAP Measures and Reconciliation:

   • Stated that historical non-GAAP financial information disclosed in the call, along with the related GAAP measures and reconciliation, is available in the day's earnings release.

4. Transition to Al Kelly:

   • "And with that, let me turn the call over to Al."

5. Closing Remarks:

   • "Thank you, Al."

   • Apologized for technical challenges during the call.

   • Assured listeners that the replay on the website and the transcript would reflect everything discussed.

   • Invited listeners to reach out to the Investor Relations team for additional questions and thanked everyone for attending.

Alfred Francis Kelly, the Former Executive Chairman of Visa Inc., discussed several key points during the Fiscal Third Quarter 2020 Earnings Call:

1. Impact of COVID-19 on Business:

   • Despite the significant impacts of the pandemic on economies worldwide, many aspects of Visa's business have shown resilience.
   • Visa has continued to invest in growth areas such as consumer payments, new flows, and value-added services.

2. Third Quarter Results:

   • Net revenues in the fiscal third quarter were $4.8 billion, a decrease of 17% or 16% in constant dollars.
   • Payments volume declined 10% globally or 9% excluding China.
   • Cross-border volume excluding intra-Europe declined 47% on a constant dollar basis, primarily due to a lack of travel.
   • Visa processed 30.7 billion transactions, a 13% decrease over the prior year.
   • However, all business drivers improved each month throughout the quarter.

3. Consumer Payments:

   • There is still $18 trillion transacted in cash and check globally, presenting an opportunity for Visa.
   • Tap to pay penetration has improved in nearly 50 countries by more than 5 percentage points, and over 10 countries increased by 10 percentage points or more.
   • More than 55 countries have increased tap to pay limits, reducing the share of transactions requiring consumer contact.
   • In the U.S., more than 80 million contactless cards were added in the first six months of 2020.
   • The shift to e-commerce has been positive for Visa, as its share of digital commerce is approximately 3x greater than physical point-of-sale.
   • Active e-commerce credentials increased in various markets, including the U.S., U.K., and Brazil.

4. New Flows:

   • Visa Direct grew global transactions in the mid-60s year-over-year.
   • Visa continued to focus on addressing the $185 trillion opportunity in B2B payments.
   • Established a global partnership with Conferma Pay for provisioning virtual Visa commercial cards.
   • Continued to build out the Visa B2B Connect network, with plans for it to be live in half of the 80 markets by the end of the year.
   • P2P transactions in the U.S. are up almost 80%, and in Latin America, there was a nearly 400% increase in transactions in Peru.

5. Value-Added Services:

   • Revenue from value-added services grew in the mid-teens year-over-year.
   • Notable growth in issuer processing, CyberSource, and authentication and fraud services.
   • Increased usage of data products and consulting services.

6. Renewals and Deals:

   • Visa made progress in renewals and new deals, including expanding partnerships in Europe, Asia, and Latin America.
   • Renewed and expanded partnerships with major banks and financial institutions.
   • Signed co-brand deals with Best Buy, Ford, and Verizon.
   • Secured wins with fintechs and neobanks globally.

7. Social Justice Commitment:

   • Visa is committed to driving inclusion and diversity, announcing a Visa Scholars and Jobs Program.
   • Committed to increasing the number of underrepresented U.S. vice presidents and above by 50% in the next 3 years and increasing the number of underrepresented U.S. colleagues within Visa overall by 50% in the next 5 years.

8. Future Outlook:

   • While there is uncertainty in the near term, Visa remains confident in its long-term strategy and growth prospects.

   • Visa has demonstrated discipline in managing expenses while continuing to invest in future growth.

   • Returned capital to shareholders at historic levels and retained its dividend.

   • Believes the business model is resilient and has the scale, brand, digital products, financial levers, and a talented team to emerge stronger from the pandemic.