PWW

Portfolio AI Insights

pww.comVisa, Inc., Q3 2008 Earnings Call, Jul-30-2008 - NYSE:V

NYSE:V

Joseph W. Saunders [Executives] 💬

Joseph W. Saunders, the Chairman and CEO of Visa Inc., provided the following information and insights during the Q3 2008 Earnings Call:

  1. Resiliency of Visa's Business Model: He emphasized that while Visa is not immune to economic downturns, it has a high degree of resiliency embedded in its business model. This resiliency is evident in Visa's latest earnings results.

  2. Q3 2008 Earnings Results:

    • Visa's net income on an adjusted basis was $457 million, a 40% increase over the prior year's third quarter on a pro forma basis.
    • Adjusted diluted earnings were $0.59 per share.
    • Net operating revenues were $1.6 billion, an 18% increase over the third quarter of 2007 on a pro forma basis.

  3. Revenue Growth and Guidance:

    • Visa saw strong growth across all key categories.
    • Operating revenues are now running more in line with Visa's long-term guidance and volume growth rates.
    • Visa expects the fourth fiscal quarter to be at the upper end of its revenue guidance range.

  4. Economic Environment:

    • The financial markets and the economy, particularly in the U.S., have seen turmoil since the last earnings report in April.
    • Payment volume in the U.S. has softened but held up well.
    • Visa's business model remains resilient, though not totally immune to the tough economic environment.

  5. Secular Shift to Plastic:

    • There is a continued secular shift to plastic, particularly in debit products in the U.S.
    • International volumes, including cross-border transactions, are still posting solid double-digit growth.
    • Consumer-driven non-discretionary spending on cards has increased, now representing 44% of overall Visa consumer payments volume in the United States.

  6. Legislative Front:

    • Visa made progress on the issue of interchange and its part in the process.
    • Visa was able to make significant outreach to committees and their members, as well as provide testimony from its management team.
    • There has been opposition to the Conyer’s bill from various sides, including consumer groups, credit union coalitions, and the Department of Justice.

  7. Litigation Front:

    • There were developments in the Discover action, a covered case under Visa’s retrospective responsibility plan.
    • Visa entered into a judgment sharing agreement with MasterCard, allocating payment responsibilities for judgments or settlements in the Discover case.
    • Visa increased its litigation reserve for the quarter by $31 million on an after-tax basis, not including these reserves in its adjusted income figures.

  8. Payment Volume and Transactions:

    • Payment volume grew 19% to $652 billion over the same quarter of 2007.
    • Credit growth was just under 19% worldwide and 8% in the U.S., while debit growth was closer to 20%.
    • Total transactions, including payment and cash transactions, were up 15% to $13.2 billion in the quarter ending March 2008.
    • Processed transactions totaled $9.5 billion in the fiscal third quarter, an increase of 13% over the similar period a year ago.

  9. Card Growth:

    • Card growth for the period ending March was up 14% excluding Europe, with over 1.6 billion cards carrying the Visa brand.
    • Credit cards grew 14% to 814 million cards, while debit cards rose 15% to 850 million cards.
    • On an international basis, credit card growth was very strong, growing 19% year-over-year, while international debit cards grew 16%.

  10. New Initiatives:

    • Visa discussed several new initiatives, including exporting successful programs like Visa Signature and Visa Infinite, and debit card products.
    • Longer-term opportunities include money transfer, prepaid mobile payments, and e-commerce.
    • Visa's money transfer service has gained momentum, with the launch of new services in Indonesia and the expansion of the program in Singapore.
    • Visa has introduced the first reloadable prepaid cards in South Africa and Taiwan, expanding the reach of Visa prepaid programs to underserved consumers.
    • Visa is developing enhanced checkout, gateway, and online authentication services to improve merchant and cardholder experiences, including the next upgrade of online authentication.

  11. Question and Answer Session:

    • Saunders addressed questions about the company's payment trends, the impact of the economic slowdown on credit and debit volumes, and Visa's competitive position in the debit market.

These points summarize the key statements made by Joseph W. Saunders during the Q3 2008 Earnings Call.

Jack Carsky [Executives] 💬

Here is a detailed summary of what Jack Carsky said during the Visa, Inc. Q3 2008 Earnings Call:

  1. Introduction:

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

  2. Forward-Looking Statements Disclosure:

    • Reminded listeners that the presentation may include forward-looking statements under the Private Securities Litigation Reform Act of 1995.
    • Stated that actual results could differ materially from such statements due to various factors.
    • Directed listeners to additional information concerning risk factors available in the company’s filings with the SEC.

  3. Financial Information Disclosure:

    • Mentioned that historical non-GAAP or pro forma financial information disclosed in the call, along with the related GAAP measures and other information required by Regulation G of the SEC, can be found in the financial and statistical summary accompanying the fiscal third quarter earnings press release.
    • Noted that the release can be accessed through the investor relations section of the website.

  4. Closing Remarks:

    • Thanked everyone for joining the call.

    • Invited listeners to contact investor relations for any follow-up questions.

Byron H. Pollitt Jr. [Executives] 💬

Byron H. Pollitt Jr. provided details on the financial aspects of Visa's performance and outlook. Here’s a detailed summary of his comments:

  • Financial Results Overview:

    • Gross revenues of $1.9 billion, up 23% from the previous year.
    • Volume and support incentives increased by $99 billion to $274 million, representing 15% of gross revenue.
    • Total net operating revenues were just over $1.6 billion, an 18% increase over the pro forma operating revenues of $1.4 billion reported for the third quarter of 2007.
    • Service fees were $749 million, up 13% over the pro forma result of the prior year period.
    • Data processing fees posted strong gains, rising 20% over the prior year to $539 million.
    • International transaction fees were up 44% to $449 million.
    • Adjusted operating margin was approximately 45% this quarter, an increase of approximately seven percentage points over the similar period last year.

  • Expense Growth:

    • On an adjusted basis, operating expenses for the quarter increased $31 million or 3.6% year-over-year to $883 million.
    • Marketing and advertising spend should total about $1 billion in fiscal 2008.

  • Capital Expenditures:

    • Capital expenditures were $86 million in the quarter, over half of which are dedicated to the build-out of a new data center.
    • Full-year capital spending is expected to be in the range of $425 million to $450 million.

  • Balance Sheet:

    • Ended the third quarter with cash, cash equivalents, available for sale investments, and restricted cash of $8.4 billion.
    • Restricted cash of approximately $2 billion represents the balance of the $3 billion litigation escrow established at the IPO, less the initial payment to American Express of $945 million last quarter and their first quarterly payment of $70 million.

  • Outlook:

    • Despite expectations for modest margin compression in the fourth quarter, Visa now expects to deliver an adjusted mid-40s margin for all of fiscal 2008.
    • Adjusted operating margin guidance is increased to the mid to high 40% range as part of the outlook through fiscal 2010.
    • Annual revenue guidance range is 11% to 15%.

  • Impact of Price Adjustments:

    • Price adjustments made in non-U.S. regions that were fully implemented in the fiscal third quarter of 2007 are no longer influencing year-over-year comparables to a large degree.

  • Cross Border Volume:

    • Cross-border volume growth, which is currently growing at a robust mid to high teens rate, has trended lower from the mid-20% range experienced through March.
    • CEMEA region continues to grow in the mid-30s range.

  • Payment Volume Growth:

    • Payment volume grew 19% to $652 billion over the same quarter of 2007.
    • Credit growth was just under 19% worldwide, while debit in aggregate grew closer to 20%.
    • Continued solid payment volume growth in the U.S. of 10%.

  • Transactions:

    • Total transactions, including payment and cash transactions, were up 15% to $13.2 billion in the quarter ending March 2008.
    • Processed transactions totaled $9.5 billion in the fiscal third quarter, an increase of 13% over the similar period a year ago.

  • Card Growth:

    • Card growth for the period ending March was up 14% excluding Europe with over 1.6 billion cards now carrying the Visa brand.
    • Credit grew 14% to 814 million cards while debit rose 15% to 850 million cards.
    • On an international basis, credit card growth was very strong, growing 19% year-over-year, while international debit cards grew 16%.

  • Margins:

    • Adjusted operating margin was approximately 45% this quarter, an increase of approximately seven percentage points over the similar period last year.
    • Combination of 18% net revenue growth with 4% expense growth drove this margin expansion and resulted in a 42% increase in operating income.

  • Marketing and Advertising Spend:

    • Anticipated further increases in marketing and advertising spend tied both to the Olympics and marketing programs ahead of the fourth calendar quarter holiday season.

  • Capital Expenditures Outlook:

    • Expect capital expenditures to remain at an elevated level through the end of fiscal 2009 as Visa completes its new data processing center.
    • After this, expect cap ex to run at around 3% to 4% of gross revenue on an annualized basis.

  • Balance Sheet Management:

    • Given sizable and growing cash balances, Visa is very focused on not allowing excess cash to build up on its balance sheet.
    • Considering a share repurchase program as early as the first fiscal quarter of 2009.

  • Revenue Guidance:

    • Entered 2008 with the expectation that a softer U.S. economy would have an effect on payment volume and revenue growth over the next several quarters and are now starting to see that impact.
    • Running at the higher end of stated revenue guidance range of 11% to 15%.
    • Increasing adjusted operating margin guidance from the low 40% range to the mid 40% range for fiscal 2008 and over the longer term, 2009 through 2010, to the mid to high 40% range.

  • Question-and-Answer Session:

    • Addressed questions regarding the increase in operating income margin guidance, cross-border volume trends, geographic exposure, and the impact of pricing adjustments.

    • Discussed the hedging that the volume support line offers and the resilience of Visa's business model.

    • Explained the components of the difference between transaction growth and international fee growth.

    • Provided insights into marketing and advertising spending, including the rationalization and reprioritization of global marketing spend.

    • Clarified the impact of pricing adjustments on service fees and the factors affecting quarter-to-quarter variances.

    • Commented on the competitive environment, specifically regarding MasterCard's push into debit.

    • Addressed the litigation commentary, clarifying the $31 million reserve related to the Discover litigation.

Feedback