Visa Inc., Q4 2020 Earnings Call, Oct 28, 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 strategies. Here’s a summary of his key points:

Opening Remarks

• Q4 Recovery: Q4 marked the beginning of recovery from global shutdowns.
• Debit Business: Beneficiary of the shift to e-commerce and reduced cash usage. U.S. debit grew at twice the pre-COVID rate.
• Credit: Hit hard by the pandemic, declining 20% globally in Q3, but recovering to a 5% decline in major markets by September.
• Card-Present and Card-Not-Present: Card-present volumes recovered sharply, while card-not-present volumes remained robust.
• Cross-Border Recovery: Sluggish due to travel restrictions and quarantine measures.
• Revenue Decline: Net revenue declined 17% in Q4, approximately 11% when adjusting for service fee lag.

Key Business Drivers

• U.S. Payments Volume: Up over 7% in Q4, with consistent growth. Debit up 24%, credit down 7%.
• International Payments Volume: Grew 1% in Q4, 5% excluding China.
• CEMEA Region: Grew 15% in constant dollars in Q4.
• Europe: Improved 19 points, growing 9% in constant dollars.
• Latin America: Improved 19 points, growing 6% in constant dollars.
• Asia Pacific: Declined 10% in constant dollars in Q4, 4% excluding China.
• Processed Transactions: Turned positive in Q4, up 3%.
• Cross-Border Volume: Excluding volume within Europe, declined 41% in Q4.

Fourth Quarter Financial Results

• Net Revenues: Down 17% in Q4 on a nominal and constant dollar basis.
• Service Revenues: Down 13%.
• Data Processing: Grew 4%.
• International Transactions Revenues: Down 38%.
• Other Revenues: Grew 5%.
• Client Incentives: 25% of gross revenues.
• Non-GAAP Operating Expenses: Down 4%.
• Non-GAAP Nonoperating Expense: $126 million.
• GAAP EPS: Fell 28%.
• Non-GAAP EPS: $1.12, a decrease of 23%.

Fiscal Year 2020 Results

• Payment Volume: Increased 2% in constant dollars.
• Processed Transactions: Grew 2%.
• Cross-Border Volumes: Down 22% excluding volumes within Europe, 16% including Europe.
• Net Revenues: Decreased 4% in constant dollars.
• Client Incentives: 23.4% of gross revenues.
• Operating Expenses: Down 3% on a GAAP basis, up 1% on a non-GAAP basis.
• GAAP EPS: Decreased 8%.
• Non-GAAP EPS: $5.04, down 7% or 6% in constant dollars.

Fiscal Year 2021 Outlook

• Revenue: Expected to decline in the first half and rebound significantly in the second half.
• Client Incentives: Estimated to be 25.5% to 26.5% of gross revenue.
• Operating Expenses: Plan to increase investment through the year, with expenses down in Q1, in line with Q4 trends, growing in the mid-single digits in Q2, and double-digit growth in the second half.
• Nonoperating Expense: Expected to average $145 million to $150 million per quarter.
• Tax Rate: Expected to be in the 19% to 19.5% range.

Response to Questions

• Value-Added Services Revenue Mix:
  • About 2/3 are platform-based services, driven by transactions.
  • About 1/3 is service revenue and other revenue.
  • High growth in platform services, including fraud services, authentication, and CyberSource.
• Debit Growth Drivers:
  • Acceleration of cash displacement.
  • Shift to online purchases.
  • Preference for spending available funds over borrowing.
  • Visa Direct.
• Impact of Stimulus on Growth:
  • Some of the spending may not sustain without renewed stimulus.
• Incentive Guidance:
  • Factors considered: mix shift, service fee lag, renewals, and expected performance.
• B2B Connect and Other Opportunities:
  • Building the nodes for B2B Connect.
  • Interest in B2B Connect with new clients ramping.
  • Focus on creating value in the large AR/AP business.
• Incentive Percentage for FY21:
  • Range of 25.5% to 26.5% of gross revenue.
  • Assumed some modest improvement in cross-border volumes.
• Fraud Solutions and Economic Uplift:
  • Opportunity to drive up authorization rates, reduce fraud, and increase cross-border transactions.

These points provide a comprehensive overview of Vasant M. Prabhu’s insights into Visa’s financial performance, strategic outlook, and responses to questions during the Q4 2020 earnings call.

Michael Milotich, the Senior Vice President of Investor Relations, made the following statements during the Visa Inc. Q4 2020 Earnings Call:

1. Opening Remarks:

   • Thanked the operator and welcomed everyone to Visa's Fiscal Fourth Quarter and Full Year 2020 Earnings Call.
   • Introduced Al Kelly, Visa's Chairman and CEO, and Vasant Prabhu, Visa's Vice Chairman and CFO.
   • Mentioned that the call was being webcast on the Investor Relations section of Visa's website and would be archived there for 30 days.
   • Noted that a slide deck containing financial and statistical highlights had been posted on the IR website.

2. Forward-Looking Statements Reminder:

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

3. Non-GAAP Financial Information Disclosure:

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

4. Turned the Call Over to Al Kelly:

   • Passed the call over to Al Kelly, Visa's Executive Chairman, to provide further remarks.

5. Closing Remarks:

   • Thanked everyone for joining the call and invited them to contact Visa's Investor Relations team if they had additional questions.

   • Wished everyone a great evening before concluding the call.

Alfred Francis Kelly, the Former Executive Chairman of Visa Inc., discussed several key points during the Q4 2020 Earnings Call:

1. Fiscal 2020 Performance:

   • Fiscal 2020 started strong but was impacted by the spread of COVID-19.
   • The company adjusted expenses and continued to invest in key initiatives to support and fuel growth.

2. Highlights from Fiscal 2020:

   • Over 185 billion payment transactions and almost $9 trillion of payment volume were made on Visa credentials.
   • Acceptance points grew 16% to nearly 70 million merchant locations.
   • Contactless penetration grew to 43% of all face-to-face transactions globally, 65% excluding the United States.
   • U.S. tap-to-pay cards reached 255 million.
   • Globally, 23 countries increased their contactless penetration by 25 points or more over fiscal 2019.
   • Wallet partnerships represent over $2 billion in potential credentials and nearly 70 million additional potential acceptance locations.
   • Globally, the number of active credentials in e-commerce, excluding travel, rose 14% since January.
   • Renewed about 25% of payments volume with key clients and secured several new wins.
   • Expanded tokenization globally, crossing the 1.4 billion tokens milestone.
   • Visa Direct grew to nearly 3.5 billion transactions, utilizing various card-based networks, domestic ACH schemes, RTP schemes, and payment gateways.
   • More than 5,000 client users accessed over 450,000 reports on the Visa Analytics Platform.
   • Several large acquirers leverage CyberSource's robust omni-commerce payments offerings.

3. Fourth Quarter Results:

   • Acceleration of cash digitization through debit, e-commerce, and tap-to-pay, and the penetration of new flows through Visa Direct.
   • Payments volume, processed transactions, and cross-border volumes showed positive momentum exiting the quarter.
   • Net revenues in the fiscal fourth quarter were $5.1 billion, a decrease of 17% in constant dollars.
   • Non-GAAP EPS was $1.12, a decrease of 23%.
   • Returned $2.3 billion of capital to shareholders in the fourth quarter.

4. Strategic Focus for 2021:

   • Continue to focus on accelerating growth through consumer payments, new flows, and value-added services.
   • Fortify key foundations of the business model: brand, security, technology, and talent.

5. Consumer Payments:

   • Success with traditional financial institutions, wallets, and fintechs as well as merchants.
   • Renewed and expanded partnerships with various entities, including banks, fintechs, and digital wallets.
   • Highlighted partnerships with fintechs like Revolut and digital wallets like Samsung Pay.

6. New Flows:

   • Cross-border P2P through Visa Direct with significant potential.
   • Partnerships with various entities for cross-border money movement and earned wage access.
   • Expansion into B2B, including virtual cards and partnerships with companies like Stripe and YeePay.

7. Value-Added Services:

   • Value-added services grew 15% in revenue in the fourth quarter and 18% for the full year.
   • Highlighted the resilience of the business and demand from clients for support.
   • Mentioned the success of CyberSource and the signing of deals with various acquirers.

8. Acquisitions:

   • Discussed the acquisition of YellowPepper, a software company that facilitates secure, real-time money movement transactions.
   • Provided an update on the Plaid acquisition, mentioning ongoing engagement with the Department of Justice.

9. Closing Remarks:

   • Praised the resilience of clients and Visa employees during the pandemic.

   • Committed to making changes to ensure the organization reflects the world in which it operates.

   • Remained optimistic about Visa's opportunity to transform secure, reliable, and efficient money movement.