This management's discussion and analysis provides a review of the results of operations, financial condition and liquidity and capital resources ofVisa Inc. and its subsidiaries (Visa , we, us, our or the Company) on a historical basis and outlines the factors that have affected recent earnings, as well as those factors that may affect future earnings. The following discussion and analysis should be read in conjunction with our unaudited consolidated financial statements and related notes included in Item 1-Financial Statements of this report. Forward-Looking Statements This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of theU.S. Private Securities Litigation Reform Act of 1995 that relate to, among other things, the impact on our future financial position, results of operations and cash flows as a result of the war inUkraine ; the ongoing effects of the COVID-19 pandemic, including the reopening of borders and resumption of international travel; prospects, developments, strategies and growth of our business; anticipated expansion of our products in certain countries; industry developments; anticipated timing and benefits of our acquisitions; expectations regarding litigation matters, investigations and proceedings; timing and amount of stock repurchases; sufficiency of sources of liquidity and funding; effectiveness of our risk management programs; and expectations regarding the impact of recent accounting pronouncements on our consolidated financial statements. Forward-looking statements generally are identified by words such as "anticipates," "believes," "estimates," "expects," "intends," "may," "projects," "could," "should," "will," "continue" and other similar expressions. All statements other than statements of historical fact could be forward-looking statements, which speak only as of the date they are made, are not guarantees of future performance and are subject to certain risks, uncertainties and other factors, many of which are beyond our control and are difficult to predict. We describe risks and uncertainties that could cause actual results to differ materially from those expressed in, or implied by, any of these forward-looking statements in ourSEC filings, including our Annual Report on Form 10-K, for the year endedSeptember 30, 2022 , and any subsequent reports on Forms 10-Q and 8-K. Except as required by law, we do not intend to update or revise any forward-looking statements as a result of new information, future events or otherwise. 25
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Overview
Visa is a global payments technology company that facilitates global commerce and money movement across more than 200 countries and territories among a global set of consumers, merchants, financial institutions and government entities through innovative technologies. We provide transaction processing services (primarily authorization, clearing and settlement) to our financial institution and merchant clients through VisaNet, our advanced transaction processing network. We offer products and solutions that facilitate secure, reliable and efficient money movement for all participants in the ecosystem.
Financial overview. A summary of our as-reported
Three Months Ended December 31, % 2022 2021 Change(1) (in millions, except percentages and per share data) Net revenues$ 7,936 $ 7,059 12 % Operating expenses$ 2,846 $ 2,283 25 % Net income$ 4,179 $ 3,959 6 % Diluted earnings per share$ 1.99 $ 1.83 8 % Non-GAAP operating expenses(2)$ 2,439 $ 2,115 15 % Non-GAAP net income(2)$ 4,581 $ 3,901 17 % Non-GAAP diluted earnings per share(2)$ 2.18 $ 1.81 21 %
(1)Figures in the table may not recalculate exactly due to rounding. Percentage changes are calculated based on unrounded numbers. (2)For a full reconciliation of our GAAP to non-GAAP financial results, see tables in Non-GAAP financial results below.
Russia &Ukraine . During the quarter endedMarch 31, 2022 , economic sanctions were imposed onRussia by theU.S. ,European Union ,United Kingdom and other jurisdictions and authorities, impactingVisa and its clients. InMarch 2022 , we suspended our operations inRussia and as a result, are no longer generating revenue from domestic and cross-border activities related toRussia . For the three months endedDecember 31, 2021 , total net revenues fromRussia , including revenues driven by domestic as well as cross-border activities, was approximately 4% of our consolidated net revenues.
The continuing effects of the war in
Highlights for the first quarter of fiscal 2023. For the three months endedDecember 31, 2022 , net revenues increased 12% over the prior-year comparable period, primarily due to the growth in nominal cross-border volume, processed transactions and nominal payments volume, partially offset by higher client incentives. During the three months endedDecember 31, 2022 , exchange rate movements negatively impacted our net revenues growth by approximately three percentage points. For the three months endedDecember 31, 2022 , GAAP operating expenses increased 25% over the prior-year comparable period primarily due to higher expenses related to personnel and litigation provision. See Results of Operations-Operating Expenses below for further discussion. During the three months endedDecember 31, 2022 , exchange rate movements positively impacted our operating expense growth by approximately one-and-a-half percentage points.
For the three months ended
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Interchange multidistrict litigation. During the three months endedDecember 31, 2022 , we recorded an additional accrual of$341 million to address claims associated with the interchange multidistrict litigation. We also made deposits of$350 million into theU.S. litigation escrow account. See Note 4-U.S. and Europe Retrospective Responsibility Plans and Note 12-Legal Matters to our unaudited consolidated financial statements. Common stock repurchases. InOctober 2022 , our board of directors authorized a$12.0 billion share repurchase program. Previously, inDecember 2021 , our board of directors authorized a$12.0 billion share repurchase program. During the three months endedDecember 31, 2022 , we repurchased 16 million shares of our class A common stock in the open market for$3.1 billion . As ofDecember 31, 2022 , our repurchase programs had remaining authorized funds of$14.1 billion . See Note 8-Stockholders' Equity to our unaudited consolidated financial statements. Non-GAAP financial results. We use non-GAAP financial measures of our performance which exclude certain items which we believe are not representative of our continuing operations, as they may be non-recurring or have no cash impact, and may distort our longer-term operating trends. We consider non-GAAP measures useful to investors because they provide greater transparency into management's view and assessment of our ongoing operating performance. •Gains and losses on equity investments. Gains and losses on equity investments include periodic non-cash fair value adjustments and gains and losses upon sale of an investment. These long-term investments are strategic in nature and are primarily private company investments. Gains and losses and the related tax impacts associated with these investments are tied to the performance of the companies that we invest in and therefore do not correlate to the underlying performance of our business. •Amortization of acquired intangible assets. Amortization of acquired intangible assets consists of amortization of intangible assets such as developed technology, customer relationships and brands acquired in connection with business combinations executed beginning in fiscal 2019. Amortization charges for our acquired intangible assets are non-cash and are significantly affected by the timing, frequency and size of our acquisitions, rather than our core operations. As such, we have excluded this amount and the related tax impact to facilitate an evaluation of our current operating performance and comparison to our past operating performance. •Acquisition-related costs. Acquisition-related costs consist primarily of one-time transaction and integration costs associated with our business combinations. These costs include professional fees, technology integration fees, restructuring activities and other direct costs related to the purchase and integration of acquired entities. These costs also include retention equity and deferred equity compensation when they are agreed upon as part of the purchase price of the transaction but are required to be recognized as expense post-combination. We have excluded these amounts and the related tax impacts as the expenses are recognized for a limited duration and do not reflect the underlying performance of our business. •Litigation provision. During the three months endedDecember 31, 2022 and 2021, we recorded an additional accrual to address claims associated with the interchange multidistrict litigation of$341 million and$145 million , respectively, and related tax benefit of$76 million and$32 million , respectively, determined by applying applicable tax rates. Under theU.S. retrospective responsibility plan, we recover the monetary liabilities related to theU.S. covered litigation through a downward adjustment to the rate at which shares of our class B common stock convert into shares of class A common stock. See Note 4-U.S. and Europe Retrospective Responsibility Plans and Note 12-Legal Matters to our unaudited consolidated financial statements. 27
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Non-GAAP operating expenses, non-operating income (expense), income tax provision, effective income tax rate, net income and diluted earnings per share should not be relied upon as substitutes for, or considered in isolation from, measures calculated in accordance withU.S. GAAP. The following tables reconcile our as-reported financial measures, calculated in accordance withU.S. GAAP, to our respective non-GAAP financial measures:
Three Months Ended
Diluted Operating Non-operating Income Tax Effective Income Net Earnings Per Expenses Income (Expense) Provision Tax Rate(1) Income Share(1) (in millions, except percentages and per share data) As reported$ 2,846 $ (113)$ 798 16.0 %$ 4,179 $ 1.99 (Gains) losses on equity investments, net - 106 24 82 0.04 Amortization of acquired intangible assets (43) - 9 34 0.02 Acquisition-related costs (23) - 2 21 0.01 Litigation provision (341) - 76 265 0.13 Non-GAAP$ 2,439 $ (7)$ 909 16.5 %$ 4,581 $ 2.18
Three Months Ended
Diluted Operating Non-operating Income Tax Effective Income Net Earnings Per Expenses Income (Expense) Provision Tax Rate(1) Income Share(1) (in millions, except percentages and per share data) As reported$ 2,283 $ 121$ 938 19.1 %$ 3,959 $ 1.83 (Gains) losses on equity investments, net - (231) (42) (189) (0.09) Amortization of acquired intangible assets (13) - 3 10 - Acquisition-related costs (10) - 2 8 - Litigation provision (145) - 32 113 0.05 Non-GAAP$ 2,115 $ (110)$ 933 19.3 %$ 3,901 $ 1.81
(1)Figures in the table may not recalculate exactly due to rounding. Effective income tax rate, diluted earnings per share and their respective totals are calculated based on unrounded numbers.
Payments volume and processed transactions. Payments volume is the primary driver for our service revenues, and the number of processed transactions is the primary driver for our data processing revenues.
Payments volume represents the aggregate dollar amount of purchases made with cards and other form factors carrying theVisa , Visa Electron, V PAY and Interlink brands and excludesEurope co-badged volume. Nominal payments volume is denominated inU.S. dollars and is calculated each quarter by applying an establishedU.S. dollar/foreign currency exchange rate for each local currency in which our volumes are reported. Processed transactions represent transactions using cards and other form factors carrying theVisa , Visa Electron, V PAY, Interlink and PLUS brands processed onVisa's networks. 28
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The following table presents nominal payments and cash volume:
U.S. International Visa Inc. Three Months Ended September 30,(1) Three Months Ended September 30,(1)
Three Months Ended September 30,(1)
2022 2021 % Change(2) 2022 2021 % Change(2) 2022 2021 % Change(2) (in billions, except percentages)
Nominal payments volume Consumer credit$ 551 $ 480 15 %$ 684 $ 652 5 %$ 1,236 $ 1,132 9 % Consumer debit(3) 682 640 6 % 635 692 (8 %) 1,317 1,332 (1 %) Commercial(4) 247 206 20 % 130 118 11 % 377 323 17 % Total nominal payments volume(2)$ 1,480 $ 1,326 12 %$ 1,449 $ 1,461 (1 %)$ 2,929 $ 2,787 5 % Cash volume(5) 155 179 (13 %) 451 496 (9 %) 606 675 (10 %) Total nominal volume(2),(6)$ 1,635 $ 1,505 9 %$ 1,900 $ 1,958 (3 %)$ 3,535 $ 3,462 2 % The following table presents the change in nominal and constant payments and cash volume: International Visa Inc. Three Months Three Months Ended September 30, Ended September 30, 2022 vs. 2021(1),(2) 2022 vs. 2021(1),(2) Nominal Constant(7) Nominal Constant(7) Payments volume growth Consumer credit growth 5 % 16 % 9 % 15 % Consumer debit growth(3) (8 %) 1 % (1 %) 4 % Commercial growth(4) 11 % 25 % 17 % 22 % Total payments volume growth (1 %) 9 % 5 % 10 % Cash volume growth(5) (9 %) (2 %) (10 %) (5 %) Total volume growth (3 %) 6 % 2 % 7 % (1)Service revenues in a given quarter are assessed based on nominal payments volume in the prior quarter. Therefore, service revenues reported for the three months endedDecember 31, 2022 and 2021, respectively, were based on nominal payments volume reported by our financial institution clients for the three months endedSeptember 30, 2022 and 2021, respectively. On occasion, previously presented volume information may be updated. Prior-period updates are not material. (2)Figures in the table may not recalculate exactly due to rounding. Percentage changes and totals are calculated based on unrounded numbers. (3)Includes consumer prepaid volume and Interlink volume. (4)Includes large, medium and small business credit and debit, as well as commercial prepaid volume. (5)Cash volume generally consists of cash access transactions, balance access transactions, balance transfers and convenience checks. (6)Total nominal volume is the sum of total nominal payments volume and cash volume. Total nominal volume is provided by our financial institution clients, subject to review byVisa . (7)Growth on a constant-dollar basis excludes the impact of foreign currency fluctuations against theU.S. dollar.
The following table presents the number of processed transactions:
Three Months Ended December 31, % 2022 2021 Change(1) (in millions, except percentages) Visa processed transactions 52,512 47,558 10 %
(1)Figures in the table may not recalculate exactly due to rounding. Percentage change is calculated based on unrounded numbers. On occasion, previously presented information may be updated. Prior period updates are not material.
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Table of Contents Results of OperationsNet Revenues The following table presents our net revenues earned in theU.S. and internationally: Three Months Ended December 31, % 2022 2021 Change(1) (in millions, except percentages) U.S.$ 3,567 $ 3,178 12 % International 4,369 3,881 13 % Net revenues$ 7,936 $ 7,059 12 %
(1)Figures in the table may not recalculate exactly due to rounding. Percentage changes are calculated based on unrounded numbers.
Net revenues increased primarily due to the growth in nominal cross-border volume, processed transactions and nominal payments volume, partially offset by higher client incentives.
Our net revenues are impacted by the overall strengthening or weakening of theU.S. dollar as payments volume and related revenues denominated in local currencies are converted toU.S. dollars. During the three months endedDecember 31, 2022 , exchange rate movements negatively impacted our net revenues growth by approximately three percentage points.
The following table presents the components of our net revenues:
Three Months Ended December 31, % 2022 2021 Change(1) (in millions, except percentages) Service revenues$ 3,511 $ 3,193 10 % Data processing revenues 3,827 3,614 6 % International transaction revenues 2,797 2,174 29 % Other revenues 587 449 31 % Client incentives (2,786) (2,371) 18 % Net revenues$ 7,936 $ 7,059 12 %
(1)Figures in the table may not recalculate exactly due to rounding. Percentage changes are calculated based on unrounded numbers.
•Service revenues increased primarily due to 5% growth in nominal payments volume, despite the impact of our suspension of operations inRussia . Service revenues also increased due to business mix, select pricing modifications and card benefits.
•Data processing revenues increased primarily due to overall growth in processed
transactions of 10%, partially offset by our suspension of operations in
•International transaction revenues increased primarily due to growth in nominal cross-border volumes of 22%, excluding transactions withinEurope . International transaction revenues also increased due to volatility of a broad range of currencies and select pricing modifications.
•Other revenues increased primarily due to value added services revenues tied to marketing and consulting services, acquisition-related revenues and select pricing modifications.
•Client incentives increased primarily due to growth in payments volume. The amount of client incentives we record in future periods will vary based on changes in performance expectations, actual client performance, amendments to existing contracts or the execution of new contracts. 30
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Operating Expenses
The following table presents the components of our total operating expenses: Three Months Ended December 31, % 2022 2021 Change(1) (in millions, except percentages) Personnel$ 1,337 $ 1,125 19 % Marketing 332 280 18 % Network and processing 178 190 (6 %) Professional fees 109 100 9 % Depreciation and amortization 227 198 15 % General and administrative 322 242 33 % Litigation provision 341 148 130 % Total operating expenses$ 2,846 $ 2,283 25 %
(1)Figures in the table may not recalculate exactly due to rounding. Percentage changes are calculated based on unrounded numbers.
•Personnel expenses increased primarily due to higher number of employees and compensation, reflecting our strategy to invest in future growth, including acquisitions.
•Marketing expenses increased primarily due to increased spending in various campaigns, including the FIFA World Cup 2022TM and client marketing.
•Network and processing expenses decreased primarily due to the absence of fees associated with the processing of Russian domestic transactions as a result of our suspension of operations inRussia , partially offset by continued technology and processing network investments to support growth.
•Depreciation and amortization expenses increased primarily due to additional depreciation and amortization from our acquisitions and on-going investments.
•General and administrative expenses increased primarily due to an increase in travel expenses, unfavorable foreign currency fluctuations, and higher usage of travel related card benefits.
•Litigation provision increased primarily due to an increase in accrual related
to the
Non-operating Income (Expense)
The following table presents the components of our non-operating income (expense): Three Months Ended December 31, % 2022 2021 Change(1) (in millions, except percentages) Interest expense$ (137) $ (134) 2 % Investment income (expense) and other 24 255 (91 %) Total non-operating income (expense)$ (113) $ 121
(194 %)
(1)Figures in the table may not recalculate exactly due to rounding. Percentage changes are calculated based on unrounded numbers.
•Interest expense increased primarily due to lower income from derivative
instruments and higher interest expense related to the issuance of debt in
fiscal 2022, partially offset by a discrete tax benefit recognized during the
three months ended
•Investment income (expense) and other decreased primarily due to losses on our equity investments, partially offset by higher interest income on our cash and investments. 31
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Effective Income Tax Rate
The following table presents our effective income tax rates:
Three Months Ended December 31, 2022 2021 Effective income tax rate 16 % 19 %
The difference in the effective tax rates is primarily due to a
Liquidity and Capital Resources
Cash Flow Data
The following table summarizes our cash flow activity for the periods presented: Three Months Ended December 31, 2022 2021 (in millions) Total cash provided by (used in): Operating activities$ 4,171 $ 4,232 Investing activities (510) (547) Financing activities (6,347) (4,967)
Effect of exchange rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents
692 (194)
Increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents
$
(1,994)
Operating activities. Cash provided by operating activities for the three months endedDecember 31, 2022 was lower than the prior-year comparable period primarily due to higher incentive payments, partially offset by continued growth in our underlying business. Investing activities. Cash used in investing activities for the three months endedDecember 31, 2022 was lower than the prior-year comparable period primarily due to the absence of cash paid for acquisitions combined with cash received from the settlement of net investment hedge derivative instruments in the current year, partially offset by higher purchases, net of sales and maturities, of investment securities. Financing activities. Cash used in financing activities for the three months endedDecember 31, 2022 was higher than the prior-year comparable period primarily due to the principal debt payment upon maturity of ourDecember 2022 senior notes and higher dividends paid, partially offset by lower share repurchases. See Note 6-Debt and Note 8-Stockholders' Equity to our unaudited consolidated financial statements.
Sources of Liquidity
Our primary sources of liquidity are cash on hand, cash flow from our operations, our investment portfolio and access to various equity and borrowing arrangements. Funds from operations are maintained in cash and cash equivalents and short-term or long-term investment securities based upon our funding requirements, access to liquidity from these holdings and the returns that these holdings provide. Based on our current cash flow budgets and forecasts of our short-term and long-term liquidity needs, we believe that our current and projected sources of liquidity will be sufficient to meet our projected liquidity needs for more than the next 12 months. We will continue to assess our liquidity position and potential sources of supplemental liquidity in view of our operating performance, current economic and capital market conditions and other relevant circumstances. 32
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Uses of Liquidity
There has been no significant change to our primary uses of liquidity since
Common stock repurchases. During the three months ended
Dividends. During the three months endedDecember 31, 2022 , we declared and paid$945 million in dividends to holders of our common and preferred stock. OnJanuary 24, 2023 , our board of directors declared a quarterly cash dividend of$0.45 per share of class A common stock (determined in the case of class B and C common stock and series A, B and C convertible participating preferred stock on an as-converted basis). See Note 8-Stockholders' Equity to our unaudited consolidated financial statements. We expect to continue paying quarterly dividends in cash, subject to approval by the board of directors. All preferred and class B and C common stock will share ratably on an as-converted basis in such future dividends.
Senior notes. During the three months ended
Litigation. During the three months endedDecember 31, 2022 , we deposited$350 million into theU.S. litigation escrow account to address claims associated with the interchange multidistrict litigation. The balance of this account as ofDecember 31, 2022 was$1.7 billion and is reflected as restricted cash in our consolidated balance sheets. See Note 4-U.S. and Europe Retrospective Responsibility Plans and Note 12-Legal Matters to our unaudited consolidated financial statements.
Accounting Pronouncements Not Yet Adopted
InMarch 2020 , theFinancial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2020-04, which provides optional expedients and exceptions for applyingU.S. GAAP to contracts, hedging relationships and other transactions that reference the London Interbank Offered Rate or another reference rate expected to be discontinued because of reference rate reform. Subsequently, the FASB also issued amendments to this standard. The amendments in the ASU are effective upon issuance throughDecember 31, 2024 . The adoption of ASU 2020-04 and its subsequent amendments is not expected to have a material impact on our consolidated financial statements.
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