Visa Inc. Reports Strong Fiscal Third Quarter 2017 Results

Visa Inc. Reports Strong Fiscal Third Quarter 2017 Results

Performance Driven by Continued Strength in Payments Volume, Cross-Border Volume and Processed Transactions

Visa Inc. (NYSE:V) today announced financial results for the Company’s fiscal third quarter 2017, ended June 30, 2017.

Fiscal Third Quarter 2017 Key Highlights:

• GAAP net income of $2.1 billion or $0.86 per share
• Net operating revenue of $4.6 billion, an increase of 26%, driven by inclusion of Europe and continued growth in payments volume, cross-border volume and processed transactions
• Payments volume growth, on a constant dollar basis, was 38% over the prior year at $1.9 trillion
• Cross-border volume growth, on a constant dollar basis, was 147% or 11% inclusive of Europe in prior year results
• Total Visa processed transactions were 28.5 billion, a 44% increase over the prior year, or 13% growth inclusive of Europe in prior year results
• Returned approximately $2.1 billion of capital to shareholders in the form of share repurchases and dividends

“I’m pleased to report Visa’s fiscal third quarter results which reflect strong growth in payments volume, cross-border volume, and processed transactions, which were powered by economic tailwinds in the U.S. and globally,” said Alfred F. Kelly, Jr., Chief Executive Officer of Visa Inc. “Our results and growth are a reflection of our strategy to pursue the conversion of cash and checks to electronic payments in partnership with our clients around the world.”

Fiscal Third Quarter 2017 Financial Highlights:

GAAP net income in the fiscal third quarter was $2.1 billion or $0.86 per share. Prior year's results included several special items related to the acquisition of Visa Europe. Excluding these special items, net income and earnings per share both increased 26% over the prior year. Exchange rate shifts versus the prior year negatively impacted earnings per share growth by approximately 2 percentage points. All references to earnings per share assume fully-diluted class A share count, inclusive of series B and C convertible participating preferred stock, unless otherwise noted.

Net operating revenue in the fiscal third quarter was $4.6 billion, an increase of 26%, driven by the inclusion of Europe and continued growth in payments volume, cross-border volume and processed transactions. Exchange rate shifts versus the prior year negatively impacted reported net operating revenue growth by approximately 1.5 percentage points.

Payments volume growth, on a constant dollar basis, for the three months ended March 31, 2017, on which fiscal third quarter service revenue is recognized, was 38% over the prior year at $1.7 trillion. Effective with the three months ended December 31, 2016, Europe co-badge volume is no longer included in reported volume.

Payments volume growth, on a constant dollar basis, for the three months ended June 30, 2017, was 38% over the prior year at $1.9 trillion.

Cross-border volume growth, on a constant dollar basis, was 147% for the three months ended June 30, 2017. Cross-border volume growth, on a constant dollar basis and inclusive of Europe in prior year results, was 11%.

Total processed transactions, which represent transactions processed by Visa, for the three months ended June 30, 2017, were 28.5 billion, a 44% increase over the prior year. Total processed transactions growth was 13%, inclusive of Europe in prior year results.

Fiscal third quarter service revenues were $1.9 billion, an increase of 19% over the prior year, and are recognized based on payments volume in the prior quarter. All other revenue categories are recognized based on current quarter activity. Data processing revenues rose 29% over the prior year to $2.0 billion. International transaction revenues grew 45% over the prior year to $1.6 billion. Other revenues were $209 million, flat over the prior year. Client incentives, which are a contra revenue item, were $1.1 billion and represent 20.1% of gross revenues.

GAAP operating expenses were $1.5 billion for the fiscal third quarter, a 52% decrease over the prior year's results which included special items related to the acquisition of Visa Europe. Excluding these special items, operating expenses grew 31% over the prior year, primarily driven from the inclusion of Visa Europe's operating expenses following the acquisition.

GAAP effective income tax rate was 29.3% for the quarter ended June 30, 2017.

Cash, cash equivalents, and available-for-sale investment securities were $12.2 billion at June 30, 2017.

The weighted-average number of diluted shares of class A common stock outstanding was 2.39 billion for the quarter ended June 30, 2017.

Notable Events:

During the three months ended June 30, 2017, the Company repurchased 17.8 million shares of class A common stock, at an average price of $93.82 per share, using $1.7 billion of cash on hand. In the nine months ended June 30, 2017, the Company repurchased a total of 59.2 million shares of class A common stock, at an average price of $86.82 per share, using $5.1 billion of cash on hand. The Company currently has $5.5 billion of funds available for share repurchase.

On July 17, 2017, the board of directors declared a quarterly cash dividend of $0.165 per share of class A common stock (determined in the case of class B and C common stock and series B and C convertible participating preferred stock on an as-converted basis) payable on September 5, 2017, to all holders of record of the Company’s common and preferred stock as of August 18, 2017.

Financial Outlook for Fiscal Full-Year 2017:

Visa Inc. reaffirms its financial outlook for the following GAAP metrics for fiscal full-year 2017:

• Annual operating margin: Mid 60s; and
• Effective tax rate: Mid 40s on a GAAP basis and approximately 30% on an adjusted, non-GAAP basis.

Visa Inc. updates its financial outlook for the following GAAP metrics for fiscal full-year 2017:

• Annual net revenue growth: Approximately 20% on a nominal dollar basis, including approximately 2.0 ppts of negative foreign currency impact;
• Client incentives as a percent of gross revenues: 20.0% to 20.5% range; and
• Annual diluted class A common stock earnings per share growth: Low double-digits on a GAAP nominal dollar basis and approximately 20% on an adjusted, non-GAAP nominal dollar basis (see note below), both including approximately 2.5 ppts of negative foreign currency impact.

Note: The financial outlook for fiscal full-year 2017 includes Visa Europe integration expenses of approximately $60 million for the full-year. Differences in our financial outlook for fiscal full-year 2017 GAAP and non-GAAP financial measures relate to the one-time, non-recurring items that are included in the accompanying reconciliation. Annual adjusted diluted class A common stock earnings per share growth is derived from adjusted full-year 2016 earnings per share results of $2.84. Refer to the accompanying financial tables for further details and a reconciliation of the adjusted fiscal full-year 2016 results.

Fiscal Third Quarter 2017 Earnings Results Conference Call Details:

Visa’s executive management team will host a live audio webcast beginning at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time) today to discuss the financial results and business highlights. All interested parties are invited to listen to the live webcast at http://investor.visa.com. A replay of the webcast will be available on the Visa Investor Relations website for 30 days. Investor information, including supplemental financial information, is available on Visa Inc.’s Investor Relations website at http://investor.visa.com.

About Visa Inc.

Visa Inc. (NYSE:V) is a global payments technology company that connects consumers, businesses, financial institutions, and governments in more than 200 countries and territories to fast, secure and reliable electronic payments. We operate one of the world’s most advanced processing networks - VisaNet - that is capable of handling more than 65,000 transaction messages a second, with fraud protection for consumers and assured payment for merchants. Visa is not a bank and does not issue cards, extend credit or set rates and fees for consumers. Visa’s innovations, however, enable its financial institution customers to offer consumers more choices: pay now with debit, pay ahead with prepaid or pay later with credit products. For more information, visit visa.com/aboutvisa, visacorporate.tumblr.com and @VisaNews.

Forward-Looking Statements:

This press release contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 that relate to, among other things, our future operations, prospects, developments, strategies, business growth and financial outlook for fiscal full-year 2017. Forward-looking statements generally are identified by words such as "believes," "estimates," "expects," "intends," "may," "projects," “outlook”, "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.

Actual results could differ materially from those expressed in, or implied by, our forward-looking statements due to a variety of factors, including, but not limited to:

• increased oversight and regulation of the global payments industry and our business;
• impact of government-imposed restrictions on payment systems;
• outcome of tax and litigation matters;
• increasingly intense competition in the payments industry, including competition for our clients and merchants;
• proliferation and continuous evolution of new technologies and business models;
• our ability to maintain relationships with our clients, merchants and other third parties;
• brand or reputational damage;
• management changes;
• impact of global economic, political, market and social events or conditions;
• exposure to loss or illiquidity due to settlement guarantees;
• uncertainty surrounding the impact of the United Kingdom’s withdrawal from the European Union;
• cyber security attacks, breaches or failure of our networks;
• failure to maintain interoperability with Visa Europe’s systems;
• our ability to successfully integrate and manage our acquisitions and other strategic investments; and
• other factors described in our filings with the U.S. Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended September 30, 2016, and our 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.

Our financial results for the nine months ended June 30, 2017 and three and nine months ended June 30, 2016 reflect the impact of certain significant items that we do not believe are indicative of our ongoing operating performance in these or future periods as they are either non-recurring or have no cash impact. As such, we believe the presentation of adjusted financial results excluding the following items provides a clearer understanding of our operating performance for the periods presented. There were no comparable adjustments recorded for the three months ended June 30, 2017.

• Elimination of deferred tax balances. During the second quarter of fiscal 2017, in connection with our legal entity reorganization, we eliminated deferred tax balances originally recognized upon the acquisition of Visa Europe, resulting in the recognition of a non-recurring, non-cash income tax provision of $1.5 billion.
• Charitable contribution. During the second quarter of fiscal 2017, associated with our legal entity reorganization, we recognized a non-recurring, non-cash general and administrative expense of $192 million, before tax, related to the charitable donation of Visa Inc. shares that were acquired as part of the Visa Europe acquisition and held as treasury stock. Net of the related cash tax benefit of $71 million, determined by applying applicable tax rates, adjusted net income increased by $121 million.
• Acquisition-related costs. During the three months ended June 30, 2016, we incurred $152 million of non-recurring acquisition costs in operating expense as a result of the Visa Europe transaction. This amount is comprised of $60 million of transaction expenses recorded in professional fees, and $92 million of U.K. stamp duty recorded in general and administrative expenses. Net of related tax benefit of $56 million, determined by applying applicable federal and state tax rates, the adjustment to net income was an increase of $96 million.
• Visa Europe Framework Agreement loss. Upon consummation of the transaction, on June 21, 2016, we recorded a non-recurring loss of $1.9 billion, before tax, in operating expense resulting from the effective settlement of the Framework Agreement between us and Visa Europe. Net of related tax benefit of $693 million, determined by applying applicable federal and state tax rates, the adjustment to net income was an increase of $1.2 billion.
• Net (losses) gains on currency forward contracts. During the second and third quarter of fiscal 2016, we entered into currency forward contracts to mitigate a portion of our foreign currency exchange rate risk associated with the upfront cash consideration paid in the Visa Europe acquisition. As a result, we recorded non-recurring, net losses of $42 million and net gains of $74 million, before tax, in other non-operating (expense) income for the three and nine months ended June 30, 2016, respectively. Net of related tax benefit of $8 million and tax expense of $27 million for the three and nine months ended June 30, 2016, respectively, determined by applying applicable federal and state tax rates, the adjustment to net income was an increase of $34 million and a decrease of $47 million, respectively.
• Foreign exchange gain on euro deposits. During the three months ended June 30, 2016, we recorded a non-recurring foreign exchange gain of $145 million, before tax, in other non-operating income resulting from holding euro-denominated bank balances for a short period in advance of the Closing. Net of related tax expense of $54 million, determined by applying applicable federal and state tax rates, the impact to net income was a decrease of $91 million.
• Revaluation of Visa Europe put option. During the first quarter of fiscal 2016, we recorded a decrease of $255 million in the fair value of the Visa Europe put option, resulting in the recognition of non-cash income in other non-operating income. This amount is not subject to income tax and therefore has no impact on our reported income tax provision.

Adjusted financial results are non-GAAP financial measures and should not be relied upon as substitutes for measures calculated in accordance with U.S. GAAP. The following tables reconcile our as-reported financial measures calculated in accordance with U.S. GAAP, to our respective non-GAAP adjusted financial measures for the nine months ended June 30, 2017 and three and nine months ended June 30, 2016. There were no comparable adjustments recorded for the three months ended June 30, 2017.

Our fiscal full-year 2017 annual diluted class A common stock earnings per share growth outlook is based on adjusted non-GAAP fiscal full-year 2016 results, which are reconciled to their closest comparable U.S. GAAP financial measure below.

Our financial results during the twelve months ended September 30, 2016 reflect the impact of certain significant items that we do not believe are indicative of our ongoing operating performance, as they are either non-recurring or have no cash impact. As such, we believe the presentation of adjusted financial results excluding the following items provides a clearer understanding of our operating performance for the period presented.

• Severance cost. In the fiscal fourth quarter, we recorded a $110 million charge for severance costs related to personnel reductions including planned reductions at Visa Europe. Although we routinely record severance expenses, these charges are larger than any past quarterly accrual due to the acquisition and integration of Visa Europe. Net of related tax benefit of $38 million, determined by applying applicable tax rates, the adjustment to net income was an increase of $72 million.
• Remeasurement of deferred tax liability. In September 2016, we recorded a non-cash, non-recurring $88 million gain upon the remeasurement of a deferred tax liability, recorded upon the acquisition of Visa Europe, to reflect a tax rate change in the United Kingdom.
• Acquisition-related costs. During the twelve months ended September 30, 2016, we incurred $152 million of non-recurring acquisition costs in operating expense as a result of the Visa Europe transaction. This amount is comprised of $60 million of transaction expenses recorded in professional fees, and $92 million of U.K. stamp duty recorded in general and administrative expenses. Net of related tax benefit of $56 million, determined by applying applicable federal and state tax rates, the adjustment to net income was an increase of $96 million.
• Visa Europe Framework Agreement loss. Upon consummation of the transaction, on June 21, 2016, we recorded a non-recurring loss of $1.9 billion, before tax, in operating expense resulting from the effective settlement of the Framework Agreement between Visa and Visa Europe. Net of related tax benefit of $693 million, determined by applying applicable federal and state tax rates, the adjustment to net income was an increase of $1.2 billion.
• Net gains on currency forward contracts. During the twelve months ended September 30, 2016, we entered into currency forward contracts to mitigate a portion of the foreign currency exchange rate risk associated with the upfront cash consideration paid in the Visa Europe acquisition. As a result, we recorded non-recurring, net gains of $74 million, before tax, in other non-operating income. Net of related tax expense of $27 million, determined by applying applicable federal and state tax rates, the adjustment to net income was a decrease of $47 million.
• Foreign exchange gain on euro deposits. During the twelve months ended September 30, 2016, we recorded a non-recurring foreign exchange gain of $145 million, before tax, in other non-operating income as a result of holding euro-denominated bank balances for a short period in advance of the closing date of the Visa Europe transaction. Net of related tax expense of $54 million, determined by applying applicable federal and state tax rates, the impact to net income was a decrease of $91 million.
• Revaluation of Visa Europe put option. During the first quarter of fiscal 2016, we recorded a decrease of $255 million in the fair value of the Visa Europe put option, resulting in the recognition of non-cash income in other non-operating income. This amount is not subject to income tax and therefore has no impact on the reported income tax provision.

Adjusted financial results are non-GAAP financial measures and should not be relied upon as substitutes for measures calculated in accordance with U.S. GAAP. The following table reconciles our as-reported financial measures calculated in accordance with U.S. GAAP, to the respective non-GAAP adjusted financial measures for the twelve months ended September 30, 2016.

Operational Performance Data

The tables below provide information regarding the available operational results for the 3 months ended June 30, 2017, as well as the prior four quarterly reporting periods and the 12 months ended June 30, 2017 and 2016, for cards carrying the Visa, Visa Electron, V PAY and Interlink brands. Sections 1-4 below reflect the acquisition of Visa Europe, with Europe included in Visa Inc. results effective the 3 months ended September 30, 2016.

1. Branded Volume and Transactions

The tables present regional total volume, payments volume, and cash volume, and the number of payments transactions, cash transactions, accounts and cards for cards carrying the Visa, Visa Electron, V PAY and Interlink brands. Card counts include PLUS proprietary cards. Nominal and constant dollar growth rates over prior years are provided for volume-based data.