Visa Inc 10-Q for FY2020 Q1

Visa Inc. (V)

10-Q 2020-01-31 For: 2019-12-31

Added on April 02, 2026

About this 10-Q

Visa Inc filed this 10-Q on January 31, 2020, covering the quarter ended December 31, 2019 (FY2020 Q1).

Headline figures

Quarter ended December 31, 2019, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $6.05B; up 10.0% from $5.51B a year earlier
Net income: $3.27B; up 9.9% from net income of $2.98B a year earlier

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Delaware		26-0267673
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

P.O. Box 8999		94128-8999
San Francisco,	California
(Address of principal executive offices)		(Zip Code)



Title of each class	Trading Symbol	Name of each exchange on which registered
Class A Common Stock, par value $0.0001 per share	V	New York Stock Exchange



Large accelerated filer	☑	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐




		Page
PART I.	Financial Information	4

Item 1.	Financial Statements (unaudited)	4
	Consolidated Balance Sheets—December 31, 2019 and September 30, 2019	4
	Consolidated Statements of Operations—Three Months Ended December 31, 2019 and 2018	5
	Consolidated Statements of Comprehensive Income—Three Months Ended December 31, 2019 and 2018	6
	Consolidated Statements of Changes in Equity—Three Months Ended December 31, 2019 and 2018	7
	Consolidated Statements of Cash Flows—Three Months Ended December 31, 2019 and 2018	9
	Notes to Consolidated Financial Statements (unaudited)	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	31

PART II.	Other Information	32

Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 3.	Defaults Upon Senior Securities	32
Item 4.	Mine Safety Disclosures	32
Item 5.	Other Information	32
Item 6.	Exhibits	33
	Signatures	34



	December 31, 2019			September 30, 2019
	(in millions, except par value data)
Assets
Cash and cash equivalents	$	8,768		$	7,838
Restricted cash equivalents—U.S. litigation escrow (Note 3 and Note 4)	1,634			1,205
Investment securities (Note 5)	3,902			4,236
Settlement receivable	3,273			3,048
Accounts receivable	1,661			1,542
Customer collateral (Note 3 and Note 8)	1,698			1,648
Current portion of client incentives	803			741
Prepaid expenses and other current assets	580			712
Total current assets	22,319			20,970
Investment securities (Note 5)	1,719			2,157
Client incentives	2,481			2,084
Property, equipment and technology, net	2,739			2,695
Goodwill	15,767			15,656
Intangible assets, net	27,137			26,780
Other assets	2,619			2,232
Total assets	$	74,781		$	72,574
Liabilities
Accounts payable	$	133		$	156
Settlement payable	4,277			3,990
Customer collateral (Note 3 and Note 8)	1,698			1,648
Accrued compensation and benefits	527			796
Client incentives	4,270			3,997
Accrued liabilities	2,045			1,625
Current maturities of long-term debt (Note 7)	3,000			—
Accrued litigation (Note 13)	1,629			1,203
Total current liabilities	17,579			13,415
Long-term debt (Note 7)	13,688			16,729
Deferred tax liabilities	4,810			4,807
Other liabilities	3,434			2,939
Total liabilities	39,511			37,890
Equity
Preferred stock, $0.0001 par value, 25 shares authorized and 5 shares issued and outstanding as follows:
Series A convertible participating preferred stock, none issued (the “class A equivalent preferred stock”) (Note 9)	—			—
Series B convertible participating preferred stock, 2 shares issued and outstanding at December 31, 2019 and September 30, 2019 (the “UK&I preferred stock”) (Note 4 and Note 9)	2,285			2,285
Series C convertible participating preferred stock, 3 shares issued and outstanding at December 31, 2019 and September 30, 2019 (the “Europe preferred stock”) (Note 4 and Note 9)	3,177			3,177
Class A common stock, $0.0001 par value, 2,001,622 shares authorized, 1,709 and 1,718 shares issued and outstanding at December 31, 2019 and September 30, 2019, respectively (Note 9)	—			—
Class B common stock, $0.0001 par value, 622 shares authorized, 245 shares issued and outstanding at December 31, 2019 and September 30, 2019 (Note 9)	—			—
Class C common stock, $0.0001 par value, 1,097 shares authorized, 11 shares issued and outstanding at December 31, 2019 and September 30, 2019 (Note 9)	—			—
Right to recover for covered losses (Note 4)	(175		)	(171		)
Additional paid-in capital	16,424			16,541
Accumulated income	13,899			13,502
Accumulated other comprehensive income (loss), net:
Investment securities	4			6
Defined benefit pension and other postretirement plans	(203		)	(192		)
Derivative instruments	49			199
Foreign currency translation adjustments	(190		)	(663		)
Total accumulated other comprehensive income (loss), net	(340		)	(650		)
Total equity	35,270			34,684
Total liabilities and equity	$	74,781		$	72,574



☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



	Three Months Ended December 31,
	2019			2018
	(in millions, except per share data)
Net revenues	$	6,054		$	5,506

Operating Expenses
Personnel	982			807
Marketing	274			276
Network and processing	181			173
Professional fees	106			91
Depreciation and amortization	182			159
General and administrative	313			276
Litigation provision (Note 13)	—			7
Total operating expenses	2,038			1,789
Operating income	4,016			3,717

Non-operating Income (Expense)
Interest expense, net	(111		)	(145		)
Investment income and other	69			58
Total non-operating income (expense)	(42		)	(87		)
Income before income taxes	3,974			3,630
Income tax provision (Note 12)	702			653
Net income	$	3,272		$	2,977

Basic Earnings Per Share (Note 10)
Class A common stock	$	1.46		$	1.30
Class B common stock	$	2.37		$	2.12
Class C common stock	$	5.85		$	5.20

Basic Weighted-average Shares Outstanding (Note 10)
Class A common stock	1,713			1,760
Class B common stock	245			245
Class C common stock	11			12

Diluted Earnings Per Share (Note 10)
Class A common stock	$	1.46		$	1.30
Class B common stock	$	2.37		$	2.12
Class C common stock	$	5.84		$	5.20

Diluted Weighted-average Shares Outstanding (Note 10)
Class A common stock	2,240			2,291
Class B common stock	245			245
Class C common stock	11			12



	Three Months Ended December 31, 2019
	Preferred Stock		Common Stock					Preferred Stock		Right to Recover for Covered Losses			Additional Paid-In Capital			Accumulated Income			Accumulated Other Comprehensive Income (Loss), Net			Total Equity
	Series B	Series C	Class A		Class B	Class C
	(in millions, except per share data)
Balance as of September 30, 2019	2	3	1,718		245	11		$	5,462	$	(171	)	$	16,541		$	13,502		$	(650	)	$	34,684
Net income																3,272						3,272
Other comprehensive income (loss), net of tax																			335			335
Comprehensive income																						3,607
Adoption of new accounting standards (Note 1)																25			(25		)	—
VE territory covered losses incurred (Note 4)										(4		)										(4		)
Conversion of class C common stock upon sales into public market			1			—	⁽¹⁾															—
Vesting of restricted stock and performance-based shares			3																			—
Share-based compensation, net of forfeitures (Note 11)													116									116
Restricted stock and performance-based shares settled in cash for taxes			(1	)									(147		)							(147		)
Cash proceeds from issuance of common stock under employee equity plans			1										55									55
Cash dividends declared and paid, at a quarterly amount of $0.30 per as-converted share (Note 9)																(671		)				(671		)
Repurchase of class A common stock (Note 9)			(13	)									(141		)	(2,229		)				(2,370		)
Balance as of December 31, 2019	2	3	1,709		245	11		$	5,462	$	(175	)	$	16,424		$	13,899		$	(340	)	$	35,270


⁽¹⁾	Increase or decrease is less than one million shares.



	Three Months Ended December 31, 2018
	Preferred Stock		Common Stock						Preferred Stock			Right to Recover for Covered Losses			Additional Paid-In Capital			Accumulated Income			Accumulated Other Comprehensive Income (Loss), Net			Total Equity
	Series B	Series C	Class A			Class B	Class C
	(in millions, except per share data)
Balance as of September 30, 2018	2	3	1,768			245	12		$	5,470		$	(7	)	$	16,678		$	11,318		$	547		$	34,006
Net income																		2,977						2,977
Other comprehensive income (loss), net of tax																					(279		)	(279		)
Comprehensive income																								2,698
Adoption of new accounting standards																		393			7			400
VE territory covered losses incurred (Note 4)												(91		)										(91		)
Recovery through conversion rate adjustment (Note 4 and Note 9)									(6		)	6												—
Conversion of class C common stock upon sales into public market			—		⁽¹⁾		—	⁽¹⁾																—
Vesting of restricted stock and performance-based shares			3																					—
Share-based compensation, net of forfeitures (Note 11)															100									100
Restricted stock and performance-based shares settled in cash for taxes			(1	)											(101		)							(101		)
Cash proceeds from issuance of common stock under employee equity plans			1												48									48
Cash dividends declared and paid, at a quarterly amount of $0.25 per as-converted share (Note 9)																		(572		)				(572		)
Repurchase of class A common stock (Note 9)			(17	)											(185		)	(2,208		)				(2,393		)
Balance as of December 31, 2018	2	3	1,754			245	12		$	5,464		$	(92	)	$	16,540		$	11,908		$	275		$	34,095



	December 31, 2019		September 30, 2019
	(in millions)
Cash and cash equivalents	$	8,768	$	7,838
Restricted cash and restricted cash equivalents:
U.S. litigation escrow	1,634		1,205
Customer collateral	1,698		1,648
Prepaid expenses and other current assets	163		141
Cash, cash equivalents, restricted cash and restricted cash equivalents	$	12,263	$	10,832


⁽¹⁾	These payments are associated with the Interchange Multidistrict Litigation. See Note 13—Legal Matters.



	December 31, 2019						September 30, 2019
	As-Converted Value of Preferred Stock^(1),(2)			Book Value of Preferred Stock⁽¹⁾			As-Converted Value of Preferred Stock^(1),(3)			Book Value of Preferred Stock⁽¹⁾
	(in millions)
UK&I preferred stock	$	6,029		$	2,285		$	5,519		$	2,285
Europe preferred stock	8,236			3,177			7,539			3,177
Total	14,265			5,462			13,058			5,462
Less: right to recover for covered losses	(175		)	(175		)	(171		)	(171		)
Total recovery for covered losses available	$	14,090		$	5,287		$	12,887		$	5,291


⁽¹⁾	Figures in the table may not recalculate exactly due to rounding. As-converted and book values are based on unrounded numbers.



	December 31, 2019
	(in millions)
Initial cost basis	$	595
Upward adjustments	119
Downward adjustments (including impairment)	(4		)
Carrying amount, end of period	$	710



	December 31, 2019
	(in millions)
Remainder of 2020	$	82
2021	108
2022	93
2023	86
2024	73
Thereafter	186
Total undiscounted lease payments	628
Less: imputed interest	(54		)
Present value of lease liabilities	$	574


⁽¹⁾	Effective interest rates disclosed do not reflect hedge accounting adjustments.


⁽²⁾	Represents the change in fair value of interest rate swap agreements entered into on a portion of the outstanding Senior Notes.



	Fair Value Measurements Using Inputs Considered as
	Level 1				Level 2
	December 31, 2019		September 30, 2019		December 31, 2019		September 30, 2019
	(in millions)
Assets
Cash equivalents and restricted cash equivalents:
Money market funds	$	7,539	$	6,494
U.S. government-sponsored debt securities					$	350	$	150
Investment securities:
Marketable equity securities	154		126
U.S. government-sponsored debt securities					4,565		5,592
U.S. Treasury securities	902		675
Other current and non-current assets:
Derivative instruments					274		437
Total	$	8,595	$	7,295	$	5,189	$	6,179
Liabilities
Accrued compensation and benefits:
Deferred compensation liability	$	141	$	113
Accrued and other liabilities:
Derivative instruments					$	99	$	52
Total	$	141	$	113	$	99	$	52



	December 31, 2019			September 30, 2019			Effective Interest Rate⁽¹⁾
	(in millions, except percentages)
2.20% Senior Notes due December 2020	$	3,000		$	3,000		2.30	%
2.15% Senior Notes due September 2022	1,000			1,000			2.30	%
2.80% Senior Notes due December 2022	2,250			2,250			2.89	%
3.15% Senior Notes due December 2025	4,000			4,000			3.26	%
2.75% Senior Notes due September 2027	750			750			2.91	%
4.15% Senior Notes due December 2035	1,500			1,500			4.23	%
4.30% Senior Notes due December 2045	3,500			3,500			4.37	%
3.65% Senior Notes due September 2047	750			750			3.73	%
Total senior notes	16,750			16,750
Unamortized discounts and debt issuance costs	(105		)	(108		)
Hedge accounting fair value adjustments⁽²⁾	43			87
Less: current maturities of long-term debt	(3,000		)	—
Total long-term debt	$	13,688		$	16,729



	December 31, 2019				September 30, 2019
	Shares Outstanding	Conversion Rate Into Class A Common Stock		As-converted Class A Common Stock⁽¹⁾	Shares Outstanding	Conversion Rate Into Class A Common Stock		As-converted Class A Common Stock⁽¹⁾
	(in millions, except conversion rates)
UK&I preferred stock	2	12.9360		32	2	12.9360		32
Europe preferred stock	3	13.8840		44	3	13.8840		44
Class A common stock⁽²⁾	1,709	—		1,709	1,718	—		1,718
Class B common stock	245	1.6228	⁽³⁾	398	245	1.6228	⁽³⁾	398
Class C common stock	11	4.0000		44	11	4.0000		45
Total				2,227				2,237


⁽²⁾	Class A common stock shares outstanding reflect repurchases that settled on or before December 31, 2019 and September 30, 2019.


⁽³⁾	The class B to class A common stock conversion rate is presented on a rounded basis. Conversion calculations for dividend payments are based on a conversion rate rounded to the tenth decimal.


⁽¹⁾	Shares repurchased in the open market reflect repurchases that settled during the three months ended December 31, 2019 and 2018. All shares repurchased in the open market have been retired and constitute authorized but unissued shares.



	Basic Earnings Per Share					Diluted Earnings Per Share
	(in millions, except per share data)
	Income Allocation (A)⁽¹⁾		Weighted- Average Shares Outstanding (B)	Earnings per Share = (A)/(B)⁽²⁾		Income Allocation (A)⁽¹⁾		Weighted- Average Shares Outstanding (B)		Earnings per Share = (A)/(B)⁽²⁾
Class A common stock	$	2,506	1,713	$	1.46	$	3,272	2,240	⁽³⁾	$	1.46
Class B common stock	583		245	$	2.37	582		245		$	2.37
Class C common stock	65		11	$	5.85	65		11		$	5.84
Participating securities⁽⁴⁾	118		Not presented	Not presented		117		Not presented		Not presented
Net income	$	3,272



	Granted	Weighted-Average Grant Date Fair Value		Weighted-Average Exercise Price
Non-qualified stock options	1,247,982	$	29.37	$	182.50
Restricted stock units	2,189,944	$	182.62
Performance-based shares⁽¹⁾	470,128	$	211.08


⁽¹⁾	Represents the maximum number of performance-based shares which could be earned.



	Three Months Ended December 31,				2019 vs 2018
	2019		2018		% Change⁽¹⁾
	(in millions, except percentages and per share data)
Net income, as reported	$	3,272	$	2,977	10	%
Diluted earnings per share, as reported	$	1.46	$	1.30	12	%
Non-GAAP net income⁽²⁾	$	3,272	$	2,980	10	%
Non-GAAP diluted earnings per share⁽²⁾	$	1.46	$	1.30	12	%


⁽²⁾	For a full reconciliation of our non-GAAP financial results, see tables in Non-GAAP financial results below.



	United States						International						Visa Inc.
	Three Months Ended September 30,⁽¹⁾						Three Months Ended September 30,⁽¹⁾						Three Months Ended September 30,⁽¹⁾
	2019		2018		% Change⁽²⁾		2019		2018		% Change⁽²⁾		2019		2018		% Change⁽²⁾
	(in billions, except percentages)
Nominal payments volume
Consumer credit	$	404	$	382	6	%	$	646	$	616	5	%	$	1,050	$	997	5	%
Consumer debit⁽³⁾	448		408		10	%	500		458		9	%	948		867		9	%
Commercial⁽⁴⁾	170		155		10	%	101		93		9	%	271		248		10	%
Total nominal payments volume⁽²⁾	$	1,023	$	945	8	%	$	1,247	$	1,167	7	%	$	2,270	$	2,112	7	%
Cash volume	148		145		2	%	565		578		(2	)%	712		723		(1	)%
Total nominal volume^(2),(5)	$	1,170	$	1,090	7	%	$	1,812	$	1,745	4	%	$	2,982	$	2,834	5	%



	International				Visa Inc.
	Three Months Ended September 30, 2019 vs. 2018⁽¹⁾				Three Months Ended September 30, 2019 vs. 2018⁽¹⁾
	Nominal⁽²⁾		Constant^(2),(6)		Nominal		Constant^(2),(6)
Payments volume growth
Consumer credit growth	5	%	7	%	5	%	7	%
Consumer debit growth⁽³⁾	9	%	13	%	9	%	11	%
Commercial growth⁽⁴⁾	9	%	12	%	10	%	11	%
Total payments volume growth⁽²⁾	7	%	10	%	7	%	9	%
Cash volume growth	(2	)%	(1	)%	(1	)%	—	%
Total volume growth⁽²⁾	4	%	6	%	5	%	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 ended December 31, 2019 and 2018 were based on nominal payments volume reported by our financial institution clients for the three months ended September 30, 2019 and 2018, respectively.


⁽³⁾	Includes consumer prepaid volume and Interlink volume.


⁽⁴⁾	Includes large, medium and small business credit and debit, as well as commercial prepaid volume.


⁽⁶⁾	Growth on a constant-dollar basis excludes the impact of foreign currency fluctuations against the U.S. dollar.



	Three Months Ended December 31,
	2019	2018	% Change⁽¹⁾
	(in millions, except percentages)
Visa processed transactions	37,775	33,931	11	%



	Three Months Ended December 31,				2019 vs. 2018
	2019		2018		$ Change		% Change⁽¹⁾
	(in millions, except percentages)
U.S.	$	2,717	$	2,508	$	209	8	%
International	3,337		2,998		339		11	%
Net revenues	$	6,054	$	5,506	$	548	10	%


•	Service revenues increased primarily due to 7% growth in nominal payments volume as well as select pricing modifications effective in 2019.