What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-07-29 compared with 2021-04-29 · 101 added, 74 removed, 271 unchanged (39% of the section changed)

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This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the U.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 ongoing effects of the coronavirus (“COVID-19”) pandemic, the measures taken in response, as well as the speed and strength of an economic recovery;

prospects, developments, strategies and growth of our business;

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industry developments;

anticipated benefits of our acquisitions;

anticipated timing and benefits of our acquisitions;

expectations regarding litigation matters, investigations and proceedings;

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Three Months Ended

March 31, Six Months Ended

June 30, Nine Months Ended

(in millions, except percentages and per share data)

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We continue to remain in close and regular contact with our employees, clients, partners and with governments globally to help them navigate these challenging times.

Revenues in the second quarter of fiscal 2021 were at varying stages of recovery.

During the quarter, there was continued year-over-year growth in payments volume and processed transactions.

Cross-border volume also continued to improve during the quarter, despite many borders remaining closed.

Although we have taken measures to modify our business practices and reduce operating expenses, including scaling back hiring plans, restricting travel and the use of external resources, the impact that COVID-19 continues to have on our business remains difficult to predict due to numerous uncertainties, including the transmissibility, severity and duration of the outbreak, new variants of the virus, the effectiveness of social distancing measures or actions that are voluntarily adopted by the public or required by governments or public health authorities, the development, availability and rollout of effective treatments or vaccines, the timing of border openings, and the impact to our employees and our operations, the business of our clients, supplier and business partners, and other factors identified in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended September 30 2020, filed with the SEC on November 19, 2020.

During the quarter, the year-over-year growth in payments volume, processed transactions, and cross-border volume all improved at various paces globally.

The impact that COVID-19 continues to have on our business remains difficult to predict due to numerous uncertainties, including the transmissibility, severity, duration and resurgence of the outbreak, new variants of the virus, the effectiveness of social distancing measures or actions that are voluntarily adopted by the public or required by governments or public health authorities, the availability and rollout of effective treatments or vaccines, the timing of an economic recovery, and the impact to our employees and our operations, the business of our clients, supplier and business partners, and other factors identified in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended September 30 2020, filed with the SEC on November 19, 2020.

We will continue to evaluate the nature and extent of the impact to our business.

Highlights for the first half of fiscal 2021.

Net revenues for the three and six months ended March 31, 2021 were $5.7 billion and $11.4 billion, respectively, and decreased 2% and 4% over the prior-year comparable periods, respectively.

The year-over-year changes are primarily due to cross-border volume, which were impacted by the spread of COVID-19 globally starting in March 2020 and higher client incentives, partially offset by growth in nominal payments volume and processed transactions.

Exchange rate movements in the three and six months ended March 31, 2021, as partially mitigated by our hedging program, positively impacted our net revenues by approximately one half of a percentage point.

Total operating expenses for the three months ended March 31, 2021 were $2.1 billion on a GAAP basis and increased 11% over the prior-year comparable period, primarily driven by higher personnel expenses and higher general and administrative expenses, partially offset by lower marketing expenses and lower professional fees.

Total operating expenses for the six months ended March 31, 2021 were $4.0 billion on a GAAP basis and increased 1% over the prior-year comparable period, primarily driven by higher personnel expenses, partially offset by lower marketing expenses, lower professional fees and lower general and administrative expenses.

Total operating expenses for the three months ended March 31, 2021 were $2.0 billion on a non-GAAP basis and increased 3% over the prior-year comparable period, primarily due to higher personnel expenses, partially offset by lower general and administrative expenses, lower marketing expenses and lower professional fees.

Total operating expenses for the six months ended March 31, 2021 were $3.8 billion on a non-GAAP basis and decreased 3% over the prior-year comparable period, primarily driven by lower general and administrative expenses, lower marketing expenses and lower professional fees, partially offset by higher personnel expenses.

Highlights for the first nine months of fiscal 2021.

For the three and nine months ended June 30, 2021, net revenues were $6.1 billion and $17.5 billion, respectively, and increased 27% and 5% over the prior-year comparable periods, respectively.

The three-month year-over-year changes were primarily due to the growth in nominal payments volume, processed transactions and nominal cross-border volume, as the business laps the initial impacts of COVID-19 starting in March 2020 and various markets relaxed restrictions, partially offset by higher client incentives.

The nine-month year-over-year changes were primarily due to the growth in nominal payments volume and processed transactions, partially offset by higher client incentives and lower nominal cross-border volume.

During the three and nine months ended June 30, 2021, exchange rate movements, which are partially mitigated by our hedging program, positively impacted our net revenues by approximately one percentage point and one half of a percentage point, respectively.

For the three months ended June 30, 2021, GAAP operating expenses were $2.1 billion and increased 12% over the prior-year comparable period, primarily driven by higher personnel expenses and higher marketing expenses, partially offset by lower general and administrative expenses.

For the nine months ended June 30, 2021, GAAP operating expenses were $6.1 billion and increased 4% over the prior-year comparable period, primarily driven by higher personnel expenses, partially offset by lower general and administrative expenses.

For the three months ended June 30, 2021, non-GAAP operating expenses were $2.0 billion and increased 12% over the prior-year comparable period, primarily due to higher personnel expenses and higher marketing expenses, partially offset by lower general and administrative expenses.

For the nine months ended June 30, 2021, non-GAAP operating expenses were $5.9 billion and increased 2% over the prior-year comparable period, primarily driven by higher personnel expenses, partially offset by lower general and administrative expenses.

Non-GAAP financial results.

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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.

• Remeasurement of deferred tax balances.

During the three and nine months ended June 30, 2021, in connection with the UK enacted legislation on June 10, 2021 that will increase the tax rate from 19% to 25%, effective April 1, 2023, we remeasured our net deferred tax liabilities, resulting in the recognition of a non-recurring, non-cash income tax expense of $1.0 billion.

• Indirect taxes.

During the three and six months ended March 31, 2021, we recognized a one-time charge within general and administrative expense of $152 million, before tax.

During the nine months ended June 30, 2021, we recognized a one-time charge within general and administrative expense of $152 million, before tax.

Net of the related income tax benefit of $40 million, determined by applying applicable tax rates, non-GAAP net income increased by $112 million.

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The following tables reconcile our as-reported financial measures, calculated in accordance with U.S.

GAAP, to our respective non-GAAP financial measures for the three and six months ended March 31, 2021 and 2020.

Three Months Ended March 31, 2021

GAAP, to our respective non-GAAP financial measures for the three and nine months ended June 30, 2021 and 2020.

Three Months Ended June 30, 2021

Operating Expenses Non-operating Income (Expense) Income Tax Provision Effective Income Tax Rate (1)

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Acquisition-related costs (5) — 1 4 —

Indirect taxes (152) — 40 112 0.05

Remeasurement of deferred tax balances — — (1,007) 1,007 0.46

Non-GAAP $ 2,048 $ (114) $ 712 17.9 % $ 3,256 $ 1.49

Six Months Ended March 31, 2021

Nine Months Ended June 30, 2021

Operating Expenses Non-operating Income (Expense) Income Tax Provision Effective Income Tax Rate (1)

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Acquisition-related costs (13) — 3 10 —

Remeasurement of deferred tax balances — — (1,007) 1,007 0.46

Indirect taxes (152) — 40 112 0.05

Non-GAAP $ 5,854 $ (335) $ 1,945 17.1 % $ 9,412 $ 4.29

Three Months Ended March 31, 2020

Three Months Ended June 30, 2020

Operating Expenses Non-operating Income (Expense) Income Tax Provision Effective Income Tax Rate (1)

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Non-GAAP $ 1,821 $ (118) $ 551 19.0 % $ 2,347 $ 1.06

Six Months Ended March 31, 2020

Nine Months Ended June 30, 2020

Operating Expenses Non-operating Income (Expense) Income Tax Provision Effective Income Tax Rate (1)

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Effective income tax rate, diluted earnings per share and their respective totals are calculated based on unrounded numbers.

Pending acquisitions.

On June 24, 2021, we entered into a definitive agreement to acquire Tink AB (“Tink”) for €1.8 billion, inclusive of cash and retention incentives.

Tink is a European open banking platform that enables financial institutions, fintechs and merchants to build tailored financial management tools, products and services for European consumers and businesses based on their financial data.

This acquisition is subject to customary closing conditions, including regulatory reviews and approvals.

On July 22, 2021, we entered into a definitive agreement to acquire The Currency Cloud Group Limited (“Currencycloud”), a UK-based global platform that enables banks and fintechs to provide innovative foreign exchange solutions for cross-border payments.

The acquisition values Currencycloud at £700 million, inclusive of cash and retention incentives.

The financial consideration will be reduced by the outstanding equity of Currencycloud that we already own.

This acquisition is subject to customary closing conditions, including regulatory reviews and approvals.

Common stock repurchases.

In January 2021, our board of directors authorized an additional $8.0 billion share repurchase program.

During the three months ended March 31, 2021, we repurchased 8 million shares of our class A common stock in the open market for $1.7 billion.

As of March 31, 2021, our repurchase programs had remaining authorized funds of $10.0 billion.

During the three months ended June 30, 2021, we repurchased 10 million shares of our class A common stock in the open market for $2.2 billion.

As of June 30, 2021, our repurchase program had remaining authorized funds of $7.8 billion.

See Note 9—Stockholders’ Equity to our unaudited consolidated financial statements.

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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.

Nominal payments volume growth in the U.S.

for the three and six months ended December 31, 2020 (1) was 8% for both periods, driven mainly by consumer debit.

On a constant-dollar basis, which excludes the impact of exchange rate movements, our international payments volume growth for the three and six months ended December 31, 2020 was 2% for both periods.

Growth in processed transactions reflects the ongoing worldwide shift to electronic payments, partially offset by the impact of COVID-19.

For the three and nine months ended March 31, 2021 (1) , nominal payments volume growth in the U.S.

was 18% and 11%, respectively, driven mainly by consumer debit.

For the three and nine months ended March 31, 2021, nominal international payments volume growth was 10% and 4%, respectively, positively impacted by movements in U.S.

dollar exchange rates.

For the same comparable periods, international payments volume growth on a constant-dollar basis, which excludes the impact of exchange rate movements, was 6% and 3%, respectively.

Processed transactions increased as the business laps the initial impacts of COVID-19 starting in March 2020 and the increase also reflects the ongoing worldwide shift to electronic payments.

The following table presents nominal payments and cash volume:

International Visa Inc.

Three Months Ended December 31, (1)

Three Months Ended March 31, (1)

2021 2020 % Change (2)

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International Visa Inc.

Six Months Ended December 31, (1)

Nine Months Ended March 31, (1)

2021 2020 % Change (2)

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International Visa Inc.

Ended December 31,

Ended March 31,

Nominal Constant (6)

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Total payments volume growth 10 % 6 % 14 % 11 % 4 % 3 % 7 % 7 %

2 % 2 % 5 % 5 % 1 % 2 % 4 % 4 %

Cash volume growth (9) % (7) % (4) % (3) % (12) % (9) % (8) % (5) %

Total volume growth 4 % 2 % 10 % 8 % (1) % — % 4 % 4 %

(2) % (1) % 1 % 2 % (3) % (2) % 1 % 2 %

(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 and six months ended March 31, 2021 and 2020, respectively, were based on nominal payments volume reported by our financial institution clients for the three and six months ended December 31, 2020 and 2019, respectively.

Therefore, service revenues reported for the three and nine months ended June 30, 2021 and 2020, respectively, were based on nominal payments volume reported by our financial institution clients for the three and nine months ended March 31, 2021 and 2020, respectively.

(2) Figures in the table may not recalculate exactly due to rounding.

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Three Months Ended

March 31, Six Months Ended

June 30, Nine Months Ended

(in millions, except percentages)

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Three Months Ended

March 31, Six Months Ended

June 30, Nine Months Ended

(in millions, except percentages)

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Percentage changes are calculated based on unrounded numbers.

Net revenues decreased during the three and six-month comparable periods primarily due to the year-over-year changes in cross-border volume, which were impacted by COVID-19 starting in March 2020 and higher client incentives.

The decrease in net revenues was partially offset by growth in nominal payments volume and processed transactions.

During the three-month comparable periods, net revenues increased primarily due to the growth in nominal payments volume, processed transactions and nominal cross-border volume, driven by fewer COVID-19 restrictions, partially offset by higher client incentives.

During the nine-month comparable periods, net revenues increased primarily due to the growth in nominal payments volume and processed transactions, partially offset by higher client incentives and lower nominal cross-border volume.

Our net revenues are impacted by the overall strengthening or weakening of the U.S.

dollar as payments volume and related revenues denominated in local currencies are converted to U.S.

The following table sets forth the components of our net revenues:

Three Months Ended

March 31, Six Months Ended

June 30, Nine Months Ended

(in millions, except percentages)

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Percentage changes are calculated based on unrounded numbers.

• Service revenues increased primarily due to 5% and 4% growth in nominal payments volume during the three and six-month comparable periods, respectively.

• Service revenues increased primarily due to 14% and 7% growth in nominal payments volume during the three and nine-month comparable periods, respectively.

Service revenues were also impacted by select pricing modifications and business mix.

• Data processing revenues increased mainly due to overall growth in processed transactions of 8% and 6% during the three and six-month comparable periods, respectively, growth in value added services and business mix.

• International transaction revenues driven by nominal cross-border volumes, excluding transactions within Europe, declined 19% and 26% during the three and six-month comparable periods, respectively, as COVID-19 spread globally starting in March 2020.

• Data processing revenues increased mainly due to overall growth in processed transactions of 39% and 16% during the three and nine-month comparable periods, respectively, as the business laps the initial impacts of COVID-19 starting in March 2020 and various markets relaxed restrictions.

For the three-month comparable period, the growth of data processing revenues was negatively impacted by an unfavorable business mix.

• International transaction revenues increased primarily due to growth in nominal cross-border volumes, excluding transactions within Europe, of 62% during the three-month comparable period, as the business laps the initial impacts of COVID-19 starting in March 2020 and border restrictions were relaxed in various markets.

The decrease for the nine-month comparable period is mainly due to a decline in nominal cross-border volumes, excluding transactions within Europe, of 7%.

International transaction revenues were also impacted by fluctuations in the volatility of a broad range of currencies and business mix .

• Client incentives increased in correlation with the increase in payments volumes during the three and six-month comparable periods.

• Other revenues increased as the business laps the initial impacts of COVID-19 starting in March 2020, driven by higher consulting and data services revenues.

• Client incentives increased in correlation with the increase in payments volumes during the three and nine-month comparable periods.

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 execution of new contracts.

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Three Months Ended

March 31, Six Months Ended

June 30, Nine Months Ended

(in millions, except percentages)

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• Personnel expenses increased primarily due to increases in headcount and higher incentive compensation, reflecting our strategy to invest in future growth.

• Marketing expenses decreased primarily due to delays in spending to later in fiscal 2021.

• Professional fees decreased reflecting non-recurring expenses in the prior year and delays in spending to later in fiscal 2021.

• Marketing expenses increased during the three months ended June 30, 2021 as we lapped reductions in spending in the prior year at the outset of COVID-19 as well as higher spending in client marketing and various campaigns, including the Olympic Games Tokyo 2020, which were postponed until summer 2021.

During the nine months ended June 30, 2021, marketing expenses decreased primarily due to the planned delay in spending to the second half of fiscal 2021 .

• Network and processing expenses increased mainly due to continued technology and processing network investments to support growth.

• Professional fees, which were primarily third party fees related to various corporate projects, increased during the three months ended June 30, 2021 mainly due to the planned delay of our spending to the second half of fiscal 2021.

During the nine months ended June 30, 2021, professional fees decreased reflecting non-recurring expenses in the prior year, partially offset by planned delay of our spending to the second half of fiscal 2021.

• Depreciation and amortization expenses increased primarily due to additional depreciation and amortization from our on-going investments, including acquisitions.

• General and administrative expenses increased in the three months ended March 31, 2021, as a result of a one-time charge to record our estimate of probable additional indirect taxes, related to prior periods, for which we could be liable as a result of certain changes in applicable law, partially offset by lower travel expenses and lower usage of travel related product benefits.

In the six months ended March 31, 2021, expenses decreased due to lower travel expenses and lower usage of travel related product benefits, partially offset by the one-time charge of indirect taxes.

• General and administrative expenses decreased in the three months ended June 30, 2021, primarily as a result of favorable foreign currency fluctuations and lower indirect taxes, partially offset by increased usage of travel related product benefits.

In the nine months ended June 30, 2021, expenses decreased due to lower travel expenses, lower usage of travel related product benefits and favorable foreign currency fluctuations, partially offset by a one-time charge to record our estimate of probable additional indirect taxes, related to prior periods, for which we could be liable as a result of certain changes in applicable laws.

Non-operating Income (Expense)

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Three Months Ended

March 31, Six Months Ended

June 30, Nine Months Ended

(in millions, except percentages)

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Percentage changes are calculated based on unrounded numbers.

• Interest expense, net increased in the three and six months ended March 31, 2021 primarily as a result of the issuance of debt in fiscal 2020, offset by a discrete tax benefit recognized during the three months ended March 31, 2021.

• Investment income and other increased in the three and six months ended March 31, 2021 primarily due to higher gains on our equity investments, offset by lower interest income on our cash and investments.

• Interest expense, net decreased during the three months ended June 30, 2021 primarily as a result of lower interest related to income tax liabilities.

Interest expense, net increased during the nine-month comparable period primarily due to the issuance of debt in fiscal 2020, partially offset by lower interest due to discrete tax benefits.

• Investment income and other increased in the three and nine months ended June 30, 2021 primarily due to higher gains on our equity investments, partially offset by lower interest income on our cash and investments.

Effective Income Tax Rate

The following table sets forth our effective income tax rate:

The following table sets forth our effective income tax rates:

Three Months Ended

March 31, Six Months Ended

Change 2021 2020 %

June 30, Nine Months Ended

2021 2020 2021 2020

Effective income tax rate 41 % 19 % 26 % 19 %

The decrease in the effective tax rate was primarily due to $66 million and $147 million of tax benefits recognized during the three and six months ended March 31, 2021, respectively, as a result of the conclusion of audits by taxing authorities.

The effective income tax rates for the three and nine months ended June 30, 2021 differ from the effective tax rates for the same periods in the prior year primarily due to the following:

• during the three months ended June 30, 2021, a $1.0 billion non-recurring, non-cash tax expense related to the remeasurement of UK deferred tax liabilities, as discussed below;

• during the three months ended June 30, 2021, a $51 million tax benefit as a result of a tax position taken on certain expenses;

• during the nine months ended June 30, 2021, $147 million of tax benefits as a result of the conclusion of audits by taxing authorities.

On June 10, 2021, the UK enacted legislation that will increase the tax rate from 19% to 25%, effective April 1, 2023.

As a result, we recorded a non-recurring, non-cash tax expense related to the remeasurement of our net UK deferred tax liabilities, primarily related to intangibles recorded upon the acquisition of Visa Europe in fiscal 2016.

Liquidity and Capital Resources

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The following table summarizes our cash flow activity for the periods presented:

Six Months Ended

Nine Months Ended

(in millions)

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Operating activities.

Cash provided by operating activities for the six months ended March 31, 2021 was higher than the prior-year comparable period primarily due to lower client incentive payments and the timing and impact of COVID-19 on settlement in the prior-year period.

Cash provided by operating activities for the nine months ended June 30, 2021 was higher than the prior-year comparable period primarily due to growth in our underlying business, lower client incentive payments and the timing and impact of COVID-19 on settlement in the prior-year period.

Investing activities.

Cash provided by investing activities for the six months ended March 31, 2021 decreased primarily due to higher purchases of investment securities, partially offset by higher sales and maturities of investment securities as compared to the prior-year period.

Cash provided by investing activities for the nine months ended June 30, 2021 decreased primarily due to higher purchases of investment securities, partially offset by higher sales and maturities of investment securities as compared to the prior-year period.

Financing activities.

Cash used in financing activities for the six months ended March 31, 2021 was higher than the prior-year comparable period primarily due to the $3.0 billion principal debt payment upon maturity of our senior notes in December 2020 and the absence of the $1.0 billion commercial paper issued in the prior year, partially offset by lower share repurchases.

Cash used in financing activities for the nine months ended June 30, 2021 was higher than the prior-year comparable period primarily due to the $3.0 billion principal debt payment upon maturity of our senior notes in December 2020 and the absence of proceeds received from the issuance of senior notes in the prior year, partially offset by lower share repurchases.

See Note 7—Debt and Note 9—Stockholders’ Equity to our unaudited consolidated financial statements .

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Our primary sources of liquidity are cash on hand, cash flow from 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 available-for-sale investment securities based upon our funding requirements, access to liquidity from these holdings and the returns that these holdings provide.

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.

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Common stock repurchases.

During the six months ended March 31, 2021, we repurchased 17 million shares of our class A common stock for $3.5 billion.

As of March 31, 2021, our repurchase programs had remaining authorized funds of $10.0 billion.

During the nine months ended June 30, 2021, we repurchased 27 million shares of our class A common stock for $5.7 billion.

As of June 30, 2021, our repurchase program had remaining authorized funds of $7.8 billion.

See Note 9—Stockholders’ Equity to our unaudited consolidated financial statements.

During the six months ended March 31, 2021, we declared and paid $1.4 billion in dividends to holders of our common and preferred stock.

On April 23, 2021, our board of directors declared a cash dividend in the amount of $0.32 per share of class A common stock (determined in the case of class B and C common stock and series A, UK&I and Europe preferred stock on an as-converted basis), which will be paid on June 1, 2021, to all holders of record as of May 14, 2021.

During the nine months ended June 30, 2021, we declared and paid $2.1 billion in dividends to holders of our common and preferred stock.

On July 23, 2021, our board of directors declared a cash dividend in the amount of $0.32 per share of class A common stock (determined in the case of class B and C common stock and series A, UK&I and Europe preferred stock on an as-converted basis), which will be paid on September 1, 2021, to all holders of record as of August 13, 2021.

See Note 9—Stockholders’ Equity to our unaudited consolidated financial statements.

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Senior notes .

During the six months ended March 31, 2021, we repaid $3.0 billion of principal upon maturity of our senior notes due December 14, 2020.

During the nine months ended June 30, 2021, we repaid $3.0 billion of principal upon maturity of our senior notes due December 14, 2020.

See Note 7—Debt to our unaudited consolidated financial statements.

Pending Acquisitions .

On June 24, 2021, we entered into a definitive agreement to acquire Tink for €1.8 billion, inclusive of cash and retention incentives.

This acquisition is subject to customary closing conditions, including regulatory reviews and approvals.

On July 22, 2021, we entered into a definitive agreement to acquire Currencycloud for a value of £700 million, inclusive of cash and retention incentives.

The financial consideration will be reduced by the outstanding equity of Currencycloud that we already own.

This acquisition is subject to customary closing conditions, including regulatory reviews and approvals.

Accounting Pronouncements Not Yet Adopted

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis