What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-04-27 compared with 2023-01-27 · 121 added, 54 removed, 249 unchanged (41% of the section changed)

6 unchanged sentences

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 in Ukraine;

the ongoing effects of the COVID-19 pandemic, including the reopening of borders and resumption of international travel;

the ongoing effects of the COVID-19 pandemic, including the resumption of international travel;

prospects, developments, strategies and growth of our business;

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Three Months Ended

March 31, Six Months Ended

(in millions, except percentages and per share data)

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

Disruption in the Banking Sector.

During the quarter ended March 31, 2023, certain financial institutions experienced liquidity issues, which resulted in the failure of two U.S.

banks and volatility in the global financial markets.

These events did not have an impact on our operating results.

We continuously monitor and manage balance sheet and operational risks from clients in our portfolio, including their settlement obligations.

Russia & Ukraine.

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In March 2022, we suspended our operations in Russia and as a result, are no longer generating revenue from domestic and cross-border activities related to Russia.

For the three months ended December 31, 2021, total net revenues from Russia, 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 Ukraine are difficult to predict due to numerous uncertainties identified in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended September 30, 2022 .

For the three months ended March 31, 2022, total net revenues from Russia, including revenues driven by domestic as well as cross-border activities, was approximately 4% of our consolidated net revenues.

The continuing effects of the recent liquidity issues at certain financial institutions and the war in Ukraine are difficult to predict due to numerous uncertainties identified in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended September 30, 2022 .

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

Highlights for the first quarter of fiscal 2023.

For the three months ended December 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 ended December 31, 2022, exchange rate movements negatively impacted our net revenues growth by approximately three percentage points.

For the three months ended December 31, 2022, GAAP operating expenses increased 25% over the prior-year comparable period primarily due to higher expenses related to personnel and litigation provision.

Highlights for the first half of fiscal 2023.

For the three and six months ended March 31, 2023, net revenues increased 11% and 12% over the prior-year comparable periods, respectively, 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 and six months ended March 31, 2023, exchange rate movements lowered our net revenues growth by approximately two percentage points.

See Results of Operations—Net Revenues below for further discussion.

For the three and six months ended March 31, 2023, GAAP operating expenses increased 11% and 18% over the prior-year comparable periods, respectively, primarily due to higher expenses related to personnel.

For the six months ended March 31, 2023, GAAP operating expenses also included higher litigation provision.

See Results of Operations—Operating Expenses below for further discussion.

During the three months ended December 31, 2022, exchange rate movements positively impacted our operating expense growth by approximately one-and-a-half percentage points.

For the three months ended December 31, 2022, non-GAAP operating expenses increased 15% over the prior year comparable period primarily due to higher personnel and general and administrative expenses.

During the six months ended March 31, 2023, exchange rate movements lowered our operating expense growth by approximately one percentage point.

For the three and six months ended March 31, 2023, non-GAAP operating expenses increased 13% and 14% over the prior-year comparable periods, respectively, primarily due to higher expenses related to personnel.

For the six months ended March 31, 2023, non-GAAP operating expenses also included higher general and administrative expenses.

Interchange multidistrict litigation.

During the three months ended December 31, 2022, we recorded an additional accrual of $341 million to address claims associated with the interchange multidistrict litigation.

During the six months ended March 31, 2023, 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 the U.S.

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In October 2022, our board of directors authorized a $12.0 billion share repurchase program .

Previously, in December 2021, our board of directors authorized a $12.0 billion share repurchase program.

During the three months ended December 31, 2022, we repurchased 16 million shares of our class A common stock in the open market for $3.1 billion.

As of December 31, 2022, our repurchase programs had remaining authorized funds of $14.1 billion.

During the six months ended March 31, 2023, we repurchased 26 million shares of our class A common stock in the open market for $5.3 billion.

As of March 31, 2023, our repurchase programs had remaining authorized funds of $11.9 billion.

See Note 8—Stockholders’ Equity to our unaudited consolidated financial statements.

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• Litigation provision.

During the three months ended December 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.

During the six months ended March 31, 2023 and 2022, we recorded additional accruals 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 the U.S.

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and Europe Retrospective Responsibility Plans and Note 12—Legal Matters to our unaudited consolidated financial statements.

• Russia-Ukraine charges .

During the three and six months ended March 31, 2022, we recorded a loss within general and administrative expense of $35 million from the deconsolidation of our Russian subsidiary.

We also incurred charges of $25 million in personnel expense as a result of steps taken to support our employees in Russia and Ukraine.

We have excluded these amounts and the related tax benefit of $4 million, determined by applying applicable tax rates, as they are one-time charges and do not reflect the underlying performance of our business.

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 with U.S.

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GAAP, to our respective non-GAAP financial measures:

Three Months Ended December 31, 2022

Three Months Ended March 31, 2023

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

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Acquisition-related costs (22) — 2 20 0.01

Non-GAAP $ 2,581 $ 32 $ 1,052 19.4 % $ 4,384 $ 2.09

Six Months Ended March 31, 2023

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

Income Diluted Earnings Per Share (1)

(in millions, except percentages and per share data)

As reported $ 5,495 $ (171) $ 1,819 17.7 % $ 8,436 $ 4.02

(Gains) losses on equity investments, net — 196 43 153 0.07

Amortization of acquired intangible assets (89) — 19 70 0.03

Acquisition-related costs (45) — 4 41 0.02

Litigation provision (341) — 76 265 0.13

Non-GAAP $ 5,020 $ 25 $ 1,961 17.9 % $ 8,965 $ 4.27

Three Months Ended December 31, 2021

Three Months Ended March 31, 2022

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

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Acquisition-related costs (20) — 2 18 0.01

Russia-Ukraine charges (60) — 4 56 0.03

Non-GAAP $ 2,287 $ (133) $ 933 19.6 % $ 3,836 $ 1.79

Six Months Ended March 31, 2022

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

Income Diluted Earnings Per Share (1)

(in millions, except percentages and per share data)

As reported $ 4,670 $ (139) $ 1,833 19.4 % $ 7,606 $ 3.54

(Gains) losses on equity investments, net — (104) (14) (90) (0.04)

Amortization of acquired intangible assets (33) — 7 26 0.01

Acquisition-related costs (30) — 4 26 0.01

Litigation provision (145) — 32 113 0.05

Russia-Ukraine charges (60) — 4 56 0.03

Non-GAAP $ 4,402 $ (243) $ 1,866 19.4 % $ 7,737 $ 3.60

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International Visa Inc.

Three Months Ended September 30, (1)

Three Months Ended December 31, (1)

2022 2021 % Change (2)

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$ 1,673 $ 1,548 8 % $ 1,962 $ 2,083 (6 %) $ 3,634 $ 3,632 — %

International Visa Inc.

Six Months Ended December 31, (1)

2022 2021 % Change (2)

(in billions, except percentages)

Nominal payments volume

Consumer credit $ 1,120 $ 1,005 11 % $ 1,380 $ 1,360 2 % $ 2,500 $ 2,365 6 %

Consumer debit (3)

1,388 1,292 7 % 1,300 1,425 (9 %) 2,688 2,717 (1 %)

Commercial (4)

494 424 16 % 267 247 8 % 762 671 14 %

Total nominal payments volume (2)

$ 3,002 $ 2,721 10 % $ 2,947 $ 3,031 (3 %) $ 5,949 $ 5,752 3 %

Cash volume (5)

305 332 (8 %) 918 1,011 (9 %) 1,223 1,342 (9 %)

Total nominal volume (2),(6)

$ 3,307 $ 3,053 8 % $ 3,865 $ 4,041 (4 %) $ 7,172 $ 7,094 1 %

The following table presents the change in nominal and constant payments and cash volume:

International Visa Inc.

Ended September 30,

International Visa Inc.

Ended December 31,

Nominal Constant (7)

Payments volume growth

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(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, 2022 and 2021, respectively, were based on nominal payments volume reported by our financial institution clients for the three months ended September 30, 2022 and 2021, respectively.

Therefore, service revenues reported for the three and six months ended March 31, 2023 and 2022, respectively, were based on nominal payments volume reported by our financial institution clients for the three and six months ended December 31, 2022 and 2021, respectively.

On occasion, previously presented volume information may be updated.

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Three Months Ended

March 31, Six Months Ended

(in millions, except percentages)

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Three Months Ended

March 31, Six Months Ended

(in millions, except percentages)

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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.

Net revenues increased during the three and six-month comparable periods 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 the U.S.

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

During the three months ended December 31, 2022, exchange rate movements negatively impacted our net revenues growth by approximately three percentage points.

During the three and six months ended March 31, 2023, exchange rate movements lowered our net revenues growth by approximately two percentage points.

The following table presents the components of our net revenues:

Three Months Ended

March 31, Six 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% growth in nominal payments volume, despite the impact of our suspension of operations in Russia.

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 Russia.

• International transaction revenues increased primarily due to growth in nominal cross-border volumes of 22%, excluding transactions within Europe.

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.

• Service revenues increased primarily due to 2% and 3% growth in nominal payments volume during the three and six-month comparable periods, respectively, despite the impact of our suspension of operations in Russia.

Service revenues also increased due to business mix and select pricing modifications.

• Data processing revenues increased primarily due to overall growth in processed transactions of 12% and 11% during the three and six-month comparable periods, respectively, partially offset by our suspension of operations in Russia.

• International transaction revenues increased primarily due to growth in nominal cross-border volumes of 27% and 25% during the three and six-month comparable periods, respectively, excluding transactions within Europe.

International transaction revenues also increased due to volatility of a broad range of currencies and select pricing modifications, partially offset by business mix.

• Other revenues increased primarily due to value added services revenues tied to marketing and consulting services.

Other revenues also increased due to acquisition-related revenues.

• Client incentives increased primarily due to growth in payments volume during the three and six-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 the execution of new contracts.

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Three Months Ended

March 31, Six Months Ended

(in millions, except percentages)

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Depreciation and amortization

234 207 13 % 461 405 14 %

General and administrative

Litigation provision 341 148 130 %

282 325 (13 %) 604 567 6 %

Litigation provision — — NM 341 148 131 %

Total operating expenses $ 2,649 $ 2,387 11 % $ 5,495 $ 4,670 18 %

NM - Not meaningful

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

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• 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 2022 TM and client marketing.

• Marketing expenses increased during the six months ended March 31, 2023 primarily due to increased spending in various campaigns, including the FIFA World Cup 2022 TM and client marketing.

The increase was partially offset by the absence of spending for the Beijing 2022 Olympic Winter Games in the current period.

• 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 in Russia, 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 U.S.

• General and administrative expenses decreased during the three months ended March 31, 2023 primarily due to the absence of expenses as a result of the suspension of our operations in Russia.

During the six months ended March 31, 2023, expenses increased primarily due to an increase in travel expenses and higher usage of travel related card benefits, partially offset by the absence of expenses as a result of the suspension of our operations in Russia.

• Litigation provision increased during the six months ended March 31, 2023 primarily due to an increase in accrual related to the U.S.

covered litigation.

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Three Months Ended

March 31, Six Months Ended

(in millions, except percentages)

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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 December 31, 2022.

• 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.

• Interest expense increased during the three and six months ended March 31, 2023 primarily driven by lower gains from derivative instruments, partially offset by lower interest related to indirect taxes.

• Investment income (expense) and other increased during the three months ended March 31, 2023 primarily due to higher interest income on our cash and investments and lower losses on our equity investments.

Investment income and other decreased during the six months ended March 31, 2023 primarily due to losses on our investments, offset by higher interest income on our cash and investments.

Effective Income Tax Rate

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Three Months Ended

March 31, Six Months Ended

2023 2022 2023 2022

Effective income tax rate 19 % 20 % 18 % 19 %

The difference in the effective tax rates is primarily due to a $142 million tax benefit related to prior years recognized during the three months ended December 31, 2022 due to the reassessment of an uncertain tax position as a result of new information obtained during an ongoing tax examination.

The difference in the effective tax rates is primarily due to a $142 million tax benefit related to prior years recognized during the six months ended March 31, 2023 due to the reassessment of an uncertain tax position as a result of new information obtained during an ongoing tax examination.

Liquidity and Capital Resources

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

Three Months Ended

Six Months Ended

(in millions)

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Operating activities.

Cash provided by operating activities for the three months ended December 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.

Cash provided by operating activities for the six months ended March 31, 2023 was higher than the prior-year comparable period primarily due to growth in our underlying business, partially offset by higher incentive payments.

Investing activities.

Cash used in investing activities for the three months ended December 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.

Cash used in investing activities for the six months ended March 31, 2023 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 maturities and sales, of investment securities.

Financing activities.

Cash used in financing activities for the three months ended December 31, 2022 was higher than the prior-year comparable period primarily due to the principal debt payment upon maturity of our December 2022 senior notes and higher dividends paid, partially offset by lower share repurchases.

Cash used in financing activities for the six months ended March 31, 2023 was higher than the prior-year comparable period primarily due to the principal debt payment upon maturity of our December 2022 senior notes, the absence of proceeds from the issuance of commercial paper 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 .

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Common stock repurchases.

During the three months ended December 31, 2022, we repurchased shares of our class A common stock in the open market for $3.1 billion.

As of December 31, 2022, our repurchase programs had remaining authorized funds of $14.1 billion.

During the six months ended March 31, 2023, we repurchased shares of our class A common stock in the open market for $5.3 billion.

As of March 31, 2023, our repurchase programs had remaining authorized funds of $11.9 billion.

See Note 8—Stockholders’ Equity to our unaudited consolidated financial statements.

During the three months ended December 31, 2022, we declared and paid $945 million in dividends to holders of our common and preferred stock.

On January 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).

During the six months ended March 31, 2023, we declared and paid $1.9 billion in dividends to holders of our common and preferred stock.

On April 25, 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.

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Senior notes .

During the three months ended December 31, 2022, we repaid $2.25 billion of principal upon maturity of our December 2022 senior notes.

During the six months ended March 31, 2023, we repaid $2.25 billion of principal upon maturity of our December 2022 senior notes.

See Note 6—Debt to our unaudited consolidated financial statements.

During the three months ended December 31, 2022, we deposited $350 million into the U.S.

During the six months ended March 31, 2023, we deposited $350 million into the U.S.

litigation escrow account to address claims associated with the interchange multidistrict litigation.

The balance of this account as of December 31, 2022 was $1.7 billion and is reflected as restricted cash in our consolidated balance sheets.

The balance of this account as of March 31, 2023 was $1.6 billion and is reflected as restricted cash in our consolidated balance sheets.

See Note 4—U.S.

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Accounting Pronouncements Not Yet Adopted

In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2020-04, which provides optional expedients and exceptions for applying U.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 through December 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.

The Financial Accounting Standards Board has issued certain accounting updates, which we have either determined to be not applicable or not expected to have a material impact on our consolidated financial statements.

Quantitative and Qualitative Disclosures about Market Risk

1 unchanged sentence

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