What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-07-26 compared with 2023-04-27 · 88 added, 74 removed, 296 unchanged (35% of the section changed)

27 unchanged sentences

Three Months Ended

March 31, Six Months Ended

June 30, Nine Months Ended

(in millions, except percentages and per share data)

13 unchanged sentences

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.

During the nine months ended June 30, 2023, certain U.S.

banks failed, which caused volatility in the global financial markets.

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

3 unchanged sentences

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 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.

For the nine months ended June 30, 2022, total net revenues from Russia, including revenues driven by domestic as well as cross-border activities, was approximately 3% 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 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.

Highlights for the first nine months of fiscal 2023.

For the three and nine months ended June 30, 2023, net revenues increased 12% over each 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 and nine months ended June 30, 2023, exchange rate movements lowered our net revenues growth by approximately one percentage point and two percentage points, respectively.

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.

For the three months ended June 30, 2023, GAAP operating expenses decreased 1% over the prior-year comparable period, primarily due to lower litigation provision, largely offset by higher expense related to personnel.

For the nine months ended June 30, 2023, GAAP operating expenses increased 10% over the prior-year comparable period, primarily due to higher expense related to personnel.

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

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.

During the nine months ended June 30, 2023, exchange rate movements lowered our operating expense growth by approximately one percentage point.

For the three and nine months ended June 30, 2023, non-GAAP operating expenses increased 10% and 12% over the prior-year comparable periods, respectively, primarily due to higher expense related to personnel.

For the nine months ended June 30, 2023, non-GAAP operating expenses also included higher general and administrative expense.

Pending acquisition.

In June 2023, we entered into a definitive agreement to acquire Pismo Holdings (Pismo), a cloud-native issuer processing and core banking platform with operations in Latin America, Asia Pacific and Europe, for $1.0 billion in cash.

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

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.

During the nine months ended June 30, 2023, we recorded additional accruals of $797 million to address claims associated with the interchange multidistrict litigation.

We also made deposits of $850 million into the U.S.

4 unchanged sentences

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

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.

During the nine months ended June 30, 2023, we repurchased 39 million shares of our class A common stock in the open market for $8.4 billion.

As of June 30, 2023, our repurchase program had remaining authorized funds of $8.8 billion.

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

16 unchanged sentences

• Litigation provision.

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.

During the three months ended June 30, 2023 and 2022, we recorded additional accruals to address claims associated with the interchange multidistrict litigation of $456 million and $716 million, respectively, and related tax benefit of $101 million and $159 million, respectively, determined by applying applicable tax rates.

During the nine months ended June 30, 2023 and 2022, we recorded additional accruals to address claims associated with the interchange multidistrict litigation of $797 million and $861 million, respectively, and related tax benefit of $177 million and $191 million, respectively, determined by applying applicable tax rates.

Under the U.S.

4 unchanged sentences

• 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.

During the nine months ended June 30, 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.

3 unchanged sentences

GAAP, to our respective non-GAAP financial measures:

Three Months Ended March 31, 2023

Three Months Ended June 30, 2023

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

5 unchanged sentences

Acquisition-related costs (24) — 1 23 0.01

Litigation provision (456) — 101 355 0.17

Non-GAAP $ 2,578 $ 37 $ 1,083 19.4 % $ 4,499 $ 2.16

Six Months Ended March 31, 2023

Nine Months Ended June 30, 2023

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

7 unchanged sentences

Non-GAAP $ 7,598 $ 62 $ 3,044 18.4 % $ 13,464 $ 6.44

Three Months Ended March 31, 2022

Three Months Ended June 30, 2022

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

5 unchanged sentences

Acquisition-related costs (14) — 2 12 0.01

Russia-Ukraine charges (60) — 4 56 0.03

Litigation provision (716) — 159 557 0.26

Non-GAAP $ 2,353 $ (73) $ 643 13.3 % $ 4,206 $ 1.98

Six Months Ended March 31, 2022

Nine Months Ended June 30, 2022

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

19 unchanged sentences

International Visa Inc.

Three Months Ended December 31, (1)

Three Months Ended March 31, (1)

2023 2022 % Change (2)

16 unchanged sentences

International Visa Inc.

Six Months Ended December 31, (1)

Nine Months Ended March 31, (1)

2023 2022 % Change (2)

17 unchanged sentences

International Visa Inc.

Ended December 31,

Ended March 31,

Nominal Constant (7)

13 unchanged sentences

(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, 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.

Therefore, service revenues reported for the three and nine months ended June 30, 2023 and 2022, respectively, were based on nominal payments volume reported by our financial institution clients for the three and nine months ended March 31, 2023 and 2022, respectively.

On occasion, previously presented volume information may be updated.

10 unchanged sentences

Three Months Ended

March 31, Six Months Ended

June 30, Nine Months Ended

(in millions, except percentages)

8 unchanged sentences

Three Months Ended

March 31, Six Months Ended

June 30, Nine Months Ended

(in millions, except percentages)

4 unchanged sentences

Percentage changes are calculated based on unrounded numbers.

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.

Net revenues increased over the three and nine-month prior-year 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 and six months ended March 31, 2023, exchange rate movements lowered our net revenues growth by approximately two percentage points.

During the three and nine months ended June 30, 2023, exchange rate movements lowered our net revenues growth by approximately one percentage point and two percentage points, respectively.

The following table presents the components of our net revenues:

Three Months Ended

March 31, Six Months Ended

June 30, Nine Months Ended

(in millions, except percentages)

8 unchanged sentences

Percentage changes are calculated based on unrounded numbers.

• 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.

• Service revenues increased primarily due to 6% and 4% growth in nominal payments volume over the three and nine-month prior-year comparable periods, respectively, and due to business mix.

Service revenues increased over the nine month prior-year comparable period despite the impact of our suspension of operations in Russia.

• Data processing revenues increased primarily due to overall growth in processed transactions of 10% and 11% over the three and nine-month prior-year comparable periods, respectively, growth in value added

services and select pricing modifications.

Data processing revenues increased over the nine month prior-year comparable period despite the impact of our suspension of operations in Russia.

• International transaction revenues increased over the three month prior-year comparable period primarily due to growth in nominal cross-border volumes of 22%, excluding transactions within Europe, and select pricing modifications, partially offset by business mix and lower volatility of a broad range of currencies.

International transaction revenues increased over the nine month prior-year comparable period primarily due to growth in nominal cross-border volumes of 23%, excluding transactions within Europe, and select pricing modifications, partially offset by business mix.

• Other revenues increased over the three month prior-year comparable period primarily due to select pricing modifications and growth in value added services revenues tied to consulting services.

Other revenues increased over the nine month prior-year comparable period due to growth in value added services tied to marketing and consulting services, select pricing modifications and acquisition-related revenues.

• Client incentives increased primarily due to growth in payments volume over the three and nine-month prior-year 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.

2 unchanged sentences

Three Months Ended

March 31, Six Months Ended

June 30, Nine Months Ended

(in millions, except percentages)

7 unchanged sentences

314 289 9 % 918 856 7 %

Litigation provision — — NM 341 148 131 %

Litigation provision 457 717 (36 %) 798 865 (8 %)

Total operating expenses $ 3,099 $ 3,127 (1 %) $ 8,594 $ 7,797 10 %

NM - Not meaningful

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

Percentage changes are calculated based on unrounded numbers.

• Personnel expenses increased primarily due to higher number of employees and compensation, reflecting our strategy to invest in future growth, including acquisitions.

• Marketing expenses increased 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 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.

• Personnel expenses increased during the three and nine months ended June 30, 2023 primarily due to higher number of employees and compensation, reflecting our strategy to invest in future growth, including acquisitions.

• Marketing expenses increased during the nine months ended June 30, 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 Olympic and Paralympic Winter Games Beijing 2022 in the current period.

• Depreciation and amortization expenses increased during the nine months ended June 30, 2023 primarily due to additional depreciation and amortization from our on-going investments and acquisitions.

• General and administrative expenses increased during the three and nine months ended June 30, 2023 primarily due to higher usage of travel related card benefits, an increase in travel expenses and unfavorable foreign currency fluctuations.

The increase during the nine months ended June 30, 2023 was partially offset by the absence of expenses as a result of the suspension of our operations in Russia.

• Litigation provision decreased during the three and nine months ended June 30, 2023 primarily due to lower accruals related to the U.S.

covered litigation.

3 unchanged sentences

Three Months Ended

March 31, Six Months Ended

June 30, Nine Months Ended

(in millions, except percentages)

4 unchanged sentences

Percentage changes are calculated based on unrounded numbers.

• 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.

• Interest expense increased during the three months ended June 30, 2023 primarily driven by losses from derivative instruments and higher interest related to income tax liabilities.

Interest expense increased during the nine months ended June 30, 2023 primarily driven by losses from derivative instruments, partially offset by lower interest related to indirect taxes.

• Investment income (expense) and other increased during the three months ended June 30, 2023, primarily due to gains on our investments and higher interest income on our cash and investments.

Investment income (expense) and other increased during the nine months ended June 30, 2023, primarily due to higher interest income on our cash and investments and lower losses on our investments.

Effective Income Tax Rate

1 unchanged sentence

Three Months Ended

March 31, Six Months Ended

June 30, Nine Months Ended

2023 2022 2023 2022

Effective income tax rate 19 % 11 % 18 % 17 %

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.

The difference in the effective tax rates is primarily due to the following:

• During the nine months ended June 30, 2023, a $142 million tax benefit related to prior years due to the reassessment of an uncertain tax position as a result of new information obtained during an ongoing tax examination;

• During the three months ended June 30, 2022, a $176 million tax benefit related to prior years due to a decrease in the state apportionment ratio as a result of a tax position taken related to a ruling.

Liquidity and Capital Resources

1 unchanged sentence

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

Six Months Ended

Nine Months Ended

(in millions)

7 unchanged sentences

Operating activities.

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.

Cash provided by operating activities for the nine months ended June 30, 2023 was higher than the prior-year comparable period primarily due to growth in our underlying business, partially offset by higher incentive and litigation payments.

Investing activities.

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.

Cash used in investing activities for the nine months ended June 30, 2023 was lower than the prior-year comparable period primarily due to the absence of cash paid for acquisitions, lower purchases of investment securities and cash received from the settlement of net investment hedge derivative instruments in the current year.

Financing activities.

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.

Cash used in financing activities for the nine months ended June 30, 2023 was higher than the prior-year comparable period primarily due to the absence of proceeds from the issuance of senior notes, the principal debt payment upon maturity of our December 2022 senior notes and higher dividends paid, partially offset by lower share repurchases.

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

4 unchanged sentences

We will continue to assess our liquidity position and potential sources of supplemental liquidity in view of our operating performance, current economic and capital market conditions and other relevant circumstances.

Credit facility extension.

In May 2023, we entered into an amended and restated credit agreement for a 5 year, unsecured $7.0 billion revolving credit facility, which will expire in May 2028.

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

Uses of Liquidity

1 unchanged sentence

Common stock repurchases.

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.

During the nine months ended June 30, 2023, we repurchased shares of our class A common stock in the open market for $8.4 billion.

As of June 30, 2023, our repurchase program had remaining authorized funds of $8.8 billion.

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

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).

During the nine months ended June 30, 2023, we declared and paid $2.8 billion in dividends to holders of our common and preferred stock.

On July 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 9—Stockholders’ Equity to our unaudited consolidated financial statements.

2 unchanged sentences

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.

During the nine months ended June 30, 2023, we repaid $2.25 billion of principal upon maturity of our December 2022 senior notes.

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

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

Pending acquisition .

In June 2023, we entered into a definitive agreement to acquire Pismo for $1.0 billion in cash.

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

During the nine months ended June 30, 2023, we deposited $850 million into the U.S.

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

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.

The balance of this account as of June 30, 2023 was $1.6 billion and is reflected as restricted cash in our consolidated balance sheets.

See Note 5—U.S.

5 unchanged sentences

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