VISA INC. 10-Q

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations This management’s discussion and analysis provides a review of the results of operations, financial condition and liquidity and capital resources of Visa Inc. and its subsidiaries (Visa, we, us, our or the Company) on a historical basis and outlines the factors that have affected recent earnings, as well as those factors that may affect future earnings. The following discussion and analysis should be read in conjunction with our unaudited consolidated financial statements and related notes included in Item 1—Financial Statements of this report. Forward-Looking Statements 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; prospects, developments, strategies and growth of our business; anticipated expansion of our products in certain countries; industry developments; anticipated timing and benefits of our acquisitions; expectations regarding litigation matters, investigations and proceedings; timing and amount of stock repurchases; sufficiency of sources of liquidity and funding; effectiveness of our risk management programs; and expectations regarding the impact of recent accounting pronouncements on our unaudited consolidated financial statements. Forward-looking statements generally are identified by words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “projects,” “could,” “should,” “will,” “continue” and other similar expressions. All statements other than statements of historical fact could be forward-looking statements, which speak only as of the date they are made, are not guarantees of future performance and are subject to certain risks, uncertainties and other factors, many of which are beyond our control and are difficult to predict. We describe risks and uncertainties that could cause actual results to differ materially from those expressed in, or implied by, any of these forward-looking statements in our SEC filings, including our Annual Report on Form 10-K, for the year ended September 30, 2024, and any subsequent reports on Forms 10-Q and 8-K. Except as required by law, we do not intend to update or revise any forward-looking statements as a result of new information, future events or otherwise. 24 Table of Contents Overview Visa is a global payments technology company that facilitates global commerce and money movement across more than 200 countries and territories among a global set of consumers, merchants, financial institutions and government entities through innovative technologies. We provide transaction processing services (primarily authorization, clearing and settlement) to our financial institution and merchant clients through VisaNet, our proprietary advanced transaction processing network. We offer products, solutions and services that facilitate secure, reliable and efficient money movement for all participants in the ecosystem. Financial overview. A summary of our as-reported U.S. GAAP and non-GAAP operating results is as follows: Three Months Ended December 31, 2024 2023 % Change (1) (in millions, except percentages and per share data) Net revenue $ 9,510 $ 8,634 10 % Operating expenses $ 3,276 $ 2,680 22 % Net income $ 5,119 $ 4,890 5 % Diluted earnings per share $ 2.58 $ 2.39 8 % Non-GAAP operating expenses (2) $ 2,917 $ 2,619 11 % Non-GAAP net income (2) $ 5,463 $ 4,938 11 % Non-GAAP diluted earnings per share (2) $ 2.75 $ 2.41 14 % (1) Figures in the table may not recalculate exactly due to rounding. Percentage changes are calculated based on unrounded numbers. (2) For a full reconciliation of our GAAP to non-GAAP financial results, see tables in Non-GAAP financial results below. Highlights. For the three months ended December 31, 2024, net revenue increased 10% over the prior year, primarily due to the growth in processed transactions, nominal cross-border volume and nominal payments volume, partially offset by higher client incentives. For the three months ended December 31, 2024, exchange rate movements did not have a material impact on net revenue growth. See Results of Operations—Net Revenue below for further discussion. For the three months ended December 31, 2024, GAAP operating expenses increased 22% over the prior year, primarily driven by higher personnel and general and administrative expenses. See Results of Operations—Operating Expenses below for further discussion. For the three months ended December 31, 2024, exchange rate movements negatively impacted our operating expenses by approximately one percentage point. For the three months ended December 31, 2024, non-GAAP operating expenses increased 11% over the prior year, primarily driven by higher personnel and general and administrative expenses. Acquisition. In December 2024, we acquired Featurespace Limited (Featurespace), a developer of real-time artificial intelligence payments protection technology that prevents and mitigates payments fraud and financial crime risks, for a purchase consideration of $946 million. See Note 2—Acquisitions to our unaudited consolidated financial statements. Interchange multidistrict litigation . For the three months ended December 31, 2024, we recorded an additional accrual of $27 million to address claims associated with the interchange multidistrict litigation. See Note 13—Legal Matters to our unaudited consolidated financial statements. Common stock repurchases. For the three months ended December 31, 2024, we repurchased 13 million shares of our class A common stock in the open market for $3.9 billion. As of December 31, 2024, our share repurchase program had remaining authorized funds of $9.1 billion. See Note 9—Stockholders’ Equity to our unaudited consolidated financial statements. 25 Table of Contents Non-GAAP financial results. We use non-GAAP financial measures of our performance which exclude certain items which we believe are not representative of our continuing operations, as they may be non-recurring or have no cash impact, and may distort our longer-term operating trends. We consider non-GAAP measures useful to investors because they provide greater transparency into management’s view and assessment of our ongoing operating performance. • Gains and losses on equity investments. Gains and losses on equity investments include periodic non-cash fair value adjustments and gains and losses upon sale of an investment. These long-term investments are strategic in nature and are primarily private company investments. Gains and losses associated with these investments are tied to the performance of the companies that we invest in and therefore do not correlate to the underlying performance of our business. • Amortization of acquired intangible assets. Amortization of acquired intangible assets consists of amortization of intangible assets such as technology, customer relationships and trade names acquired in connection with business combinations executed beginning in fiscal 2019. Amortization charges for our acquired intangible assets are non-cash and are significantly affected by the timing, frequency and size of our acquisitions, rather than our core operations. As such, we have excluded this amount to facilitate an evaluation of our current operating performance and comparison to our past operating performance. • Acquisition-related costs. Acquisition-related costs consist primarily of one-time transaction and integration costs associated with our business combinations. These costs include professional fees, technology integration fees, restructuring activities and other direct costs related to the purchase and integration of acquired entities. These costs also include retention equity and deferred compensation when they are agreed upon as part of the purchase price of the transaction but are required to be recognized as expense post-combination. We have excluded these amounts as the expenses are recognized for a limited duration and do not reflect the underlying performance of our business. • Severance costs. For the three months ended December 31, 2024, we recorded severance costs within personnel expense to realign our organizational structure and focus on areas that will drive higher long-term growth. This broad-based optimization effort has been excluded as it is not representative of our ongoing operations. • Lease consolidation costs. For the three months ended December 31, 2024, we recorded a charge within general and administrative expense associated with the consolidation of certain leased office spaces. We have excluded these amounts as it does not reflect the underlying performance of our business. • Litigation provision. Litigation provision includes significant accruals related to certain legal matters that are not covered by the U.S. retrospective responsibility plan or the Europe retrospective responsibility plan (uncovered legal matters) and additional accruals associated with the interchange multidistrict litigation which are covered by the U.S. retrospective responsibility plan (U.S. covered litigation). Litigation provision associated with these matters can vary significantly based on the facts and circumstances related to each matter and do not correlate to the underlying performance of our business. For the three months ended December 31, 2024, we have excluded this amount to facilitate a comparison to our past operating performance. Under the U.S. retrospective responsibility plan, we recover the monetary liabilities related to the U.S. covered litigation through a downward adjustment to the rate at which shares of our class B-1 and class B-2 common stock ultimately convert into shares of class A common stock. For the three months ended December 31, 2024 and 2023, there was no conversion rate adjustment. See Note 5—U.S. and Europe Retrospective Responsibility Plans to our unaudited consolidated financial statements. 26 Table of Contents 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. GAAP. The following tables reconcile our as-reported financial measures, calculated in accordance with U.S. GAAP, to our respective non-GAAP financial measures: Three Months Ended December 31, 2024 Operating Expenses Non-operating Income (Expense) Income Tax Provision (1) Effective Income Tax Rate (2) Net Income Diluted Earnings Per Share (2) (in millions, except percentages and per share data) As reported $ 3,276 $ (34) $ 1,081 17.4 % $ 5,119 $ 2.58 (Gains) losses on equity investments, net — 75 17 58 0.03 Amortization of acquired intangible assets (46) — 11 35 0.02 Acquisition-related costs (34) — 2 32 0.02 Severance costs (213) — 45 168 0.08 Lease consolidation costs (39) — 9 30 0.02 Litigation provision (27) — 6 21 0.01 Non-GAAP $ 2,917 $ 41 $ 1,171 17.7 % $ 5,463 $ 2.75 Three Months Ended December 31, 2023 Operating Expenses Non-operating Income (Expense) Income Tax Provision (1) Effective Income Tax Rate (2) Net Income Diluted Earnings Per Share (2) (in millions, except percentages and per share data) As reported $ 2,680 $ 88 $ 1,152 19.1 % $ 4,890 $ 2.39 (Gains) losses on equity investments, net — (4) (1) (3) — Amortization of acquired intangible assets (40) — 9 31 0.01 Acquisition-related costs (21) — 1 20 0.01 Non-GAAP $ 2,619 $ 84 $ 1,161 19.0 % $ 4,938 $ 2.41 (1) Determined by applying applicable tax rates. (2) Figures in the table may not recalculate exactly due to rounding. Effective income tax rate, diluted earnings per share and their respective totals are calculated based on unrounded numbers. Payments volume and processed transactions. Payments volume is the primary driver for our service revenue, and the number of processed transactions is the primary driver for our data processing revenue. Payments volume represents the aggregate dollar amount of purchases made with cards and other form factors carrying the Visa, Visa Electron, V PAY and Interlink brands and excludes Europe co-badged volume. Nominal payments volume is denominated in U.S. dollars and is calculated each quarter by applying an established U.S. dollar/foreign currency exchange rate for each local currency in which our volumes are reported. Processed transactions include payments and cash transactions, and represent transactions using cards and other form factors carrying the Visa, Visa Electron, V PAY, Interlink and PLUS brands processed on Visa’s networks. 27 Table of Contents The following table presents nominal payments and cash volume: U.S. International Visa Three Months Ended September 30, (1) Three Months Ended September 30, (1) Three Months Ended September 30, (1) 2024 2023 % Change (2) 2024 2023 % Change (2) 2024 2023 % Change (2) (in billions, except percentages) Nominal payments volume Consumer credit $ 610 $ 580 5 % $ 774 $ 736 5 % $ 1,384 $ 1,316 5 % Consumer debit (3) 771 731 6 % 827 747 11 % 1,598 1,478 8 % Commercial (4) 268 260 3 % 159 150 6 % 428 410 4 % Total nominal payments volume (2) $ 1,649 $ 1,570 5 % $ 1,760 $ 1,634 8 % $ 3,410 $ 3,204 6 % Cash volume (5) 150 155 (3 %) 475 476 — % 625 630 (1 %) Total nominal volume (2),(6) $ 1,799 $ 1,725 4 % $ 2,235 $ 2,109 6 % $ 4,034 $ 3,834 5 % The following table presents the change in nominal and constant payments and cash volume: International Visa Three Months Ended September 30, 2024 vs. 2023 (1),(2) Three Months Ended September 30, 2024 vs. 2023 (1),(2) Nominal Constant (7) Nominal Constant (7) Payments volume growth Consumer credit growth 5 % 8 % 5 % 7 % Consumer debit growth (3) 11 % 12 % 8 % 9 % Commercial growth (4) 6 % 9 % 4 % 5 % Total payments volume growth 8 % 10 % 6 % 8 % Cash volume growth (5) — % 4 % (1 %) 2 % Total volume growth 6 % 9 % 5 % 7 % (1) Service revenue in a given quarter is primarily assessed based on nominal payments volume in the prior quarter. Therefore, service revenue reported for the three months ended December 31, 2024 and 2023, respectively, was based on nominal payments volume reported by our financial institution clients for the three months ended September 30, 2024 and 2023, respectively. On occasion, previously presented volume information may be updated. Prior period updates are not material. (2) Figures in the table may not recalculate exactly due to rounding. Percentage changes and totals are calculated based on unrounded numbers. (3) Includes consumer prepaid volume and Interlink volume. (4) Includes large, medium and small business credit and debit, as well as commercial prepaid volume. (5) Cash volume generally consists of cash access transactions, balance access transactions, balance transfers and convenience checks. (6) Total nominal volume is the sum of total nominal payments volume and cash volume. Total nominal volume is provided by our financial institution clients, subject to review by Visa. (7) Growth on a constant-dollar basis excludes the impact of foreign currency fluctuations against the U.S. dollar. The following table presents the number of processed transactions: Three Months Ended December 31, 2024 2023 % Change (1) (in millions, except percentages) Visa processed transactions 63,797 57,472 11 % (1) Figures in the table may not recalculate exactly due to rounding. Percentage change is calculated based on unrounded numbers. On occasion, previously presented information may be updated. Prior period updates are not material. 28 Table of Contents Results of Operations Net Revenue The following table presents our net revenue earned in the U.S. and internationally: Three Months Ended December 31, 2024 2023 % Change (1) (in millions, except percentages) U.S. $ 3,738 $ 3,645 3 % International 5,772 4,989 16 % Net revenue $ 9,510 $ 8,634 10 % (1) Figures in the table may not recalculate exactly due to rounding. Percentage changes are calculated based on unrounded numbers. Net revenue increased over the three-month prior-year comparable period primarily due to the growth in processed transactions, nominal cross-border volume and nominal payments volume, partially offset by higher client incentives. Our net revenue is impacted by the overall strengthening or weakening of the U.S. dollar as payments volume and related revenue denominated in local currencies are converted to U.S. dollars. For the three months ended December 31, 2024, exchange rate movements did not have a material impact on net revenue growth. The following table presents the components of our net revenue: Three Months Ended December 31, 2024 2023 % Change (1) (in millions, except percentages) Service revenue $ 4,208 $ 3,915 8 % Data processing revenue 4,745 4,356 9 % International transaction revenue 3,442 3,019 14 % Other revenue 912 692 32 % Client incentives (3,797) (3,348) 13 % Net revenue $ 9,510 $ 8,634 10 % (1) Figures in the table may not recalculate exactly due to rounding. Percentage changes are calculated based on unrounded numbers. • Service revenue increased over the three-month prior-year comparable period primarily due to 6% growth in nominal payments volume. • Data processing revenue increased over the three-month prior-year comparable period primarily due to 11% growth in processed transactions. • International transaction revenue increased over the three-month prior-year comparable period primarily due to growth in nominal cross-border volumes of 15%, excluding transactions within Europe. • Other revenue increased over the three-month prior-year comparable period primarily due to growth in consulting and marketing services and select pricing modifications. • Client incentives increased over the three-month prior-year comparable period primarily due to growth in payments volume. 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. For the three months ended December 31, 2024 and 2023, revenue from value-added services was $2.4 billion and $2.1 billion, respectively. Value-added services revenue increased 17% primarily due to growth in consulting and marketing services, issuing solutions and risk and identity solutions. 29 Table of Contents Operating Expenses The following table presents the components of our total operating expenses: Three Months Ended December 31, 2024 2023 % Change (1) (in millions, except percentages) Personnel $ 1,813 $ 1,479 23 % Marketing 306 293 4 % Network and processing 207 181 15 % Professional fees 143 131 9 % Depreciation and amortization 282 247 14 % General and administrative 481 340 42 % Litigation provision 44 9 NM Total operating expenses $ 3,276 $ 2,680 22 % 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 over the three-month prior-year comparable period primarily due to severance costs in the current period to realign our organizational structure and a higher number of employees and compensation focused on areas that will drive higher long-term growth, including acquisitions. • Network and processing expenses increased over the three-month prior-year comparable period primarily due to continued technology and processing network investments to support growth. • Depreciation and amortization increased over the three-month prior-year comparable period primarily due to additional amortization and depreciation from our on-going investments and acquisitions. • General and administrative expenses increased over the three-month prior-year comparable period primarily due to unfavorable foreign currency fluctuations, lease consolidation costs in the current period and higher usage of travel related card benefits. • Litigation provision increased over the three-month prior-year comparable period primarily due to the accrual related to the U.S. covered litigation in the current period. See Note 13—Legal Matters to our unaudited consolidated financial statements. Non-operating Income (Expense) The following table presents the components of our non-operating income (expense): Three Months Ended December 31, 2024 2023 % Change (1) (in millions, except percentages) Interest expense $ (182) $ (187) (3 %) Investment income (expense) and other 148 275 (46 %) Total non-operating income (expense) $ (34) $ 88 (138 %) (1) Figures in the table may not recalculate exactly due to rounding. Percentage changes are calculated based on unrounded numbers. • Investment income (expense) and other decreased over the three-month prior-year comparable period primarily due to losses on our equity investments and lower interest income on our cash and investments. 30 Table of Contents Effective Income Tax Rate The following table presents our effective income tax rates: Three Months Ended December 31, 2024 2023 Effective income tax rate 17 % 19 % The effective income tax rate decreased over the three-month prior-year comparable period due to various items including a change in the geographic mix of earnings. The Organization for Economic Cooperation and Development (OECD) published administrative guidance around the implementation of a 15% global minimum tax (Pillar Two). Various OECD member countries have either enacted or are in the process of enacting Pillar Two legislation. While we do not expect a material tax impact in fiscal 2025, we are monitoring developments and evaluating the potential impact of Pillar Two on future years. Liquidity and Capital Resources Cash Flow Data The following table summarizes our cash flow activity for the periods presented: Three Months Ended December 31, 2024 2023 (in millions) Total cash provided by (used in): Operating activities $ 5,396 $ 3,614 Investing activities $ 790 $ (1,889) Financing activities $ (5,475) $ (4,379) Operating activities. Cash provided by operating activities increased over the three-month prior-year comparable period primarily due to growth in our underlying business and the timing of payments related to income taxes. Investing activities. Cash provided by investing activities increased over the three-month prior-year comparable period primarily due to the absence of investment security purchases and higher proceeds from investment security sales and maturities, partially offset by cash paid for an acquisition in the current period. Financing activities. Cash used in financing activities increased over the three-month prior-year comparable period primarily due to lower funds held on behalf of clients, higher share repurchases and higher dividends paid. Sources of Liquidity Our primary sources of liquidity are cash on hand, cash flow from our 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 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. 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. 31 Table of Contents Uses of Liquidity There has been no significant change to our primary uses of liquidity since September 30, 2024, except as discussed below. Common stock repurchases. For the three months ended December 31, 2024, we repurchased shares of our class A common stock in the open market for $3.9 billion. As of December 31, 2024, our share repurchase program had remaining authorized funds of $9.1 billion. See Note 9—Stockholders’ Equity to our unaudited consolidated financial statements. Dividends . For the three months ended December 31, 2024, we declared and paid $1.2 billion in dividends to holders of our common and preferred stock. On January 28, 2025, our board of directors declared a quarterly cash dividend of $0.59 per share of class A common stock (determined in the case of all other outstanding common and preferred stock on an as-converted basis). We expect to continue paying quarterly dividends in cash, subject to approval by the board of directors. See Note 9—Stockholders’ Equity to our unaudited consolidated financial statements. Senior notes. A principal payment on our senior notes of $4.0 billion is due in December 2025 for which we have sufficient liquidity. See Note 7—Debt to our unaudited consolidated financial statements. Acquisition . In December 2024, we acquired Featurespace for a purchase consideration of $946 million. See Note 2—Acquisitions to our unaudited consolidated financial statements. Accounting Pronouncements Not Yet Adopted In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-07, which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expense s. This standard also enhances interim disclosure requirements and provides new segment disclosure requirements for entities with a single reportable segment. This ASU is effective for our annual periods beginning October 1, 2024, and interim periods beginning October 1, 2025, and requires retrospective application to all prior periods presented. We are currently evaluating the impact of the ASU on our disclosures. In December 2023, the FASB issued ASU 2023-09, which provides improvements to income tax disclosures. This standard requires disaggregated information related to the effective tax rate reconciliation as well as information on income taxes paid. This ASU is effective for our annual periods beginning October 1, 2025, and requires prospective application with the option to apply the standard retrospectively. We are currently evaluating the impact of the ASU on our disclosures. In November 2024, the FASB issued ASU 2024-03, which requires disclosure of additional information about specific expense categories underlying certain income statement expense line items. Subsequently, the FASB also issued an amendment to this standard. The amendments in the ASU are effective for our annual periods beginning October 1, 2027, and interim periods beginning October 1, 2028, and require either prospective or retrospective application. We are currently evaluating the impact of the ASU on our disclosures. ITEM 3. Quantitative and Qualitative Disclosures about Market Risk There have been no significant changes to our market risks since September 30, 2024.