Highlights From Visa's Q1 Conference Call: 10.9 Billion Transactions, a 12% Growth Rate Year-Over-Year

February 4, 2010 11:40 AM EST

Visa Inc. (NYSE: V) reports Q1 EPS of $0.97 GAAP, $0.67 ex-items versus the analyst estimate of $0.64. Revenue for the quarter was $1.6 billion, versus the consensus of $1.64 billion. Shares are up 2.05% today.

Highlights From V's Q3 Conference Call:

• (Chairman/CEO) Earnings for Q1 on a GAAP basis were $1.02 per diluted share, a $0.28 or 38% increase over the first quarter of 2009.
  
• Net income on a GAAP basis was $763 million, a 33% increase over the year ago period.
  
• Earnings for our first fiscal quarter on a GAAP basis were $1.02 per diluted share, a $0.28 or 38% increase over the first quarter of 2009. Net income on a GAAP basis was $763 million, a 33% increase over the year ago period.
  
• Net operating revenues in the quarter were just under $2 billion, a 13% increase over the year ago period, and in line with our guidance, as a result of solid payment volume and cross-border volume growth as well as strong processed transaction growth.
  
• Processed transactions continued to grow from the mid to high single-digit levels we saw over the course of fiscal 2009, ending the first quarter at 10.9 billion transactions, a 12% growth rate over the prior year period and up from - and up 9% from the growth reported for the fiscal Q4.
  
• During Q1 we repurchased $432 million of our class A shares under our previously announced $1 billion buyback plan at an average price of just under $79 a share. We will continue to execute on this buyback as
  conditions warrant.
  
• (CFO) Global payment volume growth for the September quarter in constant dollars rose from a positive 2% in the June quarter to 3%. In the U.S., payment volume growth was a negative 1% in the September quarter, up from a negative 3% in the June quarter.
  
• Debit again proved both its resiliency as a product and its secular appeal by delivering a positive 7% growth compared to 5% growth in the June quarter.
  
• Credit, while still challenged, improved to a negative 9% in the September period from a negative 10% in the June period.
  
• On a constant dollar basis, rest of world payment volume grew at 8% in the September quarter, holding steady with the 8% rate delivered in the June quarter. These results reflect continued secular growth and a strong and healthy diversified country base outside the U.S. Global cross-border volume growth improved in the September quarter, posting a negative 5% growth rate on a constant dollar basis from the negative 8% rate in the June period.
  
• Transactions processed over Visa's network totaled 10.9 billion in the fiscal Q1, an increase of 12% over the similar period a year ago, and up from 9% we saw in the September quarter.
  
• Turning to the income statement, in our first fiscal quarter, gross revenues of 2.3 billion were up 16% from the similar period in 2009.
  
• Volume and support incentives as a percentage of gross revenues came in at 16%, up from the prior year's depressed level of 13%, and more indicative of what we can expect over the course of fiscal 2010 as payment volume growth improved versus the prior year.
  
• Net operating revenues in the quarter were almost $2 billion, a 13% increase over the operating revenues reported for the first fiscal quarter of 2009. This was in line with our revenue guidance, though slightly ahead of the low end of an 11 to 15% range provided to you last quarter.
  
• Service revenue was $827 million, up 4% over the prior year period and reflective of still relatively anemic payment volume growth in the quarter ending September.
  
• Data processing revenue was $765 million, up 38% over the prior year, based on strong processed transaction growth of 12% and the continuing effect of previously enacted pricing actions.
  
• International transaction revenues were up a solid 9% to $552 million, primarily due to an improvement in cross-border volumes during the period.
  
• Our operating margin was 62%, but benefited from a one-time reversal of $41 million in litigation reserves and from favorable timing in marketing spend.
  
• Total operating expenses for the first quarter were $743 million, a decline of $30 million or 4% year-over-year.
  
• For fiscal 2010 we now expect capital expenditures to be around $200 million.
  
• Moving on to the balance sheet, we ended the first quarter in strong shape with negligible debt and cash, cash equivalents, restricted cash, and available for sale investments of $6 billion. Of this total, 1.6 billion is restricted cash, which represents amounts sufficient to fully pay off the American Express (NYSE: AXP) settlement, with 1 billion that is currently uncommitted.
  
• In the U.S, payment volume growth was a positive 7% in the December quarter, up from a negative 1% in the September quarter. Debit continued to prove its resiliency as a product and its secular appeal by delivering a positive 15% growth compared to 7% growth in the September quarter. Debit currently accounts for 54% of total U.S. payment volume.
  
• Credit, while still challenged, rebounded to a negative 1% in the December period from a negative 9% rate in the September period. Looking to January, through the 28th of the month, U.S. payment volume growth of 10% is above the fiscal Q4 rate of 7%, and on par with December's month end 10% growth.
  
• Global cross-border volume growth rebounded considerably in the December quarter, posting a 2% growth rate on a constant dollar basis from the negative 5% rate in the September period.
  
• Growth in the month of December was an unexpectedly strong 4%.
  
• Processed transactions through the 28th of January grew 13% over the prior year period, up slightly from the 12% growth posted for the fiscal Q1.
  
• We continue to target better than 20% earnings per share growth in 2010 on a GAAP basis, excluding the VisaNet Brazil gain, and a 2011 earnings per share growth goal of better than 20%.
  
• Based on a better understanding of our tax outlook, we now expect our full year 2010 tax rate to be in a range of 36.5 to 38.5%, rather than 38 to 39% range with which we began the year. Capital expenditures are now expected to be around $200 million, at the low end of our initial range of 200 to 250, and our projection for free cash flow for the year remains north of $2 billion, which is net of the $682 million prepayment we made in the quarter on the previously settled retailers' litigation.
  
• (Q&A) Professional and consulting expense, Byron, you explained why it was a little bit lower year-over-year. But it's actually the one line item we'd like to see increase a lot, given that's where the bulk of the product and R&D spend is. So what is the trend there in terms of the investment in product and R&D? And would you consider breaking out those investments into separate line items going forward so investors can get a better feel for resource allocation?(A)Once we normalize out the professional consulting expense associated with getting the new data center open, which is now fully operational and live, we should be managing that up as we continue to invest in expanding our infrastructure and capabilities as well as in product investment. With regard to breaking that out to give more visibility to the type of expense that's going against future growth, great question. We have that under consideration and we'll seriously consider that perhaps later in the year.(A)You should remember that that line item includes all of our legal expenses for litigation, and we had a lot of that last year.
  
• Thanks. I had a quick question and a clarification, if I could. My question is just to what extent are you seeing issuers reengage and start promoting credit products more actively at all? And how much of that activity might be directed towards the affluent end of the market? We're also hearing more about increased mailings occurring over the last few months of '09. And then my clarification is can you give a split on your U.S. payment volume for January between credit and debit within that plus 10%?(A)Well, to answer the first part of your question and then I'll let Byron answer the second part of it, I think that there is considerable interest in the higher end of the retail market. I don't think there's any question about that. And there is some evidence that there's a little bit more activity on the solicitation front. But I'd say it's way too early to say things have turned around and that we're back to something that's even close to where we were maybe a year and a half or two years ago.(A)Let me give you a little color on U.S. debit and credit and give you a little bit of historical trending by month and then into January, so you can see the progress. It we were to go back to October, credit grew in the U.S. at minus 4, November minus 2, and then December actually turned positive 2. January month-to-date through the 28th, positive 1. If we were to do the same chronology for debit, October debit unit volume growth for the U.S. was positive 12, moved to positive 15 in November, positive 19 in December, and is holding at positive 19 January month-to-date.
  
• Can you just characterize a little bit on what you're seeing in terms of the impact of the CARD [Credit Card Accountability, Responsibility, and Disclosure] Act, and what that might be doing relative to your pricing strategies or anything that you guys might be feeling as a result of the legislation at this point?(A)Well, I think as we've said before, the DARD Act has an indirect effect on us, but not a direct effect. You're asking a question that is difficult for me to answer. I think it would be more appropriately answered by our financial institution customers. Having said that, Byron just went over the growth statistics on the credit card business compared to the debit card business. And I think it's clear that it's not growing at anything close to the rates that it historically has, and obviously some of that - a lot of that is to do with the economy and a lot of it has to do with the rules and regulations that they operate under.
  
• Byron, I was wondering if you could just quantify kind of the seasonality of the marketing spend this year in terms of magnitude? And just the tax rate, should we assume that we build off of that in terms of the migrating lower in 2011? Thanks.(A)On the marketing side, the way we've tried to be helpful here is that the first quarter is low spending for the year. We will increase marketing in the second quarter - second fiscal quarter, marketing spend. Think of that as Winter Olympics driven. Then third quarter we'll be increasing marketing spend relative to the first quarter. Think of that as FIFA World Cup. And so this - the marketing spend, which is under a billion was the guidance for the year, is much more oriented to the middle two fiscal quarters, with the first quarter probably being the lightest. If you switch to the tax rate, so we've reguided the tax rate in to a range of 36.5 to 38.5, so that follows the trajectory that we outlined during our IPO presentation of ultimately aiming to be in the 35 to 36% range. So we consider that a journey. We have yet to process what the administration's recent tax proposals are, and of course that guidance was not enlightened by those tax proposals. So I would say stay tuned on what 2011, '12, and beyond will ultimately yield. But we remain on the trajectory of getting in to that 35 to 36% range that we talked about from inception.

Related Categories

Corporate News
Earnings

Stocks Mentioned

Add Your Comment

Name

Subject

Body

Verification can't see the text?
click here to refresh the image.
what's this?