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Visa Inc. Reports Fiscal Second Quarter 2016 Results

The following excerpt is from the company's SEC filing.

GAAP quarterly net income of $1.7 billion or $0.71 per share including a non-recurring, non-operating gain related to currency forward contracts

Adjusted quarterly net income of $1.6 billion or $0.68 per share excluding a non-recurring, non-operating gain related to currency forward contracts

San Francisco, CA, April 21, 2016

Visa Inc. (NYSE: V) today announced financial results for the Companys fiscal second quarter 2016. GAAP net income for the quarter, inclusive of a non-recurring, non-operating gain related to currency forward contracts, was $1.7 billion, or $0.71 per share. All refe rences to earnings per share assume fully-diluted class A share count unless otherwise noted.

During the fiscal second quarter, the Company entered into currency forward contracts to mitigate a portion of the foreign currency exchange rate risk associated with the upfront cash consideration to be paid in the anticipated Visa Europe acquisition. As a result, the Company recorded non-recurring, net unrealized gains of $116 million in non-operating income. Excluding this non-operating gain, adjusted net income for the quarter was $1.6 billion, an increase of 5% over the prior year. Adjusted earnings per share was $0.68, an increase of 7% nominally, or 12% in constant dollars, over the prior year. The Companys adjusted quarterly net income and earnings per share are non-GAAP financial measures that are reconciled to their most directly comparable U.S. GAAP financial measures in the accompanying financial tables.

Net operating revenue in the fiscal second quarter of 2016 was $3.6 billion, an increase of 6% nominally or 9% on a constant dollar basis over the prior year, driven by continued growth in processed transactions and nominal payments volume. Currency rate shifts versus the prior year negatively impacted reported net operating revenue growth by approximately 3 percentage points.

Visa reported solid financial results in the fiscal second quarter. The continued headwinds of the strong U.S. dollar, lower oil prices, and an uneven global economy are driving continued weak cross-border spend, but domestic spend continues at reasonably strong levels consistent with last quarter. In fact, most of our growth metrics look very similar to what we saw last quarter. The U.S. consumer remains strong, but we see weakness in China, Brazil, and oil based economies. Since we are not seeing any material improvements in economic trends, we are cautious as we head into the second half of fiscal 2016. The continued headwinds we see do not take away from the underlying growth in our business and our continued conviction in the great opportunities to grow global penetration of electronic payments for years to come, said Charlie Scharf, Chief Executive Officer of Visa Inc.

Fiscal Second Quarter 2016 Financial Highlights:

Payments volume growth, on a constant dollar basis, for the three months ended December 31, 2015 on which fiscal second quarter service revenue is recognized, was 12% over the prior year at $1.3 trillion.

Payments volume growth, on a constant dollar basis, for the three months ended March 31, 2016, was 12% over the prior year at $1.3 trillion.

Cross-border volume growth, on a constant dollar basis, was 5% for the three months ended March 31, 2016.

Total processed transactions, which represent transactions processed by VisaNet, for the three months ended March 31, 2016, were 18.5 billion, a 9% increase over the prior year.

Fiscal second quarter 2016 service revenues were $1.7 billion, an increase of 8% over the prior year, and are recognized based on payments volume in the prior quarter. All other revenue categories are recognized based on current quarter activity. Data processing revenues rose 10% over the prior year to $1.5 billion. International transaction revenues grew 8% over the prior year to $1.0 billion. Other revenues were $198 million, a decrease of 3% over the prior year. Client incentives, which are a contra revenue item, were $789 million and represent 17.9% of gross revenues.

Total operating expenses were $1.2 billion in the fiscal second quarter, a 6% increase over the prior year, primarily due to increases in personnel, general and administrative, and network and processing expenses.

The Company recognized interest expense of $125 million for the quarter ended March 31, 2016 as a result of the issuance of approximately $16.0 billion of fixed-rate senior notes in the quarter ended December 31, 2015.

The effective tax rate was 30.1% for the quarter ended March 31, 2016.

Cash, cash equivalents, and available-for-sale investment securities were $23.4 billion at March 31, 2016.

The weighted-average number of diluted shares of class A common stock outstanding was 2.4 billion for the quarter ended March 31, 2016.

Notable Events:

During the three months ended March 31, 2016, the Company repurchased 24.2 million shares of class A common stock, at an average price of $72.23 per share, using $1.8 billion of cash on hand. Fiscal year to date through March 31, 2016, the Company repurchased a total of 49.9 million shares of class A common stock, at an average price of $75.47 per share, using $3.8 billion of cash on hand. The Company has $4.0 billion of remaining funds, authorized by the board of directors, available for share repurchase under the current program.

On April 20, 2016, the board of directors declared a quarterly cash dividend of $0.14 per share of class A common stock (determined in the case of class B and C common stock on an as-converted basis) payable on June 7, 2016, to all holders of record of the Companys class A, B and C common stock as of May 13, 2016.

Financial Outlook for Fiscal Full-Year 2016:

Visa Inc. reaffirms its financial outlook for the following metrics for fiscal full-year 2016:

Annual operating margin: Mid 60s; and

Annual free cash flow: About $7 billion.

Visa Inc. updates its financial outlook for the following metrics for fiscal full-year 2016:

Annual net revenue growth: 7% to 8% range on a constant dollar basis, with an expectation of about 3 percentage points of negative foreign currency impact;

Client incentives as a percentage of gross revenues: High-end of the 17.5% to 18.5% range;

Adjusted effective tax rate: About 30%; and

Annual adjusted diluted class A common stock earnings per share growth: Low double-digits on a constant dollar basis, with an expectation of about 4 percentage points of negative foreign currency impact. This now includes interest expense of about $390 million, or over 9 cents of earnings per share, which equates to almost 4 percentage points of reduced year-over-year growth.

Note: The financial outlook for fiscal full-year 2016 excludes any impact from the Visa Europe transaction.

Fiscal Second Quarter 2016 Earnings Results Conference Call Details:

Visas executive management team will host a live audio webcast beginning at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time) today to discuss the financial results and business highlights. All interested parties are invited to listen to the live webcast at

http://investor.visa.com

. A replay of the webcast will be available on the Visa Investor Relations website for 30 days. Investor information, including supplemental financial information, is available on Visa Inc.s Investor Relations website at

About Visa

Visa Inc. (NYSE: V) is a global payments technology company that connects consumers, businesses, financial institutions, and governments in more than 200 countries and territories to fast, secure and reliable electronic payments. We operate one of the worlds most advanced processing networks VisaNet that is capable of handling more than 65,000 transaction messages a second, with fraud protection for consumers and assured payment for merchants. Visa is not a bank and does not issue cards, extend credit or set rates and fees for consumers. Visas innovations, however, enable its financial institution customers to offer consumers more choices: pay now with debit, pay ahead of time with prepaid or pay later with credit products. For more information, visit usa.visa.com/about-visa, visacorporate.tumblr.com and @VisaNews.

Forward-Looking Statements:

This Press Release contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements generally are identified by words such as estimates, expectation, outlook, may, projects, could, should, will, will continue and other similar expressions. Examples of forward-looking statements include, but are not limited to, statements we make about our revenue, client incentives, operating margin, tax rate, earnings per share, free cash flow, and the growth of those items.

By their nature, forward-looking statements: (i) speak only as of the date they are made; (ii) are not statements of historical fact or guarantees of future performance; and (iii) are subject to risks, uncertainties, assumptions or changes in circumstances that are difficult to predict or quantify. Therefore, actual results could differ materially and adversely from our forward-looking statements due to a variety of factors, including the following:

the impact of laws, regulations and marketplace barriers, including:

increased regulation of fees, transaction routing, payment card practices or other aspects of the payments industry in the U.S., including new or revised regulations issued under the Dodd-Frank Wall Street Reform and Consumer Protection Act;

increased regulation in jurisdictions outside of the U.S.;

increased government support of national payment networks outside the U.S.; and

increased regulation of consumer privacy, data use and security;

developments in litigation and government enforcement, including those affecting interchange reimbursement fees, antitrust and tax;

new lawsuits, investigations or proceedings, or changes to our potential exposure in connection with pending lawsuits, investigations or proceedings;

economic factors, such as:

economic fragility in the Eurozone, the U.S. and in other advanced and emerging markets;

general economic, political and social conditions in mature and emerging markets globally;

general stock market fluctuations which may impact consumer spending;

material changes in cross-border activity, foreign exchange controls and fluctuations in currency exchange rates; and

material changes in our financial institution clients performance compared to our estimates;

industry developments, such as competitive pressure, rapid technological developments and disintermediation from our payments network;

system developments, such as:

disruption of our transaction processing systems or the inability to process transactions efficiently;

account data breaches or increased fraudulent or other illegal activities involving Visa-branded cards or payment products; and

failure to maintain systems interoperability with Visa Europe;

the transaction with Visa Europe may not be consummated on the terms currently contemplated or at all;

Visa Europes business may not be successfully integrated with our business or we may not achieve the anticipated benefits of the transaction;

the costs and risks associated with the transaction with Visa Europe;

matters arising in connection with Visa Europes or our efforts to comply with and satisfy applicable regulatory approvals and closing conditions relating to the transaction;

the loss of organizational effectiveness or key employees;

the failure to integrate acquisitions successfully or to effectively develop new products and businesses;

natural disasters, terrorist attacks, military or political conflicts, and public health emergencies; and

various other factors, including those more fully described in our filings with the U.S. Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended September 30, 2015, and our subsequent reports on Forms 10-Q and 8-K.

You should not place undue reliance on such statements. Except as required by law, we do not intend to update or revise any forwardlooking statements as a result of new information, future developments or otherwise.

Contacts:

Investor Relations: Jack Carsky or Victoria Hyde-Dunn, 650-432-7644,

ir@visa.com

Media Relations: Connie Kim, 212-521-3962,

globalmedia@visa.com

VISA INC.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in millions, except par value data)

Assets

Cash and cash equivalents

15,943

Restricted cashlitigation escrow

Investment securities:

Trading

Available-for-sale

Settlement receivable

Accounts receivable

Customer collateral

Current portion of client incentives

Prepaid expenses and other current assets

Total current assets

24,303

10,021

Investment securities, available-for-sale

Property, equipment and technology, net

Other assets

Intangible assets, net

11,335

11,361

Goodwill

11,836

11,825

Total assets

54,326

39,367

Liabilities

Accounts payable

Settlement payable

Accrued compensation and benefits

Accrued liabilities

Accrued litigation

Total current liabilities

Long-term debt

15,876

Deferred tax liabilities

Other liabilities

Total liabilities

25,195

Equity

Preferred stock, $0.0001 par value, 25 shares authorized and none issued

Class A common stock, $0.0001 par value, 2,001,622 shares authorized, 1,905 and 1,950 shares issued and outstanding at March 31, 2016 and September 30, 2015, respectively

Class B common stock, $0.0001 par value, 622 shares authorized, 245 shares issued and outstanding at March 31, 2016 and September 30, 2015

Class C common stock, $0.0001 par value, 1,097 shares authorized, 19 and 20 shares issued and outstanding at March 31, 2016 and September 30, 2015, respectively

Additional paid-in capital

17,645

18,073

Accumulated income

11,582

11,843

Accumulated other comprehensive loss, net:

Defined benefit pension and other postretirement plans

Derivative instruments classified as cash flow hedges

Foreign currency translation adjustments

Total accumulated other comprehensive loss, net

Total equity

29,131

29,842

Total liabilities and equity

CONSOLIDATED STATEMENT OF OPERATIONS

Three Months Ended

Six Months Ended

(in millions, except per share data)

Operating Revenues

Service revenues

(1,577

(1,389

Total operating revenues

Operating Expenses

Personnel

Marketing

Network and processing

Professional fees

Depreciation and amortization

General and administrative

Litigation provision

Operating income

Non-operating Income

Interest expense

Total non-operating income

Income before income taxes

Income tax provision

Net income

Basic earnings per share

Class B common stock

Basic weighted-average shares outstanding

Diluted earnings per share

Diluted weighted-average shares outstanding

CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended March 31,

(in millions)

Operating Activities

Adjustments to reconcile net income to net cash provided by operating activities:

Fair value adjustment for the Visa Europe put option

Share-based compensation

Excess tax benefit for share-based compensation

Depreciation and amortization of property, equipment, technology and intangible assets

Deferred income taxes

Change in operating assets and liabilities:

(1,912

(1,479

Accrued and other liabilities

Net cash provided by operating activities

Investing Activities

Purchases of property, equipment, technology and intangible assets

Proceeds from sales of property, equipment and technology

Investment securities, available-for-sale:

(17,437

(1,267

Proceeds from maturities and sales

15,860

Acquisition of business

Purchases of / contributions to other investments

Proceeds / distributions from other investments

Net cash used in investing activities

(1,846

Financing Activities

Repurchase of class A common stock

(3,765

(1,855

Dividends paid

Proceeds from issuance of senior notes

15,971

Debt issuance costs

Payments from litigation escrow accountU.S. retrospective responsibility plan

Cash proceeds from issuance of common stock under employee equity plans

Restricted stock and performance-based shares settled in cash for taxes

Net cash provided by (used in) financing activities

11,452

(2,115

Effect of exchange rate changes on cash and cash equivalents

Increase in cash and cash equivalents

12,425

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of period

Supplemental Disclosure

Income taxes paid, net of refunds

Net unrealized gains on currency forward contracts

Accruals related to purchases of property, equipment, technology and intangible assets

FISCAL 2016 AND 2015 QUARTERLY RESULTS OF OPERATIONS

Fiscal 2016 Quarter Ended

Fiscal 2015 Quarter Ended

June 30,

Non-operating Income (Expense)

Total non-operating income (expense)

RECONCILIATION OF NON-GAAP FINANCIAL RESULTS

The Companys financial results during the first half of fiscal 2016 reflect the impact of significant non-operating items that the Company does not believe are indicative of its operating performance, as they are either non-recurring or have no cash impact. As such, the Company believes the presentation of adjusted financial results excluding the following two items provides a clearer understanding of its operating performance for the periods presented. There were no comparable adjustments recorded during the three or six months ended March 31, 2015.

Net unrealized gains on currency forward contracts.

During the second quarter of fiscal 2016, the Company entered into currency forward contracts to mitigate a portion of the foreign currency exchange rate risk associated with the upfront cash consideration to be paid in the anticipated Visa Europe acquisition. As a result, the Company recorded non-recurring, net unrealized gains of $116 million, before tax, in non-operating income. Net of related tax expense, determined by applying applicable federal and state tax rates, the impact to income was $81 million.

Revaluation of Visa Europe put option (the Put).

During the first quarter of fiscal 2016, the Company recorded a decrease of $255 million in the fair value of the Put, resulting in the recognition of non-cash, non-operating income in its financial results. This amount is not subject to income tax and therefore has no impact on the reported income tax provision.

Adjusted net income, effective income tax rate and diluted earnings per share are non-GAAP financial measures and should not be relied upon as substitutes for measures calculated in accordance with U.S. GAAP. The following table reconciles the as-reported net income, effective income tax rate and diluted earnings per share, which are calculated in accordance with U.S. GAAP, to the respective non-GAAP adjusted financial measures for the three and six months ended March 31, 2016:

Three Months Ended March 31, 2016

Six Months Ended March 31, 2016

Net Income

Effective

(in millions, except percentages and per share data)

As reported

As adjusted

Diluted weighted-average shares outstanding, as reported

Figures in the table may not recalculate exactly due to rounding. Effective income tax rate and diluted earnings per share figures are calculated based on unrounded numbers.

Operational Performance Data

The tables below provide information regarding the available operational results for the 3 months ended March 31, 2016, as well as the prior four quarterly reporting periods and the 12 months ended March 31, 2016 and 2015, for cards carrying the Visa, Visa Electron and Interlink brands.

1. Branded Volume and Transactions

The tables present regional total volume, payments volume, and cash volume, and the number of payments transactions, cash transactions, accounts and cards for cards carrying the Visa, Visa Electron and Interlink brands. Card counts include PLUS proprietary cards. Nominal and constant dollar growth rates over prior years are provided for volume-based data.

For the 3 Months Ended March 31, 2016

($ billions)

Growth

(Nominal

(Constant

(millions)

All Visa Credit & Debit

Asia Pacific

-11.1%

Canada

-16.0%

-15.4%

-16.4%

US

13,570

23,957

Visa Credit Programs

-13.7%

10,332

Visa Debit Programs

-10.7%

13,625

For the 3 Months Ended December 31, 2015

-10.0%

-10.9%

-13.5%

-15.7%

-17.0%

-17.6%

-16.7%

13,970

24,605

-10.6%

-20.7%

10,898

-13.9%

-11.8%

13,707

-10.3%

For the 3 Months Ended September 30, 2015

-12.0%

-12.1%

-11.3%

-17.1%

-19.4%

-17.5%

-18.2%

13,661

23,647

-12.3%

-25.4%

10,433

-19.0%

-15.1%

13,214

-11.6%

For the 3 Months Ended June 30, 2015

-13.8%

-16.2%

-10.8%

-11.9%

-10.1%

13,264

22,719

-21.6%

12,731

For the 3 Months Ended March 31, 2015

-16.1%

-18.5%

12,206

21,039

-24.2%

-16.8%

11,884

For the 12 Months Ended March 31, 2016

18,714

-12.4%

-14.9%

-15.9%

11,009

54,465

94,928

17,074

16,750

24,902

-20.8%

41,652

-14.6%

37,714

15,562

12,656

53,276

16,370

For the 12 Months Ended March 31, 2015

16,099

10,082

49,337

84,173

16,503

14,888

22,204

37,092

34,450

12,631

12,118

47,081

15,753

2. Cross-Border Volume

The table below represents cross-border volume growth for cards carrying the Visa, Visa Electron, Interlink and PLUS brands. Cross-border volume refers to payments and cash volume where the issuing country is different from the merchant country.

Period

USD)

Mar 31, 2016

Dec 31, 2015

Jun 30, 2015

Mar 31, 2015

3. Visa Processed Transactions

The table below represents transactions involving Visa, Visa Electron, Interlink and PLUS cards processed on Visas networks.

(millions)

Growth

18,475

18,986

18,365

18,024

16,980

73,850

68,233

Footnote

Payments volume represents the aggregate dollar amount of purchases made with cards carrying the Visa, Visa Electron and Interlink brands for the relevant period; and cash volume represents the aggregate dollar amount of cash disbursements obtained with these cards for the relevant period and includes the impact of balance transfers and convenience checks; but excludes proprietary PLUS volume. Total volume represents payments volume plus cash volume.

Visa payment products are comprised of credit and debit programs, and data relating to each program is included in the tables. Debit programs include Visas signature based and Interlink (PIN) debit programs.

The data presented is based on results reported quarterly by Visas financial institution clients on their operating certificates. Estimates may be utilized if data is unavailable.

On occasion, previously presented information may be updated. Prior period updates, if any, are not material.

Visas CEMEA region is comprised of countries in Central Europe, the Middle East and Africa. Effective with the 3 months ended September 2013, Croatia moved from the CEMEA region to Visa Europe. Several European Union countries in Central Europe, Israel and Turkey are not included in CEMEA. LAC is comprised of countries in Central and South America and the Caribbean. International includes Asia Pacific, Canada, CEMEA and LAC.

Information denominated in U.S. dollars is calculated by applying an established U.S. dollar/local currency exchange rate for each local currency in which Visa Inc. volumes are reported (Nominal USD). These exchange rates are calculated on a quarterly basis using the established exchange rate for each quarter. To eliminate the impact of foreign currency fluctuations against the U.S. dollar in measuring performance, Visa Inc. also reports year-over-year growth in total volume, payments volume and cash volume on the basis of local currency information (Constant USD). This presentation represents Visas historical methodology which may be subject to review and refinement.

The above information was disclosed in a filing to the SEC. To see the filing, click here.

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Other recent filings from the company include the following:

Visa: N E W S R E L E A S E - April 20, 2016