Q1 2021 Visa Inc Earnings Call
Okay.
Okay.
Welcome to visa fiscal first quarter 'twenty 'twenty, one earnings conference call. All participants are in a listen only mode until the question and answer session. Today's conference is being recorded if you have any objections you may disconnect. At this time I would now like to turn the conference over to your host Mr. Mike Miller.
I'll touch senior Vice President of Investor Relations. Mr. Militants, you may now begin.
Thank you Michelle good afternoon, everyone and welcome to Visa, Inc. Fiscal first quarter 2021 earnings call joining.
Joining us today are al Kelly, Visa's, Chairman and Chief Executive Officer, <unk>, <unk>, Visa's, Vice Chairman and Chief Financial Officer.
This call is being webcast on the Investor Relations section of our website at Www Dot Investor day visa Dot com.
A replay will be archived on our site for 30 days with a slide deck containing financial and statistical highlights where we posted on our IR website.
Let me remind you that this presentation includes forward looking statements.
These statements are not guarantees of future performance and our actual results could differ materially as a result of many factors.
Additional information concerning those factors is available in our most recent reports on forms 10-K, and 10-Q, which you can find on the SEC's website and the Investor Relations section of our website.
For historical non-GAAP financial information disclosed on this call the related GAAP measures and reconciliation are available in today's earnings release.
That let me turn the call over to al.
Thank you, Mike and good afternoon, and thank you for joining us today.
Even with vaccine proliferation on the Horizon COVID-19 infections has really continued to rise, causing restrictions to be implemented in many parts of the world amidst the pandemic visa delivered strong financial results and our fiscal first quarter and our strategy to enable money moving globally remains clear pursuing growth through core consumer.
Payments, new flows and value added services.
On our call today, let me discuss our Q1 results and then provide detail on our momentum this quarter with clients in the valuable solutions day utilized to drive money movement globally as <unk>.
I'll review, our Q1 results recall, we are growing over a quarter, where no one had ever heard of COVID-19.
Payments volume process transactions across border volume all improved from Q4 payment volume improved half a point processing transaction growth improved a point and cross border volume improved eight points.
Net revenues in the fiscal first quarter were $5 seven.
$7 billion, a year over year decrease of 6% non-GAAP EPS was $1 42, a decrease of 3%.
Through our dividends and buybacks, we returned $2 5 billion of capital to shareholders in Q1.
The site will cover spending in great detail. Following me make a few high level comments on holiday spending.
Holiday spending was quite different this year, but had a similar overall growth for the last three years that holiday season led by strong retail growth somewhat offset by travel entertainment and fuel.
This year in the U S. We generally saw a continuation of the trends that have been occurring during COVID-19 strong debit and ecommerce and weaker credit and card present outside the United States holiday retail spending growth broadly accelerated with growth in Canada, The U K, Brazil, and Australia, all rising by five.
From a more points over last year.
Now, let me transition to our progress with clients, we continue to win and renew business as we transfer money movement globally through consumer payments, new flows and value added services and consumer payments. We continue to focus on digitizing. The 18 trillion spent in cash in fact globally.
Working with partners to grow endpoints and deepen customer engagement with innovation, we are growing credentials with traditional issuers fintech and wallets.
Let me start with North America.
We are very pleased to have renewed our long standing partnership with wells Fargo across consumer debits credit small business and commercial for the net six years.
The bank of Montreal, Canada fourth largest bank in the only top five Canadian bank not previously issuing with visa announced a new partnership with us to issue to affluent lifestyle credit card products in the Canadian market.
These products are digital first targeting the affluent millennial segment and offer strong rewards and value to cardholders in a differentiated and innovative way.
In our Asia Pacific Region, we won the debit business in Malaysia and bag after winning the credit business just a quarter ago.
Our relationship with line pay also David.
Deep in this quarter on two fronts first in Japan line pay is now issuing a visa virtual prepaid cards and second visa secured an exclusive partnership with line decay, Thailand's first social banking platform.
Issuance of visa debit cards within the first month volume BK issued 180000 visa debit credentials.
And Russia Yo money, one of the country's largest electronic payment services with more than 120000 merchants worldwide 40 million endpoints fandango through visa credentials in their wallet and enable visa direct.
In Europe, we had several notable wins as we continued to increase our business on the continent visa has secured a business agreement with fat than their group, becoming the preferred partner in credit.
And commercial for exactly their bank across seven countries in Continental Europe.
We also want the prepaid issuance of Mooney, the first proximity banking and payments company in Italy, which offers its services through both digital and retail channels with over 45000 points of sale in rural and urban areas that can reach 20 million customers.
Cash bank, the largest private bank in Turkey, with 20 million cards, I selected visa for its consumer and commercial credit and debit portfolios.
Last we renewed two portfolios with a leading U K issuer, one for consumer credit and one for commercial charge card.
We also continue to deepen engagement with our partners to find new ways to remove friction enhance and enhance the client experience through innovation just yesterday, we announced the global partnership with transfer wise in the first use case of visa cloud connect a new way to securely connect to visa net through the cloud the new platform will enable.
The expansion of transfer wise.
Why is this multi currency debit cards in Asia Pacific Europe, the Middle East U K and the U S and deliver a range of financial services via a mobile app to their customers, including currency exchange and PDP payments all linked to a visa card.
Tap to pay continues to expand representing almost two thirds of all face to face transactions, excluding the United States.
In the United States, we have approximately 300 million contactless cards in place now and have high single digit penetration of face to face transactions.
Even at this level the U S is now the fourth largest country in the number of tap to pay transactions enabled may continues to grow as all 500 of cosco fuel locations and Chipotle and Nordstrom stores now except tap to pay I'm also pleased to report that the New York City.
Ta has completed their rollout to all subways and buses.
Processing is also a way to bring visa innovations to market and we have made significant process progress in Latin America, this past quarter, and Ecuador, Colombia, and Peru, and now have reached 100% processing penetration in Chile.
As I close out the consumer payments section I wanted to note the progress in India.
We continue to grow credentials, the Amazon pay IC ICI Bank co branded credit card in India has set a country record by issuing over 1 million cards in just 20 months.
On the acceptance front, India now has six 5 million acceptance points, including over 1 million QR points up almost 20 percentage points from a year ago at 65% of all terminals are tap to pay enabled.
The reserve Bank of India recently raised the contactless limit, which will soon cover 90% plus of all transactions in India.
These guys entered into new partnerships with leading acquirers, such as SDI payments from large acceptance solutions, such as tap the phone and contactless and visa is partnering with the largest acquirer in India, <unk> Bank and the launch and scale up of smart hub in App solution bundling payments banking and value.
Added services to help sort fall merchants grow their businesses.
We're also contributing to India's payment infrastructure development fund to encourage growth of physical and digital acceptance in underpenetrated geographies by adding 1 million points of sale and 2 million QR points per year over the next three years.
All of these efforts build on our leading credit and debit market share in India.
Now on to the second level lack lever of growth new flows, which represents a 185 trillion an opportunity.
We are pursuing this opportunity with our traditional commercial card solutions as well as newer capabilities like visa direct and visa b to B connect while we're making progress accounts across all new flows I'll highlight a few advancements from this quarter.
Indeed, see big economy payouts and earned wage access continue to grow meaningfully in the wake of Covid This quarter with door Dash, we launched the dash or direct business prepaid card in the U S offering the over $1 million <unk> on the door dash platform access to daily deposits have earned wages.
And rich card benefits.
In Canada.
The dishes the country's largest food delivery network rollout their visa direct enabled carrier payouts called fast cash.
PDP, which represents <unk> 20 trillion of the flows with visa direct first use case and continues to grow substantially.
Key area of future growth as cross border PDP or remittance four of the top five global money transfer operators were on boarded in fiscal year 'twenty transfer wise Western Union rapidly and Moneygram, which noted a 500% increase year over year and real time transfers in December alone.
Our efforts to expand remittance also extends to Fintech and banks, who can <unk> can enable this capability is the pay a fast growing African fintech, we use visa direct to allow Africans to send money across European and North American coronary and soon will expand to all major carters glow.
Billy.
Transfer go our global money transfer company that supports migrant workers to send money back to their relative without paying unnecessary bank fees has enabled visa direct in 55 markets and has the potential to expand to a total of 178 countries in the future with the upcoming additions such as the UK, Italy and Nigel.
Area.
Across the globe in the first quarter visa direct transactions grew almost 60%.
Now I want to be debated and cross border Goldman Sachs transaction transaction banking recently signed on to <unk>.
Visa <unk> connect for cross border BTB money movement offering its corporate clients the ability to transact at over 80 markets globally. We are very pleased that our partnership with Goldman continues to deepen on multiple fronts in.
In the virtual card based business, we've expanded our relationship with U K based conform of pay to launch visa commercial pay which had three offerings.
Mobile app, enabling virtual card issuance and management for business Incidentals.
Two our solution to manage business travel spend with enhanced data and three an integrated payables platform that can seamlessly send payments to suppliers.
Barclays has already launched this functionality for their commercial clients.
Apparently essentially all of these new flows are transacted in a traditional Fiat currencies, but there is a growing interest in digital currencies and I wanted to take a minute to talk about how visa thinks about crypto in general and our approach.
In this space, we see ways that we can add differentiated value to the ecosystem and we believe that we are uniquely positioned to help may crypto currencies more safe useful and applicable for payments through our global presence our partnership approach and our trusted brand.
We think of the crypto market in two segments.
They are a crypto currencies that represent new assets such as bitcoin.
Secondly, our digital currencies are stable clients that are directly backed by existing Fiat currency.
We see all currencies in that first segment as digital gold.
Dominantly predominately held as assets that are not used as a form of payment in a significant way at this point our strategy here is to work with wallets and exchanges to enable users to purchase these currencies using their visa credentials or to cash out onto a visa credential to make a fiat purchase at any of the 70 million merchants.
Visa is accepted globally.
This is similar to our approach to connect closed loop wallet such as.
Line pay and pay T M.
For the second segment Fiat back digital currencies, including stable claims and Central Bank digital currencies.
These are emerging payments innovation that could have the potential to be used for global commerce much like any other Fiat currency, we think of digital currencies running on public blockchain as additional networks, just Mike RTP or ACTH networks that we see them as part of our network of network strategy.
Across both of these segments, we are the clear leader in this space today 35 of the leading digital currency platforms and wallets have already chosen to issue visa, including Coinbase crypto Dot com black black five fold and bid Panda. These wallet relationships represent the potential.
For more than 50 million visa credentials. The next leading network has a fraction of that.
And it goes without saying to the extent a specific digital currency becomes a recognized means of exchange. There is no reason why we cannot added to our network, which already supports over 160 currencies today.
Let me now turn to our third growth lagged our value added services here, we saw revenue grow at 19% in Q1, and let me name a few services with notable progress this quarter as E. Commerce explodes interest in Cybersource remains strong for merchants as well as from Fintech and acquire is looking to <unk>.
Average our capabilities to offer to their clients. This quarter two additional leading acquirer has signed on to use cybersource keybank in Thailand and.
In Australia.
As one of the largest debit and prepaid issuer processes, we've been looking to expand visa dps globally in that vein. We are pleased to share that we're bringing our visa debit processing system to Europe Dk day, our largest issuing bank in Germany has chosen <unk> as as its debit process.
And recently process visa inaugural European Dps transaction via their platform.
<unk> will also be able to take advantage of nearly 20 value added services through this connection.
We have believed for years that installments represent an important opportunity in payments to enable this capability, we offer our own network solution for issuers merchants and fintech installment providers to use directly or also work with many and we also work with many installment providers to develop new solutions.
This quarter, we had updates on both fronts, we signed a global deal with after pay extending our U S relationship to an additional seven countries, where after payable use visa technology to accelerate its global expansion. In addition, visa and after pay will tasked and collaborate on the application of new technologies like token adjacent.
And visa direct we announced in July the Commerce Bank in United States with piloting the network solution and is now it has now launched with over three.
300000 customers live.
The office side Scotiabank is the first Canadian bank to launch a post purchase installment pilot with employees in December with a full market rollout slated for mid 2021.
All of these growth levers consumer payments, new flows and value added services are driven by our network of network strategy, which is enabling all forms of payment utilized with all networks and providing the value added services you would expect from visa as we enable money movement.
In closing a few points domestic volumes driven by debit and ecommerce are really holding up well holiday spending while different in terms of categories and timing was quite good.
Q1, overall was a very solid quarter and positive momentum continue continued, albeit we are still impacted by COVID-19, we are continuing to work very hard to balance expense management in recognition of the short term realities and investing in an exciting set of growth opportunities as we always manage the business for the long term we continue to.
Focused on our three growth levers all of which are supported by our network of networks and lastly, we are hopeful that as vaccines rollout and become more readily available lockdowns travel restrictions in capacity constraints will be lessened or eliminated enabling travel entertainment and other commerce to grow with that over to visa for more color on our <unk>.
<unk> in our financials.
Thank you al but also from everyone.
During our fiscal first quarter last year as COVID-19 was not yet a road into the English language.
This will be this will be the last quarter that our performance as compared to a quarter of that no COVID-19 impact whatsoever.
As such our results this quarter provide a clear picture of the state of the recovery.
Overall, the quarter was stronger than we expected, but net revenue down 6% largely due to the cross border business.
<unk> declined only 3% helped by lower expenses and a lower tax rate.
Exchange rate shifts versus last year increased reported net revenue growth by less than half a point and EPS growth by less than one point.
As we approach the first anniversary of the pandemic, where do we stand across our key business drivers relative to where we might have been had the pandemic never happened.
Global payments volume is four to five points short of where we might have been.
Debit has outperformed helped by accelerated cash displacement and credit is still a drag.
In the U S. We're actually back to pre pandemic growth trajectory with debt is significantly ahead offsetting credits under performance.
As you know, where we are well behind us and our cross border business in.
In the first quarter of fiscal 'twenty, one our cross border volumes were almost 40% lower excluding intra Europe volumes than they might have been had the pandemic never happened largely due to travel.
Cross border travel volume both card present and card not present is still down almost 70% relative to where it might have been at this point.
Let's start with a review of the key business drivers in the fiscal first quarter.
Global payments volume and transaction growth rates were modestly better than the prior quarter.
The cross border volume recovery continued even though most models remain completely or partially closed.
Trajectory of the domestic spending recovery varies across the globe. Some regions and countries are recovering fast others are holding steady while some have slowed in recent weeks as a result of new restrictions.
What remains consistent globally is very strong debit and E commerce spending, which is partially offset by weaker credits and in store spending.
Although constant dollar cross border volume excluding transactions within Europe is still down 33%. There was an eight point improvement from last quarter.
Payments volume on a constant dollar basis grew four 5%.
Debit was up 17% three percentage points lower than last quarter, while credit declined 6% up three percentage points from Q4.
Growth, excluding China was 7% up almost a point as Chinese domestic volumes continued to be impacted by dual branded card conversions, which have minimal revenue impact.
U S volume growth U S payments volume growth was 8% up half a point from last quarter David.
Debit growth remained strong at 21% debit growth was three points lower than the fourth quarter, largely driven by a step down and unemployment benefits distributed via visa prepaid cards.
Credit spending declined 3% year over year.
Full point improvement versus last quarter, driven by an acceleration in retail spending and some recovery in travel and restaurant spending.
Yeah.
Card not present volume, excluding travel continued to grow over 30% in the quarter, primarily driven by retail spending.
The decline in cost pressing spending was consistent with last quarter. However performance did deteriorate through the quarter as rising Covid cases net to further government imposed restrictions in several states from cities.
Card present spending slowdowns, the most significant in the restaurant segment as well as during the transplants, giving holiday weekend across most segments.
Across the category growth was relatively consistent with the prior quarter.
Categories, which have been growing above pre COVID-19 levels have remained elevated including food and drug stores home improvement and retail goods.
The categories that are the hardest hit by this pandemic, including travel entertainment fueled in restaurants spending remained depressed, but year over year declines consistent with last quarter.
International payments volume grew 2% in Q1 or 6%, excluding China, most of which are up one point versus last quarter a.
A few regional highlights.
Samir remains our best performing region growing 19% in constant dollars in the quarter, a more than four point improvement over Q4.
The easing of Covid related restrictions, particularly in the middle East and client wins drove the robust growth.
Latin America grew 16% in constant dollars, a nearly 10 point acceleration from last quarter.
This growth acceleration is fueled by limited COVID-19 related restrictions in most countries.
Elevated E commerce spending compared to other regions and growing our market share with client wins in the few of the larger countries.
Europe grew 5% in constant dollars, the $4 flow down versus last quarter.
This deceleration was driven partially by renewed restrictions in the second half of the quarter due to rapidly rising COVID-19 infection rates, particularly in the UK, France, Italy and Germany.
And also as you may remember growth in Europe last quarter benefited from a non recurring event in the UK related to purchases of higher interest bearing savings funds.
Asia Pacific declined 8% in constant dollars, excluding China Q1 spending was flat a four point improvement since last quarter.
There continue to be more quarter COVID-19 related restrictions in effect across Asia than other parts of the world. However, several larger markets such as New Zealand, Australia, Korea, and Japan have returned to growth.
Joseph transactions growth was 4% up one point from last quarter.
Growth accelerated faster than payments volume as transaction sizes continued to normalize ex Europe.
Increased COVID-19 related restrictions in Europe are driving higher average ticket sizes, causing transactions growth to slow.
Latin America is benefiting from processing wins in several countries, including Ecuador, Colombia, Peru and Chile.
Visa direct continues to perform very well with transactions growing almost 60% globally this quarter.
Both remains strong in every region as we continue to launch new use cases.
Further penetrate existing use cases, such as earned wage access and cross border remittance and expand existing use cases to new geographies.
Constant dollar cross border volume, excluding transactions within Europe declined 33% in Q1, an eight point improvement from the last quarter travel related spend declined 64%, but improved six points versus the fourth quarter cash.
It's not present non travel growth was 20% up three points fueled by strong retail spending in November and December.
Constant dollar cross border volume, including transactions within Europe declined 21% in the quarter.
Although cross border travel performance improved steadily from the quarter. The travel improvement was concentrated in only a few markets that borders.
Travel from the U S to several countries in Latin America remained strong, including Mexico and the Caribbean.
UAE has been open to travelers attracting people from Europe, Russia and other Gulf countries.
Also traveled across countries within the former Soviet Union has been growing.
Unfortunately, the majority of borders remain closed or imposed significant requirements on international travelers the flow.
Tourism organisation reported in December that almost 217 countries 118 countries or 54% still have completely or partially closed their borders to foreign visitors of the remaining 99 countries. The majority on mandating COVID-19 tests with quarantines.
Very few countries have no COVID-19 restrictions.
Significant obstacles and crossing borders remains the single most important factor driving the slow recovery of cross border travel.
A quick review of first quarter financial results.
Net revenue declined 6% better than our expectations, primarily due to stronger than expected cross border volume and lower client incentives value added services continued to perform well growing 19%.
It's important to note that had we recognized service revenues on current quarter payments volume. It would have had minimal impact on our Q1 net revenue growth with those payments volume growth was very similar across both quarters.
Service revenues grew 5% roughly in line with nominal payments volume growth last quarter.
Net of processing grew 6% with high teens value added services growth continuing to be partially offset by the mix shift away from higher yielding cross border transactions.
International transaction revenues were down 20 ish percent four points better than cross border volume, excluding intra Europe due to favorable country mix and currency volatility benefits.
Other revenues grew 5% led by value added services, but continued to be negatively impacted by declines in the usage of travel related cost benefits.
Client incentives were 24, 6% of gross revenues approximately one point lower than expected.
This was driven by three factors.
A few larger deals expected to be signed in the first quarter were delayed from the second quarter.
Cross border volume was better than we expected, particularly in the month of December.
As we've said in the past client incentives, mostly tied to payments volume so outperformance in high yielding cross border volume lower zone incentives as a percent of gross revenues.
Third payments volume growth only improve the half point versus last quarter, especially it was a minimal impact on current quarter client incentives from current quarter volume.
On the operating expense front, we continue to benefit from actions, we implemented last spring.
Counters and lower spending on external services has been scaled back travel continues to be very restricted and some marketing spend has been curtailed.
Both GAAP and non-GAAP operating expenses declined, 10%, which was better than expected partially due to timing shifts in client core marketing as well as certain product and technology investments to later in the year.
Non-GAAP non operating expense was 100 debt $12 million for the fiscal quarter.
This was over $30 million lower than expected due to two non recurring items first investment income tied to deferred compensation was higher this is offset in personnel costs, and therefore income neutral and seconds and interest expenses, though was released due to the conclusion of certain tax audits.
The non-GAAP tax rate was lower than expected at 16, 6% during the quarter. The conclusion of tax audits in certain jurisdictions resulted in an $81 million benefit.
In addition to this specific benefit our tax rate is typically lower in the first quarter due to the impact of employee equity vesting.
GAAP and non-GAAP EPS was $1 42, a day.
<unk> was 3%.
We bought $8 7 million shares of class a common stock at an average price of $202 30 to $1 8 billion. This quarter. Our board has authorized a new $8 billion share repurchase program, bringing total funds available for repurchases to over $11 billion.
Including our quarterly dividend of <unk> 32 per share, we returned approximately $2 $5 billion of capital to shareholders in the quarter.
In December we repaid $3 billion of debt upon maturity of senior notes issued five years ago.
Moving onto some perspectives on the second fiscal quarter, starting with business David trends through January 21.
Through January 21.
Payments volume growth was 12% with U S debit growing 30% and credit declining 6%.
Debit growth is 10 points higher than the November December run rates fueled by government stimulus payments distributed right around January one.
Weekly growth trend show, a sharp step up in growth in the first week of January and a step down in <unk>.
January credit growth has slowed three points since December which is more in line with the November trend.
While U S payments volume growth has accelerated there are many countries that constant dollar growth is slowing due to increased restrictions as COVID-19 infections rise.
In Asia Pacific, Japan, Australia, India, and Singapore payments volume growth has slowed four to five points versus the December.
In Europe countries, such as the UK, Italy, Denmark, and Germany, all have at least 10 points lower growth in January so far growth rates are relatively steady in both EMEA and Latin America.
Through January 21 processed transactions growth remained at 4% with acceleration in the U S offset by slowing growth in Europe and Asia Pacific.
Cross border volume, excluding transactions within Europe on a constant dollar basis declined 33% in line with the first quarter, but below the trends we saw in December.
In a fast changing environment accurate forecasting remains difficult.
How long with elevated spending driven by stimulus payments last how long those theft of restrictions and Lockdowns persist.
These two countervailing trends balance out country by country.
Bill Cross border travel sustained the slow recovery, even if some new restrictions go into place. These are just some of the uncertainties as we look ahead to the next three months.
Based on the trends to this point, our best sense is that the second quarter gross revenue growth rate will recover to be flattish with last year with most of the improvement driven by international revenues.
Growth in other in the other revenue lines is expected to have a small uptick due to easier year over year comparisons in the second half of March.
First quarter client incentives, but a point below our expectations.
Second quarter second quarter client incentives could be a point above the high end of the $25 five to 26, 5% range, we expect for the year.
This would put first half incentives right in the middle of the range.
There are several reasons for the step up of client incentives as a percent of gross revenues in the second quarter, even with continued improvement in cross border.
First as I mentioned earlier, a few large deals moved from the first to the second quarter, one of which Wells Fargo was signed in January as Al noted.
Second as we told you in October many clients did not meet certain volume thresholds in calendar year 2020, and as such did not earn corresponding incentives as volume recovers in 2021, we expect clients will hit growth thresholds and earned these incentives we accrued incentives accordingly, starting with the first quarter of the new.
Calendar year. This growth was a larger increase uniques are the euro the recovery.
Third the impact of renewals, we had already expected in the second quarter.
Due to the step up in client incentives as a percent of gross revenue. The net revenue decline in the second quarter is expected to be comparable to the decline we reported in the first quarter, even as the gross revenue growth rate continues to recover.
Exchange rate shifts could benefit second quarter net revenue growth by less than a point.
We expect operating expenses to grow in the low to mid single digits in the second quarter as we begin to lap the expense reductions implemented last year.
We still plan to grow expenses in the double digits from the second half as we step up investments on key growth initiatives in anticipation of a return to normalcy by the end of fiscal 2021.
Non operating expense should be $145 million, approximately which is similar to the first quarter. If you exclude the two nonrecurring items I mentioned earlier.
There is no change in our cash tax rate expectations. It is still too early to predict what impact the U S elections will have on our taxes.
As always we will provide updates as the year progresses.
In summary, as you can see our business remains resilient with debt.
Chris and E commerce growth of sustaining well above pre COVID-19 levels as the accelerated shift to digital payments becomes a habit cross border growth is poised to recover sharply once vaccines facilitated reopening of borders and we lapped last year's steep declines.
Our new flows and value added services businesses have continued to grow robustly through the worst of the pandemic.
As Alan indicated we have stayed focused on our long term growth initiatives and we'll be stepping up the level of investment in the second half in anticipation of a post COVID-19 world with accelerating growth.
With that I'll turn this back to Mike.
We are now ready to take questions Michelle.
Thank you if you would like to ask a question. Please press star one and clearly record your name will be announced prior to asking your question John.
Sure I'll question, Here's our herd, we ask that you. Please limit yourself to one question once again to ask a question. Please press star one to withdraw your question you may start.
Our first question comes from James Faucette with Morgan Stanley You May go ahead Sir.
Great. Thank you very much I just wanted to ask.
Strategically how youre thinking about going forward post the Plaid deal that you decided to turn away from me Mike.
Yes.
And what you've heard your comments of how you feel your relationships are with regulators and what makes sense in the future for future technology acquisitions et cetera.
Thanks James.
Well first of all let me answer the last part of the question.
A single lawsuit brought by a singular single regulator about one specific M&A transaction, so I don't believe that.
Portends anything about the future and our ability to continue to try to acquire companies.
As we said a couple of weeks ago.
We ended up making the decision that.
This was just going to go on for too long and we all know that the payments marketplaces moving.
With great speed on so many fronts.
And the idea that we would tie.
Tire sales up on this transaction.
And frankly, the plant with high themselves up.
Through our long term litigation that could go all the way through an appeal.
We ended up itself isn't that appealing to us in.
In terms of all the other things that we thought we could be investing in it spending management management time on and.
Spending our dollars.
John.
We're continuing to forge down a path of making sure that.
We are a real player in this in this space of opened of open banking.
And believe that we have a lot of the assets already.
What plaid was going to do we're going to get us into the.
Specifically into the data extraction type of business.
Which would have added to our network of networks, but it doesn't ended up itself prevent us from from doing doing more going forward. We also still have the ability in that space.
To partner with Plaid, we have the ability to partner with other players.
Around the world and in many cases that might give us the ability to partner with players that understand the nuances of specific markets and which day.
They do work.
We will continue to look to.
To make sure that we to the degree that any use cases, they're going to for me the most.
This case that probably would have the most.
Chance of.
Stepping out and being something that takes has some legs behind it would be account to account and I think we're very well positioned there where we're positioned well to make sure that we can provide debt payments capabilities for the various syntax debt. We are doing business with today and we have the ability to continue to sell value added service.
As to offload players so I think that ultimately as we have in the past.
Will.
We will invest to grow internally, we will look to partner and we will look to buy and it will be a combination of capabilities and approaches that will allow us to continue to be a player in this space.
That's great context Bill.
A quick operational follow up obviously, we've taken expenses out of the cost base in the last year as a result of the pandemic how should we think about what components of that cost base are likely to flow back in as things return to normal versus what could be more permanent changes.
Well I think when you look at our cost base.
The big parts of our cost base are people marketing and technology and.
We do have.
While we think we have the Tokyo Olympics coming up.
The summer months.
Some people think that might be in some apparel at the moment, it's going going forward.
We are marketing to really relatively modest levels in this past quarter, but I would certainly expect us to be driving marketing up basically when we go to market.
Our business is the combination of putting people resources.
Our technology resources in our marketing muscle behind whatever we're doing and so those are the areas that I would expect to see us grow going forward and then of course I mean, we really have dramatically curtailed teeny and professional services that I think debt to the degree that.
Later in the year.
We begin to get some people back to offices and we began to see some people get that.
On airplanes will see some modest increases in in those expenses.
It's expense areas, but we've been really careful about both our people level spending in our technology level spending in our marketing of our spending and I think.
As conditions warrant, we will be dialing those up to the fact gave you some insight into what.
And we think there's some really good opportunities that I want to make sure that if in fact, we believe that will be in some form of normalcy by the end of this fiscal year, we want to make sure that we.
We have good momentum going into fiscal 'twenty two.
Great great color. Thanks.
Thank you. Our next question comes from Tien Tsin Huang with Jpmorgan you May go ahead.
Okay. Thanks, so much.
All the color on the volume trends I wanted to ask about value added services that was up in the high teens.
Curious how sustainable that is and if that growth could actually step up.
The eventual recovery in volume just trying to understand how pro cyclical or not that businesses.
Thank you.
Yes, a little bit of color for everybody that two thirds of our value added services.
In data processing and they basically are transaction based.
Revenue streams.
And that's that cybersource debt, our risk and identity.
Products that EPS.
All of those.
10.
You too.
<unk>.
Very good volume and they'll move with transactions as debt transactions move about a third of our value added services are split between.
Our services revenue.
Which tends to be card benefits that our Africa package and then in other revenue we have.
Volume that or not I am sorry, we have service is not tied to volume things like consultant consulting practice.
Practice.
Travel related card benefits that obviously have been down so I think it is travel with would be to come from.
Come back at some point that obviously would help that debt volume so.
With that color, we saw obviously in a world where E commerce and omni com.
Commerce is becoming a big deal.
<unk> volume was.
Very very good and go drove revenue, we continue to have more and more customers engage with us on risk and identity.
Services.
And.
As I said earlier now we're excited about the fact that we're going to take our day.
A debit processing system beyond the United States and we've now got it starting to use it in Europe.
I think that that that gives us a good platform for growth going forward as well.
Very good thank you thanks, David.
Thank you. Our next question comes from downturn Debbie.
From Walter Good evening.
In terms of the current quarter improvement.
Excluding Inc.
Q over Q improvement on the growth rate.
<unk>.
Remains strong.
<unk> was that a factor.
Overall, good year over year.
Dan.
Got.
It was really.
In Latin America was really U S, Mexico and U S to the Caribbean.
That drove the volume in North America beyond that.
<unk> opened a bit now Dubai is having a little bit of resurgence and went back into some.
Restrictions and earlier this week, but.
Dubai has been open and there's been a decent amount of travel insurer middle East.
There has been a little.
Little bit of an opening amongst the countries in the former.
Dolby at Union and then there's been some improvement or some movement in inter travel within South America.
So those are kind of that the spot where we have seen.
The improvements in cross border most of the rest of the car doors around the world continue to be as bill.
<unk> mentioned in his remarks, either closed or are subject to like really tough restrictions that make it very difficult to for somebody to take on traveling.
As you look at these numbers are you still feeling like the data points suggests there's a fair amount of pent up demand when things do open up.
Well I think Dan.
John as it relates to consumer travel, which is the vast majority of our payment volume in.
In the travel sector.
Over the years.
I do think we're going to we're going to see some opening for sure I think there's a lot of pent up demand and it goes a lot of people haven't seen family parents, who haven't seen grandchildren's children, who haven't seen parents.
And are going to want to dump on planes I also take a lot of people are stir-crazy and want to get out and then you've got people who are true global citizens who.
Knocking things off there.
To do list.
In terms of places they want to go and things in place that they want to see so I think consumer travel at the right time, but.
But we need to see these restrictions.
The mitigated or lessened in a pretty big way I think is going to come back.
<unk> strongly I think it's going to take more time to see business travel come back.
And and frankly, it might take years for business travel to return to where it is I mean, we've all gotten accustomed to.
Talking on video conferences et cetera, and I think we all probably realize that there are trips that we took our authorized in the past debt. When we look back on it today in the light of talking on video, we say why did we send somebody to that.
Needing for one five hour presentation that they could adjusted well done on video so that that's the way I think about it going forward John.
Jim.
Yeah.
Thank you. Our next question comes from Lisa Ellis with Moffett Nathanson you May go ahead.
Good afternoon. Thank you a follow up question from me on on visa direct which you highlighted again grew almost 60% in the quarter.
Our Investor Day last February you had side that beat its easy to see in PDP market's about 60 trillion in total payment volume and I believe visa direct did about $350 billion last year. So about half a percent of that can you talk about over time as youre seeing visa direct develop how much of that was market.
Do you think it potentially addressable by visa direct and any hint 10, five the monetization level that we should be thinking about something from market to domestic debit or from Matt. Thank you.
Lisa Thank you for the question.
Visa direct.
Has the ability to grow on a number of factors that to that.
I think are the most obvious is in.
In terms of or three I'd say continued penetration of current use cases.
New use cases that get developed and then thirdly geographic expansion and.
This is a business that we're still building out theres still left to do in all three of those categories and.
To an earlier question I think Dan.
Sure.
We're going to continue to invest in that area.
Markets, where we haven't even really laid any track for visa direct use cases, where we haven't made any any track and.
Our plan is to continue to do that if we look at the very first visa direct use case, which continues to grow substantially PDP payments.
Still lots to do both in domestic PDP payments, but we think a key future growth areas and cross border PDP and remittances.
Beginning to take steps there to enable that and I mentioned and Mike.
Remarks, the fact that we've got relationships with four of the five top global money transfer operators and that's helping us.
Quite a bit.
I think earned ways to access really continues to be a real opportunity I touched a little bit on a few of those cases, but there is still lots of geographies and lots of organizations.
<unk> debt, we have the ability to penetrate to grow that.
And then you've got all these BDC use cases things like food and grocery delivery and online gaming and insurance claim payouts.
So all of those are I would say.
In the early innings of a baseball game in terms of our ability to continue to.
To make progress and drive those so I continue to believe that.
This platform.
Which.
We can generate it.
Dozens and dozens of use cases.
Bill for quite some time be really important to us from a growth perspective.
Alright. Thank you. Thank you Lisa.
Thank you. The next question comes from Chris primary with Seaport Global you May go ahead.
Hi, Thanks. Good afternoon. Thanks, Jim a question al going to talk to you I'd love to hear your thoughts on the buy now pay later phenomenon seems to be gathering steam.
You have a solution there and how you how big you think that solution could become and is there any competitive threat from <unk>.
<unk> choosing.
Different payment option at checkout, when they're checking online.
Well, Chris this is pretty interesting space and I think we are in the early days in most markets.
Theres a number of different models.
I've said before I think <unk> said before we are not in the business of picking winners and losers, where we see our job as enablement no matter what the model is.
In some cases the.
The player is.
The b.
The actual lender in some cases, they're sourcing.
Lender or in some cases debt.
Stormont Theyre very short term.
<unk> set a time in some cases they are long term some providers only do installment from allow multiple payment options pay now pay on delivery payoff on on.
Various numbers of installments.
And then obviously it is where it gets excited provides multiple ways to pay off installments.
Virtual cards debit cards.
Jim.
It's a it's also a payment model today.
<unk> funded by the merchant our strategy, Chris to be brought to play with multiple third party providers and offer a visa platform to enable issuers to offer pay now buy now pay now pay later capability and we seek to work with.
All of these options and obviously, what we want to do is get virtual cards from visa in place as one option for repayment. We also want to put visa cards on file as another option.
I would remind you that these installments do break.
At its core these installments breaker transaction or a purchase into three or four or five payment transactions, which is good for us.
Because it gives us more transactions debt, which to earn earn fees.
That's great one quick follow up.
In places like Sweden, where it's become the dominant tender share does it actually do you actually see an impact on volume or enough people choosing your cards. This Matt.
Net impact of volume given how much growth in inbound out day later is taking place in that area.
So there's only a few countries you mentioned, Sweden, another one is Australia.
There's not many of them as a few countries where it has.
Really.
Take it taken off and.
I think it certainly has had some impact on on bags in those in those markets, but in many cases.
Because of the.
Kind of pay off capabilities I talked about card on file.
Virtual cards et cetera.
A lot of that by coming back to us.
The form of repayments.
That's awesome. Thanks, so much I appreciate it.
Thank you. The next question comes from Darrin Peller with Wolfe You May go ahead Sir.
Okay. Thanks, guys.
Just one quick one from <unk> and then I'll and then I'll just do a more structural and so I'll just so I can just do the per day once but.
So when we looked at the.
On the incentive side I know you guys said that it was.
Timing related why it came in below the range this quarter, but it will come and I think you said higher than the range or potentially could be for the next quarter.
When we think about when you first guided to the 25 to INR 26 by offering a better cross border activity similar to the September quarter, which was ended up being better. So I guess I. Just wanted to know you are assuming now from deterioration or more conservatism in cross border before maybe it gets better later in the year.
And then I guess, Alan and Mike.
And structurally again things like debit or better are seeming to be somewhat sustainable it's not all just.
People, even more non discretionary cash.
What you would identify now after having.
It's been about a year of the pandemic almost where are the top two or three items. You think structurally are impacting your business longer term cure to stay essentially.
Just taking the incentives question, we tried to give you our best sense of the range.
And at this point the visibility is greatest.
First half since we're halfway through it and we think we'll be right in the middle of the range.
Many variables here that go into it in a time like this when things are moving around quite a bit.
Suddenly cross border doing doing that helps.
Renewals will have an impact sometimes they happen when we expect sometimes they don't.
There is also the year over year improvements that our clients have as you know last year.
Many clients because of the pandemic hit certain thresholds the.
Things are recovering faster.
There could be.
We think they will all make their thresholds and more that has a year over year impact on it varies by client.
So theres a bunch of these things moving around at the same time and.
And the good news is we think we're right in the middle of the range and we will give you more as we go through the year.
Darrin on your second question.
Yes.
First of all.
There's many reasons I debit has been a star here Matt.
You've got the stimulus payments that are on prepaid cards, which counted it recap prepaid in our debit business.
E Commerce has moved into more everyday categories people are using debit people are more comfortable in tough situations tough times to use money they have versus borrow a borrow money that day.
Matt.
<unk>.
Don't have.
But I think when I look ahead structurally to answer your question.
Look I think E commerce adoption adoption.
It has probably accelerated three to five years in the last year and I don't think thats going backward.
Think that people, who have gotten used to shopping on their phone or their tablet or their computer.
Computer.
Continue to do that I think the other thing that I look at structurally that's really exciting.
Yeah.
Great opportunity to continue to grow both sides of this two sided market buyer.
Buyers and sellers wallet proliferation.
Continuing and we're working really hard to get credentials and wallets, which just adds.
Adds to these wallets in essence, they're becoming issuers and that that helps generate more buyers and the cost of acceptance is going down.
Around the world.
More and more players are getting into it and thats going to grow the number of sellers on our network.
That that network.
Gross I think thats going to be a really positive thing for us.
Obviously E commerce comes with the issue of.
No cash, but I think that I think that people are getting increasingly concerned about cash and the combination of tap to pay in the physical world, where the card doesn't need to leave your hands to go to anybody else in order to transact and the fact that ecommerce doesn't the cash is not an option.
Those are all of those things I think structurally are very positive for us the thing on the.
<unk>.
Mentioned that while business travels.
Small piece of our overall travel that will be one of the things that'll be a little bit.
Slower to come back.
And maybe never back it.
The the level it was pre pre COVID-19.
Alright, Thats really helpful guys. Thank you.
Next question please.
Thank you Bryan Keane from Deutsche Bank, You May go ahead.
Hi, guys I wanted to ask about cross border as that comes back, especially.
Likely in the second half of this calendar year, how do we think about the higher yields and profitability how that will flow to the bottom line versus additional investments you talk about what would necessarily be those investments, but it offset completely the benefit we'll see from that cross border.
Well I mean, there's no question cross border coming Matt has a.
Meaningful impact on our revenue line you saw that already in the first quarter non across model was.
Better than we expected and as a result, our revenues were also quite a bit better than we expected.
Saying that we will step up our investment in the second half and expect our expenses to grow double digits, but that's a cross border business comes back.
In a meaningful way I mean, that's clearly going to be much better growth on the top line than than that double digit increase in expenses.
That's our planning also you should remember that we started lapping the declines in net expenses from last year.
On expenses last year declining by five.
5% or so in the second half so when we grow them double digits. This year. This fiscal year in the second half and over a two year period are only growing them about 5%. So net net I mean cross border coming back is going to have a very positive impact on our business, especially if it comes back faster than we might be expecting in any case the comparisons get better.
So you will begin to see people from the cross border business, just because of what happened last year.
Got it helpful. Thanks, so much.
Thank you. Our next question comes from Harsha wallet from Bernstein, You May go ahead.
Hi, Good afternoon. Thank you for taking my question.
I have a question on your volume Natural Inc.
Good day metrics relative.
Over the long.
Last two quarters, you've seen the glass non <unk> yard.
Europe and U S volume from sales.
Yes.
How should we think about that is it from deal flow coming in partnership with visa.
We got that from the numbers any color.
Right.
Well, it's always a variety of reasons depending on the.
The component of the business Youre looking at I mean, clearly the mix of the business between debit and credit has an impact you all know that David has clearly outperformed.
The primary driver of.
Cash conversion globally, and then in those parts of the world like the U S debit has been.
Yes.
Mechanism for distribution of stimulus payments, which also benefited from that.
So a mix of business.
Makes a big difference we're.
We're not seeing any reason why net it will not continue to outperform.
And credit is recovering.
And that's a positive trend.
If you if.
If you look at places around the world.
Europe.
The bulk of the slowdown from Q1 to Q2 was the <unk>. The fact that we had that benefit.
Benefit from the first quarter, we've had some small impact from restrictions, but unless jurisdictions are becoming more significant this trend seems to be improving almost everywhere you saw that in Latin America, and Samir maybe saw meaningful acceleration in <unk>.
We're not seeing much impact on those trends from additional cases, so overall.
The U S. As I said in my comments, it's almost as if the pandemic didn't happen. We grew around 8% first quarter last year, we grew 8% again first quarter this year.
If you believe our growth rate is 89% were almost back on the growth rate internationally.
Getting the.
Then we think Matt.
That trend is meaningfully improving as you saw very lagging certainly where the trend is still soft as Asia, where restrictions remains significant and in Europe, some increasing restrictions now and we'll see how they play out.
Thank you Michelle we'll take one last question. Thank.
Thank you Ashwin Chevet Catherine Citi You May go ahead Sir.
Thank you.
Hello, Sam.
Questions on pricing.
Wondering if and I know you price for value, but kind of wondering if you.
As the economy, hopefully gets better how do you think of pricing is debt, perhaps a catch up in pricing.
To normalized long term pattern.
Or do you just see a tougher environment for pricing within the interchange model and then sort of the addendum to that is is that a natural benefit from Brexit.
New slow cooker days back about that from how do you account for debt.
Well I'll make a couple of comments out of the socket certainly add.
Andrew on your last point.
I'm not going to make any comment on.
Sure.
The Brexit situation, we've not announced anything and therefore, I don't think its prudent to.
To comment.
I think debt.
We made some decisions to delay.
Out of.
This past year.
Because of the realities of Covid, but we're going to we plan to move ahead with previously.
Delayed pricing increases in April of this year.
We also have a small number of minor pricing changes.
The impact will be.
Pete.
Very big.
And.
I think going forward I think we continue to.
Deliver the value that we wanted to deliver I think that there is.
Opportunity across all three of our our growth strategies core payments, new flows and value added services to two.
Look at pricing.
You add or add anything.
No nothing nothing more to add.
Okay. Thank you everyone you guys joining us today.
If you have additional questions. Please feel free to call or email our investor relations team.
Thank you, Dan and have a great evening.
And thank you. This concludes today's conference call. You May go ahead and disconnect at this time.