Q3 2022 Visa Inc Earnings Call
Europe were 123% versus three years ago up 11 points from Q2, and this includes Russia and prior period numbers.
Travel related cross border volumes Rose 22 points from 82% of 2019 in Q2 to 104% in Q3, as we continued to see strong recovery in consumer and commercial travel.
Process transactions were 139% versus 2019, one point above Q2 credentials increased 8% year over year and were up 11% excluding Russia.
Before I dive into the client wins and progress towards our strategy I wanted to take a moment to discuss two topics recession and inflation.
On the first we're not economic forecasters, so I'm not going to predict the future or potential likelihood of a recession instead, let's focus on the facts from the numbers I just reviewed relative to 2019 levels growth has been stable or improving and overall domestic payment volume credit debit card President card Doctor.
Doesn't volumes.
And this has been the case for most of 2022 with no indication of any slowdown including in more recent weeks.
In cross border of course, the recovery has continued to strengthen while growth has been stable in aggregate there are big shifts under the surface that continue to demonstrate the momentum of the recovery first from goods to services earlier, the pandemic goods surpassed services.
<unk> the historic trend, even as services have rebounded in the last six months the percentage spending on goods and our payments volume still remains high higher than the pre pandemic levels.
For example, while U S home improvement and retail goods spending during the third quarter grew only low single digits year over year. It remains well ahead of pre pandemic.
Prepaid debit trend line second many discretionary segments are further strengthening if you look at U S. Travel standard is now back it is not back to the pre Covid trend line, but grew more than 40% versus last year third the affluent spender continued to recover particularly in the areas of restaurants traveling.
Entertainment at the same time non affluent spend remained relatively resilient.
We met to the affluent spend to returning to restaurants last quarter that trend continued this quarter with affluent restaurants and indexing in the 160% to 180% range versus 2019.
Similarly in Europe in the last six months luxury hotel payments volume and average ticket size outpaced growth in the overall hotel category versus 2019 at the same time budget and mid priced hotels saw modest improvements.
Based on our numbers, we haven't seen any evidence of consumer pulling back spending in our markets.
Now a few words on inflation, it's just too early to draw any definitive conclusions are few observations, though on inflation one keep in mind that the headline CPI inflation number does not necessarily apply to visa as our basket of goods isn't the same consumers just don't buy homes are used cards with their visa card.
For example, so we see a several point gap between headline inflation and inflation and card related spend categories too.
<unk>, thus far U S transaction growth relative to 2019 is strong and stable ticket sizes remain around 15 points above 2019 levels as they have for much of the pandemic due to several factors.
Three historically in the U S. We have seen PCE growth, which is the most important metric that drives our growth remains strong even during inflationary periods.
That said lastly, excessive and long term inflation is not good for consumers or the overall economy.
Looking ahead, we'll continue to monitor the potential impact of inflation. The ticket size of this transaction counts as well as volumes across spend categories.
With all of that as backdrop I'll now provide an update on progress with clients.
Traditional issuers remain a key component of our consumer payments growth and this quarter. We had several important partnership renewals globally first in China, we renewed our partnership with <unk> the largest bank in the world in terms of assets and the biggest credit card issuer in China in terms of the number of cards and.
In Japan, we renewed one of the country's largest credit issuers credit stays on and expanded our issuing relationship with Toyota Finance in Australia, we extended our credit and debit issuing agreements with Nab and CDA two of the largest banks in the country and.
And in the U S. We recently renewed our relationship with Green Dot top 20 issuer in debit and a top 10 issuer in prepaid.
Fin Techs are also key to our consumer payments growth in Europe alone, we have more than 100 fintech programs that continue to deepen our relationship with these partners.
<unk>. It's a great example, they already utilized a number of our capabilities, including visa direct and currency cloud and we just renewed our global issuing partnership.
<unk> also recently selected tank for payment initiation services, which will allow users across Europe to seamlessly move money into their revolute accounts.
In many countries. The mobile operators are particularly important partners. We previously mentioned our partnerships with and pace of Africa in Safari Com and I'm happy to report that we have begun issuance with these partners who are part of the Vodacom group that cover a 130 million customers and sub Saharan Africa.
In a similar light. We also recently signed partnerships to issue visa credentials and in some cases also enable visa direct with other mobile operators around the world Mobile Lee in Saudi Arabia, with 10 million customers already do in Qatar with around 2 million customers after sell and Azerbaijan.
With 5 million customers and Orange, Egypt, with 27 million customers.
I now want to dive a little deeper on two important markets, Brazil and India.
Starting in Brazil over the past two years, we have grown our business through issuing agreements with it to al.
Macchiato Bogof factor, Dan Taisha with a 70% increase in credentials. In addition to traditional credit card issuance partners like Banco do Brazil have been growing their credit base by utilizing visa digital acquisition platform that allows them to instantly issue cards in a digital environment.
Further our Fintech partners in Brazil, including Banco XP and Neo <unk> dose are issued more than 20 million credentials over the past two years on the acceptance side, we've doubled acceptance points since 2020, reaching more than 10 million merchant locations in Brazil.
The results of our efforts over the past eight to 10 quarters as evident in Brazil payment volume, which in the third quarter was more than 200% of 2019 with ecommerce nearing 300%.
In India, our efforts over the last few years are paying off in Q3 payments volume was 184% of 2019 with e-commerce above 300%.
Building on that momentum, we had co brand wins with two of the largest multibillion dollar revenue Indian conglomerate that collectively represent millions of potential crude.
Credentials, one with top hat, new a super App for ecommerce financial services and loyalty programs across the Tata group too.
<unk> financed at Spi cards provide rewards for spending across all of their group companies we.
We also signed a co brand with Indigo India's largest airline by number of passengers.
And let me briefly touch on the U S, where there's still great opportunity for cash Digitization. We're excited about tap to pay which is Rick now reached 24% of face to face transactions in Q3, we're seeing positive trends in terms of additional spend in transaction lift in the U S. In 2021, the average contactless active debit card holder.
Had two more transactions at $65 in additional spend each month, we expect this trend to continue driving incremental payments volumes and transactions for contactless card issuers to faster simpler Pos experiences.
Now moving to new flows, which in Q3 at over 20% revenue growth in <unk>. Our Q3 commercial payments volume was 145% of 2019 up six points from Q2, driven by the return of travel Q3 was the first quarter, which spend on business travel surpassed two.
2019 levels.
This quarter, we're excited to have reached a significant multi year agreement with works to enable their travel health and corporate clients to make payments using visa virtual card capability west.
<unk> is a global leader in financial Technology solutions for commercial payments and we are proud to partner with them in the fleet space. We reached an agreement with Pacer, a fintech based out of Kenya their fleet and expense management digital platform will address the problem of paying cash in the African trucking business through visa prepaid <unk>.
Notable credentials.
These are direct as a powerful capability for many of our new flows in this quarter transactions grew 35% excluding Russia.
On the remittance side Western Union has enabled visa direct for their U S customers to send money to select countries globally expanding upon their initial rollout across Europe in 2021.
We also expanded our agreement with <unk> one of the world's Premier Digital service remittance companies to offer visa direct cross border payments originating from Canada to bank accounts globally.
Another visa direct PDP expansion is with line pay in Japan already a large wallet issuer 6 million visa credentials line pay is now enabling visa direct cross border and domestic use cases, such as remittances and cash outs.
On wage disbursement, grubhub, a leading food ordering and delivery marketplace available in over 4000 U S. Citizens cities will enable drivers to quickly send their earnings to their eligible debit cards using visa direct we are excited for them to join our other food delivery platforms, including door dash and skip the dishes.
We also reached an agreement with the U S hip enabler kicks in to enable millions of disbursements to be pushed to employees accounts through eligible debit cards at thousands of restaurant locations. They serve per kit Finn 90% of tips in the United States are still dispersed with cash today.
In Canada, we reached an agreement with a large fintech wealth simple for accounts funds in and funds out for their over 2 million clients.
Finally, enablers are key to our success in visa direct and we recently signed a deal with an extra one of the world's largest financial services software companies and open banking platforms with 8600 customers and serving 90 of the world's top 100 banks together, we will offer an extra as clients access to cross border business.
The small business at <unk> payout to eligible accounts in multiple currencies and countries.
While the U S is one of the first markets to achieve scale for visa direct we have many other countries and regions that are growing and scaling for example in Latin America third quarter transactions quadrupled versus last year, we have over 20 domestic and cross border PDP programs commercially launched are in pilot such as.
Flynn and Yafei in Peru, what Whatsapp in Brazil in cash across Central America. In addition to many other programs for other use cases.
Now, let me move to value added services, which had Q3 revenue growth of almost 20% our value added services grow through new and existing clients existing services expanded geographically and adding new services, both organically and through acquisitions.
Today I'll provide an update on recent wins with some of our acquired entities first one of our earlier acquisitions Cybersource recently added NCR and global payments as partners, both intend to offer cybersource capabilities to their merchant clients.
This is an important strategy as our merchant base utilizing cybersource through acquirers is growing payments volume twice as fast as the rest of our Cybersource business.
Cardinal Commerce, our network agnostic authentication capability has grown transactions, 30% globally year to date with more than double that in Europe . We are the secure customer authentication requirement is driven faster adoption of <unk> three D secure.
Verify our network agnostic dispute resolution solution recently extended its agreement with PNC for verifies card holder dispute resolution network product yes.
Yellow pepper the network agnostic connectivity platform just signed back the Brazilian bank that offers its $50 million corporate and individual clients worldwide trade E Commerce SaaS solutions and most recently in FX API platform that we'll use yellow peppers payment initiation services to enable cross border money.
Movement, starting with visa direct to send pass to eligible card.
I mentioned takes recent win earlier, our other acquisition for this fiscal year currency cloud has signed more than 100 fintech clients since December to provide innovative foreign exchange solutions for cross border payments.
And finally, the token innovation capabilities, we acquired alcohol token I'd have been selected by several partners first global payments will use visa visa token IV as Theyre strategic go forward solution for multiple multiple E&P network tokens nation services to reduce card not present fraud and realized <unk>.
Operational efficiencies for their clients.
Second the clearinghouse the first U S real time payment network, and one or two USA CH network chose visa token I'd solution to power. The secure token exchange. This is just the first account <unk> solution in the United States is utilizing visa token payment account <unk> technology.
<unk> to replace sensitive customer account data with unique tokens and reduce the amount of exposed payment data.
Our internally developed value added services are just as important one very compelling solution is from visa consulting and analytics.
Gather with Fas, we recently launched a risk as a service solution powered by data and risk experts key components of progress over the past 12 months include our real time monitoring through our AI enabled platform is blocked over $2 billion in fraudulent payments volume our analysis of potential fraud through a proactive testing.
Identified a 15 million dollar exposure on our clients our capabilities to proactively detect and mitigate cyber criminals attempts to inject payments skimming malware onto online merchant checkout pages has prevented over $10 million in ecommerce related losses and our ability.
To detect terminal cloning has successfully blocked $3 million in fraud from attempted downloads.
In sum, we had a very strong quarter and our results show that we made progress continuing to build relationships and solutions across consumer payments, new flows and value added services that will fuel future growth around the globe.
We remain vigilant in monitoring monitoring the trends in our business and the economy and confident on our strategy as we enable the movement of money globally with that let me turn it over to <unk>. Thank you al good afternoon, everyone.
Our fiscal third quarter results reflected continued strength in domestic spend and a robust recovery in travel with net revenues up 19% and GAAP EPS up 36% non-GAAP EPS was up 33%.
We have a strengthening dollar drag down reported net revenue growth by almost three points and non-GAAP EPS growth by nearly three five points in constant dollars net revenue growth was over 21% and non-GAAP EPS growth was 36% adjusting.
Adjusting for Russia constant dollar net revenue growth was 26%.
A few key highlights.
Global payments volumes growth has remained strong and stable relative to pre COVID-19 levels in constant dollars. The U S index was two points higher than the second quarter up 46% versus 2019.
The International Index ex China, and Russia was up six points from the second quarter also 46% above 2019.
The robust cross border travel recovery continued indexed to 2019 cross border travel volume excluding transactions within Europe jumped from 94 in March to 112 in June . This was helped by much of Asia opening up at the beginning of the quarter. The U S inbound corridor picking up steam.
As well as strong growth in and out of Europe , as we head into the peak summer travel season.
Three growth engines consumer payments, new flows and value added services all grew revenues around 20%.
During the quarter, we bought back almost $2 $5 billion in stock at an average price of $202 16.
We also added 600 million to the MDM litigation escrow account. This had the same effect as a stock buyback at $200 and 25.
We issued 3 billion euros in debt with maturities ranging from four to 12 years.
In attractive coupons on our inaugural eurobond issuance ranging from one five to $2, 375% well below rates achievable on equivalent dollar denominated debt. We have now pre funded debt maturities coming up in September and December .
Finally, as a reminder, we suspended operations in Russia late in the second quarter.
As such there are no volumes transactions or revenues from Russia, and our third quarter numbers any comparisons to prior periods include Russia, unless otherwise noted.
Now onto the details.
In constant dollars global payments volume was up 12% year over year, and 36% about 2019, excluding China and Russia total payments volume growth was 17% and 46% higher than 2019 in the U S credit grew 21% and improved three points to 38% over 2019.
<unk> helped by travel and fuel spend.
<unk> grew 4% year over year lapping the big Spike from the stimulus last year.
Relative to 2019 debit was up 55% sustaining significantly above the pre COVID-19 trend line, even as credits has recovered.
It has benefited from accelerated cash digitization through the pandemic.
U S card present spend grew 13% and was 27% above 2019 up six points.
Not present volume, excluding travel grew 7% and was 70% higher than 2019.
Relative to three years ago ecommerce levels remain well above the pre COVID-19 trend line, even as card present spend continues to recover.
International constant dollar payments volumes, excluding China, and Russia grew 24% and was 46% above 2019, a few regional highlights.
Latin America was up 40% year over year, and 107% higher than 2019 with robust performance across the region fueled by cash neutralization and client wins.
EMEA region, excluding Russia grew 34% year over year, and 102% higher than 2019 led by client wins and cash utilization.
Europe was up 17% year over year, and 37% higher than 2019 impacted by our portfolio conversion underway in the UK.
<unk> UK Europe volumes grew 37% year over year and was 66% above 2019, reflecting share gains in multiple markets.
Excluding migrations UK payment volumes have been stable in the third quarter, while Germany improved more than 15 points from the second quarter.
Asia Pacific, Excluding China remains our weakest region, but has improved significantly from the second quarter up 24% year over year, and 30% above 2019 up five points in the second quarter.
Across Asia. Most borders are open and domestic restrictions lifted only China remains mostly closed off and Japan is gradually normalizing.
Global process transactions were up 16% year over year and 39% over 2019 levels. Since we did not process domestic transactions in Russia are reported processed transactions are not materially impacted by the suspension of Russia operations.
Now onto cross border.
Constant dollar cross border volumes, excluding transactions within Europe , but up 48% year over year and 23% over 2019.
Cross border card not present volume growth, excluding travel and excluding intra Europe grew 4% year over year and 62% above 2019.
Cross border travel related spend excluding intra Europe grew 129% year over year and exceeded pre COVID-19 levels for the first time indexing at 104 of 2019.
The cross border travel index went from the low Ninety's in March and April to 188% in May and 112% in June .
We continue to see a rapid ramp up in travel as soon as borders reopen or restrictions are lifted a few highlights.
Remove testing requirements were vaccinated travelers in April travel inbound to the U S jumped 16 points in the third quarter to 86% of 2019 levels held by Canada, Europe and Asia.
Lifting of testing requirements in June will hopefully help sustain the recovery of travel into the U S.
Travel into Latin America, and the Caribbean has been very strong through the COVID-19 yield, especially to Mexico with more countries, including Costa Rica, and Jamaica lifting COVID-19 protocols and April inbound travel to the region climbed nearly 20 points in the third quarter to 50% about 2019 levels Euro.
European Union member states removed previous testing and vaccination requirements for non European citizens in April and May resulting in traveled to Europe recovering a sizeable 30 points in the third quarter with more than half of that from North America.
Inbound travel to Europe was 21% above 2019.
Central Central Europe , Middle East Africa, EMEA region outbound travel increased six points in the third quarter. Despite the loss of Russia drill.
Driven by Ukraine, and travel for religious holidays from the Middle East and was 13% above 2019.
In Asia models continue to open and travel restrictions eased for international travelers, resulting in inbound travel recovering 22 points in the third quarter to 58% of 2019 levels.
Japan opened to tourists and increase the entry limit from 10000 to 20000 people per day, Australia dropped pre arrival testing requirements in April several countries, including Malaysia, and Vietnam dropped testing requirements in May.
The peso travel recovery to and from Asia will be a key driver of the future trajectory of cross border travel.
Most of the Asian borders are now open except for mainland China, and some restrictions in Taiwan and Japan.
In the third quarter travel into China index below 25% of 2019 and outbound from China below 40%.
Moving now to a quick review of third quarter financial results.
Service revenues grew 13% slower than the 14% nominal growth in Q2 payments volume.
<unk> Q2 payments volumes include Russia, but as revenues in Q3 do not essentially recognized second quarter service revenues for Russia before we suspended operations last year last quarter.
Data processing revenues grew 8% below the 16% processed transaction growth revenue growth lags transaction growth, primarily due to the suspension of Russia operations.
As I mentioned earlier, Russia domestic transactions were not included in our reported process transactions and as such the loss of Russia does not materially impact transactions growth. However, we did have data processing revenue from Russia transactions in prior periods, which we do not anymore. This negatively.
Impacted data processing revenue growth by over four points. There was also about a two plus point exchange rate drag.
International transaction revenues were up 51% versus the 38% increase in nominal cross border volume, excluding intra Europe revenue growth was helped by higher currency volatility and select pricing actions.
Other revenues grew 26% led by consulting services and travel benefits.
Revenue growth was robust across our three growth engines, each growing around 20% consumer payments growth was led by the recovery in cross border volumes high currency volatility and continued strong domestic volumes and transactions.
<unk> growth was driven by guarded b to B recovery commercial of <unk> volumes grew 27% year over year and are up 45% versus 2019 growth was driven in part by increased travel and was broad based globally across small and large businesses.
Excluding Russia visa direct transactions grew 35% due to strong growth outside the U S.
Value added services growth was led by consulting services as well as the risks and identity solutions revenue growth drivers include higher volumes from existing clients greater client penetration and select pricing actions.
Client incentives were 26, 1% of gross revenues below our expectations. This was primarily driven by the faster than expected recovery of higher yielding cross border volumes, which improved revenue mix.
Currency cloud and ink added about half a point to revenue growth exchange rates when an approximately three point drag on reported revenue growth the suspension of Russia operations.
Reduced revenues by approximately five points.
GAAP operating expenses grew 51% inclusive of a $716 million provision associated with the interchange Multidistrict litigation.
non-GAAP operating expenses grew 15% the inclusion of currency cloud and pink added about three points the suspension of Russia operations reduce expenses expenses by about three points exchange rates were about a two point benefit.
We recorded losses from our equity investments of $246 million, excluding investment losses, non-GAAP nonoperating expense was $73 million.
Our non-GAAP tax rate was 13, 3% GAAP and non-GAAP tax rate benefited by six points from the resolution of certain U S state and foreign tax matters related primarily to prior years, our recurring tax rate remains in the 19 to 19, 5% range.
GAAP EPS was $1 60, non-GAAP EPS was $1 98 up 33% over last year inclusive of nearly <unk> five point drag from the stronger dollar.
With a quarterly dividend of 37 five per share and our stock buybacks. We returned $3 3 billion of capital to shareholders in the quarter.
Through the first three weeks of July business trends have remained strong and stable on a year over year basis U S payments volume was up 12% with debit up 6% and credit up 18%.
U S spend growth versus 2019 was up 46% with debit up 55% and credit up 38%. These trends are consistent with the third quarter and its performance in major markets around the world.
This transactions grew 14% year over year up 40% versus 2019.
Constant dollar cross border volume, excluding transactions within Europe grew 60% year over year and 29% over 2019 Gardner President non travel growth was 57% above 2019 travel related cross border volumes were 16% above 2019.
Moving now to our outlook for the fourth quarter.
As al indicated we're seeing no evidence of a pullback in consumer spending U S payments volumes of index in the mid <unk> 40 range versus 2019 since January through July 21.
Excluding Russia, and China International payments volumes have also index of a $1 40 since January processed transactions have been stable at around $1 40 versus 2019.
As such we are assuming that the trends we have seen in payments volume and processed transactions will continue through the fourth quarter.
We will of course stay vigilant and on the lookout for any changes caused by rising interest rates high inflation and declining consumer confidence.
Through July the cross border recovery has progressed faster and further than we had expected last October for the fourth quarter, we're assuming stable growth versus 2019 in cross border E Commerce, and some improvement from travel in and out of Europe and into the U S, especially from Asia.
The next and perhaps the last leg of the cross border travel recovery will have to await a full reopening in China, which we do not expect in the near future.
With these assumptions fourth quarter net revenues could grow at the high teens to 20% range in constant dollars. This includes timken currency cloud, which added approximately half a point to net revenues and a suspension of operations in Russia, which subtracted approximately five points.
The dollar has continued to strengthen significantly increasing the exchange rate drag.
Should we expect will reduce reported net revenue growth by four to five points.
Q4 client incentives are expected to range between 26% and 27% of gross revenues driven primarily by anticipated strong volume performance across all regions for the year. We now expect client incentives as a percent of gross revenues in the middle of the 25.5% to 26%.
5% range.
We expect non-GAAP operating expenses in constant dollars to go to grow at the low end or high teens.
This includes two points of added expense from currency cloud and ink offset by three points from reduced costs due to Russia.
So narrow costs will be higher since we are granting annual salary increases.
Earlier than normal to all employees below the SVP level. This will add three points to Q4 operating expense growth.
Change rates could reduce the reported operating expense growth by about two points.
Our tax rate is expected to stay in the 19% to 19, 5% range.
While there is uncertainty consumer spending remains strong growth has been stable across payments volume cross border volumes and process transactions globally.
We've demonstrated our ability to adjust to different environments.
We're prepared to do so again if warranted.
We will stay vigilant flexible and agile.
We're fortunate to have a resilient business with great momentum and extraordinary longer term growth opportunities.
With that I'll turn this back to Jennifer Thanks to <unk> and with that we're ready to take questions Jordan.
Thank you I would like to ask a question. Please.
One and clearly record your name.
It will be announced prior to asking your question can you share. All questioners are ahead, we ask that you. Please limit yourself to one question once again to ask a question. Please press star one to withdraw your question Press Star two.
Our first question comes from Sanjay <unk> with <unk>. Your line is open.
Thanks.
Indexing, well below where we normally would be dependent it didn't occur for cross border travels however, I guess isn't sphere that we see.
The strength, partly because its pent up demand and then inflation could you help us think about how you feel about the risks associated with the drop off in cross border and then Baton you talked about Asia being the key how much more strength GCI, the non China region.
So start Sanjay.
I actually think cross border.
Travel has come back very very strongly.
And and quicker than what we thought and that's still with.
As you suggested Asia being quite low you heard the numbers, both inbound and outbound and in <unk>.
Remarks, plus inbound to the U S.
Somewhat up until recently because of the Covid.
Required Covid test and now the strength of the U S dollar still has upside as well so.
Yes for sure there is some element of <unk>.
Pent up demand, but I think that that that demand is going to remain strong for some time and.
Idaho see.
People being deterred even by.
Higher cost of airline tickets.
People are experiencing if anything probably the experiential element of waiting in airports for longer period of time because of.
Understaffing that exists in the <unk>.
Number of places around the world as it is probably the thing that weighs more on my mind, but I expect that to normalize at some point here soon.
Do you want to add anything.
Clearly I mean, there's a variety of factors at play here first.
There has been a general shift in consumer.
Preferences, you've heard this from other people to move away from goods.
To experiences and travel is very much a beneficiary of that is not just cross border travel as al said in his remarks that all travel including domestic travel so.
It's pretty broad this desire to travel.
The second is.
People are keen to travel so as soon as.
Restrictions are lifted do you see the the reactions.
In terms of where the strength is.
Clearly the recovery in Asia has been quite strong.
How much it improved this quarter almost 20 points, if I remember right and it is continuing.
It's happening all across Asia, except for places like China.
And they are still there.
It's not that easy to get into an outage of fan and Taiwan, but elsewhere.
It's very strong across Asia.
There's a huge amount of interest in traveling to Europe and significant interest in European traveling out of Europe. So Europe has been also recovering very fast and is indexing at pretty high levels relative to pre COVID-19.
Volumes the other area that.
Continues to surprises Latin America, we told you that.
It was always quite high.
Because not in America stayed fairly open but in the last quarter jumped another 20 points and is indexing.
150 range for people traveling.
Into Latin America.
So as you look across at this looks pretty durable.
Dave.
There is still recovery left to come as you can see.
Asia is still was indexing.
Well below 19 levels. The U S is still below 19 levels.
So we don't think this anytime soon.
Great next question Jordan.
Our next question comes from Lisa Ellis with Moffett Nathanson Your line is open.
Hi, good afternoon guys.
Al you had a number of call outs in the prepared remarks related to visa direct I was hoping to.
Get your perspective on the news that the CFPB is investigating the levels of fraud in zelle and other domestic PDP services can you just comment a bit or give us a little bit of color on how the fraud protection associated with visa direct are different or similar to that with services and sort of how that type of investigation.
Might impact visa direct role in PDP over the long term. Thank you.
Well, thanks, Lisa one of the.
The terrific things about visa direct is that.
It is it running on it.
Different and new platform. It runs on these in that and therefore has the.
The ability to utilize all of the same capabilities that we have on <unk>.
On visa net including those related to <unk> and.
Those related to fraud prevention. So certainly this is something that.
We're well aware of and we'll continue to watch closely I do think that consumers value. This PDP capability in very very big ways, not just in the United States.
But around the world and I, certainly expect it to be a use case that continues to.
To grow around the world and we'll just have to make sure that we're working closely with zelle and other partners to make sure that we're contributing as much as we can.
To make sure that that services.
Secure as can be because as you know trust is a basic underpinning of money movement. In every single use case around the world.
Next question Jordan.
Our next question comes from Darrin Peller with Wolfe Research Your line is open.
Hey, guys. Thanks.
Really wanted to touch on your your willingness and ability to manage expenses and margins going forward and different outcomes different scenarios.
You pulled forward it looks like salary increases so does that pull forward some of the opex growth, we normally see in fiscal 'twenty three and then just thinking through if we were to see downturns economically what kind of willingness and.
And ability do you have to really manage margins going forward.
Yes, the pull forward of.
Salary increases means that when we get to the fourth quarter of next year.
The increase that we have so in that sense, yes, it moderates a little bit.
The impact on next to us and some of it comes into this year.
<unk> seen those in the past.
Adjust based on external circumstances, and we will be monitoring trends in and we'll stay flexible.
And move fast if we have to again.
That said this is a business with tremendous long term growth opportunities.
We think the new use cases that are being developed in the new flows of business and the opportunities we have across value added services.
For global expansion for deeper penetration of existing clients as well as adding new services are very significant.
So we have to be keeping an eye on.
The long term opportunity.
And not under investing having said that if times get tough as.
As we did during the pandemic you prioritize.
You sequence things your pace things you don't pull back on all the investment you'll just start to do it.
Based on our new reality so during the pandemic for example, we scaled back in certain areas like cross border.
Spending on marketing or things like that wouldn't have made any difference because borders will close and we will find new things like that that we have to again.
Next question.
Our next question comes from Tien Tsin Huang with Jpmorgan. Your line is open.
Hi, Thanks, so much great results very clear the consumer is strong here and I know you said you don't want to predict the macro but.
I figured I'd ask if you can comment here on how.
How resilient this might be now versus past recessions because on the one hand I'm thinking this product credentials acceptance.
Contact list, so that would suggest more resiliency, but on the other side you have more value added services revenue that might be more cyclical. So I know aside from shocks like the financial crisis and pandemic.
Gross premium to PC has been clear, but what about now do you feel differently.
Any new thinking on how visa might be different versus past recessions.
Thanks, Tien Tsin, I think we're a very different company from any pad.
Recession, especially I guess going back to 2008 2009 timeframe.
First of all was stronger and much stronger than debit which tends to be the.
Vehicle.
Card of choice for people.
<unk> slowdown period, where we're stronger in everyday spend categories with stronger in E Commerce.
We benefited from this acceleration in cash digitization that happened during the pandemic.
Since the last recession, we've added Europe .
Which is.
Very important part of that.
The company today and contributes to our growth and then as you alluded to we've we've added an emphasis on value added services.
And and new flows somewhat some of those value added services are tied to volumes. So the discreet at some volumes might go down those those might go down as well, but in the other the other hand for volumes that we will have today that we will have the opportunity to sell more value added services.
Then we would have in.
In the prior recession.
The last thing I would say is that.
It is very possible that today people are changing what they are buying but they are not changing how they are paying and.
And we fall into the latter category and we see overall spending levels as we talked about remaining high and we continue to see people choosing to pay with pay with visa.
Yeah.
Not depending on it.
Change that they might be making in what they are buying are the baskets that they have.
Next question.
Our next question comes from <unk> <unk> with Bernstein. Your line is open.
Hi, good afternoon.
I wanted to follow up on your comments. Thank you.
Now that you've closed the <unk> acquisition.
Can you elaborate on your efforts in open banking and <unk>.
Clay and just taking a step back how excited are you about the opex.
Ciena team, who can open banking.
Well I think open banking is.
It's early days, but I think that we.
We're quite well positioned.
As you well know that the ground.
A ground zero for open banking happens to be Europe .
We have a very good business, there and obviously <unk> has a footprint in 18 markets.
In Europe .
It has a single API that allows customers primarily developers to access financial data.
It has connectivity to 3400 banks and financial institutions in greater than 10000.
Developers.
And.
We believe the thesis for us is that.
Tanks capabilities with our capabilities and our relationships will allow <unk> to be stronger where it already is and will with our health will be able to broaden the footprint and which take operates and Thats certainly one of the things that we're in.
Discussions internally with tank as to where we go.
Next in the World. We also think that our infrastructure in our cyber and fraud capabilities and R. R.
Our capabilities related to.
Protecting the customers' transaction at all.
Steps along the way is going to just help accelerate the adoption of open banking in Europe . So.
We're excited about the prospects of it we think we're really well positioned its just going to be a matter of how quickly it takes off but.
We're in good shape to the degree that it does.
Next question.
Our next question comes from Bryan Keane with Deutsche Bank. Your line is open.
Hi, guys wanted to ask about the three key drivers all growing over 20% in consumer payments new flows and value added services as we think about going forward and how this is likely to normalize.
Assume consumer payments growth will slow as cross border eventually lap.
Lap some tougher comps, but maybe new flows and value added services still has some extra juice for growth just hoping maybe you could parse through some of the pluses and minuses for the three segments.
Brian that's been the.
Thesis.
From the beginning that.
We.
We want to make sure that we generate on a sustained ongoing basis.
<unk> revenue growth and Youre, certainly correct that at some point in time, depending upon the pace at which Asia Cross border comes back in.
U S inbound cross border.
<unk> to.
Come back.
We will settle back into some more normal level growth rate.
For consumer payments.
I'm not going to predict when that will be whether that's in two quarters or six quarters or seven quarters, but it will happen at some point in time, and our expectation and aspiration has been that value added services and new flows will grow at numbers of percentage points higher than consumer payments.
Therefore allow us to get to sustained revenue growth rate, we think over time will be attractive to the investors in the company.
Next question.
Our next question comes from Don <unk> with Wells Fargo. Your line is open.
Hi al.
Just wanted to confirm so just given all the weakness in some of the retailers youre not seeing any signs on the low end consumer weakness and then does your data historically show any correlation around a wealth effect for sure not the more affluent U S consumers, but Don you're touching on.
There's a number of elements that.
Impact.
Our our volumes.
We'll touch on a few of them.
Affluent spenders are returning.
To the two.
The economy in there.
Higher spending in restaurants and travel among other categories and this isn't necessarily inflation.
A mix shift.
The impact of people working from home and hybrid work.
It's definitely hard to continue to have impact on smaller tickets that are things that people buy in the mornings and at lunch time, when they are actually commuting and working in an office environment.
Certainly small tickets as a percentage of overall tickets are still below pre pandemic levels as a result.
Last year stimulus clearly drove ticket sizes up particularly.
Particularly in discretionary categories, we're kind of lapping that now.
What we don't know.
Our.
Level of substitution, there, taking place where people might be buying more staples and less discretionary items, but theyre spending at the same level that they did.
Or whether it has been.
Some retailers have said people are trading down from brands to private labels.
It's also difficult for us to understand consumption reduction. So for example, consumers could be buying less fuel, but spending at the same amount or buying smaller package sizes of things like snacks, and but and yet spending the same amount. So I think Don clearly inflation is in our numbers.
And people are likely change, making some cases now what they are what they are buying but as I said earlier I think in response to <unk> question.
We're not changing how they pay.
Yes, I mean going back to your question on whether we're seeing any slowdown in.
Spending by lower income consumers no we're not we keep looking for it because.
<unk> heard some other people say it and we're not seeing any evidence of that.
The second question I presume was the wealth effect on affluent consumers of.
What's happening in the stock market and things like that.
As Al said I mean, we're not seeing that if anything affluence spending has been on the rise.
And as long as the reasons why we've seen some of the robust.
Growth we saw this quarter remember, we're lapping a very significant growth quarter last year that included sizable stimulus payments and despite that we had some very good growth this quarter and a lot of that is driven.
<unk>.
By affluent consumers buy.
Discretionary spending coming back and no evidence of a wealth effect that people are holding back.
Next question target.
Our next question comes from David <unk> with Evercore ISI. Your line is open.
Thank you good afternoon, you've clearly been continuing to be very aggressive on share repurchase.
But could you update us on your capital allocation priorities in this particular environment.
We've seen obviously, a pretty big pullback in valuations and payments.
How is your acquisition appetite and pipeline.
<unk>.
Today versus let's say a year ago.
Yes capital allocation.
Approach has not changed.
<unk> said before.
Our first priority is investing in our core business, we generate a lot of free cash flow.
Our first priority is to invest in what is a fabulous business we have.
Which in which has tremendous growth opportunities as we've discussed.
<unk> around some of the new use cases, and new flows around value added services and of course in our <unk>.
Core consumer payments business.
After that clearly, it's how can M&A enhance what we do.
And we can do that by buying something that expands our capabilities.
Like we've done in the past or something that.
US new capabilities like <unk> does with open banking unlike currency cloud does with the capabilities. They have that are geared towards real time, FX and serving the needs of newer.
Enterprises, the Fintech stars and traditional companies. So we will continue to look for things that can enhance what.
What we have.
In terms of.
Timing and opportunities.
Clearly as valuations have come back and we've stayed disciplined when things will bubbly.
Have a very strong balance sheet, we have tremendous capacity.
We are definitely interested in.
Acquisitions, where the value is justified.
Time will tell where the valuations in private markets get to levels that are attractive and companies have to be for sale, but clearly M&A is an important component of our future.
Clearer idea of them, where we want to expand M&A wise.
And as they come up we'll talk about it.
Next question Jordan.
Our next question comes from Reena Kumar with UBS. Your line is open.
Good afternoon, and thanks for taking my question in your remarks, you mentioned pricing option health care Cross border revenue as you look across the processing of products and services do you think there's still more opportunity team full pricing important scenario.
Yes.
It's something that.
We will.
Watching and be very thoughtful about over over time, but.
We have.
We've got years and years of experience in pricing.
In the consumer payments business.
We're building our sophistication in terms of pricing in our newer lines of business in new flows and value added.
Services as we've said many times our philosophy is that we want to make sure that.
Where we are.
Pricing in a way that balances all of the various parties within the ecosystem and ideally stimulates more and more cash digitization and more and more money movement across.
Across our network so.
In short we think there definitely is.
More opportunity and the pricing lever.
Next question Jordan.
Our next question comes from Ashwin <unk> from Citi. Your line is open.
Thank you.
Hey, listen great quarter here.
It's pretty clear based on your results and comments that the consumer seems unaffected so far Mike.
My question was are you see an impact.
In your conversations with enterprises, so basically banks merchants and syntax.
Given what's going on in terms of either the pace of decision, making or the types of products or services that they're seeking out now.
You could comment on that.
I have not.
<unk> heard that from any clients or partners that.
That I have.
I've talked to.
Look I think every everybody is out there.
Wondering whether we're going to garner or not going to face a recession, we're certainly with undeniably in a high inflation environment right now, but given that that was really driven by.
A shortage of workers, leading to a shortage of.
Production of goods and services and then you throw the Ukrainian war on top of it which had some impact along the way and all of this coming off of the pandemic there really isn't history.
That provides any kind of.
Insight into exactly what might.
What might happen here.
We're continuing.
To do two things one is to make sure that we're smartly investing in the future.
Drive our three growth levers and is besides alluded to in response to a question earlier, we're being very vigilant didn't.
And looking into the numbers.
Seeing if we see anything that requires us to be proactive and any actions we might take but.
This point is I think we've said a few times now.
The level of consumer spending up through July 21.
Which we reported on and besides remarks have there consumer spending has remained very resilient.
<unk>.
For how long that will be what it remains to be seen but again I'd remind everybody that we.
We don't have the same input cost and causes other businesses and we're a company that facilitates.
Payment, regardless of whether people are consuming differently or substituting one good for another good theres still need to pay for that new utilizing our services to do that.
Next question.
Our next question comes from James Fawcett with Morgan Stanley . Your line is open.
Great. Thank you very much thanks for all the color and commentary on the Sean.
You can track quite well.
The consumers tracking now across all the different metrics as we've talked a lot about.
When you look at.
Can you talk a little bit about what you look at as potential indicators and I guess, especially since <unk> started off the questions around travel.
What are you seeing in things around forward bookings and any changes or indications there or elsewhere. Thank you.
Yes, Sir.
Great.
We don't view ourselves as economic forecasters and don't want to get into that and we've said before that we're not leading indicators, we probably coincident indicators if theres a change in in spending we will see it as it happens.
The only area of our business, where we see a little bit ahead as you said in travel bookings and those are holding up well.
Whether it's cross border bookings or domestic travel bookings.
If you look at the garden not present element of travel, which is where those bookings will happen. There is really no change in trend.
So at least looking out 30, 60 days, which is what the lead time is on those kinds of things.
There is no change in trend.
Other than that a lot of what we see is quite intuitive.
As Al said, there is a shift towards discretionary purchases the shift towards.
Things people can do before during the pandemic experiences around restaurants entertainment and travel.
As we said while goods may not be growing as much as the.
Year over year, they are still available to equal the trend line.
So.
There's nothing there that is out of the ordinary at this point.
Last question Jordan.
Our last question comes from Jason Kupferberg with Bank of America. Your line is open.
Thanks, guys I just wanted to come back to cross border travel now that you are at I think 116% of 2019 levels in July I know your prior target was to be at 100% by the end of the fiscal year. So what would be your new target. There and then can you just comment on inbound versus outbound U S kind of where that's tracking versus.
<unk> <unk> 19 levels.
Thoughts going forward there just given the strength of the dollar. Thank you.
Yes, I mean outbound from the U S is very strong it's been about 19 levels no floor.
A few if not weeks couple of months inbound to the U S. We told you.
Indexing in the high eighties.
So it's still below 19 levels.
And we think that there is room for recovery.
What we've seen on the cross border side is a little bit of a stair step.
You have periods, where there is rapid growth.
Like you saw in April and May and we saw in October and November when a variety of countries remove restrictions.
A huge amount of travel happening fairly quickly and then youll see a certain amount of stabilization after that likely saw partly because of the omicron in December and January and we saw in March and April .
As you look at the fourth quarter.
Most of the World is open and so we are assuming steady improvement in travel out of Asia steady improvement of travel into and out of Europe improvement of travel into the U S.
But there are there are no big openings left.
Which is why we don't think there'll be a big stair step up in the fourth quarter, we will wait and see the big openings left will be China of course.
Give you the index, it's still very low and as recovery left in Japan, because letting in 20000 people is.
As one fifth of what the normal amount of people who go into Japan.
It's more like 100000 people so theres a few left.
So the short answer is a modest recovery in the fourth quarter and we'll see what happens.
And with that we'd like to thank you for joining US today. If you have any additional questions. Please feel free to call or email our investor relations team. Thanks, again and have a great day.
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