Q1 2023 Visa Inc Earnings Call
Speaker 1: twenty twenty three 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, Ms. Jennifer Como, Senior Vice President and Global Head of Investor Relations. Ms. Como, you may begin.
Speaker 2: Thanks, Jordan. Good afternoon, everyone, and welcome to Visa's Fiscal First Quarter 2023 earnings call.
Speaker 3: Joining us today are Al Kelly, Visa's Chairman and Chief Executive Officer, Basant Prabhu, Visa's Vice Chair and Chief Financial Officer, and Ryan McInerney, who will become the Chief Executive Officer of Visa next week.
Speaker 4: This call is being webcast on the investor relations section of our website at investor.visa.com.
Speaker 5: A replay will be archived on our site for 30 days.
Speaker 6: A slide deck containing financial and statistical highlights has been posted on our IR website.
Speaker 7: Let me also 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 the results of many factors.
Speaker 8: Additional information concerning those factors is available in our most recent reports on Form 10-K , which you can find on the SEC's website and the investor relations section of our website.
Speaker 9: For non-GAAP financial information disclosed in this call, the related GAAP measures and reconciliation are available in today's earnings release.
Speaker 10: And with that, let me turn the call over to Al.
Speaker 11: Jennifer, thank you and good afternoon everybody and thank you for joining us. Visa's performance in the first quarter of 2023 reflects stable domestic volumes and transactions and a continued recovery of cross-border travel. Total Q1 payments volume was up 7% year over year or 135% versus three years ago, flat with Q4. Excluding Russia and China, payment volume was up 12% or 146% of 2019. US Q1 payments volume was up 9% year over year or 144% of 2019, down one point from Q4. International volume, excluding Russia and China, was up 15% or 147% of 2019, up one point from Q4. Q1 cross-border volumes, excluding inter-Europe, grew 31% year over year and 132% versus three years ago, up five points from Q4. Excluding Russia, cross-border year over year growth was higher by four points. Travel-related cross-border volumes rose six points from 112% of 2019 in Q4 to 118% in Q1, driven by Asia Pacific, helped by China lifting restrictions.
Speaker 12: Continued modest improvements inbound into the United States, and Samia benefiting from the FIFA World Cup. Processed transactions were up 10% year over year, or 139% versus 2019. And we processed 571 million transactions a day. And Danziger and the other big
Speaker 13: during the quarter. Although first quarter net revenues grew altogether, I should say, first quarter net revenues grew 12% year over year and non-GAAP EPS was $2.18 of 21%.
Speaker 14: In each of our growth levers, consumer payments, new flows and value-added services, we saw strong revenue growth. In our consumer payments business, we made significant progress this quarter through large deals with traditional issuers and co-brands. And with the pandemic largely behind us, we saw many businesses focus on payments.
Speaker 15: through Visa's new flows capabilities. In addition, we continue to develop and expand our global value-added services globally.
Speaker 16: Now let me explore each of these growth areas. In consumer payments, credentials grew 8%, overall 11%, excluding Russia, with strong double-digit growth in the United States, India, and Brazil.
Speaker 17: Tap to pay penetration of face to face transactions globally was 72%, excluding Russia and the United States. In the United States, we surpassed a notable 30% with San Jose, San Francisco and New York City all above 50%.
Speaker 18: US drugstores went above 40% for the first time in the United States, and nearly 65% of Costco's face-to-face credit transactions were made with attack.
Speaker 19: In the United States, we had several important renewals. First, we renewed our partnership with Bank of America in the United States, maintaining our current debit and credit business, including their cash rewards, travel rewards, premium rewards, and newly launched premium rewards to elite consumer credit cards.
Speaker 20: We're excited to continue to invest together in the growth of our joint business and to innovate with Bank of America to deliver enhanced capabilities and improved experiences for their customers.
Speaker 21: Second, we renewed with Commerce Bank a top 25 Visa US issuer across their consumer and commercial portfolios.
Speaker 22: Finally, we also renewed our agreement with Capital One.
Speaker 23: In Australia, we renewed our agreement with the country's largest independent payment solutions provider, Costco, with over 4 million cardholders for debit and prepaid, and also signed a new agreement for credit issuance.
Speaker 24: Also in the region, we extended our exclusive relationship with Kiwi Bank, the largest New Zealand owned bank.
Speaker 25: In Latin America, we renewed with ICBC Argentina, one of the largest issuers in the country, and with Banco de Brazil, one of the largest visa issuers in the region.
Speaker 26: In addition, we entered into a new agreement with one of the largest banks in Panama, Banco Nationale de Panama.
Speaker 27: Also in Latin America, we reached a new strategic deal with fintech platform, Tigo Money, and parent company, MilliCom, a leading provider of telecommunication services in the region.
Speaker 28: Visa and MilliCom expect to offer Tigo Money's more than 5 million wallet users the ability to digitize their cash in an easy and secure way, making purchases wherever Visa is accepted with the Visa Tigo Money Access Card.
Speaker 29: Another strategic Vindeck deal is with NIO in India, a fast growing cross-border focused NIO bank with 5 million customers.
Speaker 30: We've extended our relationship from debit into credit to grow cross-border spending with affluent as well as corporate customers.
Speaker 31: We're also happy to share that we renewed and extended our global partnership with HSBC. Our agreement covers consumer and commercial and it will foster growth and digital acceleration. This deal also cuts across all of Visa's five regions.
Speaker 32: As you know, Visa is the leader in travel co-brands globally, and I'm happy to report that we recently reached agreements with three important travel relationships.
First, Cutter Airways Privilege Club, which today has a split portfolio across networks around the world, has signed a new 10-year exclusive partnership with Visa to enhance and expand its portfolio of co-branded payment initiatives with key financial partners across key markets worldwide.
This expanded partnership creates a new world of opportunities for our Visa customers and Privileged Club members to collect and spend ABIOS, the rewards currency of Privileged Club.
Second, with Southwest Airlines in the United States, Visa will continue to be the exclusive payment network for their co-brand credit card issued by JPMorgan Chase. It represents one of the largest co-brand partnerships in the world.
Third, with Star Alliance and HSBC in Australia, this is the world's first credit card created with an airline alliance and is issued exclusively on Visa Credit. At the time of the launch, it brought together seven Star Alliance carriers in a single credit card platform.
Also, we recently advanced our co-brand partnership with Flipkart, one of India's leading digital commerce entities, with a registered customer base of 450 million.
So whether it's with traditional issuers or co-grand partners, we are continuing to position these as well for the future.
On to new flows, where this past quarter, new flows continued to grow with revenue up more than 20% in constant dollars, led by strong growth in B2B payments volume and Visa Direct kWh.
First, on the visa direct side, visa direct had 1.9 billion transactions in Q1 of 39% year over year excluding Russia.
We continue to grow globally. Non-US Visa direct transactions as a percentage of total transactions expanded nearly 20 points, excluding Russia, from Q1-21 to Q1-23.
Building on the success of our remittance program with Standard Chartered Bank in Hong Kong, we recently launched Malaysia as an additional origination market, bending across six currency pairs with more currencies to come.
We also continued to bring existing use cases to new markets. First in Australia, Visa Direct is now enabling driver payouts with door gas.
Second, we launched our inaugural P2P program in South Africa with FND, one of the country's largest banks, to enable their 10 million active customers to move money within their mobile app using Visa Direct Rail.
Third, we launched our Wallet Cash Payout Program in Bangladesh with Bcash. With this launch, the nearly 65 million Bcash users can make wallet to money bank transfers 24 by 7 in near real time using Visa Direct.
We are enabling several use cases including seller payouts in the United States on Poshmark, a social media marketplace where more than 80 million registered users and card top-offs with FinTech Go Henry.
As a follow-on to the issuance deal we announced last quarter with them, GoHenry is enabling its members to top up their child's prepaid Visa card with Visa Direct, first in the UK with plans to expand this service across Europe in the future.
In addition to Visa Direct, we had noteworthy developments in the B2B space this past quarter, where commercial payments volume grew 15% in constant dollars. In traditional issuance, we signed an agreement with Risison Bank for a new commercial credit partnership in addition to renewing consumer credit.
across the three million clients in Austria. And in the United States, we renewed with UBS for consumer credit and debit, as well as several business credit portfolios and Visa spend clarity for business.
Another issuing partnership was with Stone, one of the largest acquirers in Brazil, focused on small businesses. Stone has recently become a Visa debit and credit issuer of cards that can be embedded digitally in its wallet.
On the virtual card front, for accounts receivable and payable, we completed several agreements. First, Divi, an expense management platform owned by Bill, has renewed its agreement to offer Visa virtual cards for small and mid-sized businesses in the United States as part of its expense and vendor payment solutions.
Second, ViewPost converts US-based B2B check payments to Visa virtual cards. And together we are expanding card opportunities for issuers and corporates by offering a solution that can be deployed easily to every commercial business that still produces checks.
Third, we've reached an agreement with PlateIQ, a leading end-to-end accounts payable automation provider in the United States with direct integrations to accounting systems.
BladeIQ will be offering a Visa Virtual Card solution to commercial partners across multiple industries.
including restaurants and hospitality, retail, and accounting and bookkeeping, among others.
But, in our Asia Pacific region, Sunrate, a global payment and treasury management platform, has launched Visa Virtual Cards as part of its solution for more than a thousand B2B events, including global online travel agencies and small business customers.
We, issuance continues to grow as well. This quarter we issued
We signed with ZMO, a European fleet and mobility solutions provider, to issue Visa, Open Loop, Fleet and Fuel commercial cards as they expand from 3 European markets to 10.
In the United States, HighNote, a cloud native card issuance and embedded finance platform, expanded its relationship with Visa with a five-year card issuance agreement across credit, debit, virtual solutions and fleet.
In addition, High Note became certified as a Visa Fleet Card Processor, which provides businesses with more specific product category level controls and more detailed and faster data for real-time decisions on new Fleet and Fuel Card programs.
B2B is an active space for fintechs and Visa continues to partner with new players to drive innovation for businesses.
A recent example is Confio, a fintech in Mexico that has already issued approximately 50,000 visas for business cards and recently expanded its agreement to issue Visa business infinite cards. In addition, they are positioned to grow acceptance in the market with their newly established acquiring business, Senior Pago.
Now moving to value-added services, which had about $1.7 billion in revenue this first quarter, up more than 20% in costs and dollars.
Remember that our focus for value-added services is threefold. One, to deepen client penetration of existing products. Two, to build and launch new solutions. And three, to expand geographically.
CyberSource is a great example on all three areas of focus.
First, a deepening client penetration of existing products. CyberSource's decision manager offering provides broad capabilities to existing CyberSource clients and has experienced strong growth throughout the pandemic, more than doubling transactions in the last three years. In Q1, transactions utilizing decision manager grew in the low teens.
clients. In Q1 we signed agreements with several acquirers for Gateway services including Elbon in North America.
In Saudi Arabia, Saudi British Bank has announced a strategic partnership with our cyber-source payment gateway and risk platform to enhance the overall capabilities of SAAB's payment gateway with the aim of fostering the bank's growth in an evolving and dynamic e-commerce space. On extended geographically, we've continued our efforts to...
to strengthen our global presence. Our non-U.S. cyber-sourced transactions have nearly quadrupled since the first quarter of 2019, and they now comprise the majority of our transactions, led in particular by the Asia Pacific region.
CyberSource has also created new offerings. Well, historically, CyberSource has been an e-commerce capability. Over the past few years, we have accelerated the product development of our card presence and omni-channel offerings, including with the acquisition of Payworx back in 2019.
In the past quarter, we saw a nearly 50% year-over-year increase in card, present, authorized cyber source transactions.
Other value-added services highlights this quarter include our innovative dispute capability through Verify, which saw nearly 40% growth in cases processed this quarter as we expanded globally with more than one-third of our cases from outside of North America. This rapid dispute resolution solution...
automatically resolves disputes between merchants and issuers through the acquirer rails, reducing the average time to resolve a dispute from 24 days to typically seconds.
And Tink, our open banking platform, continued to deepen and develop relationships across Europe . Tink recently signed a master agreement with BNP Paribas to be their main open banking and money movement services provider for millions of customers across Europe . Tink is already live with several businesses in the group.
3 million customers use Tink's money management, data enrichment, and transactions products at BNP, Paderbaugh, Fortris in Belgium, and BNL in Italy.
Tink has also renewed and expanded its commitment with ABN AMRO to integrate Tink's Money Manager and data enrichment products into the bank's app for more than 3 million customers.
In conclusion, in the first quarter, Visa delivered very strong results and continued to effectively execute our growth strategy. The SOC will go into detail on our thoughts for the rest of the year, but I'd like to make a few other brief closing comments.
We will continue to manage our business for the medium to long term and will invest in initiatives that are compelling and will provide future growth, all while being very mindful of the current environment.
I continue to see a bright future for these as we look ahead to the rest of this year and beyond and I believe we have the right strategy to continue to deliver great results.
As we announced in November , effective February 1, 2023, I'll be stepping down as CEO and assuming the full-time role as Executive Chairman. I'm exceedingly grateful to the Board and leadership of Visa in addition to all of our passionate 26,500 employee colleagues who helped make this job so rewarding.
I'm proud of all that we have accomplished together since I started in 2016.
Ryan Macronone will become Visa CEO and I cannot think of a finer leader to continue to position Visa at the center of money movement in increasingly innovative ways. I worked side by side with Ryan for almost six and a half years. He knows our business, our clients and he is deeply respected by our employees.
He and his team will do a great job and I expect this transition to be totally seamless. With that in mind, and as Jennifer alluded to, I've asked Ryan to join the Q&A portion of our call today. But before that, let me hand it over to Vassad to provide financial highlights for the quarter and our thoughts of the second quarter and beyond. Thank you, Al. Good afternoon, everyone.
Fiscal first quarter results reflect sustained growth in domestic spending and continued recovery in cross-border travel.
Net revenues were up 12%.
Gap EPS up 8%, non-gap EPS was up 21%.
The strong dollar dragged down reported net revenue growth by almost 3 points and non-GAAP EPS growth by approximately 3.5 points.
This continuation of operations in Russia reduced net revenue growth by about 4.5 points.
Adjusted for Russia, net revenues were up almost 20% in constant dollars.
Net revenue growth exceeded our expectations as value-added services and new flows growth were very strong, currency volatility stayed high and client incentives were lower than anticipated.
A few key highlights.
In constant dollars, global payments volume was up 7% year over year and 35% about 2019.
Excluding China and adjusted for Russia, global payments volume was up 12% year over year and 46% higher than 2019.
US payments volume was up 9% year over year and 44% over 2019.
In constant dollars, international payments volume, excluding China and Russia, was up 15% year over year and 47% about 2019.
US holiday spending growth was in the high single digits on a year-over-year basis and up more than 41% versus 2019.
E-commerce maintained its share of retail spending versus last year, up over 5 points since 2019.
Spending continues to smooth out over the holiday season, with Black Friday and Cyber Monday still significant shopping days, but less important post-pandemic.
Holidays spending around the globe was generally consistent.
with US trends.
The cross-border travel recovery continues. However, as expected, the pace of recovery has moderated.
as most borders are now open, including Japan in October and now China in January .
As a reminder, we saw a very sharp cross-border travel recovery in October and November of 2021.
very sharp cross-border travel recovery in October and November of 2021, which we are slapping
Index to 2019, cross-border travel volume excluding transactions within Europe , rose six points in the first quarter versus a 20-point gain in the third quarter of fiscal year 22 and 10 points in the fourth quarter of fiscal year 22.
New plans and new flows and value-added services revenue sustained robust growth in excess of 20% in constant dollars.
In the first quarter of fiscal year 23, we bought back approximately 3.1 billion in stock at an average price of $1.00 a month.
$198.74
Contributions to the litigation escrow account, which have the same effect as a stock buyback, added another $350 million. We also distributed $945 million in dividends.
Thank you.
Now on to the details.
In the US, credit grew 10% year over year and 35% over 2019, lapping the credit recovery from last year, and is compared sequentially to last quarter, impacted by retail spending and fuel prices.
US debit grew 8% up sequentially over last quarter.
Later to 2019, debit grew 55%, sustaining significantly above the pre-COVID trend line, even as credit has recovered.
US card present spend grew 8% year over year, impacted by fuel prices and retail spend as compared sequentially to last quarter. US card present spend was 26% about 2019.
US card not present volume excluding travel grew 9% year over year and was 65% higher than 2019.
E-commerce spend remains well above the pre-COVID trend line, even as cart-present spending has recovered.
On the international front in constant dollars, Latin America was up 25% year over year and 107% higher than 2019.
A CMEA region, excluding Russia, grew 25% year over year and was 108% higher than 2019. As we saw all through FY22, growth in both regions was fueled by client wins, cash digitization and acceptance expansion.
Europe was up 10% year over year and 34% higher than 2019, impacted by a portfolio conversion that is now nearly complete in the UK.
Ex-UK, Europe volumes grew 28% year over year and was 71% about 2019, reflecting share gains in multiple markets.
Ex portfolio conversion, volume trends in the UK remain stable.
Asia Pacific, excluding China, continue to recover, up 16% year over year and 34% about 2019.
Global process transactions were up 10% year over year and 39% over 2019 levels.
Constant dollar cross-border volumes, excluding transactions within Europe , but including Russia in prior periods, were up 31% year over year and 32% over 2019.
Excluding Russia, year-over-year growth was higher by about 4 points.
Cross-border, card not present volume growth excluding travel and including intra-Europe grew 3% year over year and was 55% about 2019.
Adjusted for cryptocurrency purchases and Russia, cross-border e-commerce spending grew in the low double digits.
Cross-border card not present excluding travel represented over 40% of total cross-border volume in the first quarter.
Crosswater travels then.
in excluding intra-Europe grew 63% year over year and is now 18% about 2019.
The cross-border travel excluding Europe index to 2019 went from 1.14 in September to 1.21 in December .
Travel in and out of Asia recovered sharply in the quarter by more than 12 points from the mid 70s index to 2019 to 85 for outbound and more than 90 for inbound helped by Japan.
Japan alone improved by about 50 points since opening its borders in October .
With China lifting restrictions on January 8, we expect more recovery to come.
Europe inbound and outbound remain strong, with the travel index to 2019 in the 120s for outbound and 130s for inbound both up slightly from the fourth quarter.
Travels outbound from the US to all geographies continue to be strong in the low 140s in Dec. 2019, up 6 points from the fourth quarter.
travel inbound to the US, approach 2019 levels, and improve four points in the quarter, likely due to the weakening dollar.
Traveling to Latin America and the Caribbean remained very strong and stable, indexing around 150 to 2019 levels.
travel in and out of Simea, index in the 130s and mid-120s respectively relative to 2019, with outbound up more than 10 points in the quarter and inbound by more than 15, helped by the FIFA World Cup.
Finally, some color on mainland China posted the removal of COVID-0 policies.
The 40-day spring festival season is underway in mainland China, the world's largest travel event.
Domestic travel is rising sharply.
From a revenue standpoint, this will not contribute much.
In terms of outbound mainland Chinese travel, this will pick up steam as more flight capacity is available, ticket prices moderate, new passports and visas are obtained, and restrictions are lifted in some corridors.
The initial destinations for mainland Chinese visitors look to be Hong Kong and Southeast Asia, in particular Thailand, Singapore and Malaysia.
Inbound travel to mainland China has not increased much and may not until the COVID situation settles down.
Moving now to a quick review of first quarter financial results.
Service revenues grew 10% versus the 10% growth in 4th quarter constant dollar payments volume.
Exchange rate drag was offset by growth from business mix, pricing and card benefits.
Data processing revenues grew 6% versus the 10% process transactions growth.
The primary reason is that our data processing revenues are impacted by Russia. However, our transactions growth is not.
Adjusted for Russia, data processing revenues were up 10%.
International transaction revenues were up 29% versus the 31% increase in constant dollar cross-border volumes, excluding intra-Europe.
Revenue growth was helped by high currency volatility, although lower than the fourth quarter, and pricing actions, which were offset by exchange rate shifts.
Other revenues grew 31% led by marketing and consulting services.
pricing actions and acquisitions.
Client incentives were 26% of gross revenues.
below expectations due to some adjustments based on client performance and other items.
For the year, we expect to renew about 20% of our payments volume, with a good amount already completed in the first quarter.
Revenue growth was robust across our three growth engines.
Consumer payments growth was led by the recovery in cross-border volumes, high currency volatility and continued strong domestic volumes and transactions.
New flows revenue growth was over 20% in constant dollars.
Commercial card volumes grew 15% year over year and are up 45% versus 2019.
Excluding Russia, Visa direct transactions grew 39%.
Value Added Services revenue was also up over 20% in constant dollars driven by higher volume, increased client penetration and select pricing actions.
ConciCloud and Tink added about half a point to revenue growth.
Gap operating expenses grew 25%.
non-GAAP operating expenses grew 15%.
Non-gap operating expense growth was higher than expected primarily due to a smaller exchange rate benefit.
The primary drivers of expense growth were personnel costs from hiring activity in the second half of last year and into the first quarter, as well as G&A expenses driven by lower exchange rate benefits, higher travel, and expenses from new acquisitions.
Marketing increased 18%, primarily driven by the FIFA World Cup spend and client marketing.
We recorded losses from our equity investments of $106 million.
Excluding investment losses, non-GAAP , non-operating expense was $7 million, benefiting from higher interest income due to rising rates and some other items.
Our tax rate was lower than expected due to the resolution of a tax initiative coming in at 16% gap and 16.5% non-gap.
Gap EPS was $1.99. Non-gap EPS was $2.18, up 21% over last year, inclusive of an approximately 3.5 point drag from the stronger dollar.
Through the first three weeks of February , business trends have remained strong and stable.
On a year-over-year basis, US payments volume was up 14%, with debit up 13% and credit up 14%.
Lapping of Omicron-related weakness from last year has contributed to strong January month-to-date growth.
The Omicron-related uptick will fade as we get into February .
These trends are generally consistent with performance in major markets around the world.
Process transactions grew 14% year over year.
Constant dollar cross-border volume, excluding transactions within Europe , grew 36% year over year and was 42% over 2019 and 32% over 2020.
Guard not present non-travel growth was 75% about 2019 and 52% about 2020.
Travel-related cross-border volumes were 25% above 2019 and 20% above 2020.
We are now past the pandemic recovery stage on domestic volumes and transactions.
As such, starting next quarter, we will no longer provide comparisons to 2019 for payments volumes and process transactions.
Since the cross-border recovery is still ongoing, we will continue to provide comparisons to 2019 for cross-border volumes through this calendar year.
Moving now to our outlook for the second quarter. For the second quarter, we are assuming that trends in domestic payments volumes and process transactions are sustained, but some benefit from lapping Omicron in January last year.
As a reminder, discontinuation of operations in Russia will impact reported payments volume growth rates in the second quarter. Russia will not impact reported process transactions growth.
Cross-border e-commerce trends have been stable too, especially when you adjust for Russia and crypto related volatility.
We are assuming cross-border e-commerce growth rates sustained through the second quarter X-Russia and crypto.
The cross-border travel recovery continued generally in line with our expectations in the first quarter.
We are assuming recent trends to sustain into the second quarter.
We expect most of the mainland China travel recovery in the second half and beyond for reasons I outlined earlier.
We expect outbound travel from mainland China to recover first.
The pace of inbound travel recovery will depend on the COVID situation.
This continuation of operations in Russia will reduce second quarter net revenue growth by almost 5 points since we recorded nearly two quarters worth of service fees in the second quarter of fiscal year 2022.
Based on where the dollar is today and the forward curve, exchange rates will reduce reported net revenue growth in the second quarter by about 2 points.
When you put all this together, our planning assumptions get us to mid-teens constant dollar net revenue growth in the second quarter on a run rate basis, i.e. adjusted for Russia.
With an almost five point Russia impact and a two point exchange rate headwind, reported nominal dollar Q2 net revenue growth would be in the high single digits.
Client incentives were below our 26.5 to 27.5% range.
of gross revenues in the first quarter.
Second quarter client incentives are expected to run higher at the upper end of the range, finishing the first half in the middle of the range.
As we indicated in October , operating expenses growth rates will moderate through the year as we reduce the rate of increase as well as lap higher levels from last year.
In the second quarter, non-GAAP operating expense growth in nominal dollars is expected to be two to three points lower than the first quarter expense growth.
Our third quarter non-GAAP operating expense growth rate is expected to decline an additional two to three points with a further two to three point reduction in the fourth quarter.
non-GAAP results exclude certain acquisition-related items and the litigation provision from the third quarter last year.
We currently expect non-GAAP , non-operating expense to be in the $40-50 million range in the second quarter driven largely by higher interest income from our cash balances.
Our tax rate is expected to be at the upper end of the 19 to 19.5% range for the rest of the year. With a non-GAAP 16.5% rate in the first quarter, the full year non-GAAP tax rate is now expected to range between 18.5 to 19%.
As we said last quarter, should there be a recession or a geopolitical shock that impacts our business, slowing revenue growth below our planning assumptions in the second half, we will of course adjust our spending plans by re-prioritizing investments, scaling back or delaying programs.
and pulling back as appropriate in personnel expenses, marketing spend, travel and other controllable categories.
In a business like ours, this always requires a careful balance between short and long-term considerations.
We have contingency plans in place and will activate them should we need to.
Our business has been resilient so far this year. Our first quarter performance has demonstrated strong consumer payments growth from cash digitization and client wins. New flows and value-added services momentum remains very strong.
There is still much uncertainty from an economic standpoint in the months ahead. We will remain vigilant and ready to act.
As we look past fiscal year 23, we remain as optimistic as we have ever been about the long term growth potential of our business.
Before I finish, this is a sad day for me personally.
It's Al, last week as CEO .
Al has been the best CEO I've worked for and I've worked for many in my career. Al is a wonderful human being, an exceptional leader with extraordinary business judgment.
It has been an eventful six years.
Despite a three-year global pandemic, revenues have almost doubled.
non-GAAP EPS is up over 2.5 times and our stock price has tripled during Al's tenure. I will miss you as CEO Al along with 26,500 or so others with Visa.
With that, I'll turn this back to Jennifer.
Thanks, Basant. And with that, we're ready to take questions, Jordan.
If you would like to ask a question, please press star 1 and clearly record your name. You will be announced prior to asking your question. To ensure all questioners are heard, we ask that you please limit yourself to one question. Once again, to ask a question, press star 1. To withdraw your question, press star 2.
Our first question comes from Sanjay Sakrani with KBW. Your line is open. Thanks and congratulations to Al and Ryan as well. Vasan, as we think about your baseline plan forecasts, how are you factoring in the economy? Are we assuming resilient consumer, stable economy?
some mild downturn? Well, we went through what we called our planning assumptions on the last call for the full year, and we told you we had assumed no recession. As you can see, business trends have been remarkably stable.
You know, spend levels just around the world, they've indexed in the mid-140s for almost four quarters right now, and there's no evidence of a change in trend. That's reflected in our second quarter outlook. At this point, we're not changing any expectations for the second half. I mean, clearly the dollar has weakened a bit, so that'll change, you know, the exchange rate impact in the second half, but we're not changing.
any of your views in the second half. I mean, they are planning assumptions. And if there is a slowdown, then we will react accordingly.
Next question, Jordan.
Our next question comes from Darren Peller with Wolf Research. Your line is open.
Hey guys, so it's nice to see that it seems like from the trends you're seeing in Q1 and what you're guiding for Q2, it's an element of conservatism based on the trends.
So far relative to what we could see in a second half, which I think is what the street probably wanted But when we just think about the underlying trends for a moment, I mean some of the strengths were saying like debit being up Still high single digits constant currency in the US on really tough cops combined with other services, maybe you could just touch on what's the driving forces of both of those metrics because
looking at 2019 has kept us honest so to speak. It's a good view of what's going on. And in total spend it's remarkable stability. What's happening is as good spending slowed down a bit, services spending really took up all the slack.
And so consumers have just shifted their spending, but they're spending the same amount. And that's why debit has stayed resilient.
Debit has been the biggest beneficiary of the move to digitization that happened globally and including in the US, more e-commerce, more tap to pay, more people using digital credentials, just about on any payment occasion. So some people were worried that when…
things settle down that debit might start to see some slowdown, but as you've seen, debit has stayed resilient even as credit has recovered, which has kept our overall payment volumes very stable.
Those would be the big trends. And the other question. And other revenue was helped by mostly marketing services and consulting revenue. A fair amount of that linked to the FIFA World Cup. There was a lot of client related marketing and spending related to the World Cup. Clients asked us to activate a variety of programs.
that certainly helped other revenues.
Our next question comes from Will Nance with Goldman Sachs. Your line is open. Hey guys, thanks for taking the question. I wanted to kind of double click on some of the comments you made around China. It sounds like you guys are, you know, looking towards that region as being a fairly big driver of, you know, continued recovery and cross-border travel. I think we heard this morning from...
magnitude of impact of China once it's fully reopened relative to kind of what we saw in the most recent quarter. Thanks. Well a couple things first our numbers are you know fairly close to those of our competitor. We are as the Saab said
We really think that first we're going to see the travel being outbound from China to Southeast Asia. I think it's going to be still a bit of time before we're going to see the Chinese traveler back in Europe and at the level of pre-pandemic or back in the United States at the level of pre-pandemic. And I think people are going to wait and see what's happening.
with COVID within China. So, Vassan talked about the fact that we're not counting on any kind of recovery back inbound into China into the second half of the year. But my personal expectation is that we'll see probably a spread of three to five quarters before.
starting in the second half before China gets back to a level of pre-pandemic or 2019. So it is, for us, we have built our plan around...
pretty much what the Saad said in his remarks and what I just said. And if China comes back faster than we're saying, then obviously that will help us. If it comes back slower, it'll have that as the opposite impact. Yeah, I mean in terms of thinking about the impact, you know, you all,
were not and are still not. US inbound is approaching 2019 levels and was held back by the strong dollar. But Asia is still, and I went through the numbers, quite a bit below 2019 levels. Most of Asia is open, only China isn't. So if Asia is going to get back to pre-COVID levels and back to the original trend line.
That's where the China impact is going to be visible. And then you expect and we expect, you know, cross-border travel index to keep improving through the year. For that to happen, we obviously need China to come back. So it is important.
Next question, Jordan. Our next question comes from Lisa Ellis with FVD Moffett-Nathanson. Your line is open.
Hey, good afternoon. Thanks for taking my question. I had a question about the evolution of Visa Direct. You highlighted...
the plus 39% year-on-year growth ex-Russia in the quarter. You know, over the last few years, you've been talking a lot with Tap to Pay and Contactless about there being sort of this inflection point dynamic, where you reach a certain level of critical mass and then growth really accelerates. Is a similar dynamic true for Visa Direct and
Can you give us a sense for sort of how we should think about that evolve over the next couple of years? Well, I think Lisa, you're absolutely right. We're focused in Visa Direct at this point on extending into new geographies, new use cases, and more cross border. I would say those are our focuses.
You know, initially out of the shoot, these direct go in a country goes through phase one, which tends to be P2P before you then get into things like gig economy, payouts and transactions like remittances or insurance payments, those kinds of things.
So in the United States, and every country is going to go through this kind of evolution, where they'll start with P2P, get into King's Eye gig economy payouts, and then get into more sophisticated remittances and then more sophisticated use cases. And the United States is much further along that continuum.
In other countries, we have made some good progress kind of in that first phase or two, but haven't gotten into more sophisticated use cases. And then in other geographies, frankly, we're still not there. So I think there's a tremendous amount of gas left in the tank.
in Visa Direct when I look at the opportunities to take use cases to more sophisticated levels and more markets to open up more markets and to put a real focus on cross border Visa Direct transactions which will have better yields to them as well.
I think your bottom line theory of your question is, you know, has some, you know, real legitimacy to it. Although I would say that it will be probably a bit longer elevation, a bit longer period of time before you meet your maturity simply because of the...
different amount of use cases, whereas pay to tap to pay is really kind of a single type of initiative.
Next question, Jordan. Our next question comes from Dave Konig with Baird. Your line is open. Yeah, hey guys. Thanks and good job. I guess my question, rest of world debit is the one place where I guess numbers were a little weaker than we had thought. Negative two percent constant currency
Is that just a function of portfolio deconversions, Russia, some of the one-off things, and when does that kind of influx back into positive territory?
But they gave when you look at it, ex China and ex Russia, it grew over 10%. And then yes, you know, the UK migrations in particular, are happening at a faster pace than we thought in as the side said in his remarks, they're almost fully migrated. So certainly that is having
a dragging impact on the growth as well. Next question, Jordan.
Our next question comes from Ramsey Ellisall with Barclays. Your line is open. Hi, thank you for taking my question tonight. Al, could you give us your latest thoughts on sort of balance sheet deployment M&A strategy, what you might be looking for, whether this environment is yielding more potential opportunities or deals, or is it time maybe to
to not pursue additional deals as the macro environment remains volatile? You know, nothing has changed in our strategy. We're focused first and foremost on organic growth and then growing through M&A and then from there, dividend and share buybacks in that.
Clearly, there's been a little bit of a burst of the balloon in terms of some of the valuations in particular in the fintech world. That is a helpful characteristic of the environment right now.
I think we will continue to look for capabilities and management teams that would bring more value to Visa than we could bring to ourselves organically. And we're in constant evaluation of
of options. We have a very good corporate development team. This is something that Ryan and Vassar in particular spent a good deal of time on. And when we see something that we think will make us better as a company and has a fair value attached to it, we're not afraid to go after it.
good corporate development team to something that Ryan and Vassar in particular spent a good deal of time on. And when we see something that we think will make us better as a company and has a fair value attached to it, we're not afraid to go after it. Next question, Jordan.
Our next question comes from James Fawcett with Morgan Stanley . Your line is open. Thank you very much and thanks for all the work and effort out over time. And I wanted to address a kind of a bigger picture question for you and maybe for Ryan is that one of the questions we get a lot from investors is.
how do we think about kind of the challenges as we eventually reach some level of maturation of card penetration, especially in the U.S. and developed markets, and especially given some of the preferences we've seen in other countries for them to develop domestic schemes or at least favor domestic schemes.
So just wondering if you can provide a little bit of a reflection on what we've seen thus far and maybe Ryan some ideas on how we should think about maturation and expansion issues going forward.
It all started and it certainly...
Ryan can to add. First, I would say that I believe there deeply that there is tremendous opportunity in the card traditional card world, both in the consumer space as well as the B2B space. There are still many there are still hundreds and hundreds of millions of people to bring you to the financial
mainstream, there are still trillions of dollars spent on cash and checks. And when you look in the B2B space, you know, we see a total addressable market of about $120 billion across carded opportunities, cross border and payables and receivables.
where I talked a bunch about a number of examples that we have worked on over the course of the last quarter. You know RTP systems are helping to digitize money movement that's a good thing. If you look at the disruption caused by monetization in India it ended up being
extraordinarily positive in terms of what it's done in terms of growth in card credentials as well as acceptance which by the way I also should have said in the traditional world is still a tremendous opportunity and to grow our acceptance footprint from the level that it's at today.
You know, these RTP systems are also helping us and we're leaning into them. They're helping us extend the reach of Visa Direct as we utilize them as part of our network of network strategies. They're helping us with open banking through PINK, where we can facilitate greater access to
more developers on one end and more financial institutions. On the other end, I think RTPs represent an opportunity for us to sell value-added services. And I still think the advantages and the capabilities associated with
The carded space are still far superior to account to account the consumer protections and et cetera. And if you look at PICS in Brazil, you look at UPI in India, these things developed and were put in the marketplace. And it has come out in relationship to restorative Braunid France.
We're seeing a fair amount of, and hearing a lot from clients in terms of fraud associated with these networks. And in many ways that makes sense. They haven't spent the decades and hundreds of millions of dollars that Visa has to build security, fraud capability, risk management capabilities that help keep the ecosystem.
secure and trusted by consumers. And I think we have the opportunity over time in the A to A space to bring some of those capabilities and earn some good revenue and yield from them. So Ryan, what would you add or delete? Not a lot to add to that, Al. It's great. And I mean, you know, James, just in short, you'll still see a ton of runway.
maybe even 18 months or so, how that kind of sets Visa up as we think about the next, I would say the next two years, not really much beyond that. But the question really here is, is it tilting to take advantage more of debit trends, credit trends, global hospitality? And I'm kind of asking because MasterCard kind of called it out this morning as their positioning and travel and it sounds like you were also
kind of hinting at some positioning for your business. So I would just be interested to know what that new business pipeline that you brought in suggests over the course of the next two years for your company. Thank you.
Well, I'll tell you a couple of things, Dan. Number one, on the travel front, it's been a focus for us for a long time. And I think we have about 650 co-brands around the world. Many of them are travel co-brands. And I think we're the leading co-brand player on the planet.
I think that when I look around the world, there's certainly opportunities with traditional issuers. We've made a lot of inroads in markets like Brazil and Chile, the Netherlands, Germany.
Japan over the past year. We've had some great renewals in the United States over the last couple of years from JPMorgan Chase to Wells to the ones I talked about today in terms of Bank of America, Cap One, Commerce Bank.
But we've also made great inroads with Fintechs and neobanks. We have had a great track record of wins in the last 24 to 36 months. And a lot of these people are getting to scale in their particular markets. And I think for us we have to have a wider lens in terms of...
who can provide services, we're trying to make sure we get Visa cards in as many wallets as we can around the world. And then I'm going to come back to acceptance. You know, one of the great ways to continue to grow our business is to grow our acceptance footprint, which still requires a lot of growth around the world.
you know, one of the places we've concentrated on that in the last year and a half is Latin America. And if you look at the ratio of spending in Latin America that went from moved from cash to PV in the last couple of years, you know, back in full year 2020.
Only 46% of Latin America's volume was PV with 54% being cash. This past quarter we just finished 59% of their PV, 69% of their volume was purchased by. So there was a 13 point swing in the Latin America region in the last..
not even quite three years. And that's a combination of winning with traditional FIs, winning with fintechs, having a localized market by market approach with a lot of really good progress in countries in Latin America like Brazil and Chile.
three years and that's a combination of winning with traditional FIs, winning with Fintechs, having a localized market by market approach with a lot of good, really good progress in countries in Latin America like Brazil and Chile. Next question, Gordon.
Our next question comes from Arshitha Warwett with Bernstein. Your line is open.
Thank you. El, best wishes to you and we'll miss hearing from you on this call. Ryan, congratulations. Can you talk about how this growth strategy and organization will evolve under your leadership? Are you planning to focus more or less on certain things or do some things differently? And very quickly, can you comment on the details from your fiscal quarter to 1-2?
you talked about some of the dynamics, but how is that relative to your initial expectations? Thank you. Harshita, I don't think we got the second half of your question because maybe we can knock that off.
And then Ryan could talk. I think you were asking about deceleration.
between the first and the second. Yeah, I mean, it's just a couple of things. You know, the Russia impact is a little larger in the second quarter because we had almost two quarters of the service fees last year. Remember, we recognized service fees were the lag. So the service fees recognized in the first quarter were based on results from the first quarter.
Q4 growth rates. So sequentially Q1 was a little lower, so Q2 service fees will be impacted by that. Also currency volatility is moderating as we speak. It has been moderating for a few weeks. And incentive growth is a little higher as you saw. So we put it all together.
We were a little better than we expected. As you know, we thought we would be high single digits in the first quarter. We were higher for the reasons I mentioned. We'll be high single digits in the second quarter. That's our expectation right now. Ryan? Yeah, the first part of your question, I've been a president now for close to 10 years.
So I've been shoulder to shoulder with Al and Vasant and the rest of our team as we've made all of our key decisions, as we've developed our strategy, as we've executed our strategy. So, you know, it probably won't or shouldn't surprise you. I, you know, I'm going to continue to focus on the three growth pillars that we've laid out, consumer payments.
new payment flows and value-added services. And my priorities are gonna be focused on doing everything that we can to accelerate our progress and accelerate our momentum. So how do we go to market? How do we work with clients? How do we ship product faster? How do we sell solutions more effectively to our clients? And to part of your question, how do we organize? So,
Earlier this month, I announced a new organizational structure that really reflects our strategy that we talk with all of you about all the time. And we believe it's going to help us accelerate our progress in all three of those growth factors. To give you a quick sketch of that, Oliver Jenkin, a long-time Visa veteran who many of you know, is going to...
lead a new global markets organization that includes driving our consumer payments growth in all of our markets around the world. So our five regional presidents will report to Oliver.
Chris Newkirk, who formerly led our strategy organization, is going to lead our New Flows business unit reporting directly to me. Antony Cahill, who is our former deputy CEO of Europe , is going to lead our value-added services business unit reporting directly to me.
Our global markets team, our value added services business unit, our new flows business unit all will report directly to me. And then just to round that out a little bit, Jack Forestell, who also many of you know, will become our chief product and strategy officer.
and we'll partner closely with our president of technology, Rajat Tenasia, and the two of them are focused on delivering a robust product and innovation roadmap, shipping world-class products and services that help our clients grow their businesses and deepen their relationships with their customers. So that gives you a sense of where we are with strategy and the organization. Next question, Jordan. Great. Thank you.
Our next question comes from Ken Sahosky with Autonomous Research. Your line is open. Hi, good evening everyone. Thanks for taking the question and congrats to Alan Ryan. I think you mentioned earlier that you're keeping the second half guidance unchanged. Can you just remind us what that guidance was from either a volume or net revenue standpoint just because...
would be.
you know, somewhere in the mid teens on a constant dollar basis adjusted for Russia. And then when you adjust for Russia and you adjust for a full year impact at that time of about two points on FX, it was going to be high single digits in nominal dollars. And so you know sort of where we are in Q1 and Q2.
And exchange rates have moved around some, so you can do some of the math. We're basically not changing any views on the second half right now, because trends have been still fairly stable. The only thing you might want to change is what the exchange rate impact in the second half might be based on where it's at right now. I also gave you fairly clear.
Operating expense expectations, you know, we were at about 15% growth in the first quarter. We said growth will be two to three points lower in nominal dollar terms in the second quarter, another two to three points lower in the third quarter, and another two to three points lower in the fourth quarter.
And that reflects what we had said last quarter, that is expense growth will moderate through the year, both as we moderate the rate of increase, but also as we lap higher levels of expenses from last year. So those pretty much are the sort of the broad outlines of what we said last quarter. And then, you know, we'll update you once again on our next call with any changes we might have based on trends.
Last question, Jordan. Our final question comes from Tin Jing Wong with JP Morgan. Your line is open.
Hey, thanks so much and congrats to Al and Ryan. I'm excited for both of you. On the renewal front and new deal front, I'll ask on that if you don't mind, any call outs on pricing, contract requirements, that kind of thing. I know you named a bunch of big names on the renewal front. MasterCard talked about the citizens when they're just curious what's happening in the whole balance of trade area. Thanks.
Well, it's a competitive world out there, as you well know. I think that
you know, there's a price that you need to get to and then a lot of it has to do with a combination of incumbency or not, your, the capabilities you have, what your lineup of customers, clients are in that market, what kind of experience you have, what kind of experience you have.
you've had, what kind of innovative ideas you bring to the table, the other kinds of capabilities that we have in terms of services and new flows. Yeah, you know every deal is different and potentially hinges on different things depending upon the needs of the company.
like to thank you for joining us today. If you have additional questions, please feel free to reach out to the Investor Relations team. Thanks again and have a great day.
If you have additional questions, please feel free to reach out to the investor relations team. Thanks again and have a great day.
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