10-QPeriod: Q3 FY2016

VISA INC. Quarterly Report for Q3 Ended Jun 30, 2016

Filed July 25, 2016For Securities:V

Summary

Visa Inc. reported its quarterly results for the period ending June 30, 2016. The most significant event during this period was the acquisition of Visa Europe, which closed on June 21, 2016. This acquisition, funded by a combination of cash, preferred stock issuance, and deferred consideration, substantially altered the company's balance sheet and will impact future financial performance. While Visa Europe's financial results were not materially included in the current period's income statement due to the short overlap, the integration and associated costs, including a significant one-time loss from the settlement of the Visa Europe Framework Agreement, heavily influenced the reported operating expenses and net income. Operationally, the core business demonstrated growth, with increases in service and data processing revenues, driven by higher transaction volumes and payments volume. However, foreign currency fluctuations, particularly the strengthening U.S. dollar, had a negative impact on revenue growth. The company also continued its robust share repurchase program and dividend payments, signaling confidence in its ongoing financial strength despite the integration of a major acquisition and ongoing legal matters.

Financial Highlights

42 data points
Beta

Revenue

$3.63B

Net Income

$412.00M

11.3% Net Margin

Total Assets

$63.87B

Cash & Equivalents

$5.89B

Free Cash Flow

$303.00M

Financial Statements
Beta
Revenue$3.63B
Operating Expenses$3.20B
Operating Income$428.00M
Net Income$412.00M

Key Highlights

  • 1Acquisition of Visa Europe completed on June 21, 2016, for a total consideration of approximately $18.8 billion (accounting purchase consideration).
  • 2Total operating revenues increased by 3% to $3.63 billion for the three months ended June 30, 2016, compared to the prior year period.
  • 3Reported net income significantly decreased by 76% to $412 million due to a $1.9 billion loss from the Visa Europe Framework Agreement settlement and other acquisition-related costs.
  • 4Excluding one-time acquisition-related items, adjusted net income was $1.64 billion, a decrease of 10% from the prior year, and adjusted diluted EPS was $0.69, down 7%.
  • 5The company issued $16.0 billion in senior notes in December 2015 to help fund the Visa Europe acquisition.
  • 6Significant share repurchases continued, with $1.5 billion used to buy back shares in the current quarter, and an additional $5.0 billion repurchase program authorized in July 2016.
  • 7Outstanding litigation, particularly the Interchange Multidistrict Litigation (MDL) in the U.S., remains a significant factor, with a recent appeals court decision vacating a prior settlement certification.

Frequently Asked Questions

The substantial decrease in reported net income from $1.7 billion to $412 million was primarily due to a one-time loss of $1.9 billion recognized from the effective settlement of the Visa Europe Framework Agreement upon the consummation of the acquisition. Acquisition-related costs also contributed to this decline.

The acquisition of Visa Europe, completed on June 21, 2016, significantly impacted the balance sheet with the addition of Visa Europe's assets and liabilities. While Visa Europe's operational results were immaterial for the period and thus not included in the consolidated statements of operations, the transaction itself generated substantial acquisition-related costs and a significant framework agreement loss, which heavily influenced reported net income and operating expenses. The company also issued $16.0 billion in senior notes and preferred stock as part of the transaction's financing.

The U.S. Interchange Multidistrict Litigation (MDL) remains a significant legal matter. On June 30, 2016, the U.S. Court of Appeals for the Second Circuit vacated the lower court's certification of the merchant class and reversed the approval of the prior settlement, remanding the case for further proceedings. This creates uncertainty regarding the resolution of class plaintiffs' claims under the settlement agreement and could lead to additional lawsuits or require renegotiation of terms, potentially impacting Visa's financial condition and cash flows if existing retrospective responsibility plans are insufficient.

Foreign currency fluctuations, particularly the strengthening of the U.S. dollar against other currencies, had a negative impact on Visa's reported revenue growth, resulting in a three percentage point reduction. While the company utilizes hedging programs to mitigate some of this risk, the foreign exchange impact remains a factor in its financial results, especially for its international operations.