This management's discussion and analysis provides a review of the results ofoperations, financial condition and the liquidity and capital resources of VisaInc. and its subsidiaries ("Visa," "we," "us," "our" or the "Company") on ahistorical basis and outlines the factors that have affected recent earnings, aswell as those factors that may affect future earnings. The following discussionand analysis should be read in conjunction with our unaudited consolidatedfinancial statements and related notes included in Item 1-Financial Statementsof this report.Forward-Looking StatementsThis Quarterly Report on Form 10-Q contains forward-looking statements withinthe meaning of the U.S. Private Securities Litigation Reform Act of 1995 thatrelate to, among other things, the impact on our future financial position,results of operations and cash flows as a result of the ongoing effects of thecoronavirus ("COVID-19") pandemic, the measures taken in response, as well asthe speed and strength of an economic recovery, including the reopening ofborders and resumption of international travel; prospects, developments,strategies and growth of our business; anticipated expansion of our products incertain countries; industry developments; anticipated timing and benefits of ouracquisitions; expectations regarding litigation matters, investigations andproceedings; timing and amount of stock repurchases; sufficiency of sources ofliquidity and funding; effectiveness of our risk management programs; andexpectations regarding the impact of recent accounting pronouncements on ourconsolidated financial statements. Forward-looking statements generally areidentified by words such as "anticipates," "believes," "estimates," "expects,""intends," "may," "projects," "could," "should," "will," "continue" and othersimilar expressions. All statements other than statements of historical factcould be forward-looking statements, which speak only as of the date they aremade, are not guarantees of future performance and are subject to certain risks,uncertainties and other factors, many of which are beyond our control and aredifficult to predict. We describe risks and uncertainties that could causeactual results to differ materially from those expressed in, or implied by, anyof these forward-looking statements in our SEC filings, including our AnnualReport on Form 10-K, for the year ended September 30, 2021 and our subsequentreports on Forms 10-Q and 8-K. Except as required by law, we do not intend toupdate or revise any forward-looking statements as a result of new information,future events or otherwise.23--------------------------------------------------------------------------------Table of ContentsOverviewVisa is a global payments technology company that facilitates global commerceand money movement across more than 200 countries and territories among a globalnetwork of consumers, merchants, financial institutions and government entitiesthrough innovative technologies. We provide transaction processing services(primarily authorization, clearing and settlement) to our financial institutionsand merchants through VisaNet, our advanced transaction processing network. Weoffer products and solutions that facilitate secure, reliable and efficientmoney movement for all participants in the ecosystem.Financial overview. A summary of our as-reported U.S. GAAP and non-GAAPoperating results is as follows:Three Months EndedDecember 31,%20212020 Change(1) (in millions, except percentages and per share data)Net revenues$7,059 $5,68724%Operating expenses$2,283 $1,84324%Net income$3,959 $3,12627%Diluted earnings per share $ 1.83 $ 1.4229%Non-GAAP operating expenses(2)$2,115 $1,82816%Non-GAAP net income(2)$3,901 $3,12525%Non-GAAP diluted earnings per share(2) $ 1.81 $ 1.4227%(1)Figures in the table may not recalculate exactly due to rounding. Percentagechanges are calculated based on unrounded numbers.(2)For a full reconciliation of our GAAP to non-GAAP financial results, seetables in Non-GAAP financial results below.Coronavirus. As the effects of the evolving coronavirus ("COVID-19") pandemiccontinue, much remains uncertain. Our priority remains the safety of ouremployees, clients and the communities in which we live and operate. We aretaking a phased approach to reopening our offices, with most of our employeescurrently working remotely. We continue to remain in close and regular contactwith our employees, clients, partners and governments globally to help themnavigate these challenging times.The ongoing effects of COVID-19 remain difficult to predict due to numerousuncertainties, including the transmissibility, severity, duration and resurgenceof the outbreak, new variants of the virus, the uptake and effectiveness ofhealth and safety measures or actions that are voluntarily adopted by the publicor required by governments or public health authorities, including vaccines andtreatments, the speed and strength of an economic recovery, including thereopening of borders and the resumption of international travel, and the impactto our employees and our operations, the business of our clients, suppliers andbusiness partners, and other factors identified in Part I, Item 1A "RiskFactors" in our Annual Report on Form 10-K for the year ended September 30 2021.We will continue to evaluate the nature and extent of the impact to ourbusiness.Highlights for the first quarter of fiscal 2022. For the three months endedDecember 31, 2021, net revenues were $7.1 billion, an increase of 24% over theprior-year comparable period, primarily due to the growth in nominal paymentsvolume, processed transactions and nominal cross-border volume, partially offsetby higher client incentives. During the three months ended December 31, 2021,exchange rate movements and our hedging program negatively impacted our netrevenues growth by approximately one percentage point.For the three months ended December 31, 2021, GAAP operating expenses were$2.3 billion, an increase of 24% over the prior-year comparable period,primarily driven by higher litigation provision, higher personnel expensesreflecting our strategy to invest in future growth and higher marketing expensesas we lapped planned reductions in spending in the prior year.For the three months ended December 31, 2021, non-GAAP operating expenses were$2.1 billion, an increase of 16% over the prior-year comparable period,primarily due to higher personnel expenses reflecting our strategy to invest infuture growth and higher marketing expenses as we lapped planned reductions inspending in the prior year.24--------------------------------------------------------------------------------Table of ContentsClosed acquisition. On December 20, 2021, we acquired The Currency Cloud GroupLimited ("Currencycloud"), a UK-based global platform that enables banks andfintechs to provide innovative foreign exchange solutions for cross-borderpayments, for a total purchase consideration of $893 million (which includes thefair value of our previously held equity interest in Currencycloud). See Note2-Acquisitions to our unaudited consolidated financial statements.Pending acquisition. On June 24, 2021, we entered into a definitive agreement toacquire Tink AB ("Tink") for €1.8 billion, inclusive of cash and retentionincentives. Tink is a European open banking platform that enables financialinstitutions, fintechs and merchants to build tailored financial managementtools, products and services for European consumers and businesses based ontheir financial data. This acquisition is subject to customary closingconditions, including regulatory reviews and approvals.Interchange multidistrict litigation. During the three months ended December 31,2021, we recorded an additional accrual of $145 million to address claimsassociated with the interchange multidistrict litigation. We also deposited $250million into the U.S. litigation escrow account. See Note 5-U.S. and EuropeRetrospective Responsibility Plans and Note 13-Legal Matters to our unauditedconsolidated financial statements.Common stock repurchases. In December 2021, our board of directors authorized anew $12.0 billion share repurchase program. Previously, in January 2021, ourboard of directors authorized an $8.0 billion share repurchase program. Duringthe three months ended December 31, 2021, we repurchased 19 million shares ofour class A common stock in the open market for $4.1 billion. As of December 31,2021, our repurchase programs had remaining authorized funds of $12.7 billion.See Note 9-Stockholders' Equity to our unaudited consolidated financialstatements.Non-GAAP financial results. We use non-GAAP financial measures of ourperformance which exclude certain items which we believe are not representativeof our continuing operations, as they may be non-recurring or have no cashimpact, and may distort our longer-term operating trends. We consider non-GAAPmeasures useful to investors because they provide greater transparency intomanagement's view and assessment of our ongoing operating performance.•Gains and losses on equity investments. Gains and losses on equity investmentsinclude periodic non-cash fair value adjustments and gains and losses upon saleof an investment. These long-term investments are strategic in nature and areprimarily private company investments. Gains and losses and the related taximpacts associated with these investments are tied to the performance of thecompanies that we invest in and therefore do not correlate to the underlyingperformance of our business.•Amortization of acquired intangible assets. Amortization of acquired intangibleassets consists of amortization of intangible assets such as developedtechnology, customer relationships and brands acquired in connection withbusiness combinations executed beginning in fiscal 2019. Amortization chargesfor our acquired intangible assets are non-cash and are significantly affectedby the timing, frequency and size of our acquisitions, rather than our coreoperations. As such, we have excluded this amount and the related tax impact tofacilitate an evaluation of our current operating performance and comparison toour past operating performance.•Acquisition-related costs. Acquisition-related costs consist primarily ofone-time transaction and integration costs associated with our businesscombinations. These costs include professional fees, technology integrationfees, restructuring activities and other direct costs related to the purchaseand integration of acquired entities. It also includes retention equity anddeferred equity compensation when they are agreed upon as part of the purchaseprice of the transaction but are required to be recognized as expensepost-combination. We have excluded these amounts and the related tax impacts asthe expenses are recognized for a limited duration and do not reflect theunderlying performance of our business.•Litigation provision. During the three months ended December 31, 2021, werecorded an additional accrual to address claims associated with the interchangemultidistrict litigation of $145 million, and related tax benefit of $32 milliondetermined by applying applicable tax rates. Under the U.S. retrospectiveresponsibility plan, we recover the monetary liabilities related to the U.S.covered litigation through a downward adjustment to the conversion rate of ourclass B common stock to shares of class A common stock. See Note 5-U.S. andEurope Retrospective Responsibility Plans and Note 13-Legal Matters to ourunaudited consolidated financial statements.25--------------------------------------------------------------------------------Table of ContentsNon-GAAP operating expenses, non-operating income (expense), income taxprovision, effective income tax rate, net income and diluted earnings pershare should not be relied upon as substitutes for, or considered in isolationfrom, measures calculated in accordance with U.S. GAAP. The following tablesreconcile our as-reported financial measures, calculated in accordance with U.S.GAAP, to our respective non-GAAP financial measures: Three Months Ended December 31, 2021
DilutedOperatingNon-operatingIncome Tax Effective IncomeNetEarnings PerExpenses Income (Expense)Provision Tax Rate(1)IncomeShare(1)(in millions, except percentages and per share data)As reported$2,283 $121 $93819.1% $ 3,959 $ 1.83(Gains) losses on equity investments,net- (231)(42)(189) (0.09)Amortization of acquired intangibleassets (13)-310-Acquisition-related costs(10)-2 8-Litigation provision (145)-321130.05Non-GAAP$2,115 $(110)$93319.3% $ 3,901 $ 1.81 Three
Months Ended December 31, 2020
DilutedOperatingNon-operatingIncome Tax Effective IncomeNetEarnings PerExpenses Income (Expense)Provision Tax Rate(1)IncomeShare(1)(in millions, except percentages and per share data)As reported$1,843 $(96)$62216.6% $ 3,126 $ 1.42(Gains) losses on equity investments,net-(16) (4) (12) (0.01)Amortization of acquired intangibleassets (12)-3 9-Acquisition-related costs (3)-1 2-Non-GAAP$1,828 $(112)$62216.6% $ 3,125 $ 1.42(1)Figures in the table may not recalculate exactly due to rounding. Effectiveincome tax rate, diluted earnings per share and their respective totals arecalculated based on unrounded numbers.Payments volume and processed transactions. Payments volume is the primarydriver for our service revenues, and the number of processed transactions is theprimary driver for our data processing revenues.Payments volume represents the aggregate dollar amount of purchases made withcards and other form factors carrying the Visa, Visa Electron, V PAY andInterlink brands and excludes Europe co-badged volume. Nominal payments volumeis denominated in U.S. dollars and is calculated each quarter by applying anestablished U.S. dollar/local currency exchange rate for each local currency inwhich our volumes are reported. Processed transactions represent transactionsusing cards and other form factors carrying the Visa, Visa Electron, V PAY,Interlink and PLUS brands processed on Visa's networks.26--------------------------------------------------------------------------------Table of ContentsThe following table presents nominal payments and cash volume:U.S. International Visa Inc.Three Months Ended September 30,(1) Three Months Ended September 30,(1)
Three Months Ended September 30,(1)
20212020 % Change(2)20212020 % Change(2)20212020 % Change(2)(in billions, except percentages)
Nominal paymentsvolumeConsumer credit$480 $378 27% $651 $574 13% $1,131 $951 19%Consumer debit(3)640555 15% 690585 18%1,3301,140 17%Commercial(4) 205164 25% 11794 24% 322258 25%Total nominal paymentsvolume(2)$1,325 $ 1,097 21% $1,458 $ 1,253 16% $2,784 $ 2,349 18%Cash volume(5)1801659% 4964823% 6766475%Total nominalvolume(2),(6) $1,506 $ 1,262 19% $1,955 $ 1,734 13% $3,460 $ 2,996 15%The following table presents the change in nominal and constant payments andcash volume:International Visa Inc.Three Months Three MonthsEnded September 30,Ended September 30,2021 vs. 2020(1),(2)2021 vs. 2020(1),(2)NominalConstant(7) NominalConstant(7)Payments volume growthConsumer credit growth13% 11% 19% 17%Consumer debit growth(3)18% 14% 17% 15%Commercial growth(4) 24% 21% 25% 24%Total payments volume growth16% 13% 18% 17%Cash volume growth(5) 3%4%5%5%Total volume growth13% 11% 15%
14%
(1)Service revenues in a given quarter are assessed based on nominal paymentsvolume in the prior quarter. Therefore, service revenues reported for the threemonths ended December 31, 2021 and 2020, respectively, were based on nominalpayments volume reported by our financial institution clients for the threemonths ended September 30, 2021 and 2020, respectively. On occasion, previouslypresented volume information may be updated. Prior-period updates are notmaterial.(2)Figures in the table may not recalculate exactly due to rounding. Percentagechanges and totals are calculated based on unrounded numbers.(3)Includes consumer prepaid volume and Interlink volume.(4)Includes large, medium and small business credit and debit, as well ascommercial prepaid volume.(5)Cash volume generally consists of cash access transactions, balance accesstransactions, balance transfers and convenience checks.(6)Total nominal volume is the sum of total nominal payments volume and cashvolume. Total nominal volume is provided by our financial institution clients,subject to review by Visa.(7)Growth on a constant-dollar basis excludes the impact of foreign currencyfluctuations against the U.S. dollar.The following table presents the number of processed transactions:Three Months EndedDecember 31,% 20212020Change(1) (in millions, except percentages)Visa processed transactions 47,55839,21321%
(1)Figures in the table may not recalculate exactly due to rounding. Percentagechange is calculated based on unrounded numbers. On occasion, previouslypresented information may be updated. Prior period updates are not material.
27--------------------------------------------------------------------------------Table of ContentsResults of OperationsNet RevenuesThe following table presents our net revenues earned in the U.S. andinternationally:Three Months EndedDecember 31, %20212020Change(1) (in millions, except percentages)U.S.$3,178 $ 2,66719%International3,8813,02028%Net revenues $7,059 $ 5,68724%(1)Figures in the table may not recalculate exactly due to rounding. Percentagechanges are calculated based on unrounded numbers.Net revenues increased primarily due to the growth in nominal payments volume,processed transactions and nominal cross-border volume, partially offset byhigher client incentives.Our net revenues are impacted by the overall strengthening or weakening of theU.S. dollar as payments volume and related revenues denominated in localcurrencies are converted to U.S. dollars. During the three months endedDecember 31, 2021, exchange rate movements and our hedging program negativelyimpacted our net revenues growth by approximately one percentage point.The following table presents the components of our net revenues:Three Months EndedDecember 31,% 2021 2020 Change(1)(in millions, except percentages)Service revenues $3,193 $2,67719%Data processing revenues3,6143,03319%International transaction revenues 2,1741,45150%Other revenues449 38417%Client incentives(2,371)(1,858)28%Net revenues$7,059 $5,68724%(1)Figures in the table may not recalculate exactly due to rounding. Percentagechanges are calculated based on unrounded numbers.•Service revenues increased primarily due to 18% growth in nominal paymentsvolume.•Data processing revenues increased primarily due to overall growth in processedtransactions of 21%.•International transaction revenues increased primarily due to growth in nominalcross-border volumes, excluding transactions within Europe, of 49%.•Other revenues increased primarily due to higher consulting revenues and othervalue added services.•Client incentives increased primarily due to growth in payments volume. Theamount of client incentives we record in future periods will vary based onchanges in performance expectations, actual client performance, amendments toexisting contracts or execution of new contracts.28--------------------------------------------------------------------------------Table of ContentsOperating ExpensesThe following table presents the components of our total operating expenses:Three Months EndedDecember 31, %2021 2020 Change(1) (in millions, except percentages)Personnel$1,125 $98115%Marketing280 20536%Network and processing 190 173 9%Professional fees1008319%Depreciation and amortization198 197 1%General and administrative242 20319%Litigation provision1481NMTotal operating expenses$2,283 $1,84324%NM - Not meaningful(1)Figures in the table may not recalculate exactly due to rounding. Percentagechanges are calculated based on unrounded numbers.Total operating expenses increased primarily due to our planned reduction anddelay of our spend as revenue was impacted by the COVID-19 pandemic in the firsthalf of the prior year.•Personnel expenses increased primarily due to higher headcount andcompensation, reflecting our strategy to invest in future growth.•Marketing expenses increased as we lapped planned reductions in spending in theprior year as well as higher spending in various campaigns.•Network and processing expenses increased mainly due to higher continuedtechnology and processing network investments to support growth.•Professional fees increased primarily due to higher consulting fees as welapped planned reductions in spending in the prior year.•General and administrative expenses increased primarily as a result of higherusage of travel related card benefits and unfavorable foreign currencyfluctuations, partially offset by lower indirect taxes.•Litigation provision increased primarily due to an additional $145 millionaccrual related to the U.S. covered litigation. See Note 5-U.S. and EuropeRetrospective Responsibility Plans and Note 13-Legal Matters to our unauditedconsolidated financial statements.Non-operating Income (Expense)The following table presents the components of our non-operating income(expense):Three Months EndedDecember 31,%20212020 Change(1) (in millions, except percentages)Interest expense, net $(134)$(136) (1%)Investment income and other255 40 544
%
Total non-operating income (expense) $121 $ (96)(225
%)
(1)Figures in the table may not recalculate exactly due to rounding. Percentagechanges are calculated based on unrounded numbers.
29--------------------------------------------------------------------------------Table of Contents•Interest expense, net decreased primarily as a result of lower interest expensedue to lower outstanding debt and derivative instruments that lowered the costof borrowing, partially offset by an increase in interest expense related toincome tax liabilities.•Investment income and other increased primarily due to higher gains on ourequity investments.Effective Income Tax RateThe following table presents our effective income tax rates:Three Months EndedDecember 31,2021 2020Effective income tax rate19%17%The difference in the effective tax rates is primarily due to an $81 million taxbenefit recognized during the three months ended December 31, 2020 as a resultof the conclusion of audits by taxing authorities.Liquidity and Capital ResourcesCash Flow DataThe following table summarizes our cash flow activity for the periods presented:Three Months EndedDecember 31,2021 2020(in millions)Total cash provided by (used in):Operating activities$4,232 $ 3,513Investing activities(547) 639Financing activities (4,967) (5,572)
Effect of exchange rate changes on cash, cash equivalents, restrictedcash and restricted cash equivalents
(194) 304
Increase (decrease) in cash, cash equivalents, restricted cash andrestricted cash equivalents
$
(1,476)$(1,116)
Operating activities. Cash provided by operating activities for the three monthsended December 31, 2021 was higher than the prior-year comparable periodprimarily due to growth in our underlying business, partially offset by higherclient incentive payments.Investing activities. Cash was used in investing activities for the three monthsended December 31, 2021 as compared to cash provided by investing activitiesduring the prior-year comparable period, primarily due to higher cash paid foracquisitions and lower proceeds from sales and maturities, net of purchases ofinvestment securities. See Note 2-Acquisitions to our unaudited consolidatedfinancial statements.Financing activities. Cash used in financing activities for the three monthsended December 31, 2021 was lower than the prior-year comparable periodprimarily due to the absence of the principal debt payment made in the prioryear, partially offset by higher share repurchases and higher dividends paid.See Note 9-Stockholders' Equity to our unaudited consolidated financialstatements.30--------------------------------------------------------------------------------Table of ContentsSources of LiquidityOur primary sources of liquidity are cash on hand, cash flow from ouroperations, our investment portfolio and access to various equity and borrowingarrangements. Funds from operations are maintained in cash and cash equivalentsand short-term or long-term investment securities based upon our fundingrequirements, access to liquidity from these holdings and the returns that theseholdings provide. Based on our current cash flow budgets and forecasts of ourshort-term and long-term liquidity needs, we believe that our current andprojected sources of liquidity will be sufficient to meet our projectedliquidity needs for more than the next 12 months. We will continue to assess ourliquidity position and potential sources of supplemental liquidity in view ofour operating performance, current economic and capital market conditions andother relevant circumstances.Uses of LiquidityThere has been no significant change to our primary uses of liquidity sinceSeptember 30, 2021, except as discussed below.Common stock repurchases. In December 2021, our board of directors authorized anew $12.0 billion share repurchase program. During the three months endedDecember 31, 2021, we repurchased 19 million shares of our class A common stockin the open market for $4.1 billion. As of December 31, 2021, our repurchaseprograms had remaining authorized funds of $12.7 billion. See Note9-Stockholders' Equity to our unaudited consolidated financial statements.Dividends. During the three months ended December 31, 2021, we declared and paid$809 million in dividends to holders of our common and preferred stock. OnJanuary 25, 2022, our board of directors declared a cash dividend in the amountof $0.375 per share of class A common stock (determined in the case of class Band C common stock and series A, B and C convertible participating preferredstock on an as-converted basis), which will be paid on March 1, 2022, to allholders of record as of February 11, 2022. See Note 9-Stockholders' Equity toour unaudited consolidated financial statements. We expect to continue payingquarterly dividends in cash, subject to approval by the board of directors. Allpreferred and class B and C common stock will share ratably on an as-convertedbasis in such future dividends.Senior notes. Principal payments on our fixed-rate senior notes of $1.0 billionand $2.3 billion are due in September 2022 and December 2022, respectively, forwhich we have sufficient liquidity. See Note 7-Debt to our unauditedconsolidated financial statements.Litigation. During December 2021, we deposited $250 million into the U.S.litigation escrow account to address claims associated with the interchangemultidistrict litigation. See Note 5-U.S. and Europe RetrospectiveResponsibility Plans and Note 13-Legal Matters to our unaudited consolidatedfinancial statements.Closed acquisition. On December 20, 2021, we acquired Currencycloud for a totalpurchase consideration of $893 million (which includes the fair value of ourpreviously held equity interest in Currencycloud). See Note 2-Acquisitions toour unaudited consolidated financial statements.Pending acquisition. On June 24, 2021, we entered into a definitive agreement toacquire Tink for €1.8 billion, inclusive of cash and retention incentives. Thisacquisition is subject to customary closing conditions, including regulatoryreviews and approvals.Accounting Pronouncements Not Yet AdoptedIn March 2020, the Financial Accounting Standards Board ("FASB") issuedAccounting Standards Update ("ASU") 2020-04, which provides optional expedientsand exceptions for applying U.S. GAAP to contracts, hedging relationships andother transactions that reference the London Interbank Offered Rate or anotherreference rate expected to be discontinued because of reference rate reform.Subsequently, the FASB also issued an amendment to this standard. The amendmentsin the ASU are effective upon issuance through December 31, 2022. We areevaluating the effect ASU 2020-04 and its subsequent amendment will have on ourconsolidated financial statements. The adoption is not expected to have amaterial impact on our consolidated financial statements.ITEM 3.Quantitative and Qualitative Disclosures about Market RiskThere have been no significant changes to our market risks since September 30,2021.
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